Earnouts are popular deal structures used by buyers and sellers of accounting practices, but they have drawbacks. In an earnout, a buyer pays for a practice using the earnings that are actually experienced from that practice, plus an initial down payment in some cases. In a pure earnout structure, the buyer takes no risk in the deal and pays no interest, while the seller takes all of the risk.
When owners of CPA firms first begin to think about succession planning, the most important decision they need to make is when to bow out. Too soon, and the owner may find letting go of the practice difficult or even impossible. Exiting owners who are not ready to let go often end up micromanaging their successors, which damages the handoff.
Your accounting firm is probably one of your largest assets and a little planning can help you make the most of it. Do the obvious things when getting an accounting firm ready for a sale. They do in fact make a difference.
CPA practice Valuations can and do vary quite a bit. The industry standard rule of thumb is “1 times gross” which is a very long-standing belief held in the accounting profession.
Price and terms are an unbreakable pair. You cannot discuss one without the other. That said, it is extremely tempting to put more weight on the price. A lot of accounting practice owners we speak with underestimate the difference terms do make in the sale.
In the overwhelming majority of cases, owners of profitable accounting practices can get all cash or all cash equivalent terms at closing-with absolutely no contingencies after closing. We discuss why fixed-price deals help to create superior transition results post-close.
Accounting Practice Transitions can be extremely successful when handled with reasonable care and common sense. That said, some of the basics can be elusive in practice.
Accounting practice sales are different for small firms so succession planning for small firms should be different too. The fewer partners and employees a firm has, the more difficult an internal succession is likely to be.