My kids always make fun of me for saying things like, “You catch more flies with honey than you do with vinegar.” Well, this applies when buying a CPA practice, as it relates to writing your business plan for bank financing.
We have found that one of the biggest mistakes CPA buyers make when creating a business plan is putting far too much emphasis on cost cutting synergies. The better strategy is to focus on the business plan opportunities. The bank wants to see how you are going to increase business and grow the bottom line. In the case where a larger firm buys another CPA practice, the combined firm will have a bigger service offering and a bigger team that can quickly ramp up revenues. While there are most certainly some cost efficiencies of scale that should be captured, the real synergy comes from the revenue building strategies.
Related – What is the Value of an Accounting Practice?
Below are 5 big opportunities for increasing revenue when buying a CPA practice:
- Consider offering consulting. Look at the top 20 percent of largest fee clients. Many of those could be excellent candidates for business advisory services.
- Increase fees. Look at the bottom 60 or 80 percent of the client base you would acquire and consider fee increases. The risk is relatively low when you realize that your smaller clients really don’t deliver that much toward total revenue. You get them to market pricing immediately. If you lose clients (and you will lose some), then shift the capacity created to the larger clients.
- Widen your breadth of services. Offer wealth management services- tax planning, estate planning, financial services, etc. There can be many huge opportunities in a good client base with high net-worth clients. A larger firm can create divisions of labor in a practice that smaller firms cannot.
- Re-shuffle work among staff. Look at how staff are currently being managed. If the staff are highly experienced, but working on low-level work, shifting work around can also be a huge help. When firms shift ownership, it’s essential to take the “easy work” off of the experienced people and get them working on more of the opportunities mentioned above. The value of their personal production will improve rapidly.
- Cross sell. In the case of one firm acquiring another, the buyer should ask, “What does the purchased firm do that the purchasing firm does not do?” That can also create opportunities in the practice of the purchaser.
You need your business plan to be compelling and hyper focused on how you plan to drive revenue and yield higher returns. It needs to be specific.
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