March 5, 2025 • 8 mins
Briefing Document: CPA Practice Mergers and AcquisitionsSource: Excerpts from "CPA Practice Mergers and Acquisitions: A Strategic Guide" by Ragan and AssociatesDate: October 26, 2023Purpose: 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:
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- 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."
- 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.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
All right, everybody, welcome back for another deep dive.
Speaker 2 (00:02):
Yeah, glad to be back.
Speaker 1 (00:03):
So this time we are diving into the world of
CPA practice mergers and acquisitions and M and A. Yeah,
and we're going to be looking specifically at the book
CPA Practice Mergers and Acquisitions, a Strategic Guide by Reagan
and Associates.
Speaker 2 (00:21):
That's the bible.
Speaker 1 (00:22):
It's kind of the go to book on this topic. Yeah,
and we really want to get to the bottom of
why these decisions happen, right, Like, why would somebody buy
a CPA practice, why would they sell? What are the
kind of the kind of hidden implications that we don't
really think about.
Speaker 2 (00:38):
When we're absolutely and there are a lot of them.
Speaker 1 (00:40):
Yeah, there are a lot of implications. So we're going
to dive deep here and really get into the weeds
of what this is all about. Sounds good, So right
off the bat, the book talks about the economy of
scale as a major reason why somebody would want to
buy another practice. But can you kind of break that
down for us and explain what does that mean in
the real world? What does economy's scale mean for a
(01:02):
CPA firm?
Speaker 2 (01:02):
Yeah, it's really about leverage Okay, So you.
Speaker 1 (01:05):
Have two firms, let's say, one that specializes in high
net worth individuals and another one that focuses on small
business taxes, right, got it. When they combine, they share
office space, they share administrative staff, they even share software subscriptions.
Oh wow, all those types of things, which ultimately leads
to greater profitability right. Right, And you know, a larger
(01:30):
firm can negotiate a volume discount on let's say audit software, right,
and everyone in the firm then benefits from that.
Speaker 2 (01:37):
So it's almost like buying in bulk exactly.
Speaker 1 (01:39):
It is exactly like buying in bulk at costco. Got it,
you know, and the savings can be significant.
Speaker 2 (01:45):
Yeah, that makes a lot of sense. Okay, So another
thing the book mentions is employee acquisition. And we all
know how difficult it is to find qualified CPAs these days.
Speaker 1 (01:56):
It's tough, yeah, it is.
Speaker 2 (01:57):
So how does an acquisition kind of play into that?
Speaker 1 (02:00):
So it's a huge pain point, and acquisitions offer a
two pronged solution. Okay, So first, you get this immediate
talent boost you acquire their staff, right.
Speaker 2 (02:09):
But it's also an opportunity to build this long term
robust team Okay. You know, imagine inheriting a team that
has specialized skills right in let's say forensic accounting, Okay, right,
that can be a game changer for the acquiring a firm.
Speaker 1 (02:26):
Yeah, so I guess it's not just about like getting
those bodies in.
Speaker 2 (02:28):
No, it's about specialization.
Speaker 1 (02:30):
It's about specialization, but also integrating them smoothly and making
sure that those two cultures can really mesh well together.
Speaker 2 (02:37):
Absolutely, and that's often overlooked. You know, it's not just
about the numbers, it's about the people too.
Speaker 1 (02:42):
Yeah, absolutely, yeah, Okay, So kind of moving on from that,
the book also talks about growth strategy as a major
reason for mergers and acquisitions, and I like that because
it sounds absolutely a lot more exciting.
Speaker 2 (02:56):
Than just It's more than crunching numbers.
Speaker 1 (02:58):
Yeah, crunching numbers. Yeah, So what do they mean by that? Like,
what is a growth strategy in terms of CPA firm?
Speaker 2 (03:05):
So, merging practices can unlock doors to new industries and
client niches. Right, So, let's say a firm specializes in
real estate, okay, and then they merge with one that's
focused on tech startups. Okay, all of a sudden, they
have a huge presence in two really booming sectors.
Speaker 1 (03:23):
That's a great point, right, yeah.
Speaker 2 (03:25):
Yeah, So it's really more about strategic positioning.
Speaker 1 (03:28):
It's about more than just like, it's not the number
of clients, it's the type of clients that you're working
with exactly. Okay, that makes a lot of sense. Yeah, okay,
So this next one really resonates with me personally because
just think about taxis and stresses me out.
Speaker 2 (03:43):
I can imagine.
Speaker 1 (03:44):
And the book talks about how buying a practice can
help you reduce your workload by bringing on more employees.
I'm like, it's the dream, right, yes, tell me more.
Speaker 2 (03:54):
Well, I mean it's pretty simple, right, Having a larger
team allows for better work life balance and specialization.
Speaker 1 (04:01):
Okay, right.
Speaker 2 (04:02):
A larger firm might have dedicated staff for tax audit advisory,
which frees up partners to focus on high level strategy
or client relationships.
Speaker 1 (04:12):
So it's almost like you're delegating some of that work
that you would normally be doing yourself exactly.
Speaker 2 (04:16):
And that's huge.
Speaker 1 (04:17):
Okay. Yeah, Okay, So now let's kind of flip the
script and talk about why somebody would want to sell
their practice. Okay, Yeah, and I think It's important to
point out that it's not always about failure, absolutely not.
You know, sometimes it can be a really savvy strategic move.
Speaker 2 (04:34):
It can be.
Speaker 1 (04:35):
So in what situations would selling your practice actually be
a smart thing to do?
Speaker 2 (04:40):
Well? It might be about securing your financial future, okay, right,
it might be about transitioning into a less demanding role, okay,
or simply gaining more control over your time.
Speaker 1 (04:52):
So you're not necessarily closing doors. No, you're kind of
opening up new possibilities for yourself.
Speaker 2 (04:57):
You're opening up new possibilities exactly. Imagine right, selling your
practice and then using that financial freedom to consult part
time and just focus on the projects you really enjoy.
Speaker 1 (05:08):
Yeah, that sounds pretty ideal.
Speaker 2 (05:09):
That's the dream, right.
Speaker 1 (05:11):
Yeah, Okay, So the book also mentioned asset protection is
a big motivator for selling. Sure, and it's a little
bit more of a serious topic, but I think it's
important to address.
Speaker 2 (05:23):
Yeah, it's realistic.
Speaker 1 (05:24):
It is realistic. You know, things happen in life that
we can't predict. Curveballs, Yeah, curveballs, exactly. Absolutely, So, how
does selling your practice kind of tie into that whole
idea of protecting your assets?
Speaker 2 (05:36):
Well, selling your practice provides a lump sum payout okay, right, right,
and that creates a safety net for you and your family.
It's really about protecting your legacy and ensuring peace of mind.
Speaker 1 (05:47):
So you're kind of getting everything all at once instead
of waiting.
Speaker 2 (05:49):
You're getting it all at once over time exactly.
Speaker 1 (05:52):
Okay, yeah, all right, So let's talk numbers for a second,
because the book says that sellers can actually expect a
pretty substantial payout upfront. We can, So how does that work? Like,
what goes into determining how much somebody's going to get
paid for their practice?
Speaker 2 (06:10):
Well, things like revenue right client niche for example, do
they specialize in a high demand industry, right, like cryptocurrency
or something like that, exactly, Yeah, something like that, And
then overall valuation. These are the things that really come
into play.
Speaker 1 (06:24):
So it's really important to have a solid understanding of
what your practice is actually worth.
Speaker 2 (06:29):
You need to know your numbers.
Speaker 1 (06:30):
Yeah, yeah, before you even started thinking about these negotiations.
Speaker 2 (06:33):
Yeah, it's all about maximizing the value of years of
hard work.
Speaker 1 (06:38):
Right, Okay. Yeah. One thing that I found interesting in
the book was that selling your practice doesn't always mean
that you have to completely step away from the work
that you've been doing.
Speaker 2 (06:49):
Right, that's a common misconception.
Speaker 1 (06:52):
So can you talk a little bit about what that
looks like, Like, what are the different ways that somebody
could sell their practice but still stay involved in some capacity.
Speaker 2 (07:01):
Sure, so you might stay on as a consultant, Okay,
you might take on specific projects, or you might even
leverage your existing relationships to bring in new clients for
the acquiring firm.
Speaker 1 (07:13):
Oh okay, so you're kind of using the relationships that
you've already built.
Speaker 2 (07:18):
Absolutely to help them grow and it helps with the transition,
yeah right.
Speaker 1 (07:22):
Yeah, because it's a big change. Yeah, you know, to
go from running your own business to all of a
sudden not.
Speaker 2 (07:29):
A big change. Yeah, So that makes a lot of sense,
and it also ties back to the acquiring firm's growth strategy.
Yeah right, because they're not just buying a client list,
they're gaining valuable expertise and relationships.
Speaker 1 (07:42):
Right. Yeah, that's a really good point. Yeah. Okay, So
I think we've covered a lot of ground here we have.
I guess, just to kind of wrap things up, what
would you say are the key takeaways for our listeners today?
Speaker 2 (07:56):
Well, I think we can both agree that buying and
selling CPA practices are complex decisions with a whole spectrum
of motivations and potential outcomes.
Speaker 1 (08:05):
Yeah, and it really depends on the individual, you know,
what their goals are and their circumstances yea, and what
they want for their future.
Speaker 2 (08:11):
Absolutely so.
Speaker 1 (08:12):
I guess on that note, a question for all of
our listeners out there, if you were a CPA and
you were kind of at this crossroads in your career
where you're thinking about buying or selling a practice, what
would be the deciding factors for you?
Speaker 2 (08:27):
That's a good question.
Speaker 1 (08:28):
What would be the things that would tip the scales
one way or the other?
Speaker 2 (08:31):
Something to really think about.
Speaker 1 (08:33):
It is something to think about and hopefully this has
give you a little bit of food for thought.
Speaker 2 (08:38):
I hope so.
Speaker 1 (08:39):
And as always, thanks for joining us for another deep dive.
Thanks everyone, We'll see you next time.
Speaker 2 (08:43):
See you later.
All right, everybody, welcome back for another deep dive.
Speaker 2 (00:02):
Yeah, glad to be back.
Speaker 1 (00:03):
So this time we are diving into the world of
CPA practice mergers and acquisitions and M and A. Yeah,
and we're going to be looking specifically at the book
CPA Practice Mergers and Acquisitions, a Strategic Guide by Reagan
and Associates.
Speaker 2 (00:21):
That's the bible.
Speaker 1 (00:22):
It's kind of the go to book on this topic. Yeah,
and we really want to get to the bottom of
why these decisions happen, right, Like, why would somebody buy
a CPA practice, why would they sell? What are the
kind of the kind of hidden implications that we don't
really think about.
Speaker 2 (00:38):
When we're absolutely and there are a lot of them.
Speaker 1 (00:40):
Yeah, there are a lot of implications. So we're going
to dive deep here and really get into the weeds
of what this is all about. Sounds good, So right
off the bat, the book talks about the economy of
scale as a major reason why somebody would want to
buy another practice. But can you kind of break that
down for us and explain what does that mean in
the real world? What does economy's scale mean for a
(01:02):
CPA firm?
Speaker 2 (01:02):
Yeah, it's really about leverage Okay, So you.
Speaker 1 (01:05):
Have two firms, let's say, one that specializes in high
net worth individuals and another one that focuses on small
business taxes, right, got it. When they combine, they share
office space, they share administrative staff, they even share software subscriptions.
Oh wow, all those types of things, which ultimately leads
to greater profitability right. Right, And you know, a larger
(01:30):
firm can negotiate a volume discount on let's say audit software, right,
and everyone in the firm then benefits from that.
Speaker 2 (01:37):
So it's almost like buying in bulk exactly.
Speaker 1 (01:39):
It is exactly like buying in bulk at costco. Got it,
you know, and the savings can be significant.
Speaker 2 (01:45):
Yeah, that makes a lot of sense. Okay, So another
thing the book mentions is employee acquisition. And we all
know how difficult it is to find qualified CPAs these days.
Speaker 1 (01:56):
It's tough, yeah, it is.
Speaker 2 (01:57):
So how does an acquisition kind of play into that?
Speaker 1 (02:00):
So it's a huge pain point, and acquisitions offer a
two pronged solution. Okay, So first, you get this immediate
talent boost you acquire their staff, right.
Speaker 2 (02:09):
But it's also an opportunity to build this long term
robust team Okay. You know, imagine inheriting a team that
has specialized skills right in let's say forensic accounting, Okay, right,
that can be a game changer for the acquiring a firm.
Speaker 1 (02:26):
Yeah, so I guess it's not just about like getting
those bodies in.
Speaker 2 (02:28):
No, it's about specialization.
Speaker 1 (02:30):
It's about specialization, but also integrating them smoothly and making
sure that those two cultures can really mesh well together.
Speaker 2 (02:37):
Absolutely, and that's often overlooked. You know, it's not just
about the numbers, it's about the people too.
Speaker 1 (02:42):
Yeah, absolutely, yeah, Okay, So kind of moving on from that,
the book also talks about growth strategy as a major
reason for mergers and acquisitions, and I like that because
it sounds absolutely a lot more exciting.
Speaker 2 (02:56):
Than just It's more than crunching numbers.
Speaker 1 (02:58):
Yeah, crunching numbers. Yeah, So what do they mean by that? Like,
what is a growth strategy in terms of CPA firm?
Speaker 2 (03:05):
So, merging practices can unlock doors to new industries and
client niches. Right, So, let's say a firm specializes in
real estate, okay, and then they merge with one that's
focused on tech startups. Okay, all of a sudden, they
have a huge presence in two really booming sectors.
Speaker 1 (03:23):
That's a great point, right, yeah.
Speaker 2 (03:25):
Yeah, So it's really more about strategic positioning.
Speaker 1 (03:28):
It's about more than just like, it's not the number
of clients, it's the type of clients that you're working
with exactly. Okay, that makes a lot of sense. Yeah, okay,
So this next one really resonates with me personally because
just think about taxis and stresses me out.
Speaker 2 (03:43):
I can imagine.
Speaker 1 (03:44):
And the book talks about how buying a practice can
help you reduce your workload by bringing on more employees.
I'm like, it's the dream, right, yes, tell me more.
Speaker 2 (03:54):
Well, I mean it's pretty simple, right, Having a larger
team allows for better work life balance and specialization.
Speaker 1 (04:01):
Okay, right.
Speaker 2 (04:02):
A larger firm might have dedicated staff for tax audit advisory,
which frees up partners to focus on high level strategy
or client relationships.
Speaker 1 (04:12):
So it's almost like you're delegating some of that work
that you would normally be doing yourself exactly.
Speaker 2 (04:16):
And that's huge.
Speaker 1 (04:17):
Okay. Yeah, Okay, So now let's kind of flip the
script and talk about why somebody would want to sell
their practice. Okay, Yeah, and I think It's important to
point out that it's not always about failure, absolutely not.
You know, sometimes it can be a really savvy strategic move.
Speaker 2 (04:34):
It can be.
Speaker 1 (04:35):
So in what situations would selling your practice actually be
a smart thing to do?
Speaker 2 (04:40):
Well? It might be about securing your financial future, okay, right,
it might be about transitioning into a less demanding role, okay,
or simply gaining more control over your time.
Speaker 1 (04:52):
So you're not necessarily closing doors. No, you're kind of
opening up new possibilities for yourself.
Speaker 2 (04:57):
You're opening up new possibilities exactly. Imagine right, selling your
practice and then using that financial freedom to consult part
time and just focus on the projects you really enjoy.
Speaker 1 (05:08):
Yeah, that sounds pretty ideal.
Speaker 2 (05:09):
That's the dream, right.
Speaker 1 (05:11):
Yeah, Okay, So the book also mentioned asset protection is
a big motivator for selling. Sure, and it's a little
bit more of a serious topic, but I think it's
important to address.
Speaker 2 (05:23):
Yeah, it's realistic.
Speaker 1 (05:24):
It is realistic. You know, things happen in life that
we can't predict. Curveballs, Yeah, curveballs, exactly. Absolutely, So, how
does selling your practice kind of tie into that whole
idea of protecting your assets?
Speaker 2 (05:36):
Well, selling your practice provides a lump sum payout okay, right, right,
and that creates a safety net for you and your family.
It's really about protecting your legacy and ensuring peace of mind.
Speaker 1 (05:47):
So you're kind of getting everything all at once instead
of waiting.
Speaker 2 (05:49):
You're getting it all at once over time exactly.
Speaker 1 (05:52):
Okay, yeah, all right, So let's talk numbers for a second,
because the book says that sellers can actually expect a
pretty substantial payout upfront. We can, So how does that work? Like,
what goes into determining how much somebody's going to get
paid for their practice?
Speaker 2 (06:10):
Well, things like revenue right client niche for example, do
they specialize in a high demand industry, right, like cryptocurrency
or something like that, exactly, Yeah, something like that, And
then overall valuation. These are the things that really come
into play.
Speaker 1 (06:24):
So it's really important to have a solid understanding of
what your practice is actually worth.
Speaker 2 (06:29):
You need to know your numbers.
Speaker 1 (06:30):
Yeah, yeah, before you even started thinking about these negotiations.
Speaker 2 (06:33):
Yeah, it's all about maximizing the value of years of
hard work.
Speaker 1 (06:38):
Right, Okay. Yeah. One thing that I found interesting in
the book was that selling your practice doesn't always mean
that you have to completely step away from the work
that you've been doing.
Speaker 2 (06:49):
Right, that's a common misconception.
Speaker 1 (06:52):
So can you talk a little bit about what that
looks like, Like, what are the different ways that somebody
could sell their practice but still stay involved in some capacity.
Speaker 2 (07:01):
Sure, so you might stay on as a consultant, Okay,
you might take on specific projects, or you might even
leverage your existing relationships to bring in new clients for
the acquiring firm.
Speaker 1 (07:13):
Oh okay, so you're kind of using the relationships that
you've already built.
Speaker 2 (07:18):
Absolutely to help them grow and it helps with the transition,
yeah right.
Speaker 1 (07:22):
Yeah, because it's a big change. Yeah, you know, to
go from running your own business to all of a
sudden not.
Speaker 2 (07:29):
A big change. Yeah, So that makes a lot of sense,
and it also ties back to the acquiring firm's growth strategy.
Yeah right, because they're not just buying a client list,
they're gaining valuable expertise and relationships.
Speaker 1 (07:42):
Right. Yeah, that's a really good point. Yeah. Okay, So
I think we've covered a lot of ground here we have.
I guess, just to kind of wrap things up, what
would you say are the key takeaways for our listeners today?
Speaker 2 (07:56):
Well, I think we can both agree that buying and
selling CPA practices are complex decisions with a whole spectrum
of motivations and potential outcomes.
Speaker 1 (08:05):
Yeah, and it really depends on the individual, you know,
what their goals are and their circumstances yea, and what
they want for their future.
Speaker 2 (08:11):
Absolutely so.
Speaker 1 (08:12):
I guess on that note, a question for all of
our listeners out there, if you were a CPA and
you were kind of at this crossroads in your career
where you're thinking about buying or selling a practice, what
would be the deciding factors for you?
Speaker 2 (08:27):
That's a good question.
Speaker 1 (08:28):
What would be the things that would tip the scales
one way or the other?
Speaker 2 (08:31):
Something to really think about.
Speaker 1 (08:33):
It is something to think about and hopefully this has
give you a little bit of food for thought.
Speaker 2 (08:38):
I hope so.
Speaker 1 (08:39):
And as always, thanks for joining us for another deep dive.
Thanks everyone, We'll see you next time.
Speaker 2 (08:43):
See you later.
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