Selling Tax Business

[mdmcfarland]

My boss is considering selling his tax business. Not sure if it will happen this year or next. He is aware that a letter will have to be sent to all tax clients to inform them of this and get their permission to give their tax information to the new owner. Has anyone gone through this and do you have a suggested permission letter?

[ILLMAS]

I used to work for a CPA firm that bought someone's tax client, the prior owner notified his client by letter stating the reason why he was closing shop (retirement) and that all files where going to at XYZ CPA firm. Something very simple, but now for the bad stuff, the sales contract practically had a price per client, but out of about 50-75 tax client, only a handful continoued service. Of course, the client were notified before the tax reason began, to give them time to find someone else if they didn't agree with the change, and no were in the client letter stated their account was sold.

[mdmcfarland]

We are in a very small community with only one other tax preparer actually in our town, so we believe most of the clients will agree. I'm not sure how things will transpire, but I am assuming that if the clients don't sign giving their permission that their information goes to the new buyer, that we will not send it and will send it to whomever they choose.

We are continuing our real estate business in our current office, so it's not like we will be leaving behind any information.

[Randall]

How does this work? I assumed you sold the practice, with maybe a retention amount to cover clients who don't go with the buyer. But would you turn over all tax info upfront? I was thinking you would do that by individual client once that client came to the new accountant (then getting his permission), etc.

Anyone done this? I'm not looking to do this anytime soon, but it's something to think about down the road.

[michaelmars]

i purchased 3 practices over the years, i've done a down payment against the calculated cost of purchase, then seller gets somewhere between 20-25% of my collections over the next 4-5 years [depends on negotiated terms] This gives the seller incentive to help me retain the clients [especially the business clients-they like to know that they can still call the seller or at least know he is still involved somehow] and also if i lose the client i stop paying on them. The downpayment gets credited in any formula we decide upon. Get a non-compete so the seller can't steal back the client.

With over 800 returns purchased on the last one turning files over one by one is impossible. the seller sent out a letter that he is retiring and i am going to be taking over the practice and they have a specific amount of time to request their records back be they get turned over to me.. We give them a month [or so] to object and ask for their records back.

if the seller stays involved and must jointly meet with you and some of the larger clients and all business clients then you can have a great retention. I averaged over 95% of the sellers billings stayed.

[MAMalody]

The last business I bought was over a three year period. The client type and rate schedule was similiar to mine. I paid 50% of receipts the first year, 30% of receipts the second year and 20% of receipts the third year. He sent out a letter indicating the sale and introducing me. I sent out a letter introducing myself, setting up an appointment and guaranteeing my fee would be computed using his fee schedule. Worked for me. I only received records for those that continued with me. The rest were returned or destroyed.

[cred65]

Is there a formula for the price paid for the practice. Sometime ago I recall seeing an article that assigned a value for type of business, ie, tax 80% of annual billings, audit 125% of annual billings, etc.