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3 Mistakes to Avoid When Buying a Tax and Accounting Business

For a tax or accounting professional who’s ready, the thought of buying a tax and accounting business is a thrilling prospect.

But landmines abound… particularly in a world where sellers are eager to promote their wares and you’re a fresh young green thing willing to grab the first opportunity that looks half-decent.

Enjoy the process, however remember to decide sensibly.

A business you buy will ultimately be a business you have to run, and you don’t want to jump on a rollercoaster you’re not willing to ride to the end…

Look out for these top 3 mistakes accountants make when they’re looking to buy a tax and accounting business:

  1. Buying too small

If it’s your first acquisition, you may be tempted to go for a small fry.

While this option won’t necessarily turn out unsuccessful, a small business can come with great risks. Often, smaller businesses still have big overheads and strong competition.

If the client base is slim, the propensity to stay lucrative may be even slimmer.

Selling yourself short will do you no favours, so don’t be afraid to aim high! Think about your expertise and what you can bring to the table.

If you have strong experience dealing with a large pool of complex and demanding clients, seek out larger firms with greater revenue and higher success rates.

A big practice will likely have a long history with strong networks and solid professional processes in place – meaning less heavy lifting for you as the new owner.

When you’re talking with the seller, ask the following questions:

  • What makes this a great buy?
  • How established is this company in the industry?
  • What’s the reason for the sale?
  • What does the cashflow-to-owner look like? (Get specific numbers…)

A company that has clear profitability will be able to prove itself to you with cold, hard facts.

Pick a practice that’s generating plenty of cashflow so that you can cover your debt repayments comfortably, your personal income – and possibly even more.

Most accountants wish to buy a CPA firm for more freedom, more money and a better quality of life.

Is this firm as good as it looks on the box? Shoot for the stars.

  • Not taking your strengths and weaknesses into account

Too many accounting professionals buy a firm that, ultimately, they’re unable to gel with in any sort of meaningful way.

What you want is a business you can seamlessly assimilate with – a business you’re familiar with and know how to operate.

The best way to identify such a business is to understand yourself.

What are your strengths? Your areas of professional expertise?

Are you great at dealing with lengthy tax returns that require a vast understanding of tax policy? Or are you better at handling client relationships and letting others do the dirty numbers work?

What are your personal traits? Are you managerial and systems-based? Or are you warm and personable, and good at explaining complex accounting topics to small business owners?

When you know who you are as a CPA, you’ll be better prepared to know what sort of business you’re fit to own. At the end of the day, your qualities will eventually be the qualities that drive your new business.

Make sure they match the goals of what the business is trying to attain.

On the other hand, what are your weaknesses? While it may seem tempting to jump into something new that will challenge you to the core – particularly if you come from a long and predictable white-collar career – don’t be too eager to jump into the deep end.

This is your livelihood we’re talking about, and a new business should ultimately work for you as an asset.

Rather than wearing all of the hats, it’s far better to hire other folks who have strengths where you’re weak. That way, you’ll spend less time studying the books and more time maximising your revenue.

  • Making an impulse buy

Think about the long game.

Is this what you really want? Are you prepared to own a business of this size and profitability down the track? Who can you hire or partner up with to help you achieve your goals?

It’s exciting to acquire a tax and accounting business, particularly when you’ve been working for the man for so long. Well, now, you get to be “the man.”

But be smart about it. This isn’t just a great pair of new shoes.

It’s a hulking beast you’ll have to put thousands of dollars into, understand inside out, and eventually – run to the best of your ability.

Final notes

Mistakes are inevitable in life.

But when buying a tax and accounting business, you want to make sure you’re making an intelligent decision. Try to steer clear of these common mistakes and you’ll put yourself in good stead to making a winning acquisition – and finally earn the income and lifestyle you’re dreaming of.

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