Sounds like tax focus. I guess the only question I would have is "how complex are the clients"? Are they people that stuck with him/her because of him/her and their taxes aren't so complex that they might look elsewhere if you aren't him?

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"In the world I see you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You'll wear leather clothes that will last you the rest of your life. You'll climb the wrist-thick kudzu vines that wrap the Sears Towers. And when you look down, you'll see tiny figures pounding corn, laying stripes of venison on the empty car pool lane of some abandoned superhighway." T Durden

I just bought a small firm in Canada and paid 1 year gross billings. I pay over 3 years and the purchase price is adjusted based on client retention. I took over the office lease and bought some office equipment separately.

What did you find as far as retention?

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"In the world I see you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You'll wear leather clothes that will last you the rest of your life. You'll climb the wrist-thick kudzu vines that wrap the Sears Towers. And when you look down, you'll see tiny figures pounding corn, laying stripes of venison on the empty car pool lane of some abandoned superhighway." T Durden

Yeah retention is the big thing on my mind. Complexity varies widely.

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Don't hold back

I like the idea of price related to retention. Are you doing it simply based on the gross revenue of the folks historical value who might have left adjusted annually?

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Don't hold back

if you don't know how to start the evaluation you shouldn't be buying an accounting practice - that's one thing accounting practices do.

Professional services firm with no employees and clients who value the "brand" by the Owner. Owner wants to retire without an exit strategy. The firm is worth nothing. He's already "pulled" his equity out of the Company.

I did a similar deal with a local architectural competitor a couple of years ago. We "merged" so that I could provide him with a face-saving exit from the local business community (where he would continue to live), rather than going out of business. I took all of his backlog and clients and paid him $0.20 for every dollar of earnings his backlog provided to my firm during the first year.

He left the profession with his head held high, he made a little money to help offset the emotional sting of my zero valuation, and I got about $1.0M backlog for my efforts. Win-Win.

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Lifeguard: "Do you need help?" Me: "No, that's just my butterfly."

I like your idea the best so far. :)

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Don't hold back

LorenzoP wrote:

if you don't know how to start the evaluation you shouldn't be buying an accounting practice - that's one thing accounting practices do.

x2

also - the fact it has no employees is unusual - so the owner is going to do all the basic bookkeeping and tax return input? - that's low value work that should be done by a cheaper employee.

http://www.journalofaccountancy.com/issues/2013/nov/20138232.html

Dude, he's a tax accountant. Valuation with M&A, Tax, Internal Control, Audit, etc. are all different areas that people tend to chase their focus. I have tax in my consulting company's name, but I outsource all my tax since my specialty is internal control and g/l. I am no stranger to tax or Valuation with M&A, but I would say that my valuation and M&A skills are much greater than tax. I know enough about both to know that I'm not an expert on either to give professional advice, but know enough to know what questions I can answer and what questions to refer.

I find tax tends to be pigeonhole people. To be an expert on complex tax issues or advisory means you have little room to focus beyond your minimum annual requirement on anything else. I find most tax accountants know dick about running a corporate accounting dept or internal audit and couldn't advise with credibility on either. With that said, it works both ways. I know dick about current tax laws, but I do know enough about tax and policy to point out that people like Dan and most liberals know even less than I do.

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"In the world I see you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You'll wear leather clothes that will last you the rest of your life. You'll climb the wrist-thick kudzu vines that wrap the Sears Towers. And when you look down, you'll see tiny figures pounding corn, laying stripes of venison on the empty car pool lane of some abandoned superhighway." T Durden

There are some subcontractors but no FTEs.

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Don't hold back

I sold my partnership interest in a CPA firm a few years ago. I received 1.3 times my gross billings paid over three years with interest at prime + 2.0%. At the time, 1.0 to 1.1 was a little more common in our area. The extra was to compensate me for the anticipated time I would spend helping with the transition and client retention during the first year. All my clients stayed with the firm.

During my tenure at the firm, we bought a sole practitioner (with no staff) that had to retire suddenly due to health issues. We opted to pay a % of future billings. If I remember correctly, we paid 30% of first year collections and 20% of collections for year two and three. We had about a quarter of his clients leave once he announced he was retiring. The fact he had no staff to help with transition, and he wasn't available to assist, hurt client retention.

What did you find as far as retention?

So far, of the clients only 1 left but only because a friend of theirs opened up his own firm. The key for me was that in the first year, the seller was still in the office, at my request. He didn't do any work but would always meet with the clients when they came in and he told them all what was happening. I still call a few times a week and he is more than willing to come in and discuss things or even come in for meetings. He's been more than fair and it's worked out well.

He didn't use an intermediary to sell and that saved him some money so he's happy about the whole transition.

Transition and active participation by the previous owner seems to be the key. And if the seller isn't interested in that, I would walk.

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"In the world I see you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You'll wear leather clothes that will last you the rest of your life. You'll climb the wrist-thick kudzu vines that wrap the Sears Towers. And when you look down, you'll see tiny figures pounding corn, laying stripes of venison on the empty car pool lane of some abandoned superhighway." T Durden

I like the idea of price related to retention. Are you doing it simply based on the gross revenue of the folks historical value who might have left adjusted annually?

I paid 1/3 of the gross billings of the prior year up front. I'm in Year 2 and we will adjust the installment to account for the 1 lost client but we won't go back and adjust the Year 1 amount. It's pretty simple because the total purchase price wasn't that large, it was a small firm. The seller did a very good job of weeding out bad clients over the years and he was left with good ones who always pay. There are no amounts over 30 days, and pretty easy to track.

If seller sticks around and bills at a similar rate maybe 1x gross.

If seller is leaving, liquidation value of furniture and fax machine.

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I'll be what I am
A solitary man

hey now...I'm a CPA and lean left. I know enough about tax and economic issues to know that the traditional conservative trickle down stuff is a bunch of hokum ;)