Accounting firms come up for sale steadily as owners retire. Searchfunder carries regular threads from buyers looking at them, from CPAs adding a second firm to searchers with no accounting background. The buyers who have done several deals tend to give the same advice. The numbers are rarely the problem. Retention is.
Why accounting firms attract buyers
A practice has features most small businesses lack. Clients come back every year. Many pay monthly. The work is regulated, which creates some protection from new entrants. And the seller usually knows the numbers.
Those features have drawn more buyers in, including private equity backed platforms buying smaller firms than they once would. More competition means fuller prices, which leaves less room for diligence mistakes.
Revenue that follows the partner
Start with revenue by client and by the partner who manages each relationship. In many small practices, the selling partner holds most of the important relationships personally.
Those clients are buying the partner's judgement. Some will stay with the firm after a sale. Some will follow the partner into retirement, to a competitor, or to whoever they are introduced to next. Ask for revenue by client for three years, and mark which partner each relationship sits with. That is the revenue at risk.
Look at the tail too. A practice with a few hundred small clients behaves differently from one with twenty large ones, in how much each departure costs and in how much effort it takes to serve the rest.
Staff capacity and retention
The people who do the work are often harder to replace than the partner. Experienced accountants are scarce, and a change of ownership is a natural moment to leave.
Look at tenure, compensation against the local market, and how much overtime the team carried last busy season. A team that only coped by working every weekend in March will not cope with a new owner learning the business at the same time.
Plan capacity before closing. If the team is already stretched, you need extra delivery capacity in place for the first busy season, whether that is hiring, a delivery partner or both.
The numbers to test
Realization. Compare the fees actually collected to the standard rates for the hours recorded. Low realization means work is being discounted or written off, and it often explains why a busy practice is less profitable than it looks.
Work in progress and unbilled time. Practices that bill at the end of an engagement carry a lot of unbilled time. Agree how it is valued at closing and who collects it.
The seasonal cash cycle. Tax practices earn much of their year in a few months. Model cash month by month, not as an annual average, so you know how deep the low point is.
Software and subscriptions. Tax and practice-management software is a real cost and often renews annually. Check what transfers and what has to be re-licensed.
Ownership rules for attest work
If the firm performs audits, reviews or other attest work, state accountancy rules limit who can own it, usually requiring a majority of owners to hold a CPA licence. A buyer without a licence may need a different structure, a licensed partner, or to buy only the non-attest part of the practice. Take advice from an attorney familiar with your state's board rules before the letter of intent.
What buying a practice will not fix
It will not give you capacity you do not have. Buying more clients into a firm that is already at its limit makes the first busy season harder, not easier.
It will not move clients up to advisory work on its own either. Most acquired client lists are compliance-heavy. Turning them into advisory clients takes people with time to do it, which is usually the scarcest thing in a newly combined firm.
Frequently asked questions
What should I look for when buying an accounting firm?
Revenue by client and by managing partner, staff tenure and capacity, realization against standard rates, the value of work in progress, and the month-by-month cash cycle across tax season. Retention of clients and staff decides most outcomes.
Can someone who is not a CPA buy an accounting firm?
Often yes for bookkeeping, tax preparation and advisory work. For firms that perform attest work such as audits and reviews, state rules usually require a majority of owners to hold a CPA licence, so a non-CPA buyer may need a licensed partner or a different structure.
How do accounting firm acquisitions usually lose value?
Most often through clients who follow the selling partner rather than staying with the firm, and through staff who leave during the first busy season under new ownership.
How do I handle the first tax season after buying a practice?
Plan delivery capacity before closing, because the team will be absorbing a change of ownership while working at its busiest. Firms often add temporary or partner capacity so the existing team is not stretched past what it can carry.
Where CFOLogic fits
We work with accounting firms as a delivery partner, not a competitor for their clients. For a buyer, that means two things. During diligence we help test realization, work in progress and the cash cycle. After closing we add delivery capacity under the firm's brand, so the team gets through the first busy season and existing clients keep being served on time. How that works is on our accounting firms page.