A good accounting firm to run is often the easiest firm to sell. What makes a practice highly marketable is often what makes it smooth to manage.
Check out this 3 min clip where Nick Sinclair and I chat about what makes your CPA practice more attractive to buyers.
Some key features of a highly marketable accounting firm include:
- Low owner hours- under 2,000 annually
- Good cash flow to the owner (usually around 50%)
- High-level Staff – Tax Planning/Tax Accountants that have some capacity
- Package pricing that’s billed automatically
- Light advisory services
Brannon, I’m going to ask another question. Now what makes a firm highly marketable? So when you get a seller that rings you, what makes you just fist pump straight away going, “This is just going to be great to work with because they’re just highly marketable.”
Yeah, so we actually did a big analysis this year in our off-season to say, “Okay what firm sold really quickly last year? What firms were on the market longer than they should have been? You know, we do have a small percentage that don’t sell at all – so we did some deep analysis on that and what we came away with was: Cash flow to owner is certainly very important, owner hours are very important.
One thing that we noticed and this was probably my biggest takeaway from doing this analysis is – firms that have a high concentration of personal tax returns that are not associated with a business overall performed much more poorly than firms that did not have that as a key component of their revenue.
And so it [high concentration of personal tax returns] hurts cash flow, it hurts staffing, and I think firms are starting to realize that staffing is really one of those considerations that is becoming a major driver in how you run your firm.
What we’re seeing is that buyers are definitely interested in cash flow. They’re interested in the longevity of staff.
I’m having buyers really look hard at the staffing and if they can find a firm that has excess capacity that’s a very attractive thing to have, especially high-level experienced tax accountants, tax planning people.
If you ask me, “what would I be pumped about when I see a firm?” – Packaged pricing.
Let’s say they have business clients and they’re doing the bookkeeping, they’re doing the payroll and the tax return at the end of the year. If they’ve got them on a monthly pricing package, maybe they’re doing some light advisory, that money is just getting automatically billed and paid every month. Plus the cash flow is good, and the owner hours are good.
That’s a firm that is going to be in very high demand and get a premium.
If you have questions about how marketable your accounting firm is, let us know. We are happy to discuss. Email firstname.lastname@example.org