- How long has the accounting practice been in business?
- What is the current client base and retention rate?
- What services are being provided and are there opportunities to expand the service offerings?
- What is the revenue and profit margin of the accounting firm?
- What is the current workload and staffing structure?
- What marketing and business development strategy is in place?
- Are there any legal or regulatory issues that the accountancy practice is currently facing?
- How are the financial records maintained, and can they be made available for review?
- What is the owner's timeline for the transition of ownership?
- What is the owner's motivation for selling the accounting practice, and are there any other potential buyers?
These questions can help you assess the financial health, operational practices and overall viability of the accounting practice. It is important to review any contracts or agreements associated with the accounting practice, such as office lease agreements, client letters of engagement and employment contracts, to ensure that there are no hidden liabilities or issues that may impact the success of the acquisition.
How much should I pay for an accounting firm?
The value of an accounting firm can vary depending on a variety of factors, such as the size of the firm, the location, the client base, and the quality of the services being offered. In general, the price for an accounting firm can range from 0.7 to 1.4 times the firm's gross recurring fees but it can be higher in some cases.
It's important to note that the price for an accounting firm is not solely based on its revenue. Other factors, such as the firm's profitability, client retention rates, reputation, and market position, can also impact the total value.
To determine a fair price for an accounting firm, it's recommended to conduct thorough due diligence and work with experienced professionals. They can help you assess the value of the accounting firm, identify any potential risks or issues, and negotiate a fair price based on the firm's financial performance and other key factors.
In addition to the purchase price, there may be additional costs associated with acquiring an accounting firm, such as legal fees and other transaction costs. It's important to factor in these costs when determining the total cost of the acquisition.
What due diligence should I undertake before buying an accounting firm?
Due diligence is an essential process when it comes to buying an accounting firm. It involves a comprehensive review of the financial, legal, and operational aspects of the practice you are looking to buy.
Here are some key considerations for due diligence before buying an accounting firm:
Financial
This includes reviewing the financial statements and analysing the financial health of the accounting firm. You will want to review the firm's revenue and profit margins, client retention rates, and cash flow. It's also essential to review the firm's debt and liabilities, including any outstanding loans, tax obligations, or legal disputes. Be careful to consider what you are buying and whether the deal could be structured differently if you have any concerns.
Legal
Legal due diligence includes reviewing contracts, licenses, and any legal obligations or liabilities that the accounting firm may have. You will want to check if the firm has any legal disputes pending, and review the firm's compliance with relevant regulations and industry standards.
Operational
This involves reviewing the firm's processes and procedures, as well as the infrastructure and technology they use. You should assess the firm's workflow, staffing structure, and management practices. You may also want to review the firm's client base and assess the firm's reputation in the industry. A firm will not want its team members to know that a sale is in progress so meeting the employees may not be possible.
Technology
An assessment of the software which is currently deployed within the practice will be essential to understand whether or not you will need to begin learning how to use it or if you already have a firm and therefore software is in place, you will want to consider how much training for the new team there will need to be. This will help you gain an idea of how smooth the transition will be and costs or cost savings involved.
Client
It's essential to review the accounting firm's client base and assess the quality of the relationships they have with their clients. You may want to review client letters of engagement and client retention rates to assess the risk of losing clients after the acquisition.
When conducting your due diligence, you may discover some practices offer you greater opportunities by offering a more comprehensive service offering to clients.
Firms which are able to offer clients advanced tax planning and financial planning services will be able to service a broader range of clients. If your target is able to leverage strategic partnerships to enhance the client offering and deliver an expanded suite of services, this will make the practice more profitable and provide you with greater opportunities to generate revenue streams.
Staffing
The team involved in the accounting firm is an essential aspect to consider, as the staff will be responsible for the day-to-day operations of the business. You will want to assess the qualifications and experience of the staff, as well as any existing employment contracts and any compensation or benefit plans.
Culture
It's also crucial to assess the firm's culture and values, as this will impact the success of the acquisition. You may want to review the firm's company culture and management style to ensure it aligns with your values and goals.
Should I engage with a solicitor before buying an accountancy practice?
It is highly recommended that you engage with a solicitor before buying an accountancy practice. A solicitor can provide valuable legal advice and guidance throughout the entire acquisition process, helping you to navigate complex legal issues and avoid potential risks.
A solicitor can assist with reviewing contracts and agreements, conducting due diligence, negotiating terms, and drafting legal documents, such as the purchase agreement and employment contracts. They can also advise you on any regulatory or compliance issues related to the acquisition. You can decide how much you involve a solicitor to manage your costs carefully.
Working with a solicitor can help you to ensure that the acquisition is structured in a way that is legal, fair, and beneficial to all parties involved. They can also help you to identify any potential liabilities or risks associated with the acquisition and advise you on how to mitigate them.
Engaging with a solicitor is an important step in the acquisition process, and it can help to protect your interests and ensure that the acquisition is successful.
Overall, due diligence is an essential process before buying an accounting firm. It can help identify potential risks and issues, allowing you to make an informed decision about the acquisition.
Do you have any TaxAssist Accountants practices for sale?
We hope you’ve found this article useful to support your research into buying an accountancy business and if you hadn’t previously considered buying a franchise then we do have a range of opportunities available which can be accessed here. We also have an FAQ section and a guide to the franchise resale process to help with your research and due diligence.
Please note; This guidance has been prepared based on our experience and knowledge, no responsibility can be taken for any action taken or not taken as a result of reading this document. It does not provide detailed tax or legal advice and should not be seen to replace the need to seek separate advice in these areas.
