Many of the buyers we speak with who are initially looking to finance the acquisition of a CPA firm are not aware of the options available in the marketplace. Most buyers are pleasantly surprised to learn that banks are quite generous with their lending terms in the accounting and tax space.
Obviously, each deal is unique. There are a lot of factors that banks have to consider including the cash flow of the practice, the financial strength of the buyer, credit score, professional experience, etc. Also, we help clients in both the U.S. and Canada so loan programs do vary based on location. That said, we’ve assembled some general guidelines that will help you get an initial sense of what financing your acquisition might look like.
Here is a rundown of some of the key financing considerations in the acquisition of a CPA firm:
Down Payment Requirements
We commonly see 10% as a minimum injection for buyers. For strong buyers who already own an established firm, that can actually be 0%. Keep in mind that you will also need adequate working capital in your practice on day one after closing. Some banks can also offer credit lines to help with that.
Loan Terms
The most common loan term our clients secure is 10 years. We’ve seen them go longer when real estate is involved in the acquisition. This is generally much longer than a seller will be willing to offer seller-financing. It also makes the cash flow of your accounting practice much more attractive.
Seller Financing
Seller financing, aka Vendor-Take-Back can be used to bridge gaps between the amount a lender is willing to provide and the amount the buyer is able to inject into the deal. We also see more seller financing on smaller transactions where the buyer has a significant portion of the total sales price to put down at closing.
All in all, CPAs are considered to be quite bankable. Poe Group Advisors has several preferred lenders that we recommend to our clients. It helps to work with banks that have experience with accounting practice acquisition lending.
About Brannon Poe: Brannon is the founder of Poe Group Advisors and has been facilitating successful accounting practice transitions throughout the US and Canada since 2003. Brannon started his career in public accounting as an auditor with Ernst & Young before working for several years in auditing and tax preparation for the regional firm of Elliott, Davis & Company. He is the author of “Accountant’s Flight Plan: Best Practices for Today’s Firms” (published by the AICPA and CPA Canada), “On Your Own: How to Start Your Own CPA Firm,” as well as multiple blogs and the “Accountant’s Flight Plan” podcast.
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