[NYSCPA]

Does anyone have experience purchasing an out of state CPA firm? If so, how did it work out for you?

I’m a CPA in NYC, I’m employed fulltime, but recently started a side gig (full service CPA firm). I want to either “bring value to my current employer” or purchase a firm with personal financing.

I am currently looking at a listing in MI for $500k (50-60% cash flow to owner), it is a One CPA, one taxpreparer/bookkeeper firm. I am willing to look in MI as I have a family member who lives there who is willing to run the office for me. I trust this person and they have years of experience with bookkeeping/interacting with clients, etc.

I can approach this two ways:

One being “the bring value to my current employer”. Basically ask the firm, or maybe Just the Tax Partner, to assist me in financing the purchase and essentially make me the head of that office. I’ll spend M-W in NYC, T-Su, in MI, during tax season and make other arrangements for rest of the year. I could reside with the family member referenced above while in MI.

or

I can find the means of purchasing the firm myself, ask my current employer to cut me to 3 or 4 days a week w/ related salary reduction (this way I still have guaranteed income (w-2) and see how I can manage the other practice on my own.

Has anyone ever attempted anything like this? Any and all feedback would be greatly appreciated. Thank you.

NYS Licensed CPA. 12yrs in this shit and it never gets easier!

[ForgottenOne]

You know your situation best. But the CPA firm you plan to purchase is basically roughly 50k PPE and 450k goodwill. That ONE CPA Owner does things different than you do, and these goodwill clients would leave you because of these differences. I suggest you should spend a year or two working with that ONE CPA Owner in order to get a smooth transaction.

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Forgot

[Anonymous]

This post is above anyone's head in this forum. In this forum you have mostly the young free loving children of the social media generation that believe “likes” are more important than building genuine relationships 😀

Only you know your financial situation and capabilities, but I wouldn't go into a deal like that unless the previous owner was willing to help with the transition. As in overseeing operations and ensuring client retention by being proactive for months after the deal or even at least up to a year.

[Missy]

Not enough information in your post to offer advice but many questions.

Does your employer know about and encourage your side gig?

Has your employer or partner expressed to you interest in investing in another business?

What are the overheads for the firm in MI besides a staff of 2.

Have you figured a ROI to your employer if they assisted with financing?

Has your employer given you reason to believe they'd consider an abbreviated work week?

If they did purchase it and let you run it, do you have any equity if they ever terminated your employment?

If this business leases an office when does the lease end, and if in the next 18 months is renewal a certainty or might you have to scout a new space?

Have you spoken with the current owner yet?

It would be unusual for your current employer to jump on this but I'd like to see it happen for you.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Char143]

If you don't buy it let me know, I'll buy it since I'm in Michigan. 🤷🏻‍♀️

AUD - 84
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I'm done! 🙏🏼

 

Licensed CPA

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[Recked]

This doesn't really sound like a feasible idea.
If you are looking to work for yourself I would encourage you to buy a practice where you live, or want to live.
If you are patient and diligent with your search, you will eventually find a practice closer to you.
Also make sure your license can transfer to another state.

As someone who works in a small firm, your clients would expect to come in and see you.
This business proposition is not really in your current employer's best interest, and I would question your loyalty to the firm, and forethought if you brought this idea to me.

Firms typically sell for roughly 100% of yearly revenue.
You will most likely be a slave to the business for the first 3-5 years as you handle the transition.
You will most likely want the old owner to stick around for a few tax seasons to help make sure the transition goes smoothly (clients stay).
Owner's typically take home 40-60% of cash flow after expenses.

If you can buy this practice for half a million, and earn 250k a year, wouldn't that be enough?
How many years of tax experience do you have?

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

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[ryan.andrew6]

We purchased a firm, still in the state, about 3.5 hours away with about the same margins as the firm you are looking at. However this firm had a seven person staff and the principal wanted to stay on as an employee for another 5-10 years. This particular situation worked well with our model because we were able to use that location to outsource a lot of our work to. This is obviously different than what you are looking into but we were just looking at another firm with two principals and a bookkeeper who will all be leaving once they sell – in fact I think it is still for sale.

The firm is located in a smaller area not a whole lot of other firms in the around except for one H&R Block. We decided not to buy this one, it essentially came down to not being able to serve the 1000 clients at this firm and still manage our “main” firm (It would essentially be just me doing the tax work, we had the write-up work covered). There was no way I could drive to the firm from my home and back to meet with clients as well as get work done. I would have spent 6-7 hours of my day traveling. Basically I would have to move there, and I had no desire to do that. This could have been mitigated by hiring another CPA or tax guy to handle the intake and some of the work while we worked remotely. However there were no experienced tax professionals in the area, we even worked with the owners to help hire someone.

I would not buy anything that I couldn't easily get to at a moments notice unless there were people at the location that could run things in your absence. I don't know what accounting experience your family member has but I would want someone who could at least answer some basic questions.

Some things to consider:
-If many of the firms clients are out of the area your physical location may not even matter. However if they client base is highly concentrated they probably will want access to you not just an office
manager.
-In regards to purchase price don't worry about clients leaving, these deals should have a claw back so that if clients don't return you don't have to pay for their share of revenue. This also motivates
prior owners to do as much as they can to push the clients to stay with you. on a side note, have the owner self-finance the deal for as much as possible. That way if you use the claw back you just
don't pay the owner versus having a bank loan and trying to get cash back from the owner. That's not to say you should't worry about client retention in general though.
-I don't think a transition will be as consuming as some of the other posts above say. It's not like absorbing another firm and converting software and changing systems which can take several years to
work out all of the wrinkles. Not saying it will be easy but a firm this size, the transition itself should not be that bad.
-I agree that the current owner should work with you at least for one tax season. But make sure you have agreed on compensation in the purchase agreement.

Good luck!

AUD - 82
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“You’re paying me five dollars an hour to find two cents—it doesn’t make sense”

[bhunt815]

If you have a half million lying around and trust your ability to run it well then by all means…go for it. CPA firms usually sell for around 1-1 gross so you'll likely walk into a company with revenue of a half million a year. Not sure why your current employer would have any interest in an out-of-state firm, but maybe.

Here's my concern about buying an existing firm though, and I don't know a single person who has ever bought one so this is just a gut feeling. Many times CPA's have a personal relationship with their clients, and many CPA firm's clients are there because of that trust and relationship. So, buying out an existing CPA with $500k annual billing doesn't necessarily mean that you are going to keep all of that, or even most of it. Is the current owner going to stick around awhile until you build your own relationships with the existing clients?

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Becker Self Study supplemented with Ninja MCQ's for BEC and REG.

Licensed CPA in Louisiana.

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[Anonymous]

I liked the seller financing idea with a clawback on lost revenue. My father ran his own sole practitioner practice for maybe 30 years. $500k of revenue on a one-guy firm is solid. That being said – he always talked about the relationships. Knowing about your client where if they forgot to provide you something you'd know it's missing – is key. I think then relationships are really key. I'd want to work together.

[Author]

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