There is a quiet discussion taking place at some accounting conferences today. It's not regarding tax code changes or the latest SaaS software integrations. Rather, it's around what's referred to as an "End Game."
The ownership model of CPA firms has changed dramatically over the last several years, whether you're three years from retirement or fifteen years until retirement. We have seen a boom in consolidation of CPA firms over the last few years as Private Equity Firms (PEs) are entering the CPA arena with much more aggression than they ever have before. CPA firms are merging with other mid-sized accounting firms at record pace to build the scale they need to survive.
And here's the tough love you need to hear: not all CPA firms view same as a potential purchaser.
If your "secret sauce" of your CPA firm is you working 80+hours per week as the sole owner, you do not have a business; you are a very well-paid employee. No one will purchase an employee. In order to have a successful merger or sale, you will need to have transitioned from being a practitioner-run firm to an operationally run enterprise.
This article will provide guidance on how to prepare your firm for your ultimate exit, utilizing modern efficiencies and a global workforce.
1. Improve "Internal Accounting Systems" (Financial Hygiene)
It is not uncommon for a firm’s internal financial records to be disorganized; however, they must be put in order before a potential buyer (PE Firm, M&A buyer) will review the firm’s client list/case load or the firm’s EBITDA and realization rates.
Potential buyers will be looking for revenue that is "clean", meaning:
- Standard workflows: Will you have at least one workflow to leverage consistent application, or do all firm partners have their own process?
- Predictable revenue: How many of your clients are on a recurring service basis (i.e., CPA and/or outsourced bookkeeping services) as opposed to being one-time project clients?
- Concentration risk: Are 40% of the firm's revenue derived from the firm’s three highest clients?
One of the quickest ways to improve your margins is to focus on reducing your direct labor costs. If a buyer sees that you currently utilize an efficient offshore accounting solution and back office/accounting service delivery model, the assumption will be that your firm has positioned itself to be "future-proof" with respect to the shortage of qualified professionals locally.
2. Minimizing the Risks of Losing Partners
The most significant obstacle in succession planning is the potential loss of business due to a "key person" risk. If clients remain with the firm solely due to their affection for the partner, then, once the partner departs, the likelihood of losing clients is high.
As part of your merger preparation, you will need to create systems and processes to support all of your business partners in a manner that will allow clients to communicate with all partners through the same means no matter which partner was responsible for the financial aspects of the client's account.
The following are some steps to create institutionalized relationships with your partners:
- Partner Production: Use a partner to be the "face" of the business while utilizing the resources of an outsourced finance and accounting services firm to perform the more labour-intensive functions.
- Standardized Client Experience: Although different partners may provide clients with tax and accounting services, clients should receive similar services regardless of the partner.
- Middle Management: Buyers looking to acquire your firm are looking for it to have a middle management layer. They want to know that your firm can run itself.
3. Updating Your Technology and Work-From-Anywhere Capabilities
In 2026, firms that rely on traditional desktop software and hard copy files will have a lower value than firms that are fully cloud-based.
Private equity firms want their firms to grow rapidly. If they double the size of your firm, they do not want their systems to collapse. Using technology to connect your outsourced financial and accounting service resource with your retail operations makes it extremely valuable to potential buyers because they will know that if another busy season occurs, their people will be able to scale up to accommodate the increased demand without increasing staffing levels.
4. The Impact of Outsourcing on Business Valuation
Potential buyers are searching for 'margin expansion' in your profit and loss statements. You have already completed this task by outsourcing your audit and accounting needs.
Using an offshore accounting solution will show buyers:
- Increased profit margins. Your delivery cost is much lower than a company that uses only local employees for data entry.
- The right allocation of talent. Local CPAs can concentrate on providing high-value advisory services to clients instead of bogging down with basic payroll and accounting support
- Global continuity. There are people working for you while the U.S. office is closed to prevent the month-end from slowing down your process.
5. How to Prepare Your Firm's Pitch Deck
When preparing for a meeting with a PE representative or a merger partner, you are not just selling a client base; you are selling a platform. Your pitch deck should include:
- Your business development engine. How do you obtain new clients?
- Your efficient operations. Explain how your use of outsourced accounting services helps keep profit margins healthy, scale your operations, and support a platform-ready firm.
- Your complaint record. Provide an overview of how your accounting and tax preparation processes are standardized.
- How to Retain Your Global Team and Your Clients at the Same Time
Your Firm's Transitional Plan and Timeline: Start Two Years Prior to Sale
If you plan to leave your firm within 12 months after selling it, don't forget your succession plan. You cannot implement a successful transition from a Partner-Dependent Firm to a Platform-Independent Firm in less than 24 months.
Utilizing offshore accounting services and solutions will not only provide you with an easier time filing taxes this year, but they will also increase the value of your business prior to the buyer's signing of the contract. Firms engaged in the delivery of audit and accounting outsourcing and accounting and payroll support services that utilize the global marketplace to provide these services are successful, sustainable businesses and, as such, are considered prime acquisition candidates.
At Xconcile, we assist the owners of CPA firms in constructing the operational infrastructure necessary to exit their business in a manner that is beneficial to both the owner and the buyer. Our Financial Accounting Outsourcing Services provide both the Buyer and Owner of the CPA firm with the stability and scalability required for a successful sale.
