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4 Important Considerations If You Want to Sell Your CPA Firm

Jul 19, 2023

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For most owners, a CPA firm is not just a labor of love. It’s an investment. While it’s fun to dream about becoming an international accounting powerhouse, the reality is that success as an owner often means making it to the point where you can sell your CPA firm for a nice return on investment. Unless you’re lucky and your CPA firm is already getting courted by potential buyers, you’ll need to take a proactive approach to prep your CPA firm for sale. While Jody and I have our own personal experience with our merger with Anders CPAs + Advisors, Brannon Poe, Founder of Poe Group Advisors, was a guest on the Modern CPA Success Show and shared his experience and the four important things you should consider before you sell.

Is Your CPA Firm in an Ideal Situation?

Perfection is a lofty goal that most owners strive for, but none ever achieve. That’s perfectly alright. Your CPA firm will never be “perfect.” If it was, you probably wouldn’t need to sell it. In fact, you’d likely be the one shopping around to buy other firms. But there is such a thing as getting your CPA firm into an “ideal” situation that makes it a good buy, even if it’s not the model of perfection.

Your CPA firm will never be 'perfect,' but there IS such a thing as getting your CPA firm into an 'ideal' situation that makes it a good buy.

How closely is the following list true for your firm?

  • Your practice is not owner-centric
  • Your profitability is attractive
  • Your team and culture are strong
  • You have clear, efficient, and well-documented processes and systems in place

There’s no one strategy for how to sell a CPA firm. But in most cases, buyers are looking for as safe a buy as possible. That’s why getting your firm into an ideal buying situation is essential. Let’s dig a bit more into these list items to help you better self-assess whether your firm fits that ideal definition.

1. Your Practice Is Not Owner-Centric

How likely is it that your business can survive without you? By this, we don’t mean just your skills or competencies. We mean your entire persona and personality. Would clients close contracts if you stepped down? Would members of your team put in their two weeks' notice?

An owner-centric firm is one that can’t exist without the owner. You see it all the time. The owner is working day in and day out, creating bottlenecks for all major decisions within the firm. Work doesn’t start, proceed or end without the owner’s input. The owner is directly involved in every contract.

While your firm’s client list may be attractive, buyers want more than just your clients. If those clients leave when you leave, that buy isn’t worth the money.

2. Your Profitability Is Attractive

Can I sell my CPA firm if it’s unprofitable? Probably not. Unless your CPA firm has created some type of proprietary software, platform or service that has distinct but unrealized potential, no larger company in its right mind is going to put down money on a firm that’s losing money.

And when it comes to being profitable, not just any net profit will do to make your firm an attractive buy. If your firm is under $3 million in annual revenue, for example, a good target is 30-50% of topline revenue (typically as measured using income per partner, or IPP), depending on how partner centric the firm. If you, the owner, are heavily billable then 50% is your target. On the other hand, if you are completely out of delivery then 30% may be a better target. Over $3 million in revenue, this will likely come down and that’s acceptable, as the production of the owner goes down as the firm grows.

3. Team and Culture Are Strong

When larger organizations buy smaller CPA firms, they don’t just want access to client lists and profits. They want to access and bring on the teams that help make that success possible. A strong team culture is generally a good sign of a healthy company and one that won’t quit as soon as you sell your CPA firm.

When larger organizations buy smaller CPA firms, they don’t just want access to client lists and profits. They want to access and bring on the teams that help make that success possible.

Buyers want to see things like:

  • Longevity
  • Low turnover
  • Positivity
  • Good interpersonal relationships
  • High levels of engagement and productivity

As a firm owner, you don’t want to sell to just anyone. You want to make sure your team is taken care of and that there’s a good culture fit with the organization that’s buying your company. That’s typically the case with the company that’s looking to buy your CPA firm as well. There are notable risks on both sides if the cultures don’t mesh well.

4. Clear, Efficient and Well-Documented Processes

Firm buyers aren’t interested in chaos. When a company comes knocking at your door to buy your CPA firm, they want to be able to have your team hit the ground running with as few interruptions to client work as possible. That’s only going to be possible if you have existing processes that are clearly defined, efficiently executed and properly documented.

Quite often, one of the most attractive features of a CPA firm is the standardized processes it's built and maintained that make it successful. A larger firm may be looking to adopt those processes itself to improve its own operations.

Conversely, a messy internal operation that’s more organized chaos than anything else could lead to significant interruptions after a sale. That’s bad for business and bad for a buyer.

Are You Prepping Your Firm for Sale?

It’s exciting when you finally get to the point where your CPA firm is an attractive purchase. But sometimes, you need to take a step back and examine your firm more objectively to determine if you really are ready for that next step.

This checklist should help you get started, but there’s much more to consider outside of this. We recommend you check out our free CPE webinar, Prep Your Firm for Sale with Brannon Poe of Poe Group Advisors, for a deeper dive into this topic.

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About the Author

Adam Hale, CPA is a partner at Summit Virtual CFO by Anders.

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