Eli Posted July 14, 2007 Report Share Posted July 14, 2007 Tax preparer called me yesterday. He wants to sell the family tax practice. It actually belongs to the Mom. We've helped each other out in the past. They want to sell the client list along with the computers and furnishings in the office. The office is a rental. They have approximtely 1500 clients according to the son. He says they want $225,000, but is open for negotiation. I think I remember on the old forum that someone said it should be by the amount of retained clients. I don't want to purchase 1500 and only 1000 or less decide to stay on. The Mom would also stay on for two seasons to help in the transition. What do all of you think of this offer?? Thanks!! Eli P.S. I would not be able to take this on on my own, I would definitely need to find a partner to come on board with me. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted July 14, 2007 Report Share Posted July 14, 2007 Eli: This is a hard one to answer because of all the variables. You would also want a covenant not to compete in place. I'm sure there are folks here who have bought and sold businesses that can give some insight. taxbilly Quote Link to comment Share on other sites More sharing options...
taxxcpa Posted July 14, 2007 Report Share Posted July 14, 2007 Tax preparer called me yesterday. He wants to sell the family tax practice. It actually belongs to the Mom. We've helped each other out in the past. They want to sell the client list along with the computers and furnishings in the office. The office is a rental. They have approximtely 1500 clients according to the son. He says they want $225,000, but is open for negotiation. I think I remember on the old forum that someone said it should be by the amount of retained clients. I don't want to purchase 1500 and only 1000 or less decide to stay on. The Mom would also stay on for two seasons to help in the transition. What do all of you think of this offer?? Thanks!! Eli P.S. I would not be able to take this on on my own, I would definitely need to find a partner to come on board with me. The annual gross income would be a more significant factor than the number of clients. Also, you should consider whether one or two large clients constitute a major portion of the income. If they didn't stay, you would likely overpay. However, if the clients are all about the same fee-per-client, then most would probably stay with you. Often you pay a percent the first year, then a percent of gross receipts for the next few years which would reduce the cost since the gross would decline if clients dropped out. You might also consider his fee structure--is it too high or too low? Quote Link to comment Share on other sites More sharing options...
MAMalody Posted July 14, 2007 Report Share Posted July 14, 2007 For the last tax practice I purchased here is what I did. 1. Confirmed the client base was similiar to mine. (If you are trying to expand into a new area, you would want to consider this also.) 2. Looked at the age of the client list. 3. Looked at the return percentage. 4. Looked at the gross receipts from the client list. 5. Had a covenant not to compete 6. Retiring owner agreed to help in transition. 7. Set maximum price for business. 8. Agreed to pay 50% of gross receipts from returning clients the first year, 30% the second year and 20% the third yeard. Did not pay anything down. If I had, I would have netted it against the first year gross payment. Made payments on the 15th of the month following receipts. 9. If #8 greater than #7 them limited to #7. If #7 greater than # 8 then limited to #8. & and 8 hopefully provided incentive for the seller to make sure the clients return. 10. We did a "I'm leaving the business letter" from the seller and a separate " I am here to serve you" letter from the buyer (me) along with and endorsement from the seller. 11. The seller also helped with a letter/calls to set up the first appointments. It worked for me. Mike Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted July 14, 2007 Report Share Posted July 14, 2007 What do all of you think of this offer?? P.S. I would not be able to take this on on my own, I would definitely need to find a partner to come on board with me. Wow, Eli you need to think about this. Are you ready to go full time into tax practice? And are you ready to bring in someone who you will be dependent on for the success of your business? The above advice is important to listen to, and I believe Mike has given you excelent advice. But the bigger question centers around your life, family, carreer, and mental health. Is your wife up to this change? Are you? Can you sustain yourself for the first year on your savings if this takes a year to generate the cash flow you need to pull it off? Do you have access to a credit line for business expenses? I am sure you know this, but I will remind you of the most important rule of business - CASH IS KING, if you don't have it, or access to it, you can die in bankruptcy with profits on the books. This deal will take some cash to make it work. You will have to sit down and figure out how much and when and for how long. What a great opportunity Eli. Be careful my friend, and take your time deciding if this is the opportunity that will take you where you want to go. Send me an e-mail if you want to talk about this some more. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Eli Posted July 15, 2007 Author Report Share Posted July 15, 2007 Thanks to all of you who answered. This is a great opportunity, but also one that I will definitely not rush into. On Monday I will be meeting with one person who has wanted for the past couple of years to partner up. I'm excited about even having this opportunity. I will definitely keep you posted and Tom, if you don't mind, I will probably get an email & phone call out to you sometime next week. I'm not sure if John Spada comes on here, but would also love to hear from him if he's around!! Thanks again! Eli Quote Link to comment Share on other sites More sharing options...
jklcpa Posted July 15, 2007 Report Share Posted July 15, 2007 Also, you need to consider the compatibility of style and philosophies of running your individual practices. I was an employee of a CPA firm that was selling out to an individual wishing to acquire our firm to expand. Long story short, here were some of the problems encountered:the new owner alienated most of the staff, new method of billing differed and angered largest and most lucrative business clients (progress billed monthly instead of billed at completion only), during a transition period, both offices were kept open instead of one making the new owner a very absentee owner-manager - and engagement planning was not completed properly, staff lacked appropriate supervision, computer systems used were different: tax programs, write-up, research. And probably the biggest of problems was this: the owner of our firm was not truly ready and willing to give up control. Ultimately the deal fell apart. More than a year passed before another arrangement was finalized. Quote Link to comment Share on other sites More sharing options...
taxfun Posted July 16, 2007 Report Share Posted July 16, 2007 Some good advice in the responses above. Our experience in our purchasing a number of small practices is the importance of “cultural” issues. A review of the files may reveal ethical issues (as a copy of the return for the IRS and another, different one, for a bank). If fees are substantially different it will not work. Are the target clients used to working with a CPA or EA where more details (like engagement letters, and organizers) are required. As far as terms are concerned, we have bought with 20% down with the balance over 3-5 years, no interest, note balance reduced by clients who do not return. We had one where a practioner had not gotten any interest in the sale of his business and we agreed to pay 25% of fees collected from clients who came to us (for year one only). In our first practice purchase, we lost over 50% of the client base we purchased, because of price and cultural issues. I guess they were scared off because we are a CPA firm. In any case, expansion is a challenge. Good luck to you. Quote Link to comment Share on other sites More sharing options...
Eli Posted July 16, 2007 Author Report Share Posted July 16, 2007 Some good advice in the responses above. Our experience in our purchasing a number of small practices is the importance of “cultural” issues. A review of the files may reveal ethical issues (as a copy of the return for the IRS and another, different one, for a bank). If fees are substantially different it will not work. Are the target clients used to working with a CPA or EA where more details (like engagement letters, and organizers) are required. As far as terms are concerned, we have bought with 20% down with the balance over 3-5 years, no interest, note balance reduced by clients who do not return. We had one where a practioner had not gotten any interest in the sale of his business and we agreed to pay 25% of fees collected from clients who came to us (for year one only). In our first practice purchase, we lost over 50% of the client base we purchased, because of price and cultural issues. I guess they were scared off because we are a CPA firm. In any case, expansion is a challenge. Good luck to you. Our practices are very similar, no corps or partnerships. i have only one 990EZ, they had none. Neither of us is an EA or CPA. Even the prices are pretty close. They are actually a little higher than mine. The only problem I see so far is the price they want up fron. I don't think I can or want to pay that much up front. It would have to be on a plan such as the one given by Mr. Malody. Thanks again!! Eli Quote Link to comment Share on other sites More sharing options...
redux Posted July 16, 2007 Report Share Posted July 16, 2007 Our practices are very similar, no corps or partnerships. i have only one 990EZ, they had none. Neither of us is an EA or CPA. Even the prices are pretty close. They are actually a little higher than mine. The only problem I see so far is the price they want up fron. I don't think I can or want to pay that much up front. It would have to be on a plan such as the one given by Mr. Malody. Thanks again!! Eli Eli, Mike's outline is pretty typical for the sale and purchase of such a business. I would not be willing to put up anything up front. If they had an extremely popular business and you were going to take their business name (thereby taking advantage of their "goodwill") a small amount upfront would be appropriate, but that doesn't seem to be the case here. Go with Mike's advice perhaps with some small adjustments in percentages depending on your situation. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted July 17, 2007 Report Share Posted July 17, 2007 Hey, Eli....I just got a letter offering me a franchise for Liberty Tax. I told my husband and son that they could be Miss Liberty and Uncle Sam....alas, they declined. In any event, it is not an option. Apparently they want to move into my territory....There is already one North of the City and I am South...que sera Quote Link to comment Share on other sites More sharing options...
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