At The Access Group, we work with accountants in Australia and New Zealand who are venturing into accounting practice ownership and need fast and powerful accounting practice management software to save time in their day, simplify and automate their accounting practice processes and gain complete visibility of their client and practice performance.
Buying an accounting practice is a complex decision involving lots of research. After reading our guide, you should understand precisely what is concerned, the many benefits of buying an accounting practice, and some of the cost factors you must budget for.
Why would you buy an accounting practice?
As we previously detailed in our definitive guide to starting an accounting practice, buying an accounting practice is defined by one of these scenarios:
- Buying an established accounting firm outright.
- Entering a partnership with existing practice owners, or
- Merging your existing accounting firm with another existing practice.
Buying an accounting practice can be a brilliant investment opportunity for accounting professionals looking to expand their presence in the Australian accounting industry.
Buying an accounting practice will mean you will be fortunate enough to inherit the previous owner's client base and other assets.
Is buying an accounting practice right for you?
Whether or not buying an accounting practice is the right step for you depends on many factors, including your overall goals, personal and financial situation, and the current state of the market.
Buying an accounting practice may be a good investment if you are an experienced accountant looking to expand your horizons. Conversely, suppose you are a new-to-industry accounting professional with limited experience in accounting practice management; there may be better options for you right now.
The current state of the market could also influence your decision to buy an accounting practice. At moments when the market is highly competitive, with few available practices for sale, there will be more price volatility, and that makes the acquisition less financially attractive. When the market is relatively stable, with more supply, there will be more opportunities to buy an accounting practice for a more reasonable price.
The benefits of buying an accounting practice
Stepping into an accounting firm that is already up and running is considered a less risky venture than starting an accounting practice from scratch.
There are several benefits to buying an existing accounting practice, including the following:
- An established client base: When you buy an accounting practice, you acquire an existing client base with established relationships. Buying an accounting practice provides immediate revenue streams and reduces the time and resources needed to build a client base from scratch.
- An established reputation: An established accounting practice will have its own brand identity and reputation within the accounting industry and among its clients. You can leverage this reputation to grow your business. For more on this topic, read: how to grow your accounting practice.
- Existing staff: An established accounting practice will typically have staff members. Post-acquisition, this could be a real asset, with each of your new staff members having their expertise, reducing the need for hiring.
- Reduced startup costs: Starting an accounting practice from scratch can be expensive, requiring investments in equipment, software, and marketing. By buying an accounting practice, you can reduce these costs and focus on the growth of your business.
- Revenue potential: An established accounting practice typically has a proven revenue stream that will provide immediate cash flow.
- Reduced risk: Starting a new accounting practice carries financial risk, whereas acquiring an established one bypasses many hurdles that startups must endure, increasing your chances of success.
Buying a practice vs. Starting a new practice
This section in our buying an accounting practice advice compares the benefits of purchasing an existing practice with starting your own accounting practice.
You should consider many things before determining if starting your own accounting practice is the right fit for you. We have prepared these in a convenient list of pros and cons below.
The pros of starting an accounting practice
- Flexibility: When you run an accounting practice, you can set expectations for how your business operates. For example, if you are looking for flexible working arrangements, you can work from home when you want to.
- Building your brand: Starting an accounting practice means that you will have the potential to build a brand that reflects your needs. Learn more about benchmarking marketing and growth in your practice with our article: marketing and growth in Australian accounting practices.
- Greater control: As the owner of your accounting practice, you have the freedom to determine your prices, select your own clients and focus on areas of accounting that align with your interests and expertise.
The cons of starting an accounting practice
- Startup costs: If you plan to start your accounting practice, this will require a significant upfront investment in elements such as your equipment, software for accountants, and office space for those needing one.
- It takes time: The accounting industry in Australia is highly competitive, with many established firms and practices, and it can take many years to build up your practice to reap the rewards.
- Extended hours: When you are in the throes of starting your new practice, you will find yourself working longer hours than ever before and may, for a time, struggle with work-life balance.
- Accounting practice management: Starting an accounting practice will mean that you should upskill in various skills associated with running your own practice, which could include marketing, financial management, and managing a team. As you are finding your feet, balancing these responsibilities with providing high-quality accounting services to clients might be challenging.
What to look for when buying an accounting practice
Below is a list of critical things to look out for when buying an accountancy practice:
- The size of the accounting practice: You must consider the scope of the practice and whether it aligns with your goals and capabilities. A larger practice will offer more revenue potential but requires more resources and management.
- The client base: Review the practice's client base to ensure it fits well with what you seek. Consider the types of clients, their industries, and geographic locations. You may also want to consider a single source of truth for your accounting practice client data.
- Staff and expertise: Assess the knowledge and experience of the practice's existing team, including their qualifications and certifications, and consider how they will integrate into your plans for the business. Remember to assess all your resourcing options to make informed decisions, such as accounting outsourcing.
- Financial performance: As part of due diligence, you will need to review the practice's financial statements and tax returns to determine that it has reliable and stable profitability and financial health.
- Reputation and relationships: Consider the practice's standing in the industry and its relationships with clients and other professionals. Evaluate any legal or regulatory issues the practice may have faced.
- Location: Consider the location of the practice and whether it aligns with your target market and business goals. Evaluate the potential for growth in your chosen area.
- Technology and infrastructure: Evaluate the practice's technology and infrastructure, including hardware, accounting practice software, and systems that could help you build a data-driven accounting practice. Consider any upgrades or investments that may be necessary.
Financing options and funding sources
When buying your accounting practice, you should consider your financing options for the acquisition. These options may include:
- Personal loans
- Small business loans
- Investors, or
- Personal funds
Before buying an accounting firm, it is essential to ensure you have a financial buffer.
We advise accounting professionals to consider financing their accounting practice through a personal or small business loan; this article by Finder gives more information about loan providers.
Remember that lending institutions will not typically allow you to borrow money against the accounting practice you are purchasing. Instead, you must borrow against an asset you own, such as a house.
Due diligence and legal obligations
When looking to buy an accounting practice, the price is only part of the equation. You will need to do due diligence. Due diligence ensures that you're taking reasonable steps to prevent yourself from making any risky or poor decisions, such as paying too much in the sale or breaking any regulations or rules.
You will undertake the following reviews during your due diligence investigations:
- Contracts: for the sale of the practice, including any existing agreements between the practice and its staff, suppliers and partners.
- Records: including income, profit and loss statements and tax returns.
- Expenses: such as any bank loans, lease agreements and utility accounts.
- Business operations: this may include intellectual property, business equipment and accounting practice software.
As Chartered Accountants explains, you should consider the following during the due diligence phase of buying an accounting practice:
- The firm structure.
- What will your status or business title be once you have taken over?
- Are any succession plans in place?
- How is leave covered for you and any employees you may have?
- Leasing and finance agreements may be in place.
- The financials, including cash flow and funding, debtors, and any work in progress.
- Whether there are any existing or legal or insurance claims.
Remember, you will need a Professional Practice Certificate (PPC) before you buy an accounting practice and start to offer accounting services to the public, which you can apply for through the board you register with. Still, you will need professional indemnity insurance to do so.
What is the cost of buying an accounting practice?
For many accounting professionals debating whether to buy an accounting firm, the first question they will ask is: how much does buying an accounting practice cost?
There is no simple answer to this, as the value of an accounting practice in Australia can hinge on many variables, from the quality of clients to the accounting services offered. According to Success Tax Professionals, the seller typically requires 50-120% upfront, with 85% being the up-front settlement cost.
Buying an established accounting practice will come with a client base, accounts, employees, and other assets already in the can. It is considered a more financially sound venture than starting your accounting practice from scratch, and it is easier to make money from day one of operating.
How do you value an accounting practice in Australia?
When considering whether you should buy an accounting practice or not, numerous factors feed into the valuation of the firm, as this article by Bookept details:
- The accounting practice office location.
- The worth of the client base.
- The accounting practice staff.
- The growth of the accounting practice
- The profitability of the accounting practice.
- The technology the accounting practice is using, such as accounting practice management software.
Before buying an accountancy practice, consider working with a financial advisor to ensure the deal offered for the existing accounting practice is fair and reasonable.
A helpful tip for this stage of the buying process is to remember that a fair valuation is based on the historical profitability of the accounting practice rather than its revenue. The higher the accounting practice's revenue, the more likely there will be high overhead costs, which is an essential consideration for your return on investment (ROI).
Buying an accounting practice checklist
To break down the acquisition process in an easy-to-digest way, here is our five-step checklist on how to buy an accounting practice.
Step 1: Identifying your potential acquisition targets
Step one in buying an Australian accounting practice is identifying potential acquisition targets, which you can do through various methods, including networking with other professionals in the industry, conducting online research, and attending industry events.
When evaluating potential targets, it's essential to consider factors such as the size of the practice, its geographic location, its client base, and the expertise of its staff.
Step 2: Conducting due diligence
Before making an offer on your chosen practice, it's crucial to conduct thorough due diligence.
Due diligence will include reviewing the practice's financial statements, tax returns, client contracts, and other essential documents.
At this step in the process, speaking with the practice's staff and clients is an excellent idea to gain insight into its operations and reputation.
Step 3: Financing the acquisition
Once a suitable acquisition target has been identified and due diligence has been conducted, the next step in buying an accounting practice is determining how you will finance the acquisition.
Buying an accounting practice may involve securing a loan from a bank or other financial institution, using personal savings, or bringing on investors. You should seek independent financial advice for these options before you decide.
Step 4: Negotiating the terms of the deal
The terms of the accounting practice acquisition should be negotiated carefully to ensure that both the buyer and the seller are satisfied with the outcome.
At this stage of buying an accounting practice, you should be negotiating the purchase price, payment terms, and any other vital details of the deal. You should clearly understand the value of the practice and the seller's motivations for putting the accounting practice up for sale.
Step 5: Integrating yourself within the practice
After the acquisition, it's time to focus on integrating yourself within the accounting practice management.
Consider hiring new staff members, rebranding the practice, and establishing new client relationships.
It would help if you also wrote a business plan to set accounting practice benchmarks as you settle in. A business plan is a roadmap that outlines your business goals, strategies, financial projections, and services you will offer.
A business plan will also help you stay focused and on track after you buy your accounting practice. Your business plan should include the following information:
- The strategic goals of your practice
- The business structure of your practice
- Any capital requirements and sources (including startup costs and monthly operating costs)
- Your marketing and pricing strategy, based on the services you are going to offer
- Your office location, the technology you will use (such as your accounting practice management software) and staffing.
Our article, is it time for an accounting practice health check, could be helpful during this step in buying an accounting practice. It details areas you should focus on when conducting a business health check and the signs you may need to review your accounting practice management software.
Upgrading your accounting practice management software
Buying an accounting practice means inheriting the accounting firm's legacy software, such as accounting practice management software.
Once you have found your feet in your new accounting firm, you will want to ensure that your practice has accounting software up to s up to the task. If not, consider switching to fast and powerful accounting practice management software that can run every aspect of your accounting practice behind the scenes.
Best practice accounting practice management software is equipped with features necessary to run your new accounting practice, such as managing your client relationships, automating practice work tasks, and managing your internal workflows.
Accounting practice software can offer several benefits for those starting an accounting practice, for example:
- With accounting client management software for accounting practices, you can access your client information from a single centralised location, which will enable a deeper connection with your clients.
- Saving you valuable time through workflow software for accounting practices, using clever accounting automation that is configurable to how you want to work.
- It will give you complete visibility of your accounting practice's performance through intuitive data-driven accounting practice reports and insights.
- You'll be able to work more efficiently with the potential for greater focus on your staff, jobs, and time management with time and billing software for accountants.
Please read our helpful article: why do you need accounting practice management software?
Buying an accounting practice resources
To find accounting practices for sale, accounting professionals can register with the following websites:
CPA Australia has this helpful checklist detailing everything you need to know about purchasing an accounting practice
Start your journey to accounting practice ownership
To summarise, buying an accounting practice in Australia involves researching many aspects that you must consider before deciding.
Buying an accounting practice can be a rewarding experience for an accounting professional, giving them a chance to take their career to a new level. Accounting professionals curious about where accounting practice ownership could take them should follow their professional and personal passions. Once they've taken a leap of faith, and with time, patience and planning, all the effort will be worthwhile.