Possible Risks to Consider Before Buying an Accounting Firm

by TechFunnel Contributors - December 30, 2019
TechFunnel Contributors

TechFunnel Contributors | TechFunnel.com is an ambitious publication dedicated to the evolving landscape of marketing and technology in business and in life. We are dedicated to sharing unbiased information, research, and expert commentary that helps executives and professionals stay on top of the rapidly evolving marketplace, leverage technology for productivity, and ad...

Buying an accounting practice makes sense as it technically grants an accounting entrepreneur ready access to the company’s resources, cutting down on the time necessary to build a CPA firm from the ground up. However, hold on to your money until you have completed a thorough, potential risk assessment first.

Loss of Clients

The most well-known risk is that of losing clients. So, here are two questions to keep in mind before making any investments in an accounting firm.

  • Will the selling party by keeping their clients?
  • If not, will at least some of the clients be willing to give your leadership a chance?

Always check financial records to see who were the top clients in the last fiscal year before buying the business. If you are losing most of the biggest revenue generators, the purchase would be moot by default.

Employee Management Risks

It’s only natural for CPAs and other various employees of the accounting firm you just bought to be scared for their jobs, however, that only makes them more vigilant, rather than potential risks.

The actual risk may only be posted by a few key employees because if they are experienced enough, with a long list of clients they have managed for years, they may decide to leave the firm, along with their clients.

To mitigate such a risk, a nonsolicitation agreement will have to be part of the acquisition. On signing this agreement, employees are then forbidden from stealing clients from the company and going out on their own. If the key employee/employees do not sign it, the exchange is going to be a poor investment. On the other hand, if they do sign it, they are likely going to become some of your firm’s biggest assets later on.

How Can You Minimize Risks?

There are various ways to minimize acquisition risks and we have already discussed some of the more specific ones previously. Nevertheless, to minimize both risks and the time necessary for risk assessments, a bit of matchmaking from acquisition consultants can be quite helpful.

For example, if the acquiring business is looking for an accounting practice for sale in Ontario, they will need to work with an advisory group that knows the local CPA firms well enough to match mutual interests. When you find a firm that has the kind of clients you want, the client retention rate after the exchange will likely be much higher. Besides, if the consulting group is reputed, they won’t list subpar companies in their directory.

Any investment has potential risks and accounting firms are not an exception to that rule either, but with the help of some intelligent inquisition, solid background search and professional matchmaking, those risks can almost be eliminated. However, do not take the client list provided to you by the seller for granted. Talk to the contacts and build your own rapport before the acquisition.

TechFunnel Contributors

TechFunnel Contributors | TechFunnel.com is an ambitious publication dedicated to the evolving landscape of marketing and technology in business and in life. We are dedicate...

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