Considerations When Buying an Accounting Practice
Purchasing any business requires an appropriate level of due diligence, but the purchase of an accounting practice comes with a set of considerations that must be taken into account if the practice is going to find success.
Some of the most important things a prospective buyer should look at is how the practice currently conduct business, the tools that they use, and who the current client base is. Within a professional services environment, an uninterrupted continuity of service is important to ensure that existing clients know that their account will continue to be managed to the highest level of service, regardless of who is operating the business.
There are several considerations that must be made before purchasing a practice:
The premises that a practice occupies is integral in establishing the perception that continuity of service will be maintained. Ensure that the practice you are looking to purchase is well-established and has been in its current location for at least a year. It provides comfort for clients that the business is stable, a view that is reinforced if you continue to occupy the space for at least another year. The first communicated message to your clients should be that it will be ‘business as usual’ for the practice.
It is important that you do understand what your obligations are with the current premises. There is no benefit to purchasing a practice only to find that a lessor agreement may restrict future business growth.
CLIENTS & REVENUE
A key objective when purchasing an accounting practice is to ensure that revenue remains steady following the purchase. A top priority should be ensuring retention and stability of the client base once the acquisition has been finalised. Stringent client retention clauses of 1-2 years are often insisted upon by those buying accounting firms, keeping as much of the value of the firm intact as possible.
It is important to establish how frequently the current practice meets with their clients. If they are meeting just once a year, that may give you just the one opportunity to meet with the client and keep their business. If client meetings are held monthly or quarterly, it will provide you greater opportunity to ease them through the transition.
The longevity of the practice is a crucial consideration, so it will be worthwhile noting exactly how old the clients are. It sounds like an unfair reason to dismiss buying a practice, but if the top fee-paying clients are aged 55+ and no succession planning appears to be in place, there is a strong likelihood that the fee-base of the practice will disappear within years as clients retire and sell their own businesses.
It is important to understand what sort of role those selling the practice wish to take in the handover period and whether that aligns with how you wish to handle it. The seller may be highly invested and want to offer advice and information on individual clients and their needs, so it will be up to you to establish how involved you would like them to be once you take over the business.
Technology drives efficiencies through automation and improves profits. Is the practice you are considering buying using appropriate and current hardware/software? A practice that is reliant on paper documents, or is using out-dated platforms will not only be less efficient, but will also cost you more as you invest in the technology. There are also the costs of storing and/or digitising paper documents produced in day to day operations.
If you are purchasing a practice to expand your own existing practice, you should consider whether the software and hardware is compatible with your existing technology. Can the systems be integrated and, if so, how much will this cost?
Exactly what sort of service are you looking to offer through a new practice?
The industry is currently experiencing an evolution, with clients seeking key service offerings over and above compliance. Clients today have access to fast and inexpensive information through the Internet, so demand more from accounting practices. The clients want assistance on issues like:
- Managing cash flow
- Asset protection
- Improving profit
- Growing revenue and wealth
- Tax minimisation.
In light of automation changes through the industry, you may find that the fees don’t match your aspirations for the business. It’s important to be clear about what you believe the practice you are acquiring can offer.