A Guide to Maximize Your CPA Firm Sale

By Stan Sterna

 Whether you are approaching retirement age, want to spend more time with your family, or looking to start something new, selling your CPA firm requires proper preparation. Careful consideration of timing and paying attention to details can help ensure a smooth process when you are ready to sell your CPA firm.

Timing Your Sale

Before you seek out potential buyers for your business, consider the timing of the sale of your CPA practice. The ideal timing will take advantage of your business’s peak financial performance, optimal market conditions, and industry trends. Key considerations:
 

• Strong bottom line. Sell when your business is trending upward with a solid bottom line. Buyers are most interested when they see a healthy forecast. 
• Market conditions. Are other small firms selling? Assess competition, demand, buyer activity, and sale prices of similar businesses. If the market is slow, wait for an uptick or highlight your firm’s unique strengths.
• Time of year. Tax season (January – April) can deter buyers due to workload. Summer and fall are quieter, making it easier for new owners to transition and plan for the next year.
• Transition period. Determine how much support you’ll provide the new owner. Introduce them to staff and clients, then step back while allowing time for guidance as needed.
• Personal and professional plans. Align the sale with your timeline. Whether retiring or moving to a new venture, set a sales calendar to meet your deadline. 
   

Enhancing Firm's Attractiveness

Maximizing your sale price should be a goal regardless of your reason for selling. You worked hard to build your business, and the selling price should reflect its worth. Now is the time to showcase your strengths and increase your business’s appeal to buyers.

• Conduct an audit. A financial audit shows transparency and identifies areas for improvement. Address issues before the sale to build credibility.
• Highlight your clients. Show buyers that clients rely on you and return yearly. Use surveys, testimonials, and collections data to demonstrate loyalty.
• Update technology. Ensure accounting software, CRM, website and internal tools are up-to-date. Tech-savvy buyers favor modern systems.
• Spring cleaning. Don’t overlook office appearance. Clean and declutter to create an inviting space.
   

How to Value Your CPA Firm

Assessing your company’s financial health will give you an idea of your firm's worth. While the mathematical calculations to determine the final value rely heavily on your company’s financials, the non-financial factors, like location, client base, and service offerings, help provide a comprehensive picture of your firm's worth.

Below is a look at factors to consider in your CPA practice’s valuation. Keep in mind that firms sold through a buy-out or to an insider will probably not undergo the same rigorous valuation as a firm sold to an external buyer.

Financial Performance

Your potential buyers will determine your firm’s strengths, potential risks, and overall value during their due diligence. Provide them with a positive feeling about their return on investment with accurate, appropriate reports that clearly show your firm's stability and longevity.

• Ensure accurate and up-to-date financial statements.
• Show consistent revenue growth over the most current years.
• Emphasize efficient operations through effective cash flow management and the firm’s ability to meet short-term and long-term financial obligations.
• Highlight your diversified service offerings with competitive hourly rates and fees, and your ability to generate income across multiple revenue streams.
• Demonstrate your company’s growth potential with sales growth and client retention.
   

Client Base

A CPA firm is nothing without clients. Demonstrate your practice management skills with your deep, loyal client base. Update your CRM records and rank and categorize your clients according to demographic, longevity, number of services purchased, satisfaction, and potential business. Organizing your client base will give you the information you need to calculate your clients’ financial worth.

Staff and Operations

Your CPA practice’s size, staff expertise, and efficiency of operations are all indicators of the success of your business. Are your company operations streamlined? Are you positioned for growth? Do you have a stable and satisfied employee base? Do you have well-documented procedures and processes? While placing a monetary value on these items is challenging, each factor contributes to the overall assessment of your accounting firm’s worth.

Methodologies for Valuation

There are two popular methods to use for a CPA practice valuation, both with variations on the calculation. You may want to calculate the value using several options to find a range for the valuation before settling on a value you believe accurately reflects your firm's worth.

• Multiple of Gross Revenue. Also referred to as one-time gross revenue, the multiple of gross revenue calculation determines the value of a company as a multiple of its revenue for a set period. Some estimates use the latest financial year, whereas other calculations rely on an average of several years. This popular valuation method is favored by new firms with a thin profit margin. The buyer agrees to pay a multiple for every $1 gross revenue. Often, the multiple is one; however, the multiple can range from 0.5 to 1.5 times the revenue, depending on the market conditions and firm appeal. Using these multiples as an example, a firm generating $500,000 in annual revenue could sell for as low as $250,000 or as high as $750,000.
• Market Multiples. The valuation multiples apply a numerical factor to your firm’s financial metrics, such as cash flow, earnings, or revenue. Common multiples used in the sale of CPA firms include EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortization), revenue, and SDE (seller’s discretionary earnings). The multiple of earnings valuation typically realizes a higher price than multiple of its annual gross revenues.
   

Average Timeframes for Selling a CPA Firm

How long does it take to sell a CPA firm? Various factors will affect the range of time for each phase and timeline of your sale based on your specific situation. Anticipate dedicating six months to a year to sell your firm. Here is a general idea of the phases and their associated durations to better help you create a streamlined plan for the successful sale of your CPA firm.

• Initial Preparation and Listing (1 – 3 months). You and your co-owners are primarily in control of this phase. In the preparation phase, you enhance your firm's appeal to potential buyers, gather all the essential documentation, and reach out to brokers, if appropriate. The size of your business, your organizational level, and the condition of your records and office space are vital factors. Creating comprehensive documentation can expedite the due diligence phase.
• Marketing to Potential Buyers (3 – 6 months). The time it takes to attract interested buyers depends on the current market. During a good market, buyers may seek you out. Stable and recurring revenue and opportunities for growth driven by specialized accounting and consultative services has made accounting firms particularly attractive, especially to private equity investors. A slow market, on the other hand, will require reaching out through multiple marketing channels and spending more time networking.
• Due Diligence (2 – 4 months). Interested buyers will take time to thoroughly examine your firm's financial records, operations, client data, and other important aspects of the business. Multiple potential buyers will extend the timeline. Providing accurate, thorough information collected during preparation can shorten this phase.
• Finalizing Sale (2 – 6 months). Finalizing the sale involves negotiations, legal processes, securing financing, and transition planning. The size of your business and the number of interested buyers will affect the time it will take to close the sale.
   

Conclusion

Selling your CPA firm is a significant decision that requires careful planning and strategic timing. By preparing your practice, enhancing its attractiveness to buyers, and understanding valuation methods, you can ensure a smooth transition while maximizing its value. Whether you're retiring, pursuing new opportunities, or simply stepping away, taking the right steps now will set you – and your firm – up for long-term success.

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Stan D. Sterna, Esq. serves as Risk Control Leader in the Professional Firms Division of Aon Affinity. As a claim and risk management consultant, Stan provides quality control, claim/litigation management, and risk control expertise to many of the country's largest accounting firms. He also advises clients on broader enterprise risks including cyber and management liability. Stan likewise supports business planning, client relations, and sales/marketing initiatives for the AICPA Professional Liability Insurance Program and Aon's business partners.