Photo by Jakub Żerdzicki on Unsplash
At various times, a particular industry will become attractive to private equity and family offices, and as those entities enter the market, prices for businesses in that industry will inflate, even if those businesses are not really businesses so much as client lists. Some years ago, the hot item was storage units. One business that we’ve seen get a fair amount of attention recently is CPA firms.
What’s the Attraction?
Despite AI disrupting bookkeeping and accounting, many small businesses still work with a human accountant to file their taxes each year. Periodically, there are changes in legislation (the “Big Beautiful Bill” was a recent example) that underline the importance of a group of people who are necessary to the ordinary functioning of businesses and offer a skill set most business owners don’t have: the ability to competently file business taxes.
This skill set provides a consistent stream of revenue, one that, despite the growth of AI, doesn’t show signs of disappearing anytime soon.
What Are the Shortcomings?
We have been looking at CPA practices over the last 18 months on behalf of some buyers, and we’ve found some consistent weak points in what’s available in the marketplace. Those looking to sell a CPA practice would do well to address these weak points now to drive up the value of their practices.
1. No CRM or client maintenance system. Almost anyone in any line of business now recognizes the importance of having a searchable database of clients, with as many details about them as possible, possibly also tied to an email newsletter or other regular contact. Many CPAs have been “old school,” relying on a steady stream of customers coming in when tax season kicks off. They might reasonably argue, “If it ain’t broke, don’t fix it.”
Tip: CRMs are vital for almost any business today, helping you get a better sense of who your customers are and what they want, and also helping you ask for and track referrals. If you don’t have one, get one and implement it to drive up the value of your practice.
2. Unreasonable workloads and outdated pricing. A large number of accountants really own a job, not a business. They work an inordinate number of hours, charge rates they haven’t adjusted for 20 years, and sometimes employ a spouse so that no employees will transfer to a new owner. Buyers will either need an existing CPA practice with extra bandwidth to simply absorb the new client load, or they will need to hire an employee who is just as unfamiliar with the client list as they are.
Tip: A business in which the owner-operator works 60-80 hours a week seasonally is not particularly attractive to a buyer. The best CPA practices have planned for the future by hiring and scaling slowly over time. If you’re working the majority of the hours in your practice, you need to make a change.
3. Imbalanced client mix. While some CPAs can certainly choose to specialize solely in individual or business returns, best practices involve a client mix of both individuals and businesses, which not only offers less exposure to the practice in the present but can also create opportunities for expansion for buyers in the future.
Tip: CPA practices would do well to diversify their client types while maintaining a clear profile of who their core customer avatars are.
Are you looking for a CPA practice to run on its own or to fold into your existing practice? We can help.