Home Buy/Sell Financing Facts When Buying an Accounting Business

Financing Facts When Buying an Accounting Business

Around here, we like facts.

That’s not to say there isn’t a fair amount of emotion involved in the tax and accounting industry…

Uh-uh, we’re not just numbers people. We feel things, we make impulsive decisions and yes – we sometimes rely on intuition, particularly when it comes to financing and purchasing an accounting business.

But remembering the facts can help you to keep your head screwed on so that you have less money woes and more of the good feels….

Here are some facts you need to know about financing the acquisition of a new business:

  1. Your down payment could be up to 50%.

While it’s generally accepted that 10% is the minimum, owners often consider around 20% -50% to be the industry average for an accounting practice down payment.

Now this amount isn’t the only cash you’ll be investing in your new business.

You’ll also need working capital to make the transition, get the business going, pay bills, hire any needed staff and keep things running smoothly until receivables are back at a normal level.

In other words – buying a practice isn’t cheap!

  • It’s not so easy to walk away.

A lot of sellers fear that at the first hint of difficulty, a buyer will walk away and leave him or her empty-handed.

Not so fast…

By the time the buyer has paid thousands into the business, taken the time to understand the ins and outs and made the merger or transition, then the buyer is very reluctant to jump ship when the going gets tough.

What this means for you as a buyer is that you need to be prepared to take risks. Financial, emotional… the list goes on.

If the firm is harder to run than first understood, your best bet is to step up to the plate and work hard to turn things around.

Failing that, it’s an option to sale the practice in such a way that you preserve your credit rating and recoup as much of your initial investment as possible.

But whatever happens, this isn’t a process that should happen lightly. Put energy into your business (no matter what beast you’re dealing with) and chances are your efforts will make great returns.

  • SBA financing is an option

You might not have enough cash to pay your seller in cash at closing, but that’s where SBA comes in.

Conventional financing can be a sore point (due to the big banks’ reliance on collateral lending) but SBA financing, on the other hand, may be willing to loan more liberally. Typically, SBA will look at the historical cash flow of a business, your credit history and your experience in making a decision.

SBA interest rates are variable, but largely reasonable, and can help you to finance an acquisition without breaking the bank. A 10-year term can assist in allowing for relatively low repayments. 

Keep in mind, however, that (typically) only firms that have historical cash flow higher than 50% will be eligible for SBA financing.

  • It’s possible to finance up to 75% of the proposed acquisition

If you’re feeling financially intimidated and ready to run for the hills, take a moment to let this fact sink in…

If you explore the extent of your financing capabilities and work closely with your banker and seller, it’s likely you’ll be able to score 75% worth of financing.

This means that only 15% would need to come from you (typically via a down payment) and the rest can be an amount you pay back over time.

If this is a legit business that has the capacity to bear real fruits for you over time, what’s not to love?

Final notes

Buying a tax and accounting firm over starting a new business has many benefits. Among these include:

  • Tax shelter
  • No purchasing power risk
  • No inventory risk
  • No timing risk
  • High growth potential
  • Limited business risk
  • High liquidity
  • Good leverage
  • High ROI
  • Total control
  • Instant cash flow
  • And more…

Not to mention, known profit and an existing culture and reputation you can capitalise on and grow.

Buying a tax and accounting business may seem like a complicated endeavour, but if you’re qualified and experienced, there’s no reason why an amazing opportunity can’t be yours for the picking…

And with multiple financing options, you may be closer to owning your dream accounting business than you think.

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