Recent Industry Trends in M&A of CPA Firms
- National and Regional Firms are buying accounting practices at a record pace due to above average growth in population and industry in South Florida relative to the rest of the country i.e. aerospace, technology, medical, professional services, etc.
- The majority of large firms need a South Florida presence since they all have at least some larger clients with offices or headquarters here, and of course, they all have or want a home here.
- It is estimated that 60% of all Partners and Sole Practitioners are over the age of 60 and will be over 65 in the next 5 years
- CPAs are working longer than ever. 65% of those surveyed said they will work past the age of 70 – many lost a majority of their retirement in the 2008-2009 stock crash
- The day of the Sole Practitioner is nearing its end; its inefficiency is characterized by an endless cycle of too much work, too little growth, too little pay, yielding the proverbial “death at one’s desk”!
Why are CPAs Consolidating?
Two motives; one to “GAIN MORE RESOURCES” the other “GAIN MARKET SHARE” – It is simply too slow and costly to grow organically. Accounting practice sales, or merging practices, is the most cost efficient and expedient strategy to expanding or exiting your practice for countless reasons.
- Adds clients, staff, services & geographic locations instantly & pays for itself
- Economies of scale yield increased cash flow, profitability & value instantly
- Attracts superior professional talent
- Attracts larger clients, i.e. larger firms get larger clients
- Creates a broader career path for existing staff & partners
- Allows partner(s) to focus/specialize more on their talents
- Allows for multiple layers of management while sharing administrative & management responsibilities,
- Secures an Exit Strategy for Partners, long-term
- Buys-out Retiring Partners, short-term
Smaller Firms Can’t Compete, Nor Thrive
- No enough time nor cash flow to expand organically at any significant rate
- Cannot attract, nor maintain, young CPAs – no partnership track, can’t compete with regional & national firms for talent
- Cannot afford middle management needed for growth
- Usually too few CPAs for workload, yielding lower fees, over worked owners & partners
- Owners not billing enough, doing too much admin
- Profitability ratio below market
- Can’t offer other needed services to clients
- No time for needed consulting nor quality customer service
- No internal succession plan
CPA Firm Sales Pay for Themselves
- With organic growth Investments in marketing, advertising, and networking are too slow and costly, and the acquisition cost of a new clients are impossible to determine
- Cash flow from M&A Transactions cover Debt Service, Costs and the Down Payment, otherwise not a good deal (see Chapter #5 LINK)
- Cash flow comes from Economies of Scale and Partners retiring or slowing down
Call us directly to chat about your succession or expansion plans, and how we can help you (Live Consulting). It’s never to early to begin planning your exit or business development plans.