Whether you’re just entering your accounting career or reinventing a tired business, the road ahead can seem quite long. Starting and growing an accounting and tax business from the ground up (like building any other business) can take time and hard work. Finding those first few regular clients can be a daunting task, and many would-be entrepreneurs throw in the towel and go to work for someone else before it ever happens.
Buying an Existing Business
The alternative to starting and growing an accounting and tax business
One way to jump-start your business and start turning a profit almost immediately is to buy an existing accounting business. If you’ve got some capital to work with, buying an accounting business brings you instant clients and can pay for itself within a couple of years.
Here are some of the main concerns you need to face when deciding between buying an accounting business or starting and growing an accounting and tax business from scratch:
- Building a business from scratch takes capital, but not as much. There are some costs you’re going to face when you start your own business, but they’re not the same as if you’re buying an existing firm. For example, chances are good you’ll need to pump more money into advertising and marketing if you’re starting your own business than if you’re buying an existing firm. On the other hand, the largest expense – buying the existing accounting firm – is absent. If you can’t get startup funding, you’ll almost assuredly have to build your business from scratch.
- Not all existing businesses are equal, even if their balance sheets say they are. There’s more to an accounting business than its annual revenue. If you’re thinking about buying an accounting business, you’ll need to dig deep into the business’ financial records and see how profitable it has been over the long term. Accordingly, you’ll need to look at ancillary issues like collection problems or the frequency of write-downs.
- Even when buying an accounting business, you’re going to have to carry the business for a while. It will take some time before any business can collect its own receivables. This is usually much quicker with an existing accounting business as you already have clients lined up. That said, there will typically be a cash flow gap while you get things up and running, and that’s got to happen on your own dime.
- Generating or maintaining client loyalty. When you build your own accounting business from scratch, you can be confident in how loyal your customers are. You know your own track record. However, when you’re buying an accounting business, it’s not always easy to tell just how loyal those clients are. You’ll want to look at how long the business has serviced clients on average as an indication of client loyalty.
- Know who does the work. If you’re starting your own accounting business, it’s you. Chances are you’re going to do like most small business owners when they’re first getting started and wear a number of hats. That said, when you’re buying an existing company you should identify exactly what it is the owner is responsible for and what employees or associates do.
- Control of billing rates is an issue. Starting a new business you can set your own rates – you just have to go out and find clients who are willing to pay them. When you buy an accounting business, you have the clients, but you also have established rates. You’ll want to continue to hold your clients’ rates during the transition time and make sure that you understand the billing rates and systems that the seller is using. Nothing will send all of those ready-made clients packing faster than a dramatic increase in rates after you buy the business.
- Accounting software and other equipment. This can be a tough one for a new accounting business. If you’re building your business from scratch, you need to purchase software and equipment. That can be a significant expense. If you’re buying a business, you need to make sure you know what software or equipment is being purchased, as well as its age and condition.
- Services. Buying an accounting business should, at least in the short term, mean trying to offer the same services that the business offered previously. You can expand into other service areas if you wish, but you need to start with what’s in place. If you start your own accounting business, you can simply offer the services you want to offer.
There are some immediate benefits to buying an accounting business, and there are some downsides. Make sure you consider them thoroughly, and that you examine any business you’re thinking of purchasing from all of these angles.
When you become a Certified Tax Coach, you get the added benefit of working with experts across the country who have experience in both buying and starting and growing an accounting and tax business from scratch. Connecting with this elite group of peers can help you decide for yourself – and help you steer clear of pitfalls along the way.
