Briefing Document: CPA Practice Mergers and Acquisitions

Source: Excerpts from "CPA Practice Mergers and Acquisitions: A Strategic Guide" by Ragan and Associates

Date: October 26, 2023

Purpose: To summarize the key reasons why a CPA might consider buying another practice or merging with another firm, and conversely, the reasons for selling a practice.

Main Themes: The excerpt focuses on the strategic advantages and personal benefits associated with both the acquisition/merger and the sale of a CPA practice. It highlights financial, operational, and lifestyle considerations that drive these decisions.

Key Ideas and Facts:

• Reasons to Buy/Merge:
• Economy of Scale: Combining two firms in one office allows for shared expenses and increased efficiency. The guide states that buying can lead to "two firms in one office sharing expenses."
• Acquisition of Employees: Addressing the difficulty of finding qualified CPAs, acquiring a practice provides access to existing staff. The source states that it "works in the both in the short term and long term to have more staff available."
• Growth Strategy: M&A allows for a combination of cultures and the acquisition of new clients in different industries and with varied needs. It notes that the buyer is able to "combine cultures and land new clients in different industries and with different needs."
• Workload Reduction: Acquiring a practice can provide additional staff to alleviate the burden during peak seasons.
• Reasons to Sell:
• Reduced Workload & Lifestyle Improvement: Selling allows for a reduction in working hours and more time for personal pursuits.
• Asset Protection: Selling provides an opportunity to liquidate the value built up in the business, providing financial security. The guide says "you spent years building your business. God forbid something should happen at least the liquidated portion will bequeth to your family."
• Upfront Payout: Sellers receive a significant payment at closing, typically a percentage of annual revenues. The guide mentions the payout at closing is "Generally Anywhere from 40 to 70% depending on factors such as annual revenues, client niche, focus areas and overal business valuation."
• Continued Involvement (Optional): Sellers can continue working within the firm after the sale, maintaining income and client relationships. It notes "Nowadays you can sell the company, collect a nice sum at closing and keep working as long as you wish."
• Profit from Continued Growth: Sellers can benefit from the growth of the combined firm even after selling through bring new clients on board and get paid for billable hours. The guide states "Even after selling you can bring new clients on board and get paid for billable hours or negotiated contracts."

Important Considerations:

• Business Valuation: The valuation of a CPA practice plays a crucial role in determining the selling price and the terms of the agreement.
• Negotiation: The terms of the sale, including the payout percentage, continued involvement, and other contractual obligations, are subject to negotiation.
• Due Diligence: Both buyers and sellers should conduct thorough due diligence to assess the financial health and operational stability of the other party.