There are a number of factors at play that are impacting the sale and purchase of accounting firms. It’s an interesting market to say the least. We’ll cover the main factors at play and tie them all together as best we can at the conclusion of this overview.
Interest Rates
They are rising but, we’re coming off historically ultra-low interest rates. I’ve talked with several lenders in the accounting practice acquisition lending space and the consensus among the more experienced bankers is that rates are expected to level off and probably drop by the second half of 2023. The SBA in the US is rolling out some new incentives to reduce fees so that is helping. For CPA firms for sale with very good cash flow to owner, interest rate rises are only a minor consideration. When cash flow to owner is on the lower end of the spectrum, it can have a larger influence on price and terms.
The Grey Tsunami
I do expect the boomer generation to start retiring in higher numbers, but who knows when this will begin in earnest. We’re not expecting it to be a sudden tsunami. Rather, it will likely be a gradual increase in supply of firms in the next 5 to 10 years.
The Economy and the “Accounting Economy”
Demand for tax and accounting work seems to be at an all time high in relation to the supply of providers. I don’t see that changing too much – even if the economy in general were to have a recession. We may already be in a recession and most firms have more work than they can handle. I see a tremendous opportunity to grow and/or increase fees. For buyers that know how to prune, focus and price services, it’s a wonderful time to own and/or grow a firm. The problem most firms are having right now if finding the right staff. The availability of staff, or lack thereof, is arguably the biggest driver of change in the profession right now. Technology can help to fill the gap, but many firms are finding that some foundational changes are also needed.
Buyer Appetite
It’s no surprise that buyers want high quality firms with good talent and good owner cash flow. We are seeing strong demand for such firms. In contrast, we’re seeing that firms with a heavy focus on personal tax, combined with owner cash flow that is on the lower end of the spectrum, are staying on the market longer and selling for lower multiples. One trend we’ve seen in the last several years is that buyers are much more aware of how dependent the practice is on the owner or partners.
Summary/Conclusion
All of these factors combined, point to a rather stable market for firms in 2023. Interest rates are higher than they were a year ago, but demand for services is also very high given the supply of providers. The opportunity for growth takes a lot of risk off the table when buying. Buyers are looking for well managed and profitable firms that can offer a good quality of life for the owner and staff. Staff longevity and retention is also important in the current talent environment.
Here at Poe Group Advisors, we are putting a bigger emphasis on quality when considering valuation. We are especially focusing on quality of fees, staff, number of owner hours, and ultimately earnings when pricing CPA firms for sale. If you are thinking of selling in the near term, these are the key metrics you need to focus on as you prepare for your exit.
Upcoming Events:
Join us for a 30 min. Facebook live today November 2, 2022. The tile: “How Firm Owners Take Time Off and Unplug – Even if You Don’t Believe It’s Possible” with Loren Fogelman.
https://www.facebook.com/loren.fogelman
P.S. – Whenever you’re ready, here are 4 other ways we can help:
- Seller FAQ: Answers to the questions sellers are asking. From practice value, to timing, we’ve got you covered.
- Strategic Guide to Selling your CPA Practice Video: The how-to of selling a CPA firm.
- Accounting Practice Academy: If you’re looking for benchmarks, our 8-week workshop has a community of established firm owners that will help you get perspective, reduce your owner hours, and raise your bottom line. Email ibrennan@poegroupadvisors.com with “APA” and we will fill you in on the details.
- If you want to chat about your exit strategy, email bball@poegroupadvisors.com with “strategy call” or request a call here.
