Six Important Considerations When Buying an Accounting Practice

October 7, 2015

When considering buying  an accounting practice it is important to consider factors that may influence the of a successful acquisition.  These 6  mistakes are the pitfalls in practices you are considering buying.  Avoiding  these mistakes will help make a superior purchasing position.

1 – A unequal Purchase Contract
Typically the purchase contract is prepared by the broker or Solicitor representing the  accounting firm for sale.  The contract agreement may not be equally beneficial.  It is important to ensure the terms of the deal are commercial and representative of the transaction and hand..  Read the agreement or get advice to ensure the contract terms and conditions protect your interests. A commercial vendor will be reasonable about the terms of sale and ensure that there is a level of fairness and equality to the deal reflective of the purchase price.

2 – Forward cash flow projections
A mistake can be made to expect the same cash flow to just switch hands after a purchase.  During ownership transition, provision for the impact of some small level a loss of clientele, but the variable is the degree of loss.  Also it may take some time for the transition of income. It is important to have a well structured forward projections even before selecting a firm to purchase.  An effective strategy to counter revenue loss is to add other financial related services, such as Financial planning and finance broking.

3 – Minimising Business change
After the purchase of an Accounting practice the vendor may either carefully handover and transition the clients or walk out. If the seller takes the money and runs, maintaining the status quo and continuing the process of business is a great idea, for at least the first year. When the seller slowly moves out of the practice during an earn out provision of the contract, it is a good time to make changes here and there. This allows the seller to be part of the transition and can give valuable advice to what they may have tried in the past with their clientele.

4 – Adequate Working Capital
Buyers can get very excited and emotional when finding accounting practice sales. This emotion can lead to thinking only of purchasing the firm and no further. This blindness makes it difficult to remember to allow for unforseen operating expenses during the transition. Without working capital to keep the practice running smooth, already customers weary of change are likely to be tempted to consider a change of firm.

5 – Cost base control
Most aquastions are based tilization is work percentage.  Utilization of 75% means three quarters of the time is spent with a customer, phone call, etc. and the other quarter is idle time.  For a business to satisfy customers, utilization should not consistently be over 100%.  This mean people should not be kept waiting for a very long period of time.  Conversely, to efficiently use your time, it should be at least 75%. Realization is actually receiving money, not just agreeing to a deal.  The reason this is important is obvious, but make sure to find the ratio of dollars sold versus dollars collected.
6.- Staff overload

If the purchase has been a parcel of clients or a sole practice where the Accounting is moving out of the business then

Ensuring your properly consideration of all the impacts an acquisition may have on your business will ensure a reduce risk and purchase a quality business that produces a lifetime of income until you want to retire and sell it again.

About the author:

Matthew Taylor is a Licensed Business Broker and Economist and Founder of Accounting Practice Sales.

He has worked at Macquarie Bank and National Australia Bank and been the Commercial Banker to a number of top Accounting firms. He has consulted with over 100 Accounting and Financial Planning Practices in area regarding borrowing, acquisition or sale of practices. His is well represented in the Industry for his knowledge on a range of Accounting practice matters

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