buyng a practice

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#1
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Hi there,

I am a tax CPA located in California. I started my own practice about two years ago, and I currently have around 75 clients. I found it challenging to grow organically, despite having a quick website with a blog and Google reviews. I also experimented with Google ads and remain active within my community. I tried BNI but disliked the whole up-selling aspect.

What I've learned is that the best source of new clients is referrals. However, I feel like my growth has been too slow, and I've finally made the decision to buy a client list, preferably a small and local one. My hope is that acquiring new clients will generate more referrals in the future, eliminating the need to purchase another practice. I've been exploring broker websites and noticed that they typically ask for 1.3 or 1.4 times the gross receipts. Additionally, I would need to finance most of the acquisition. It seems like a big chunk of money will be spent on interest and broker fees and I may not even retain all clients.

Currently, I am searching for a client list in the range of $100,000 in gross receipts, and I have around $35,000 available for a down payment. I am looking for any tips you can provide, especially regarding what to pay attention to when making a purchase and how to negotiate the price. I won't have a broker or a lawyer to help me out. I have been advised to offer 1.2 times the gross receipts, put down 25% as a down payment, and arrange a seller note for the remaining amount, which could be paid off within 3-4 years. I am also wondering what I can ask for a potential client retention rate adjustment. I've heard that the standard adjustment is 15%.

Any insight you can provide would be greatly appreciated!
 

#2
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First of all, I wish you the very best of luck in finding a suitable target and congratulations on going out on your own. It's a great time to be growing an accounting practice.
On the referral front, have you reached out to other local firms to get on their referral list? That has been a great source for me over the last year or so.

darena67 wrote:I won't have a broker or a lawyer to help me out.


This seems terribly penny-wise and pound foolish. At the very minimum, you MUST get an attorney to review any contract you enter into with a seller. Additionally, use this transaction to vet a good attorney to whom you can refer clients when the need arises (it will!).

Every market is different, but buyers in my market have all the leverage. I would start with cold-calling older tax preparers to identify someone to purchase instead of going through a broker. A broker will take 10%, which translates into a meaningful amount of the price. Spend that money on your attorney. Targets should be available. Just keep asking around your network of attorneys and other tax professionals.
~Captcook
 

#3
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CaptCook wrote:First of all, I wish you the very best of luck in finding a suitable target and congratulations on going out on your own. It's a great time to be growing an accounting practice.
On the referral front, have you reached out to other local firms to get on their referral list? That has been a great source for me over the last year or so.

darena67 wrote:I won't have a broker or a lawyer to help me out.


This seems terribly penny-wise and pound foolish. At the very minimum, you MUST get an attorney to review any contract you enter into with a seller. Additionally, use this transaction to vet a good attorney to whom you can refer clients when the need arises (it will!).

Every market is different, but buyers in my market have all the leverage. I would start with cold-calling older tax preparers to identify someone to purchase instead of going through a broker. A broker will take 10%, which translates into a meaningful amount of the price. Spend that money on your attorney. Targets should be available. Just keep asking around your network of attorneys and other tax professionals.


Thank you for your recommendation! I will find a way to old CPAs in my area. I didn't think of it.
The reason why I said that I won't have a broker or an attorney is because I dont know where to get one. And that's what scares and confuses me. Sellers have their brokers and I go into the deal completely unrepresented and inexperienced. I will search for an attorney who can look over the contract. Thank you!
 

#4
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If you expect to service business clients, having the experience of an attorney as your advocate will be a very valuable one. Ask the attorney a ton of questions to understand their process. If you're concerned about appearing unsophisticated, remember you are the client here and not the professional. Any attorney that doesn't want to answer your questions, is probably not the one you want to work with.

Good luck and let us know how it goes (or is going)!
~Captcook
 

#5
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CaptCook wrote:If you expect to service business clients, having the experience of an attorney as your advocate will be a very valuable one. Ask the attorney a ton of questions to understand their process. If you're concerned about appearing unsophisticated, remember you are the client here and not the professional. Any attorney that doesn't want to answer your questions, is probably not the one you want to work with.

Good luck and let us know how it goes (or is going)!


Thank you. Will do ;)
 

#6
JAD  
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I have several thoughts:

1. I purchased part of the practice I had been with for the previous 7 years - so the clients and I knew each other. At that time, 1 x gross was standard. This was 20 years ago. I know that's long ago, but the multiple seems high. I get mail from brokers promoting practices for sale, and I seem to remember that the multiples are still at 1 x gross.

2. And the multiple also seems high based upon what I'm seeing in my area. You don't say where in CA you are. I am in Northern CA. I don't know any small business CPA who is taking on new clients. Not one. With the stress in our industry during Covid, the complicated laws that Congress past on a dime to get money out to people via the IRS (therefore, impacting our work), the retroactive law changes by the states, etc, everyone I know is either retiring or downsizing. I am part of the latter group. Less money, less stress. Cathy has a thread where she said she was retiring and asked if anyone wanted 30 clients (if I recall correctly). In another forum, there was a post where CPA said she was downsizing and needed to offload 50 clients. I don't think either was even trying to sell the book of business. In the other forum, someone commented that the current situation was good for the up-and-coming preparers, not so much for the older crowd who might want to sell a business.

A close friend who also works in the area said that during tax season, her office manager fields at least 6 cold calls a day from people looking for a new CPA due to retirements. She turns them away.

3. You need a representative of some sort. Circling back - I knew the group I was buying, and they knew me. Client retention was very high. Yours will likely be less so. Someone who is familiar with the issues would know to negotiate based upon client retention. If you bear all the risk, the price should be less than if you pay over 5 years (for example) with the price adjusted for clients who leave.

Lots to think about. If you have time (i.e., not too much financial stress), you might explore relationships with older practitioners to see if they are potential referral sources.
 

#7
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Everything JAD said I agree with. I'll add something that may sound difficult BUT based on what JAD said, and the fact that you only have 75 clients in 2 years, and being honest with yourself, are you ready for this? Could you handle the 100K in work? A 100K work in my practice is much different than 100K work of doing 1040's at $500 a pop.

If you spent $5,000 on advertising, made a few presentations at financial planning firms, you would be inundated with hew work.

If what JAD explained is not happening, have you asked yourself honestly why?

I sold my practice and retained about 100 clients that I do financial planning and tax work and joined a big firm.

There are about 20 advisors. They ALL complain there are no good accountants taking on clients.

If a CPA walked in, did a 45 minute presentation, he/she would be loaded with work in less than a month.
 

#8
MWEA  
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As others have said already, I think you’ll have more work than you can handle if you call other firms. Be a resource they can forward on to prospects who they aren’t taking on or clients they are cutting. When tax clients are so easy to come by right now, I would be very hesitant to take out a loan to buy a tax only list. Plus you can train the new ones on your process from the start.
 

#9
smtcpa  
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I agree with contracting with other firms. Heck, send ME your background as I might need help. I've bought 4-5 books of business in the past and it can be a pain and the ROI on organic growth is higher. In this market, I don't know why anyone buys a book of business.

My growth has been largely from my website, probably by a 10:1 margin. I would invest in some good SEO. It seems like clients are not finding your website or it doesn't speak to your prospect base. And contact other firms, including me ;)
 

#10
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The things that helped me reach capacity very quickly, some of this has been covered.
Connect with the firms in your area - most CPA firms are already at capacity and not accepting new clients, so if those people that call one of these firms get your number, it's a win-win for both sides because you get referrals that you otherwise would not have gotten, and they get a number to hand out so people are leaving empty handed.
I had connected with a couple preparers that were slowing down and wanted to shed clients, but had no one to refer them to, and some firms that were not accepting new clients so the office managers that answer the phone were VERY happy to hear I was accepting new clients. I had to turn off those pipe-lines after my first full year on my own.

If you can find aging CPAs that want to downsize and sell PART of a book of business, that would likely be your best bet.
1x is still industry standard, but any firm that entertained a practice continuation agreement with me was looking at 80% and strictly paid based on retention. 1.2-1.4x would be unheard of in my area, especially because it's taking current owners that are trying to exit about 3-5 years to find a buyer.

I was on the search for a book of 80-100k as I felt that was the base I needed to supplement my expected first year revenue with to have a solid foundation, but it's very hard to find a CPA with a book that is only that large. If you do find it, make sure you do your due diligence.
The only one I found was a former boomer partner that left with a small book in exchange for reduced payout on exit. he grew that book from about 50 up to about 90k, but would not entertain anything that was based on retention and was just not pleasant to put it bluntly. I asked him if he reached out to his former firm as that would have been the most likely connection and he said no, but the managing partner of that firm told me "yea he contact me, I'm not paying that guy another cent". Any of his clients that needed CFP/financial advisor work was already plugged into the former firm, so there was a very high probability that a good chunk of the clients would have migrated to the former firm and I would have lost them.


It's hard to grow organically from only 75 clients, but you need your current base to know that you are still accepting new clients, which might help to spread the word. Offering a referral coupon in with your tax organizers you mail in January might help. (I did not do this as it felt too HR Block-ish to me, but I did provide some discounts to clients that referred some decent work to me.)
 

#11
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ReckedCPAEA wrote:The things that helped me reach capacity very quickly, some of this has been covered.
Connect with the firms in your area - most CPA firms are already at capacity and not accepting new clients, so if those people that call one of these firms get your number, it's a win-win for both sides because you get referrals that you otherwise would not have gotten, and they get a number to hand out so people are leaving empty handed.
I had connected with a couple preparers that were slowing down and wanted to shed clients, but had no one to refer them to, and some firms that were not accepting new clients so the office managers that answer the phone were VERY happy to hear I was accepting new clients. I had to turn off those pipe-lines after my first full year on my own.

If you can find aging CPAs that want to downsize and sell PART of a book of business, that would likely be your best bet.
1x is still industry standard, but any firm that entertained a practice continuation agreement with me was looking at 80% and strictly paid based on retention. 1.2-1.4x would be unheard of in my area, especially because it's taking current owners that are trying to exit about 3-5 years to find a buyer.

I was on the search for a book of 80-100k as I felt that was the base I needed to supplement my expected first year revenue with to have a solid foundation, but it's very hard to find a CPA with a book that is only that large. If you do find it, make sure you do your due diligence.
The only one I found was a former boomer partner that left with a small book in exchange for reduced payout on exit. he grew that book from about 50 up to about 90k, but would not entertain anything that was based on retention and was just not pleasant to put it bluntly. I asked him if he reached out to his former firm as that would have been the most likely connection and he said no, but the managing partner of that firm told me "yea he contact me, I'm not paying that guy another cent". Any of his clients that needed CFP/financial advisor work was already plugged into the former firm, so there was a very high probability that a good chunk of the clients would have migrated to the former firm and I would have lost them.


It's hard to grow organically from only 75 clients, but you need your current base to know that you are still accepting new clients, which might help to spread the word. Offering a referral coupon in with your tax organizers you mail in January might help. (I did not do this as it felt too HR Block-ish to me, but I did provide some discounts to clients that referred some decent work to me.)


Thank you for your suggestions. I've been shy about asking for referrals from my current clients. My clients have already spread the word, and the second-year clientele was generated by referrals. This is how I figured out that buying a good start-up practice will generate organic growth. However, no one sells 80K of clients in my area. You can't survive off this amount of money in California. I've been seeing spin-offs, but I was hesitant because why would someone get rid of ideal clients?

I am not really sure how to track down older CPAs. They don't advertise their business on Google or Yelp. There is no database I am aware of that would lead me to them. But, to be honest, I didn't consider this path. I will track them down.
 

#12
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MWEA wrote:As others have said already, I think you’ll have more work than you can handle if you call other firms. Be a resource they can forward on to prospects who they aren’t taking on or clients they are cutting. When tax clients are so easy to come by right now, I would be very hesitant to take out a loan to buy a tax only list. Plus you can train the new ones on your process from the start.

Thank you
 

#13
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southparkcpa wrote:Everything JAD said I agree with. I'll add something that may sound difficult BUT based on what JAD said, and the fact that you only have 75 clients in 2 years, and being honest with yourself, are you ready for this? Could you handle the 100K in work? A 100K work in my practice is much different than 100K work of doing 1040's at $500 a pop.

If you spent $5,000 on advertising, made a few presentations at financial planning firms, you would be inundated with hew work.

If what JAD explained is not happening, have you asked yourself honestly why?

I sold my practice and retained about 100 clients that I do financial planning and tax work and joined a big firm.

There are about 20 advisors. They ALL complain there are no good accountants taking on clients.

If a CPA walked in, did a 45 minute presentation, he/she would be loaded with work in less than a month.


You sold your practice. But how did you get it? by growing organically?
 

#14
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southparkcpa wrote:Everything JAD said I agree with. I'll add something that may sound difficult BUT based on what JAD said, and the fact that you only have 75 clients in 2 years, and being honest with yourself, are you ready for this? Could you handle the 100K in work? A 100K work in my practice is much different than 100K work of doing 1040's at $500 a pop.

If you spent $5,000 on advertising, made a few presentations at financial planning firms, you would be inundated with hew work.

If what JAD explained is not happening, have you asked yourself honestly why?

I sold my practice and retained about 100 clients that I do financial planning and tax work and joined a big firm.

There are about 20 advisors. They ALL complain there are no good accountants taking on clients.

If a CPA walked in, did a 45 minute presentation, he/she would be loaded with work in less than a month.


JAD also said that he bought his first practice. I was raising a small child the first year and only during the second year got focused on growing my practice. 100K of gross receipts is very manageable in my area. The idea to track down older CPAs didn't occur to me until now. Thanks for your input!
 

#15
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smtcpa wrote:I agree with contracting with other firms. Heck, send ME your background as I might need help. I've bought 4-5 books of business in the past and it can be a pain and the ROI on organic growth is higher. In this market, I don't know why anyone buys a book of business.

My growth has been largely from my website, probably by a 10:1 margin. I would invest in some good SEO. It seems like clients are not finding your website or it doesn't speak to your prospect base. And contact other firms, including me ;)


PMed you ;)
 

#16
sjrcpa  
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To get to know older CPAs - are you a member of your state CPA society, which may have local chapters? Attend live CPE sessions where there may be some in attendance. EDIT: They may also have a "bulletin board" with people looking to retire or where you could post what you're looking to acquire.

darena67 wrote:why would someone get rid of ideal clients?

We get rid of some clients every year. We continually raise our minimum fee. Clients below that, even if otherwise great, get cut. Sometimes we shed clients in certain industries. They are not "ideal" for us, but may be for someone else. Of course, we also get rid of some bad clients.
 

#17
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darena67 wrote:
southparkcpa wrote:Everything JAD said I agree with. I'll add something that may sound difficult BUT based on what JAD said, and the fact that you only have 75 clients in 2 years, and being honest with yourself, are you ready for this? Could you handle the 100K in work? A 100K work in my practice is much different than 100K work of doing 1040's at $500 a pop.

If you spent $5,000 on advertising, made a few presentations at financial planning firms, you would be inundated with hew work.

If what JAD explained is not happening, have you asked yourself honestly why?

I sold my practice and retained about 100 clients that I do financial planning and tax work and joined a big firm.

There are about 20 advisors. They ALL complain there are no good accountants taking on clients.

If a CPA walked in, did a 45 minute presentation, he/she would be loaded with work in less than a month.


You sold your practice. But how did you get it? by growing organically?


I was in the right market with the right skill set. I went from zero to $200K in 2 years from 1998 to 2000. Typical client is a $1 million to $5 million sales S corp. Do good work, efficiently, the word gets around.
 

#18
CP Hay  
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I think it's a little disingenuous to believe that anyone can just throw up a nice website and have enough client revenue to replace their F/T job within a year or two. We are dealing with people's sensitive information and as such they need to get to know you, like you and trust you. That takes time organically which is why some people opt to buy a practice.
 

#19
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I've been shy about asking for referrals from my current clients.


In my opinion, start or keep asking them.

Whether you buy clients or not, you will certainly gain free ones just by asking.

I'm not saying to bother your friends at cocktail parties, nor am I recommending that you do not buy clients, but asking your current clients for referrals consistently is an absolute must for organic practice growth.

If you were friendly, polite, and relevant (you did their taxes and provided the services they needed), then your clients will automatically like you. Because of this, many will make it their mission to refer family and friends.

All you have to do is ask.

And they will do it because they like you, by the way, it is not any more effective to offer them money or anything in return.


Dear Mr Smith,

I am very grateful to have you as a new client and I enjoyed working with you this year. I just wanted to let you know that I am in the process growing my tax practice. If you know anyone that needs a tax possessional, it would help me out if you provided them with my contact information.

Thank you for your trust in me and your continued business,

Darena67.


Or something in your own words, of course. But just like that.

PS: I did not buy clients, but I did some Google pay per click and yelp advertising. In my forth year, I had 500 clients. I was not a pushy salesman or person in general, but I asked all of my clients for referrals. It works!

PPS: Don't be too cheap with your fees to get more clients. You will get more clients, but your gross revenue will actually go down (as will your quality of life). You are worth as much as anyone else and if you build it, they will come.
 

#20
smtcpa  
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This is a great idea and it worked for me when I moved from IL to CO in 2015. I mailed and emailed all the tax practices in that area and had quite a few interested parties. Two of the CPAs were looking to downsize and eventually retire and I bought a portion of their practices. It worked out extremely well.

I forgot where I got the list, but they exist and you can buy them. Or just google and create your own list. It's a lot of work so try looking for the list you can buy.

ReckedCPAEA wrote:If you can find aging CPAs that want to downsize and sell PART of a book of business, that would likely be your best bet.
1x is still industry standard, but any firm that entertained a practice continuation agreement with me was looking at 80% and strictly paid based on retention. 1.2-1.4x would be unheard of in my area, especially because it's taking current owners that are trying to exit about 3-5 years to find a buyer.

 

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