At the local level, there are three types of accounting practices. There are CPAs, or Certified Public Accountants, there are EAs, an acronym for Enrolled Agent, and there are people with accounting expertise but no certification who handle outsourced accounting and bookkeeping for local businesses.
CPAs are registered with and certified by the state in which they practice. EAs are certified by the U.S. Treasury Department and can practice their craft anywhere in the country. EAs can prepare tax returns, represent clients during audits, intercede on collection issues and negotiate payment plans.
Buying or selling an accounting practice should probably start with the nature of the practice. Will your skill and certification level match up with the seller or buyer? That is a critical question, as the value of a practice is really the clients that come with it. It is important that the buyer be able to service all of them.
Brokers are available to handle the sale of an accounting practice of any type; selling an accounting firm through a broker is fairly common. The advantage is that the broker will be in touch with potential buyers or sellers due to his visibility and advertising. The business owner need not be tied up with the initial discussion phase of the potential sale. And, brokers may be in a position to sell an accounting business to another firm seeking a property to expand their business.
The basic financial information that opens discussion is a set of financial statements for the last five years of operation. These documents should include profit, loss statements and balance sheets. In the interest of streamlining the process, it might be a good idea for the seller to have a third party prepare his financial statement, even though that’s his business. It puts the credibility issue to rest. Offering to show the business’s tax returns is a worthwhile gesture – or personal tax returns, if the business is a sole proprietorship.
Valuation of similar accounting businesses that have sold in the area is a starting point for putting a price tag on the business that is on the market. The important figure here is selling price, not asking price. There is a significant disparity in the small business market. A buyer may look at the last five year’s performance and estimate what the next five years will bring. He can compare that estimate to what investments in other opportunities might bring, and incorporate some sort of risk factor.
If you are the seller, avoid making profit projections. Local accounting businesses often succeed on the basis of personal relationships, which the new owner will have to establish on his own. It is in the interest of both parties to seek legal review of the sales agreement. There are far more variables in a business sale than in a real estate sale.
The average sales price for an accounting business seems to hover around the figure for a year’s gross sales. Review of a listing of accounting firms for sale show the annual gross against the asking price. Presumably, the gross is an average of the previous five years’ performance. Asking prices tend to range ten to twenty percent above the gross, so the selling price must presumably be at or slightly below the annual gross. For a comprehensive look at accounting firms currently for sale, their gross figures and their asking prices, visit http://www.accountingpracticesales.com/index.cfm.
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Tags: accounting, business, small business
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