Purchasing CPA firm

When purchasing CPA firm, how much do you usually put down?
30% down payment and then the remainder over 4 years from gross receipts?
Clawback provision?

Did anyone have to take out a loan for the down payment? If so, how many years for repayment? Interest %?

Any discussion appreciated.

When purchasing CPA firm, how much do you usually put down?
30% down payment and then the remainder over 4 years from gross receipts?
Clawback provision?

Did anyone have to take out a loan for the down payment? If so, how many years for repayment? Interest %?

Any discussion appreciated.

I have seen a few deals, between 10 and 30 down, remainder over 3 years. Nominal interest rate.

No claw back per se BUT if you do the tax return for a client, you bought them. If they leave, that's on you.

If it's a good practice, you can get an SBA loan. Live Oak bank for example lends a lot of money for business purchases.

I've seen the price based upon gross receipts, and you can negotiate an adjustment based upon client retention. So if the "walk away by the current owner" value is 100% of gross receipts, perhaps you pay 110% gross receipts of clients who remain over the four year payment period, 107% if clients stay for 3 years, 105% if client stays for 2 years. The other thing that happens is a negotiation with the current owner to stay engaged so that clients believe that he/she is still involved and don't leave while they get used to you. But this requires paying current owner for services rendered. I had worked in the practice that I purchased for 7 years, so loss of clients was not a concern. Price was 100% gross.

Thank you for the incredibly helpful advice!

Same advice as southparkcpa. I had the sellers do a seller's note. I was responsible for paying only if they became a client in year one. I think it was 30% down, the remainder over 5 years. I paid 110% of gross receipts. I did another one where I paid 35% for three years on actual collections. I did it this way because her clients were relatively new to her so they might not take her advice to go with me. That was a good move as the retention rate was not great. On the other deals, the retention rate was excellent.

smtcpa- Thank you! I couldn’t understand how to get the retention to work, not paying unless they actually become clients in year one works.

I’m buying a virtual CPA firm, it’s been a process.

I have never purchased an existing CPA firm but I purchased 2 Tax Prep business and in both cases I had a contingency for client retention. I learned from the first transaction that many clients stay with a firm because of the "relationship" with the owner etc. So when a new person takes over it may not be replicated and because we all have different business models, they may end up leaving. My first purchase the owner was very laid back and allowed the clients to decide when they want to pay invoices. On some almost year or more went by before any payment was made and there were never any collection efforts.

What got be really concerned was one woman telling me, that I have to WAIT until she is able to pay. Now this is a business woman and when I flipped the question to her, her response was that she is a retail business and I am a service business??