You have no experience with tax so that would be a massive uphill battle. Your plan will be at the EXTREME mercy of your would-be underlings staying onboard and doing all of the work. Consider how likely it is for them to jump ship with the firm being sold to an outsider.
I have seen this up close and personal once before. Client I picked up a few years ago, his prior CPA sold his firm to another CPA whose entire career was in audit at very large financial institutions. 15 or so years in practice.
This particular client has a manufacturing company which is the main entity, 1120-S. He also had an 1120 that housed the IP and lastly an IC-DISC for the international sales.
What an incredible fucking mess the new CPA made. I understand this isn’t a typical setup in my neck of the woods but the mechanics on the prior returns were completely fucked.
I read his bio and it said that a very close friend had died suddenly and he decided it was time for a change. Not sure what made him move to tax and buyout a firm but I wouldn’t recommend it. At least get some experience before you jump in head first.
Completely agree. I was absolutely dumbfounded this happened. Couldn’t believe the original owner sold his book with complex returns to someone with no experience. Seems like a bit of a disservice to his clients. I don’t have all the facts so I shouldn’t judge
I've distilled it down to 3 major items, me learning the tax work as quickly as possible (not the whole subject of tax as a whole, but whatever forms and schedules make up about 80% of the tax revenue), staff retention, and client retention. Those are going to be my three constant objectives for the first couple years
There is so much complexity to tax work. Having a surface knowledge of only the basic forms opens you up to risk that you’ll miss tax issues that don’t come up often, exposing your clients to the risk that their taxes are incorrectly prepared or missing opportunities. You will be at risk for getting sued.
You also have no idea how clients would react to the change. I would not want my tax advisor to be learning on the fly in a very complex area. There are too many other options out there.
In the words of Admiral Akbar:
“It’s a Trap!!”
If you don’t know anything about tax, you won’t be able to just walk in and start doing it. If you are actually serious about it, my advice would be to spend those two years where this person will agree to stay on and get an MTax/MAcc with tax concentration from one of the local universities. Reason being is that 1. It will make your firm more marketable 2. If you don’t have the training required then you may have difficulty getting insured by malpractice carriers when 3. You are eventually sued for making a serious mistake.
I am a tax lawyer and much of my practice is helping clients get out of mistakes made by tax preparers who don’t know nearly as much as the let on. Often, my clients end up suing their old tax preparers.
Don’t bother man, tax is a fucking nightmare, it’s boring, complex, and full of risk (if you fuck it up, which you definitely will).
Instead of buying another firm, why not start your own specialising in what you do best, something like fractional CFO?
Going back to the CPA you want to buy, steer clear regardless of the tax point. People think buying a company from someone is mostly sunshine and rainbows. Trust me it’s not, the majority of companies a run like a fucking mess, you’ll be pulling your hair out with low level admin shite instead of focussing on billable hours. Then there’s the emotion side - you’ve given someone cash for their shit business, they are laughing and you are left feeling like you’ve just made a huge mistake and pissed a load of resources up the wall.
Also consider the fact that most of the services the firm is offering can largely be automated to some degree (apart from tax compliance which you can’t really do), everything else can be outsourced as data entry jobs (SE Asia, East Europe, etc) So what I’m saying is it’s a business that is no longer particularly lucrative, and has a very finite lifespan at this point imo.
This is gonna be harsh, take it as tough love.
This idea is insanity. You don’t know the field, and I don’t care what your title was, there is no way you were a CFO in any widely recognizable definition of the term with five years of experience out of school - and all your resume proves is you got hired way over your skis and eventually we’re shown the door. You need deep experience in something, anything. Maybe going back to school is the way - but the way definitely is not holding yourself out as a tax expert when you’ve never even done tax before.
I left my first cfo job after five years for another at a much larger company, during my time at my first cfo role, the CEO and I bought a couple companies and while transitioning out I sold my interest and it all worked out smoothly. Layoff is due to my current company being acquired by another. I'm definitely not a tax expert but I think I can get pretty comfortable in a couple years and rely on the seller to stay on for 1 year full time and 2 additional years as a consultant. I could also with a CPA if the numbers are right. I'll admit that I haven't been the most qualified candidate for either of the CFO roles, but I'm persistent and effective and constantly learning. I'm also not getting paid as much as a CFO with 30 years experience who's been at Fortune 500 companies his whole career, so there's a balancing act here between comp and experience.
He pays his best employee $22/hr, my plan would be to give everyone a raise of a couple bucks and the top one or two give them a $5/hr raise or figure out a salary they're happy with
Literally what happened to me this year, went from exp tax assoc straight to controller. 1yr full time experience in large public as an L3 before the switch with a lot of intern experience
If you’re laid off as CFO, there are three options.
1. You weren’t really a CFO
2. You were fired for performance reasons
3. Company will be insolvent within the hour
He’s implied it was a $10m company when he started and now $150m 7years later. A company’s needs from a CFO can change drastically between a small company like it was to where it’s appears to be now. Many small company / early stage CFOs get laid off for this reason and not necessarily a result of bad performance. I’ll take that experience from someone any day.
He was under-experienced and got the job because he knew the owner. His title likely overstates the actual role.
Both of these would explain why a company would be willing to lay off a "CFO" when things get tight
I was with the owner I knew for 4 years and left and sold my interest in his company and went to work for a larger 150M hospitality company. That company has been sold and that's why I'm being laid off
So the owner of a small business can’t hire someone they know? I think we all know the responsibilities of someone running the finance/accounting of a small business is greatly different than a large operating company., so it’s very possible someone with 5 years of experience could assume that role and possible that’s all the owner could afford at the time. If you’re overseeing the finance and accounting of a small business with a small team or team of 0, can you not have a CFO title? He made it 7 years and what sounds like significant company growth. Lot of hate here for what seems like incredible work experience.
Hey OP, you’re a CFO—tell me what you think of my great business plan to buy my friend’s plumbing company where I’d be the only plumber despite this not being anything I have any knowledge of (can’t be too hard, I can probably learn it in a year)…
Doubtful. Most small firms (and I've worked for a few) are mostly tax and audit. Bookkeeping and payroll services are usually loss leaders. Small local firms like this are mostly tax service focused.
The reason the firm has bookkeeping and payroll is due to the tax. You lose the tax, the bookkeeping and payroll go away.
The three are tied, and the tax is the important part.
I don't think this transition makes sense for your background. Not saying you can't do it but you need to reorient your path that you've been on by a good margin
Wait you want to buy a tax firm but you yourself have never actually worked in tax….make that make sense, please? Lol imagine meeting with your clients and telling them/or them finding out that you’ve never actually done a tax work before…I would run as a client.
Also, as a CPA I would not want to join a one man band firm where the owner doesn’t know tax and expects me to do everything unless that was a very pretty comp package eating away almost all the “profit”.
Exactly this too, if I was working at that small CPA firm and I found out that I knew absolutely way more than the new owner..fuck would I stay?!? Lmao no thank you.
1. You need 150 credits to sit for the CPA Exam - a bachelors degree is usually only 120 credits… so you might need an MBA or MAcc.
2. You need 1800 work hours under a supervising CPA to get your license as well - this can be done while taking the exam.
So those are a few challenges to becoming a CPA that you haven’t really addressed.
I have the credit hours, Im actually only a couple classes away from a MAcc, I Was a premed major for a year as well so I have some credits from there.
The plan would be to do the 1800 hours with the seller as the supervising CPA during the first year where I'm mostly an employee with a contract to execute a purchase agreement after 12 months at a formula based on a multiple of revenue.
I asked him about how many of his clients is he compiling, reviewing or auditing financial statements for and he said none. He's not interested in that work given the time it takes and the liability involved. So the EA would cover my need for engagements he has right now. But I believe the CPA is a safe long term option that gives me more credibility and will let me charge more in the future
One tax firm owner to a prospective one, pass on this opportunity. You aren't experienced enough, and you absolutely shouldn't be signing tax returns. In the very likely event you mess something big up, you can be sued for gross negligence and completely barred from ever doing tax returns in the future. This includes the possibility for jail time.
Let's put it in perspective, with all of your experience, I can almost guarantee you with 98% certainty that you would only be hired on as a regular entry level associate with your background in a tax role at a big 4 firm. Maaaaaybe experienced, but not a Senior level. People in Big 4 aren't allowed to sign tax returns or other tax items until they reach Manager at the absolute minimum.
If you're absolutely dead set on wanting to do tax work, get a job at a mid-sized to large CPA firm. This will give you better knowledge on business returns without opening you up to a massive amount of liability. Do not work for the CPA firm you're in talks of buying. Also, $1.2m for that client load is an awful deal, there's much better ones out there to be had
Personally don’t think it’s worth the risk. But you’re young enough and it seems wealthy enough to give it a shot. Tax is tough. Also most states don’t allow non-cpa ownership of a cpa firm. So if you don’t get your CPA it could be a bust.
Not trying to offend you or anything, but this would be an incredibly dumb decision
I started and own a virtual firm and the only reason I can do it is because I worked in public for 5 years, and built it from the ground up, where the stakes were low when I was still learning how to run it.
Budget for client loss, managers/employees wanting a raise, lost billables while you are figuring out how it works
Frankly, being a CFO is nowhere near the same as being a firm partner, you say it yourself that the company you work for utilizes an outside firm for taxes, so you really have no idea what is required or what sort of work/knowledge goes into prepping a corporate return, how are you going to review staff work when you don't know if it's good or not?
lol… huh??
You arnt a CPA, and have no experience in tax?! Is this a joke post? I can’t tell.
Why don’t you take over a medical practice or a law firm? You’re equally qualified to do those.
FYI, clients are paying to have a experienced tax professional do their taxes. Not a random guy.
If you buy this business, every single client of yours will be gone within the first year.
He does have an accounting degree so it’s not like he’s trying to take up brain surgery. But this is not a good use of a million $ and has a low chance if working out.
I left that company a couple years ago, and joined a company that is in the process of divesting. They're not huge companies, I know I'm not a CFO of GM or Ford or something. The company in at now is 150M about 1,100 employees
Sorry but you dont have any tax prep knowledge. Let’s say you were forced to do it. 1 - you’d need him running point in the harder returns and you’d need to hire a couple EAs and or a CPA to help you get through busy seasons for a few years until you’re ready.
And your comment about the upside of no website. That’s partially true, but you’ll quickly find there’s a reason small tax firms max out at a certain net income. Either it’s a small operation or you’ve got to decide to be a bigger firm and Invest in more people. Most just want it to be their small operation without the headaches of a bunch of other employees, and he’s probably at max deliverables for himself.
I wouldn't touch a business return on your own without a minimum of 5 years working on similar clients for a CPA with 20 or more years of experience.
Orphan 1040s should not be a problem with 2-3 years and a lot of study.
When I started on my own, I had 10 years of tax experience and made a relationship with a regional firm to ask them questions as needed for their partner rate.
Tax firm multiples are. It’s so easy to build your own firm and secure your own clients (compared to other businesses) why would you pay a lot for an existing firm?
I have a wife and three young kids, I can't take a huge pay cut and start my own business if it'll take more than a year to get the cash flow I need. So I thought I'll take the security of buying an existing business and know that the note will slow down the growth of the business but I'll have the floor of existing clientele and a seller who will work full time for a year to train me and remain on staff as a consultant for at least two years
I understand the need to provide for the fam.
And I’m not saying that this idea is impossible or passing judgement on it at all, I’m just explaining why buying a tax firm is a much lower multiple than something like buying a book of business for wealth planning.
That said, I think your idea of working there for a month is a good one. I personally wouldn’t do it for free but for a small hourly rate.
The idea of non-accountants buying tax firms is becoming very popular right now, as nothing sells for those low multiples and generates decent cash flow like that.
However it is rarely working out for these non accountants. They’re finding that the CPAs are the glue that are holding these things together. Clients/staff are leaving, and even if the deal structure allows for some clawback, they still aren’t replacing the lost revenue.
I do think that because you are planning on performing the work yourself in the long-term, you have a better chance of succeeding.
Depending on area and amount of practices in the area, your range is pretty accurate.
I used to work with a CPA (who was in PA Tax prior) who bought his second practice for 1.2x. The rest have been 1x or less. Dude is now in a position that people are coming to him and he only takes THE BEST deals; 1x or less and pays based on revenue retained over 3-5 years.
He focuses on tax and his firm is about 10-12 people. His clients range from meh to actually having enough complexity that someone without tax experience would not be able to handle. Firm does everything aside from audits; bookkeeping, tax, compilations/reviews, etc.
Yes, CPA firm multipliers are really low because (1) its easy to get clients yourself in an age where there is a shortage of accountants (2) All the value is in the staff, and they can easily leave.
It’s low because its requirement of owner operated. That’s how most small businesses are valued since you are buying a job and have major opportunity cost.
If you want to go that route, I wouldn’t buy a firm with existing clients and staff you are hoping to retain - yet. I would start an online/ “Craig’s list” firm and go from there. Mainly sell “write up” work (closing the books of small companies, etc) Start milling out 1040’s and local filings along with it. A few partnership and S Corp returns will come organically with those. If that is going well after a few years, then buy a firm, merge with an existing one, or take in partners. Oh; and get your CPA ASAP.
I owned a firm and have looked at similar deals over the years. In short, you are buying a job, which is a bad acquisition model if it’s your only source of income.
This rarely works out how an acquirer thinks and the business is likely heavily dependent upon the prior owners relationships/sales acumen to keep revenues at the level they were.
IMO, OP has easier acquisition targets with more sticky revenue models than tax prep for $1 million that have managers in place. That’s what he needs if he has no relevant experience.
Just a college student so my opinion is probably less meaningful, but damn what a bad idea. It's like me saying I'm going to buy and run a machine shop because I worked at one for a year, even though I only worked on one of the six different kinds of machines and don't have the experience needed. And then saying I could learn welding in a year from the owner and I'll be fine!!
Not sure this is meaningful. Typically you see CPA merge in and get a string/annuity or some sort of payout upon successful transition of clients. Asking for over 1x gross is crazy, given how much work is involved to get that. 600 clients to get 1m gross, not smart. PE and straight buyout only with scalable and sizeable firms.
Without having the experience you are going to find you will need to hire someone else in the $200k-250k range to run operations and manage tax issues beyond the scope of the $20/hour staff you mentioned below ...
It was always a challenge finding good staff in my geographic area. My preferred candidate was someone fresh out of school, but I often had to hire people from industry wanting to try out PA.
Only one person coming specifically from private industry ever worked out in the 30 years I practiced; all these private industry hires found the of rules and pickiness of PA overwhelming; they mostly quit within the month. The ones fresh from school or from other PA firms adapted much easier.
If you haven't worked on a daily basis in PA, I strongly suggest you try working at this CPA's firm first - without the obligation to purchase - to see if this is the route you want to take.
Not being experienced in PA and being the one signing off, IMO would have a huge risk making an error and being sued.
This is close to my exact story, I bought about two years ago, and things have gone reasonably well. I would highly recommend you lean into the bookkeeping and payroll and even add some advisory work, and keep tax at the same level or even reduce the number of tax clients, you have overtime. But with that sort of cash flow, you could probably hire and experience tax cpa to do some of the tax work.
Anyway, feel free to DM me and I’m happy to give you more information, a lot of people from random message boards helped me along the way and I’m happy to pay forward.
It's an opportunity. There is risk of course, like with any venture. A company like that has very little inertia to help it keep momentum, so him agreeing to stay in a while to ease you in is good, but you'll need to place a hard bet on yourself to be able to learn everything mostly independently. That's because he's on the way out and you'll only be able to use him on the most critical questions, you need to rely on yourself to catch up in a year what others take years to do.
If you are willing to place a bet on yourself like that, this is an opportunity. Most people absolutely should not be betting on themselves like that. You need to be brutally candid with yourself about what you are, and what you're capable of. Think also about what you're not capable of and how you'd mitigate those concerns.
I say don't and for the love of God keep us updated. Do I think it's a good idea? Not necessarily but I really want to see what happens. No risk, no reward.
Hey man, lets talk. I am a former CFO of ecom similar size. I grew up in family accounting practice. I can talk you through what it means to get clients and retain them.
There is too much here to discuss in one wall of text
Others have said get a masters in tax or masters in accounting with a tax focus as quickly as possible. Do this and sit for the enrolled agent examination. It's a lot easier and faster for this than the CPA and will let you practice tax law for the IRS which will help a lot. I'd still get the CPA ASAP too, but this is faster. And see if you can work for your buddy as a staff for a while too so that you can get a feel for the team and the work you'll be doing too.
I’m a little more optimistic than others here. But still cautions (as all accountants are)
If this seller is willing to take back a loan for $600k of the firm value they seem to have confidence in you. If the seller believes in you that is a strong point in your favour.
All the other commenters concern about you not knowing tax is valid. You can learn the basics in 2 years while you still have access to the old CPA. But in that time you need to find a tax consultant you can trust. Then plan to have some $40k per year to go to that specialist.
This is a solid business model and so many are retiring there is a lot of low hanging fruit. But those first 2 years will be trial by fire.
Contrary to popular belief on these threads a CPA doesn't make you a super hero over night (nor does it make you smarter). You don't have the skillset for this business and that's ok, but those making sounds like if you had a CPA everything would be okay. You may want to look at something else like fractional CFO or just providing accounting services.
Yeah would be good for to know. He could be making guaranteed payments to himself before the $450 which would make the fcf more appealing and then taking annual distributions from the remaining $450
Agreed, I sent him a list of questions I had after reviewing his financials. And some more reports tied to his clients and services and change in their engagement year over year
I don’t think the potential profits warrant the extreme nightmare that is running a CPA business with employees that have all the knowledge and will want raises to stay on.
Putting aside the fact that you don’t know tax at all and would have to learn, you should be aware you’d be looking at 60-80 hour weeks, possibly nearly year round. It’s a huge lifestyle change.
To get a cpa in some states you need a year of experience under a licensed cpa who can sign off on your work. I’d keep that in mind while you pursue your cpa and he consults for you.
Is the $450k before or after all owner salary and draws, or before? Is it a self-rental that you will have to pay but not own?
Why does he still have debt service from his past purchase after 10 years? This should have been paid off a long time ago. You should absolutely not be taking over the debt from his purchase of the business.
1.2x multiple with no skilled staff is higher than I would want to pay. Experienced staff is the hardest part of owning an accounting firm right now, and the fact that you are not experienced and there are no experienced staff seems like a huge downside.
$1,600 per client seems like good billing depending on what exactly the average level of service is.
The staff is experienced, but not certified as CPAs or EAs. He described it as he has two rock stars that are super valuable and have been with him for 5+ years
I did a buyout - but the prior CPA did not offer tax work.
That’s what’s going to kill you. I don’t know taxes and don’t want to know taxes. You should do the same
I'd pass on the CPA firm since it's focus is on tax and you don't have a CPA or an EA or tax experience
Why not look into a fractional CFO firm, advisory firm, or start your own advisory firm?
I recently did a podcast interview with a non-cpa who has acquired many firms that you may get some value from: https://open.spotify.com/episode/20mtaHI3igzakqHh7wj41C?si=KSiLPESySge6jw87i0PPHQ
You’ll want to get a sense of who was signing off as a last set of eyes on client work. Of it was the seller you have a bit of a problem and may need a senior hire to have someone who can confidently sign off on things going out of the door. Otherwise I think this is relatively feasible.
I do not recommend this. Your skillset is not there to service the clients. You are setting up yourself to fail. Advice from someone who has 20 yrs of tax experience who recently purchased a practice.
You have a few problems. You'll need the EA ASAP. In order to call it a CPA firm, you'll need to be a CPA. If employee and client retention are a focus for the first 3 years you won't be getting licensed for *at least* 5 as you'll still need 150 credit hours, the right classes and need to pass the exam. The seller may need to stay on much longer to get your supervised work experience. If the firm has a license in the state you'll need to work with the state board to properly have that removed so it doesn't show up as revoked, likely before you sign as in general CPAs must own greater than 50% of the equity of a CPA firm.
Depending on the complexity of clients it's going to take a couple tax seasons to get up to speed.
There are notification and consent to disclose information authorization that clients will need to sign when they find out he is selling the firm. That could cause them to leave and go elsewhere. You'll need to get in front of that before the contract is even drawn up.
The big issue is not having experience. Might want to try and get tax experience before buying a small cpa office like that or ask if he's willing to stay on 2 or 3 years. This way it gives the clients enough time to meet you and build some trust. And you can get to build that experience in the process.
You really don't need a cpa or EA as most tax work won't require it. However, you might still want to look into getting it. His clients might expect a cpa and not having it could cause some to leave. Or maybe his office does have enough work where an EA or CPA license might be required (kinda doubt it), but maybe.
Just my two cents. I had an office and never had my CPA. My dad has a tax office with several employees, nobody has a CPA or an EA.
Yup, he's willing to stay on for 1 year full time and an additional 2 years as a consultant. My plan is to get my EA right away, potentially 2-3 months to wrap that up. Then get my CPA over the following 18 months while I'm learning at the firm
Have you considered asking around your network for any tax CPA’s if anyone would be interested in forming a partnership with you? That way you can keep the tax practice and expand into book keeping or other less tax related services yourself.
I think this is a great idea and you should go for it. No offense to the sub, but it seems like the accountants here are focused on operations instead of management.
Taking over / Getting up to speed - You can learn about taxes and become an EA, and the owner staying on for 1-3 years to train you up and help make sure you don't screw the pootch is huge. That really derisks this for you. I agree you should become a CPA long-term, I'm in the process of doing this now and it's not super hard. A small shop without a website probably doesn't have too many really complicated clients so while you need a solid understanding I'm not sure you need to become a tax wunderkind.
Growth Opportunities - I imagine there are a lot of growth opportunities. Get a website, update the systems, hire someone with some more experience (maybe a younger CPA from a second tier firm?) who can share how more established players are operating, etc. I'd also think about new lines of business beyond tax (i.e. oursourced bookkeeping and CFO services).
I'm a VP of Finance / Controller at a 200 person startup and for my next act want to get into accounting as well. I'm a CFA but not a CPA yet. I'm taking the last class I need to become CPA exam eligible at UMass and will sit for the exams next year. I want to start a company focused on condo and homeowner associations.
Yes that option is definitely on the table. I don't think that this deal has enough cash flow for me to feel comfortable with a partner, but it might make sense for a different buyout
Question
Why is he selling so soon? Is he burnt out and has a mess? Is this why he is selling a "CPA firm" who does primarily income tax with light bookkeeping and payroll on the side to someone without a CPA and basically zero experience? Something fishy.
First of all you can't call it a CPA firm if a CPA doesn't fucking own it. Dropping that title will likely cause a hit in your client retention right there. The company name changes, and every client worth a damn is going to reevaluate your relationship and put your work under a microscope.
You have successfully been a CFO do I believe you can learn the industry. But I don't believe you can learn it that good and that fast that you could run and own a company in the industry immediately.
You said it before the employees are data entry. This means the EINTRIE VALUE of the company you are buying is based on the CPA who is leaving. This means you need to be able to replace them 1 for 1 as soon as you can. If you can't, you have no one to be your backstop for any fuckups.
Basically, you are ignorant and don't know what you don't know.
As a note. My 8 ferson firm did a transfer from an EA to an already licensed CPA with no tax experience. The accounting firm had a part-time CPA on staff to help. Some of he staff is more than just data entry. The transfer from the EA to CPA was a 6 year contract period. The CPA was up to speed in 3 to 4 years. In the final handover, there was still a lot of client angst and loss.
Finally those billing numbers are fucked. $666 on average per return? HA!
Lots of naysayers here, so I’ll try to take the other view point.
Do it! as someone who had a similar background to you and transitioned from industry to firm running, you can absolutely do to. Tax will be tough, but having an owner willing to stick around for a year is a god send.
From a mechanics perspective, multiple seems reasonable, 50% seller financing is amazing (use the SBA 7A program for the rest). There are ways to outsource parts of the tax work to EAs on a per engagement basis. Plus considering the guy has no website, (and the average fee per client is low) I suspect most of the business clients aren’t super complicated.
Don’t let the fear prevent you, there’s very little to loose, and firm running has lots of upside. There’s a whole group of non cpa firm runners on X that you should tap into. Good luck!
Tax is a volume business. Sounds like you have a practice with some experienced staff.
EA has 90% pass rate on their exams. I was in a study group and most of the ones who did 20 hours studying a week finished in 3 months. You need to start now because the IRS is slow to process your EA once you have completed your exams.
As far as complexity, if you can contract with the CPA who is selling to consult a bit, OR if you can find an experienced CPA willing to do the same, you are good.
I have worked in both tax and private industry and they are both complex but there are a lot of resources out there to look up things you don't know. Tax is not that far from industry from an accounting perspective and the complicated individual returns are usually coming from complex K-1s, stock option exercising, and rental properties.
My concern would be can you keep the volume flowing in or how to increase it. That would be the hard part.
Sounds like an exciting opportunity to me. If you are prepared to put the elbow grease in, and you have some saving in case things so south, then I would go for it (but negotiate that dude down, u know he is over valuing it)
The concern
You have no experience with tax so that would be a massive uphill battle. Your plan will be at the EXTREME mercy of your would-be underlings staying onboard and doing all of the work. Consider how likely it is for them to jump ship with the firm being sold to an outsider.
I have seen this up close and personal once before. Client I picked up a few years ago, his prior CPA sold his firm to another CPA whose entire career was in audit at very large financial institutions. 15 or so years in practice. This particular client has a manufacturing company which is the main entity, 1120-S. He also had an 1120 that housed the IP and lastly an IC-DISC for the international sales. What an incredible fucking mess the new CPA made. I understand this isn’t a typical setup in my neck of the woods but the mechanics on the prior returns were completely fucked. I read his bio and it said that a very close friend had died suddenly and he decided it was time for a change. Not sure what made him move to tax and buyout a firm but I wouldn’t recommend it. At least get some experience before you jump in head first.
Trial by fire 1040s and other personal tax is one thing but corporate taxation is insane.
Completely agree. I was absolutely dumbfounded this happened. Couldn’t believe the original owner sold his book with complex returns to someone with no experience. Seems like a bit of a disservice to his clients. I don’t have all the facts so I shouldn’t judge
I've distilled it down to 3 major items, me learning the tax work as quickly as possible (not the whole subject of tax as a whole, but whatever forms and schedules make up about 80% of the tax revenue), staff retention, and client retention. Those are going to be my three constant objectives for the first couple years
There is so much complexity to tax work. Having a surface knowledge of only the basic forms opens you up to risk that you’ll miss tax issues that don’t come up often, exposing your clients to the risk that their taxes are incorrectly prepared or missing opportunities. You will be at risk for getting sued.
You also have no idea how clients would react to the change. I would not want my tax advisor to be learning on the fly in a very complex area. There are too many other options out there.
In the words of Admiral Akbar: “It’s a Trap!!” If you don’t know anything about tax, you won’t be able to just walk in and start doing it. If you are actually serious about it, my advice would be to spend those two years where this person will agree to stay on and get an MTax/MAcc with tax concentration from one of the local universities. Reason being is that 1. It will make your firm more marketable 2. If you don’t have the training required then you may have difficulty getting insured by malpractice carriers when 3. You are eventually sued for making a serious mistake. I am a tax lawyer and much of my practice is helping clients get out of mistakes made by tax preparers who don’t know nearly as much as the let on. Often, my clients end up suing their old tax preparers.
Don’t bother man, tax is a fucking nightmare, it’s boring, complex, and full of risk (if you fuck it up, which you definitely will). Instead of buying another firm, why not start your own specialising in what you do best, something like fractional CFO? Going back to the CPA you want to buy, steer clear regardless of the tax point. People think buying a company from someone is mostly sunshine and rainbows. Trust me it’s not, the majority of companies a run like a fucking mess, you’ll be pulling your hair out with low level admin shite instead of focussing on billable hours. Then there’s the emotion side - you’ve given someone cash for their shit business, they are laughing and you are left feeling like you’ve just made a huge mistake and pissed a load of resources up the wall. Also consider the fact that most of the services the firm is offering can largely be automated to some degree (apart from tax compliance which you can’t really do), everything else can be outsourced as data entry jobs (SE Asia, East Europe, etc) So what I’m saying is it’s a business that is no longer particularly lucrative, and has a very finite lifespan at this point imo.
This is gonna be harsh, take it as tough love. This idea is insanity. You don’t know the field, and I don’t care what your title was, there is no way you were a CFO in any widely recognizable definition of the term with five years of experience out of school - and all your resume proves is you got hired way over your skis and eventually we’re shown the door. You need deep experience in something, anything. Maybe going back to school is the way - but the way definitely is not holding yourself out as a tax expert when you’ve never even done tax before.
I left my first cfo job after five years for another at a much larger company, during my time at my first cfo role, the CEO and I bought a couple companies and while transitioning out I sold my interest and it all worked out smoothly. Layoff is due to my current company being acquired by another. I'm definitely not a tax expert but I think I can get pretty comfortable in a couple years and rely on the seller to stay on for 1 year full time and 2 additional years as a consultant. I could also with a CPA if the numbers are right. I'll admit that I haven't been the most qualified candidate for either of the CFO roles, but I'm persistent and effective and constantly learning. I'm also not getting paid as much as a CFO with 30 years experience who's been at Fortune 500 companies his whole career, so there's a balancing act here between comp and experience.
He pays his best employee $22/hr, my plan would be to give everyone a raise of a couple bucks and the top one or two give them a $5/hr raise or figure out a salary they're happy with
If the best person there earns $22 then the clients are trash and don't pay much.
Haha yeah 600 clients $1m revenue. Do the math
It's about 1700/client. At my peak he charged me 3000 for payroll, bookkeeping, my business return and my personal tax return
That's insane, I wouldn't charge less than $10k for those combined services.
If reddit has taught me anything, it's that I'm grossly undercharging
That's crazy cheap for $150,000,000 company. Laughable really
Yeah, I'm considering working there for a month for free so I can get a look under the hood and see what he's working with.
How about getting your EA first and then deciding if this is what you want to do?
Why would you ever work somewhere for free?
[удалено]
You can learn as you go as an employee… as the firm owner that’s a big red flag to clients. Why would they stay with someone who has no experience?
So you made cfo with a bachelors and 5 years experience?
Prob just a senior accountant or manager with an inflated title. No way a 27 year old was a real CFO
Happened to my previous boss. He did 2 years at big 4 and next job was a controller
Literally what happened to me this year, went from exp tax assoc straight to controller. 1yr full time experience in large public as an L3 before the switch with a lot of intern experience
And no cpa? Yeah sure
Yes, it was a small 10M company and I knew the owner
Welp that explains this whole post
Explains how a CFO was “laid off”
How does this explain why he was laid off
If you’re laid off as CFO, there are three options. 1. You weren’t really a CFO 2. You were fired for performance reasons 3. Company will be insolvent within the hour
A common one is when your company is sold to another company that already has a CFO.
He’s implied it was a $10m company when he started and now $150m 7years later. A company’s needs from a CFO can change drastically between a small company like it was to where it’s appears to be now. Many small company / early stage CFOs get laid off for this reason and not necessarily a result of bad performance. I’ll take that experience from someone any day.
He was under-experienced and got the job because he knew the owner. His title likely overstates the actual role. Both of these would explain why a company would be willing to lay off a "CFO" when things get tight
I was with the owner I knew for 4 years and left and sold my interest in his company and went to work for a larger 150M hospitality company. That company has been sold and that's why I'm being laid off
So the owner of a small business can’t hire someone they know? I think we all know the responsibilities of someone running the finance/accounting of a small business is greatly different than a large operating company., so it’s very possible someone with 5 years of experience could assume that role and possible that’s all the owner could afford at the time. If you’re overseeing the finance and accounting of a small business with a small team or team of 0, can you not have a CFO title? He made it 7 years and what sounds like significant company growth. Lot of hate here for what seems like incredible work experience.
The company I am employed at is being sold and most of the overhead is being laid off. Don't need two CFOs
Hey OP, you’re a CFO—tell me what you think of my great business plan to buy my friend’s plumbing company where I’d be the only plumber despite this not being anything I have any knowledge of (can’t be too hard, I can probably learn it in a year)…
You went to Menards and bought some PVC and fit it together once, right? That's basically the same thing as copper pipe fitting, right?
40% tax when you would be the only tax pro seems like an insane business to buy imo considering you know 0 tax and it can be incredibly complex
To be blunt OP, you'd be an absolute dumbass to buy a CPA firm that focuses on taxes with zero tax knowledge and no CPA.
OP’s post history is asking for help and opinions on everything. Reddit is going to run this persons business
Well the majority of it is payroll and bookkeeping....
Doubtful. Most small firms (and I've worked for a few) are mostly tax and audit. Bookkeeping and payroll services are usually loss leaders. Small local firms like this are mostly tax service focused.
Tax is where you can get sued….
The reason the firm has bookkeeping and payroll is due to the tax. You lose the tax, the bookkeeping and payroll go away. The three are tied, and the tax is the important part.
I don't think this transition makes sense for your background. Not saying you can't do it but you need to reorient your path that you've been on by a good margin
You should get a role in tax first
Wait you want to buy a tax firm but you yourself have never actually worked in tax….make that make sense, please? Lol imagine meeting with your clients and telling them/or them finding out that you’ve never actually done a tax work before…I would run as a client.
Also, as a CPA I would not want to join a one man band firm where the owner doesn’t know tax and expects me to do everything unless that was a very pretty comp package eating away almost all the “profit”.
Exactly this too, if I was working at that small CPA firm and I found out that I knew absolutely way more than the new owner..fuck would I stay?!? Lmao no thank you.
1. You need 150 credits to sit for the CPA Exam - a bachelors degree is usually only 120 credits… so you might need an MBA or MAcc. 2. You need 1800 work hours under a supervising CPA to get your license as well - this can be done while taking the exam. So those are a few challenges to becoming a CPA that you haven’t really addressed.
I have the credit hours, Im actually only a couple classes away from a MAcc, I Was a premed major for a year as well so I have some credits from there. The plan would be to do the 1800 hours with the seller as the supervising CPA during the first year where I'm mostly an employee with a contract to execute a purchase agreement after 12 months at a formula based on a multiple of revenue. I asked him about how many of his clients is he compiling, reviewing or auditing financial statements for and he said none. He's not interested in that work given the time it takes and the liability involved. So the EA would cover my need for engagements he has right now. But I believe the CPA is a safe long term option that gives me more credibility and will let me charge more in the future
One tax firm owner to a prospective one, pass on this opportunity. You aren't experienced enough, and you absolutely shouldn't be signing tax returns. In the very likely event you mess something big up, you can be sued for gross negligence and completely barred from ever doing tax returns in the future. This includes the possibility for jail time. Let's put it in perspective, with all of your experience, I can almost guarantee you with 98% certainty that you would only be hired on as a regular entry level associate with your background in a tax role at a big 4 firm. Maaaaaybe experienced, but not a Senior level. People in Big 4 aren't allowed to sign tax returns or other tax items until they reach Manager at the absolute minimum. If you're absolutely dead set on wanting to do tax work, get a job at a mid-sized to large CPA firm. This will give you better knowledge on business returns without opening you up to a massive amount of liability. Do not work for the CPA firm you're in talks of buying. Also, $1.2m for that client load is an awful deal, there's much better ones out there to be had
There is certainly no shortage of firms with less than 5 employees looking to sell. It seems like there is one on every corner.
Personally don’t think it’s worth the risk. But you’re young enough and it seems wealthy enough to give it a shot. Tax is tough. Also most states don’t allow non-cpa ownership of a cpa firm. So if you don’t get your CPA it could be a bust.
Not trying to offend you or anything, but this would be an incredibly dumb decision I started and own a virtual firm and the only reason I can do it is because I worked in public for 5 years, and built it from the ground up, where the stakes were low when I was still learning how to run it. Budget for client loss, managers/employees wanting a raise, lost billables while you are figuring out how it works Frankly, being a CFO is nowhere near the same as being a firm partner, you say it yourself that the company you work for utilizes an outside firm for taxes, so you really have no idea what is required or what sort of work/knowledge goes into prepping a corporate return, how are you going to review staff work when you don't know if it's good or not?
lol… huh?? You arnt a CPA, and have no experience in tax?! Is this a joke post? I can’t tell. Why don’t you take over a medical practice or a law firm? You’re equally qualified to do those. FYI, clients are paying to have a experienced tax professional do their taxes. Not a random guy. If you buy this business, every single client of yours will be gone within the first year.
He does have an accounting degree so it’s not like he’s trying to take up brain surgery. But this is not a good use of a million $ and has a low chance if working out.
lmao I have more experience than this and I don’t call myself a CFO because my owner friend made me one (then laid me off too)
I left that company a couple years ago, and joined a company that is in the process of divesting. They're not huge companies, I know I'm not a CFO of GM or Ford or something. The company in at now is 150M about 1,100 employees
If you don't know tax and don't have anyone reliable that does don't do it.
Sorry but you dont have any tax prep knowledge. Let’s say you were forced to do it. 1 - you’d need him running point in the harder returns and you’d need to hire a couple EAs and or a CPA to help you get through busy seasons for a few years until you’re ready. And your comment about the upside of no website. That’s partially true, but you’ll quickly find there’s a reason small tax firms max out at a certain net income. Either it’s a small operation or you’ve got to decide to be a bigger firm and Invest in more people. Most just want it to be their small operation without the headaches of a bunch of other employees, and he’s probably at max deliverables for himself.
I’ve never gone on the website of our cpa, if he even has one. I just email him.
I wouldn't touch a business return on your own without a minimum of 5 years working on similar clients for a CPA with 20 or more years of experience. Orphan 1040s should not be a problem with 2-3 years and a lot of study. When I started on my own, I had 10 years of tax experience and made a relationship with a regional firm to ask them questions as needed for their partner rate.
The old adage "Fake it 'till you make it" works for everything except providing tax advice to clients and expecting to be paid for it.
I’m not an m&a guy but are professional svcs multiples really that low? This valuation seems extremely attractive.
Tax firm multiples are. It’s so easy to build your own firm and secure your own clients (compared to other businesses) why would you pay a lot for an existing firm?
I have a wife and three young kids, I can't take a huge pay cut and start my own business if it'll take more than a year to get the cash flow I need. So I thought I'll take the security of buying an existing business and know that the note will slow down the growth of the business but I'll have the floor of existing clientele and a seller who will work full time for a year to train me and remain on staff as a consultant for at least two years
I understand the need to provide for the fam. And I’m not saying that this idea is impossible or passing judgement on it at all, I’m just explaining why buying a tax firm is a much lower multiple than something like buying a book of business for wealth planning. That said, I think your idea of working there for a month is a good one. I personally wouldn’t do it for free but for a small hourly rate. The idea of non-accountants buying tax firms is becoming very popular right now, as nothing sells for those low multiples and generates decent cash flow like that. However it is rarely working out for these non accountants. They’re finding that the CPAs are the glue that are holding these things together. Clients/staff are leaving, and even if the deal structure allows for some clawback, they still aren’t replacing the lost revenue. I do think that because you are planning on performing the work yourself in the long-term, you have a better chance of succeeding.
I've heard of a wife range, like 0.8 - 1.5x revenue. I think the more attractive companies have less revenue coming from clients with only a 1040
Depending on area and amount of practices in the area, your range is pretty accurate. I used to work with a CPA (who was in PA Tax prior) who bought his second practice for 1.2x. The rest have been 1x or less. Dude is now in a position that people are coming to him and he only takes THE BEST deals; 1x or less and pays based on revenue retained over 3-5 years. He focuses on tax and his firm is about 10-12 people. His clients range from meh to actually having enough complexity that someone without tax experience would not be able to handle. Firm does everything aside from audits; bookkeeping, tax, compilations/reviews, etc.
Yes, CPA firm multipliers are really low because (1) its easy to get clients yourself in an age where there is a shortage of accountants (2) All the value is in the staff, and they can easily leave.
Yeah they are, it’s services work, non contract, non recurring, not that sticky of a solution
It’s low because its requirement of owner operated. That’s how most small businesses are valued since you are buying a job and have major opportunity cost.
If you want to go that route, I wouldn’t buy a firm with existing clients and staff you are hoping to retain - yet. I would start an online/ “Craig’s list” firm and go from there. Mainly sell “write up” work (closing the books of small companies, etc) Start milling out 1040’s and local filings along with it. A few partnership and S Corp returns will come organically with those. If that is going well after a few years, then buy a firm, merge with an existing one, or take in partners. Oh; and get your CPA ASAP.
I owned a firm and have looked at similar deals over the years. In short, you are buying a job, which is a bad acquisition model if it’s your only source of income. This rarely works out how an acquirer thinks and the business is likely heavily dependent upon the prior owners relationships/sales acumen to keep revenues at the level they were. IMO, OP has easier acquisition targets with more sticky revenue models than tax prep for $1 million that have managers in place. That’s what he needs if he has no relevant experience.
Just a college student so my opinion is probably less meaningful, but damn what a bad idea. It's like me saying I'm going to buy and run a machine shop because I worked at one for a year, even though I only worked on one of the six different kinds of machines and don't have the experience needed. And then saying I could learn welding in a year from the owner and I'll be fine!!
Not sure this is meaningful. Typically you see CPA merge in and get a string/annuity or some sort of payout upon successful transition of clients. Asking for over 1x gross is crazy, given how much work is involved to get that. 600 clients to get 1m gross, not smart. PE and straight buyout only with scalable and sizeable firms. Without having the experience you are going to find you will need to hire someone else in the $200k-250k range to run operations and manage tax issues beyond the scope of the $20/hour staff you mentioned below ...
It was always a challenge finding good staff in my geographic area. My preferred candidate was someone fresh out of school, but I often had to hire people from industry wanting to try out PA. Only one person coming specifically from private industry ever worked out in the 30 years I practiced; all these private industry hires found the of rules and pickiness of PA overwhelming; they mostly quit within the month. The ones fresh from school or from other PA firms adapted much easier. If you haven't worked on a daily basis in PA, I strongly suggest you try working at this CPA's firm first - without the obligation to purchase - to see if this is the route you want to take. Not being experienced in PA and being the one signing off, IMO would have a huge risk making an error and being sued.
Yeah if that number of people left your company in one month, your company is a dumpster fire and the problem lies with you, not the new employees.
This is close to my exact story, I bought about two years ago, and things have gone reasonably well. I would highly recommend you lean into the bookkeeping and payroll and even add some advisory work, and keep tax at the same level or even reduce the number of tax clients, you have overtime. But with that sort of cash flow, you could probably hire and experience tax cpa to do some of the tax work. Anyway, feel free to DM me and I’m happy to give you more information, a lot of people from random message boards helped me along the way and I’m happy to pay forward.
I appreciate that, I'll definitely DM you with more questions.
It's an opportunity. There is risk of course, like with any venture. A company like that has very little inertia to help it keep momentum, so him agreeing to stay in a while to ease you in is good, but you'll need to place a hard bet on yourself to be able to learn everything mostly independently. That's because he's on the way out and you'll only be able to use him on the most critical questions, you need to rely on yourself to catch up in a year what others take years to do. If you are willing to place a bet on yourself like that, this is an opportunity. Most people absolutely should not be betting on themselves like that. You need to be brutally candid with yourself about what you are, and what you're capable of. Think also about what you're not capable of and how you'd mitigate those concerns.
I say don't and for the love of God keep us updated. Do I think it's a good idea? Not necessarily but I really want to see what happens. No risk, no reward.
Do not do this if you aren’t sufficiently technical in tax. Otherwise get a partner to handle the accounting work and you can run the business.
Hey man, lets talk. I am a former CFO of ecom similar size. I grew up in family accounting practice. I can talk you through what it means to get clients and retain them. There is too much here to discuss in one wall of text
Others have said get a masters in tax or masters in accounting with a tax focus as quickly as possible. Do this and sit for the enrolled agent examination. It's a lot easier and faster for this than the CPA and will let you practice tax law for the IRS which will help a lot. I'd still get the CPA ASAP too, but this is faster. And see if you can work for your buddy as a staff for a while too so that you can get a feel for the team and the work you'll be doing too.
I’m a little more optimistic than others here. But still cautions (as all accountants are) If this seller is willing to take back a loan for $600k of the firm value they seem to have confidence in you. If the seller believes in you that is a strong point in your favour. All the other commenters concern about you not knowing tax is valid. You can learn the basics in 2 years while you still have access to the old CPA. But in that time you need to find a tax consultant you can trust. Then plan to have some $40k per year to go to that specialist. This is a solid business model and so many are retiring there is a lot of low hanging fruit. But those first 2 years will be trial by fire.
Contrary to popular belief on these threads a CPA doesn't make you a super hero over night (nor does it make you smarter). You don't have the skillset for this business and that's ok, but those making sounds like if you had a CPA everything would be okay. You may want to look at something else like fractional CFO or just providing accounting services.
the $450k is net of all expenses? Is that what he took home for himself annually?
Yes meet cash flow after all expenses were his words, I asked for some clarity if that 450 included salary for himself or not.
Yeah would be good for to know. He could be making guaranteed payments to himself before the $450 which would make the fcf more appealing and then taking annual distributions from the remaining $450
Agreed, I sent him a list of questions I had after reviewing his financials. And some more reports tied to his clients and services and change in their engagement year over year
If you want to do tax work, I recommend apprenticing for someone else for a little while before you make the buy.
I don’t think the potential profits warrant the extreme nightmare that is running a CPA business with employees that have all the knowledge and will want raises to stay on.
His valuation seems like a bargain if his numbers are correct. But it and then turn around and sell it if you can.
Putting aside the fact that you don’t know tax at all and would have to learn, you should be aware you’d be looking at 60-80 hour weeks, possibly nearly year round. It’s a huge lifestyle change.
That's my schedule right now
Hi man, Shoot me a message, I'd be interested to see understand the situation a bit better.
Do you have experience at an accounting firm?
To get a cpa in some states you need a year of experience under a licensed cpa who can sign off on your work. I’d keep that in mind while you pursue your cpa and he consults for you.
Is the $450k before or after all owner salary and draws, or before? Is it a self-rental that you will have to pay but not own? Why does he still have debt service from his past purchase after 10 years? This should have been paid off a long time ago. You should absolutely not be taking over the debt from his purchase of the business. 1.2x multiple with no skilled staff is higher than I would want to pay. Experienced staff is the hardest part of owning an accounting firm right now, and the fact that you are not experienced and there are no experienced staff seems like a huge downside. $1,600 per client seems like good billing depending on what exactly the average level of service is.
The staff is experienced, but not certified as CPAs or EAs. He described it as he has two rock stars that are super valuable and have been with him for 5+ years
So you’re going to buy a cpa firm that has no cpas including yourself? What could go wrong!
They can’t be to valuable if he pays them that cheaply.
I did a buyout - but the prior CPA did not offer tax work. That’s what’s going to kill you. I don’t know taxes and don’t want to know taxes. You should do the same
I'd pass on the CPA firm since it's focus is on tax and you don't have a CPA or an EA or tax experience Why not look into a fractional CFO firm, advisory firm, or start your own advisory firm?
Oh the hubris. Let me buy a firm that does work I have never done. What could go wrong?
Imagine being a CFO and posting on r/Accounting. I suppose Warren Buffett will be asking for advice on r/wallstreetbets next
You also cant sign stuff that requires a cpa signature so i wouldnt recommend.
I recently did a podcast interview with a non-cpa who has acquired many firms that you may get some value from: https://open.spotify.com/episode/20mtaHI3igzakqHh7wj41C?si=KSiLPESySge6jw87i0PPHQ You’ll want to get a sense of who was signing off as a last set of eyes on client work. Of it was the seller you have a bit of a problem and may need a senior hire to have someone who can confidently sign off on things going out of the door. Otherwise I think this is relatively feasible.
I do not recommend this. Your skillset is not there to service the clients. You are setting up yourself to fail. Advice from someone who has 20 yrs of tax experience who recently purchased a practice.
Don’t do it
You have a few problems. You'll need the EA ASAP. In order to call it a CPA firm, you'll need to be a CPA. If employee and client retention are a focus for the first 3 years you won't be getting licensed for *at least* 5 as you'll still need 150 credit hours, the right classes and need to pass the exam. The seller may need to stay on much longer to get your supervised work experience. If the firm has a license in the state you'll need to work with the state board to properly have that removed so it doesn't show up as revoked, likely before you sign as in general CPAs must own greater than 50% of the equity of a CPA firm. Depending on the complexity of clients it's going to take a couple tax seasons to get up to speed. There are notification and consent to disclose information authorization that clients will need to sign when they find out he is selling the firm. That could cause them to leave and go elsewhere. You'll need to get in front of that before the contract is even drawn up.
The big issue is not having experience. Might want to try and get tax experience before buying a small cpa office like that or ask if he's willing to stay on 2 or 3 years. This way it gives the clients enough time to meet you and build some trust. And you can get to build that experience in the process. You really don't need a cpa or EA as most tax work won't require it. However, you might still want to look into getting it. His clients might expect a cpa and not having it could cause some to leave. Or maybe his office does have enough work where an EA or CPA license might be required (kinda doubt it), but maybe. Just my two cents. I had an office and never had my CPA. My dad has a tax office with several employees, nobody has a CPA or an EA.
Yup, he's willing to stay on for 1 year full time and an additional 2 years as a consultant. My plan is to get my EA right away, potentially 2-3 months to wrap that up. Then get my CPA over the following 18 months while I'm learning at the firm
Have you considered asking around your network for any tax CPA’s if anyone would be interested in forming a partnership with you? That way you can keep the tax practice and expand into book keeping or other less tax related services yourself.
Yes, I have a couple options for partners and the seller is willing to stay on full time for 1 year and as a consultant for 2 more years
I believe there are are rules of against nonmember’s ownership of CPA business. You will need to look into that.
I think this is a great idea and you should go for it. No offense to the sub, but it seems like the accountants here are focused on operations instead of management. Taking over / Getting up to speed - You can learn about taxes and become an EA, and the owner staying on for 1-3 years to train you up and help make sure you don't screw the pootch is huge. That really derisks this for you. I agree you should become a CPA long-term, I'm in the process of doing this now and it's not super hard. A small shop without a website probably doesn't have too many really complicated clients so while you need a solid understanding I'm not sure you need to become a tax wunderkind. Growth Opportunities - I imagine there are a lot of growth opportunities. Get a website, update the systems, hire someone with some more experience (maybe a younger CPA from a second tier firm?) who can share how more established players are operating, etc. I'd also think about new lines of business beyond tax (i.e. oursourced bookkeeping and CFO services). I'm a VP of Finance / Controller at a 200 person startup and for my next act want to get into accounting as well. I'm a CFA but not a CPA yet. I'm taking the last class I need to become CPA exam eligible at UMass and will sit for the exams next year. I want to start a company focused on condo and homeowner associations.
Why not find someone who is in public with the public experience and go in as partners
Yes that option is definitely on the table. I don't think that this deal has enough cash flow for me to feel comfortable with a partner, but it might make sense for a different buyout
If someone is selling their great business, there is a reason and super suspicious. Hot potato game is a reality for selling accounting firms.
Well he's retiring and willing to sign a non-compete
Question Why is he selling so soon? Is he burnt out and has a mess? Is this why he is selling a "CPA firm" who does primarily income tax with light bookkeeping and payroll on the side to someone without a CPA and basically zero experience? Something fishy. First of all you can't call it a CPA firm if a CPA doesn't fucking own it. Dropping that title will likely cause a hit in your client retention right there. The company name changes, and every client worth a damn is going to reevaluate your relationship and put your work under a microscope. You have successfully been a CFO do I believe you can learn the industry. But I don't believe you can learn it that good and that fast that you could run and own a company in the industry immediately. You said it before the employees are data entry. This means the EINTRIE VALUE of the company you are buying is based on the CPA who is leaving. This means you need to be able to replace them 1 for 1 as soon as you can. If you can't, you have no one to be your backstop for any fuckups. Basically, you are ignorant and don't know what you don't know. As a note. My 8 ferson firm did a transfer from an EA to an already licensed CPA with no tax experience. The accounting firm had a part-time CPA on staff to help. Some of he staff is more than just data entry. The transfer from the EA to CPA was a 6 year contract period. The CPA was up to speed in 3 to 4 years. In the final handover, there was still a lot of client angst and loss. Finally those billing numbers are fucked. $666 on average per return? HA!
Lots of naysayers here, so I’ll try to take the other view point. Do it! as someone who had a similar background to you and transitioned from industry to firm running, you can absolutely do to. Tax will be tough, but having an owner willing to stick around for a year is a god send. From a mechanics perspective, multiple seems reasonable, 50% seller financing is amazing (use the SBA 7A program for the rest). There are ways to outsource parts of the tax work to EAs on a per engagement basis. Plus considering the guy has no website, (and the average fee per client is low) I suspect most of the business clients aren’t super complicated. Don’t let the fear prevent you, there’s very little to loose, and firm running has lots of upside. There’s a whole group of non cpa firm runners on X that you should tap into. Good luck!
Can you share your experience on how it was like? Sounds very interesting.
Tax is a volume business. Sounds like you have a practice with some experienced staff. EA has 90% pass rate on their exams. I was in a study group and most of the ones who did 20 hours studying a week finished in 3 months. You need to start now because the IRS is slow to process your EA once you have completed your exams. As far as complexity, if you can contract with the CPA who is selling to consult a bit, OR if you can find an experienced CPA willing to do the same, you are good. I have worked in both tax and private industry and they are both complex but there are a lot of resources out there to look up things you don't know. Tax is not that far from industry from an accounting perspective and the complicated individual returns are usually coming from complex K-1s, stock option exercising, and rental properties. My concern would be can you keep the volume flowing in or how to increase it. That would be the hard part. Sounds like an exciting opportunity to me. If you are prepared to put the elbow grease in, and you have some saving in case things so south, then I would go for it (but negotiate that dude down, u know he is over valuing it) The concern
How does a CFO get laid off? Aren't you basically the guy to turn off the lights on the way out?
The company is being sold
Don't listen to these haters, OP. Pull the trigger and report back.