Over 36 years of selling accounting practices, this author has witnessed dramatic changes in the marketplace, the methodology, and the technological advances that have changed the way practices now transfer ownership. Below are the current top ten trends.
A Stronger Economy
The economic climate is more robust than any time since the Great Recession of 2008, and would-be buyers are more willing to take on risk. Buyers feel more confident about their ability to succeed and are doing less due diligence (as little as one day) before closing, indicative of a continued stronger market.
Greater Availability of Funding
With the availability of funds in the market and some of the lowest interest rates in several years, buyers are willing to pay more at closing. Outside lenders are offering conventional 5- and 10-year loans at some of the lowest rates in history; it is not unusual to see lenders offer up to 100% financing to buyers. As for the buyers, they are able to afford higher prices, pay more money up front, and require less seller financing, which also means sellers are assuming less risk. Lenders can approve a practice acquisition loan in as little as 72 hours.
Fewer Seller Guarantees and Retention Clauses
Buyers used to require retention clauses in their acquisition contracts to create a greater guarantee of their success after the purchase. The stronger economy has given would-be buyers greater confidence that they not only will succeed, but may continue the growth that the previous owner had experienced. Sellers, meanwhile, are less willing to guarantee that the buyer will succeed.
More Sellers Remaining after the Sale
Many sellers are finding that they are not ready to just retire and go away; they want to remain involved in the firm, just not full time, and without handling all the day-to-day stress of managing the practice. Instead, they prefer to work on a part-time or seasonal basis, sometimes indefinitely. By doing so, they are able to remain in contact with clients, thereby increasing client retention after the sale.
More Specialty Practices
More accountants are specializing rather than operating a traditional practice. Many are operating in niche businesses such as retirement and financial planning, management advisory services, litigation support services, or expatriate tax services. Specialty or niche practices will bring a higher sales price from the right buyer, who gains entry into new markets of opportunity.
Specialty or niche practices will bring a higher sales price from the right buyer, who gains entry into new markets of opportunity.
Virtual and Web-Based Practices
Many CPAs now operate a fully virtual, or web-based, practice. These owners are not limited by geography and represent clients across the world. Cloud-based software provides the ability to operate from anywhere with access to the Internet. Tax preparation and data entry accounting work is prepared offsite, many times in other areas of the world. Neither are clients limited by geographic boundaries; the market has broadened, making the practice a more attractive alternative for would-be buyers. Many firms in the northeastern United States have bought a practice in Florida to operate remotely.
Greater Technology Adding More Value
Many accounting practices now operate much more efficiently with fewer employees by utilizing more advanced tax, accounting, valuation, and time and billing software. The web is used for remote access, thus lowering operating costs, adding more to the bottom line, and creating a much more valuable practice that brings a stronger sales price. Pricing and valuations were once mostly based on a multiple of gross annual revenues, but many are now using a multiple of net earnings to determine pricing.
Privacy Law Affecting Transfer of Clients
New IRS regulations and AICPA guidance require CPA firms to give notice of a change in ownership and to request permission from the client before allowing a new owner access to client files.
More Virtual Closings
With the ability to obtain digital signatures through the web and electronically transfer funds, lenders are now conducting virtual closings. Traditional closings required the buyer and seller to show up at an attorney’s office, exchange checks, and manually sign documents; this sometimes took several hours and required all parties to be on the same schedule. Now documents can be executed in multiple locations at times convenient for each party, and funds can be transferred in a manner of minutes.
Many New Accounting Practice Brokers
Many years ago, there were virtually no accounting practice brokers. Today, they are located in almost every major U.S. market. Many of these brokers are unregulated, and buyers and sellers should use great scrutiny when considering hiring one to assist in the sale or purchase of a practice, including conducting a face-to-face meeting.
This author has noticed several relatively new websites and blogs purporting to be authorities on the sale and merger of accounting practices; many have minimal experience and knowledge. Information on social media is notoriously unreliable, and likewise one should beware of information elsewhere on the Internet, unless it has been verified from multiple sources.