Buying a CPA Practice vs. Starting your Own Firm
Both have advantages and disadvantages. First, let’s explore the advantages of each approach:
Advantages of starting a CPA practice from scratch:
• All of the client relationships are your own right from the beginning.
• All hiring decisions will be made by you.
• Starting a business can be exhilarating.
• You can target the particular market you want to focus on.
• You create your own office.
• There is very little capital required upfront.
• If you are in a fast-growing area and are a good salesperson, then revenues should ramp up fairly quickly.
• There is no debt service from an acquisition.
Advantages of buying a CPA practice:
• There are systems in place so you can be up and running almost immediately.
• Immediate stream of revenue so the urgency to sign new clients is not so pressing.
• Revenue and expense are more predictable based on practice’s history, so there is less risk.
• Trained staff are already in place, so you are able to focus on higher-level work.
• The client relationships are established with the seller. Most loyal clients will transfer.
• You can learn a great deal from the seller…what has worked and what hasn’t worked.
• Financing is available for acquisitions whereas start-up financing is much more difficult to secure.
Now for the disadvantages….
Disadvantages/risks of starting a CPA practice from scratch:
• Until revenue comes in, there is money going out and no “paycheck.”
• Sometimes the eagerness to get clients, can cause you take on clients that you shouldn’t take on.
• Businesses rarely switch accountants. Building a solid revenue stream can take a while.
• You have to do everything at first. The “grunt work” can be boring and unprofitable.
• You’ll need to spend a lot of time on rainmaking activities. Are you a rainmaker?
• Working alone can be isolating.
Disadvantages/risks of buying a CPA practice:
• Debt service payments for the cost of the acquisition.
• Some clients may leave.
• Some staff may leave.
• Until you know the clients and the systems, you may have to work longer hours than the previous owner worked.
• There may be work that needs to be eliminated from the practice.
• There may be clients or staff that need to be terminated from the practice.
• A bigger ship is harder to steer.
Want a quick exercise to help you with your decision?
Score each of these on a scale of 1 to 10, then subtract the total score of the disadvantages from the advantages. Which method comes out ahead? Also, if you start a practice and decide it’s not going as quickly as you like, you can always try to buy later.