How to buy an accounting practice

This article was current at the time of publication.

Acquiring another practitioner’s business may seem like a faster route to expansion than organic growth alone. 

However, those who have embarked on this path warn the initial cost outlay can be compounded if practitioners fail to understand the time integration may take and the level of due diligence needed. 

John Zerella FCPA, who has grown his business AFM Services through acquiring eight firms, says it can take up to four years to successfully integrate a new acquisition.

“In all cases, except one, we have bought practices from accountants approaching retirement and they have stayed in the businesses for an average of two years to assist with the changeover,” he says. “That is, by far, the most successful formula.” 

For Justin Smith CPA, co-founder of Meridian Accounting & Business Services in Rockhampton, acquiring practices from retiring business owners who remained in the practice for a changeover period has also been a successful growth strategy. He’s bought out five so far. 

“It allows you to avoid a rushed approach, especially with clients,” says Smith.

Avoiding a culture clash

However, accountants shouldn’t think leaving the vendor in place means that all cultural bases are covered, notes David Smith FCPA, founder of accountancy consultancy Smithink.

Smith, who undertakes detailed practice reviews for those in acquisition mode, advocates spending time with the acquiring practice principal in order to get to know them and their company culture well. 

“Far and away the biggest problem when I have worked with firms on failed mergers has been about cultures not merging.”

Justin Smith CPA agrees: “Getting to understand the practitioner and whether their practices are aligned with yours is an important first step. It has a massive influence on your business and the client base.”

Zerella believes that taking a risk-based approach to onboarding staff from an acquisition pays off. 

“Of course, you can be wrong about somebody, in a negative or a positive way. I had one practitioner I really didn’t think would fit in with our team structure. I built in an employment contract that would … give me the option to remove him over six-month increments. 

“As it turned out he was an amazing team member, loved by all. At the end of two years, he did decide to retire, and I was begging him to stay.”

Putting the business under the microscope 

Gareth Yaxley CPA, founder of eight-member firm Traktion, advocates taking due diligence very seriously. 

“When someone presents their financials for the last three years, it shouldn’t be ‘deal done’. There needs to be six weeks of constant back and forth. You want to understand, in detail, the full history of the business.”

David Smith says this is especially important when it comes to work the acquisition has carried out with clients you are inheriting.  

“I have seen practices where there is insufficient due diligence into technical work. [This] has lumbered [the business] with retrospective work and clients who are reluctant to pay. That can be catastrophic.”

What not to do when buying a practice

In 2002, Zerella bought part of a practice, which left clients confused and dissatisfied.  

“I wouldn’t buy only part of a business again,” says Zerella. “Clients get confused and offended. [They wonder] why are they going across to someone else while the older practice is still in play?”

Even with the market for practices booming, there can be the odd case of the price being too good to be true. In these cases, aspiring owners need to check what’s lurking under the hood. 

Justin Smith notes that his only challenging purchase to date has been one where the price was right, but there was considerable compliance management that needed updating. 

“That was a learning curve,” he says. “But we weren’t shy of getting that sorted out. While accountants are risk averse, sometimes you need to balance that with ambition.”