United States: 5 Pitfalls To Avoid When Selling Your Accounting Practice

In preparing for an eventual sale, the owners should avoid these five all-too-common pitfalls.

We all know the statistics.  In the U.S., 10,000 people are turning 65 each day for the next 20 years.  About 60% of all partners in CPA firms are over 50 years old.  What does this mean?  Mid-size and small CPA firms will have a lot of competition for potential buyers when the partners reaching retirement age finally decide to sell their practices and retire.

Selling your accounting practice doesn't have to coincide with retirement, however, and many of the most successful sales do not.

As a management priority, partners in accounting firms need to have regular, honest and open dialogues about whether and when the firm should be sold, as it is vital for the team to be on the same page.  In preparing for an eventual sale, the owners should avoid these five all-too-common pitfalls.

1. Timing the Sale

Accountants often approach the sale of their practice by stating something like, "I am working at the firm until I am 68 years old, and then selling."  While federal entitlement programs have trained us to consider a given age as the presumed age of retirement, when it comes to selling one's own practice, there are certainly far more relevant factors that determine the best time to sell.  Consider the following:

Personal goals

The decision to sell an accounting practice requires an owner to consider a number of personal factors, including physical health, financial security, family concerns and a desire to do something new or pursue an avocation.  Best practice: set your own personal goals (in writing) and then evaluate a sale based upon these goals, not the other way around.

The market for accounting firms

Like every market, the market for accounting firms ebbs and flows.  It may be that the demand for accounting firms is very high a few years prior to the arbitrary date set for retirement.  A firm may leave a lot of money on the table, or lose a sale altogether, if the owner waits past the market peak for no other reason than to wait to blow out another candle on a birthday cake.  On more than one occassion, I have seen a firm pass up a good oferr because it was earlier than the date they hade in mind, only to receive less for the firm a few years later.

The financial results of the accounting practice

When possible, you always want to leave your practice on a high note.  Easier said than done.  When the financial results are good, employees are generally happy, liabilities have been reduced and the future looks bright.  The thought of exiting during that high seems less attractive.  Many owners, however, attempt to sell their accounting practice after a very bad year.  The partners become worried about the future, aggravated at clients and staff and just "want to get out."  That type of behavior only guarantees the lowest possible sale price and perhaps selecting the first, not the best, suitor.

2.  Not Being Realistic About the Value of the Firm

Most owners value their firm higher than an objective third-party, and it is usually helpful to have an independent valuation of the firm.  Often, the purchase price can be increased by addressing problematic factors set forth in the valuation report that decrease the value, and a comprehensive valuation is a roadmap to an increased sales price.  I often hear clients state that "my firm is worth X times revenue" based upon nationwide industry averages or some other statistic.  While that multiple of revenue may be a very broad general rule of thumb, I have found that sales price is most often based on the following factors:

Practice focus

A firm with a specialty in a certain type of business - like franchises, certain industries like healthcare or that focus on a certain geographic area - are all very appealing to a strategic buyer looking to fill out a niche that their own firm is missing.  It is never too late to focus on building a specialty group or expertise in a certain area.

Client size

Typically, a firm with fewer larger clients is worth more than one with many small clients.  While a larger number of clients spreads the economic impact of losing a single client, each client has a cost to administer, manage and maintain, which reduces profitability.  Plus, smaller clients often present fewer opportunities to cross-sell other services - typically a value driver.

Length of client relationship

A firm with a long-term and stable client base is typically worth more than one dealing with the constant churn of smaller clients looking for this year's low cost provider.  Annual recurring revenue, such as audit or tax engagements, are also valuable to the buyer.

Competence of staff

Competence of staff is critical.  I have seen a number of deals that were completed solely to acquire talent.  It is difficult to hire, train and retain good staff, and buyers will pay a premium for a competent, experienced and loyal employee base.

Profitability of clients

A sophisticated buyer is able to easily determine the profitability of clients.  The most common item that decreases value is when a firm fails to routinely increase fees, resulting in very low margin clients.  It is important to raise fees each year to maintain pace with inflation and make certain that the fees are at market level.

Casting a wide net

Many accounting firms believe they already know the identity of the buyer of their firm.  It may be their main competitor or a firm with which they have a good relationship.  Like selling your home to your next-door neighbor without putting it on the market, you have no idea what the market is actually willing to pay.  The best way to ensure the highest price is to have multiple potential suitors - and hopefully a bidding war.  That is easiest to do with a broker or investment banker, but there are many ways to make sure there is more than one potential buyer.

3.  Being Synonymous with the Business

From a buyer's point of view, a firm in which a single owner or one partner totally controls all aspects of the firm is not valuable.  These are the owners or partners who sign every check, review every invoice, make every decision and maintain every client relationship.  The practice is much more valuable if it can run without the owner.  A good team greatly increases the value of the firm, and being able to delegate to competent team members is key.

4.  Ignoring the Warts

Every business has "warts" that decrease the attractiveness of a firm to a potential buyer.  Common warts present in accounting firms in which partners are approaching retirement are:

  • Obsolete technology;
  • Manual accounting or other systems;
  • Aging workforce;
  • Paper records;
  • Low rates; and
  • Lack of agreements with clients or employees.

The best way to identify the items that descrease value is to take the time to perform the same due diligence a buyer would perform.  If you can't answer the questions that will be asked, or don't like the answers you are able to give, it is time to address the deficiencies.

5.  Not Being Ready to Sell

There are many firms who grow by acquiring smaller accounting firms, so you never know when a buyer will come knocking on your door.  Be ready.  Know the realistic value you are willing to accept, the time frame to closing and any employment or other terms that are important.  It is often too late to try to determine the firm's sale price with an offer on the table.

On the flip side, it is sometimes the case that as a deal comes closer to fruition, the partners start erecting roadblocks and reasons to terminate the deal.  The real reason is often that they are not ready to let go of the firm.  Partners have often spent many years at a firm, and much of their identity is tied into the practice and the profession.  Finding self-worth after retiring can be very difficult for some, and taking time off to develop hobbies and outside interests to make sure you are ready to retire is critical.

The partners must have open and honest discussions about the future of the firm and agree that it is time to sell.  If only a few partners want to sell, maybe a buyout of those who do makes more sense than selling the whole firm.  If most of the partners aren't on board with a sale, it may be a very different transition.

Avoiding the pitfalls above and following these relatively straightforward suggestions will help your firm stand out from the field of other selling firms in the fierce competition for the best buyer.

Originally published in the MA Society of CPA's SumNews (May 2018)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
Email Address
Company Name
Confirm Password
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions