Quick answer: Before bidding on an accounting practice, a buyer screens for fees that will survive the seller’s departure: who holds each relationship, which work recurs, how clients and staff behaved in earlier transitions, and what the practice earns after market pay for the partners. Price and structure follow, usually with part of the price tied to retained fees, retention terms for key staff, and independence and ownership checks completed before the letter of intent.
Key points
- A buyer is purchasing annual fees that depend on people, so the first screen is who holds each relationship and whether the work recurs.
- Staff costs do not shrink when clients leave, so a modest loss of fees removes a much larger share of earnings.
- A price adjustment that moves one for one with retained fees under-protects the buyer, so buyers size the deferred part to the fees at risk and use a steeper scale.
- Independence and ownership checks come before the letter of intent, because they decide whether the buyer may take the whole practice.
- Staff retention terms are agreed before signing, while system conversions and fee increases wait until after the first filing season.
Screening an accounting practice before a data room opens
A buyer of an accounting practice is buying annual fees that depend on people. A first screen, run on a coded roster and a staff list, asks who holds each relationship, whether the work recurs, whether the staff can run the practice without the sellers and whether the buyer may take what is for sale. The table shows how each factor reads.
| Factor | Lower-risk signal | Higher-risk signal | What the buyer does about it |
|---|---|---|---|
| Relationship owner | Managers and seniors lead most client contact | Selling partners handle most clients personally | Defers more of the price and requires introductions before closing |
| Type of work | Returns, bookkeeping and payroll repeat each year | Projects and one-time advisory | Values project fees separately or leaves them out of the baseline |
| Client tenure and plans | Long-tenured clients with stable owners | Clients near a sale or retirement of their own | Discounts those fees |
| Fee level | Fees close to the buyer’s own for the same work | Fees well below the buyer’s, so repricing risks churn | Delays repricing until relationships settle |
| Transition history | Past departures and retirements kept most clients | Past departures took clients with them | Sets a stricter retention condition |
A practice that scores badly on relationship ownership is not necessarily a poor purchase. It is a purchase in which more of the price must wait for the clients to prove they stay. The valuation page for accounting and tax firms covers multiples and value drivers, buying a business by industry compares other sectors, and the buyer’s roadmap covers the general process.
Fee quality and profit after partner pay
Quotes for smaller practices are often a multiple of annual fees, which is simple but hides what it costs to serve them. A practice with high-margin tax and advisory work and one with low-margin bookkeeping can post the same fees and very different earnings. The buyer therefore converts any fee quote into earnings: fees less staff, occupancy, technology and other costs, less market pay for the partner roles it must fill. Savings the buyer expects from its own systems are the buyer’s to earn, not the seller’s to be paid for. The guide to valuing an acquisition target covers how much of such savings to concede, and the accounting firm diligence guide lists the records that support the figures: the roster tied to the ledger, retention by cohort, work in process and partner pay.
Independence and ownership checks before the letter of intent
If the practice performs audits or reviews, the buyer’s own ownership and relationships can raise independence and ownership questions that decide whether it may buy the whole practice. Two checks come before any letter of intent. The first compares the practice’s attest clients, coded or disclosed, with the buyer’s own clients and services, because a service the buyer already provides to one of them can create a conflict. The second settles with counsel who may own the attest practice, in the buyer’s state and in the practice’s.
Where a buyer cannot own attest work, it can buy the non-attest business and leave the attest practice with licensed owners or another CPA-owned firm, under an agreement for shared services, with each part priced on its own. A practice with no attest work avoids both checks. Standards and state rules differ, so counsel with professional-standards experience approves the structure.
Structuring the price around retained fees
The structure should put the loss from departing clients where it belongs. The part of the price attached to fees that depend on the selling partners is deferred and paid on the fees retained after the first filing seasons, while the part attached to fees held by staff is paid at closing. The box shows why the deferred part is not a simple share of the price.
Illustrative example: Why a fee loss costs more than its share of the price
A buyer pays $5,000,000 for a practice with fees of $4,000,000 and EBITDA of $1,000,000 after market partner pay, a placeholder multiple of 5.0x. In the first filing season, clients representing 10 percent of fees leave, or $400,000. The buyer cannot cut staff at the same pace and saves only 20 percent of the lost fees in costs, or $80,000. EBITDA falls by $320,000 to $680,000, a drop of 32 percent. At 5.0x the practice is now worth $3,400,000, which is $1,600,000 below the price. If the whole price moved one for one with retained fees, the adjustment would be 10 percent of $5,000,000, or $500,000, which recovers less than a third of the loss. The buyer therefore sizes the deferred part to the fees at risk and uses a steeper scale. The multiple and the cost savings are placeholders and the numbers are invented to show the mechanics and are not benchmarks.
Sellers answer that the buyer can remove costs over time and that its own conduct influences retention, so the scale, the measurement period and the buyer’s duties after closing are negotiated together. The earnout guide covers those terms, and how to sell an accounting firm shows the seller’s side. Other tools sit beside the deferred payment: a holdback against claims, a seller note, a retention pool for staff and restrictive covenants for the sellers, as non-competes and non-solicits explains. The cash part is covered in financing a business acquisition.
Keeping the staff who hold the relationships
Staff hold the day-to-day relationships behind most recurring work, so retention terms are agreed before signing. The buyer’s offer to each key person covers role and title, pay against the buyer’s own scale, a path to partner and a retention bonus that depends on staying through the first filing season. Staff hear the news on a plan agreed between buyer and seller, because a rumor reaches them in a worse form. The buyer also checks which key people are bound by non-solicitation terms and whether the seller’s staff agreements can be assigned. Pay is read both ways: a practice that pays below the buyer’s scale carries a catch-up cost that lowers earnings, and one that pays above it carries a retention risk when the buyer levels pay.
Integrating clients, systems and fees across the filing calendar
The order of integration matters more than its speed, because the busy season sets when staff have capacity to change anything.
| Phase | Priority | What a rushed version risks |
|---|---|---|
| Before signing | Plan the notice, staff offers, system conversion and order of client calls | Surprises on the day of the announcement |
| At announcement | Top clients hear from their relationship owner, then a joint letter follows | Clients learn from a rumor or a competitor |
| First filing season | Keep the sellers visible, leave systems and fees alone, protect staff capacity | Missed deadlines and departing clients |
| After the first season | Convert systems, replace engagement letters, adjust pricing client by client | Churn from repricing before relationships settle |
The guide to the first period after closing covers integration in general. File handling is settled in the agreement: how client records are held, who can reach them and which engagement letters are replaced. Buy-side M&A advisory from target screening through negotiation and closing is among the services The Impetus Group provides.
Frequently asked questions
What should a buyer check before buying an accounting practice?
Who holds each client relationship, which fees recur, how past staff departures and partner retirements affected clients, what the practice earns after market pay for the partners, and whether the buyer’s own services create independence conflicts with the practice’s attest clients. Those answers set the price, the share tied to retained fees and the retention terms for staff.
How much of the price should depend on client retention?
There is no fixed share. Buyers size the deferred part to the fees that depend on the selling partners, because those are the fees at risk, and they scale it more steeply than the fee loss when costs cannot be cut quickly. Sellers answer by pointing to costs the buyer can remove and to the buyer’s own influence on retention.
Should a buyer pay for an accounting practice on fees or on earnings?
Both views are used. Quotes for smaller practices are often a multiple of annual fees because it is simple, but a fee multiple only works when the cost to serve the fees matches the buyer’s own. Buyers convert any fee quote to earnings after market partner pay, so that offers and practices can be compared.
How should a buyer keep staff after buying an accounting practice?
Staff hold the relationships behind most recurring work, so buyers agree retention terms before signing: defined roles and titles, pay that holds against the buyer’s own scale, and bonuses that depend on staying through the first filing season. Buyer and seller agree how staff are told, so the offer reaches them before rumors do.
Thinking about a sale or an acquisition?
The Impetus Group provides sell-side and buy-side M&A advisory, from preparation and buyer outreach to negotiation and closing. A transactional valuation is often the first step, scoped and priced separately.
Related guides
- Accounting and tax firms: How accounting and tax practices are valued: recurring fees, client retention, service mix, seasonality, staff and succession, ownership rules and deal structure.
- Accounting Firm Due Diligence: Client Roster, Partner Pay and Normalized Earnings: Accounting firm due diligence: how buyers test the client roster, retention, work in process, partner pay, quality-control records and staff before they set price.
- Valuing an Acquisition Target: How a Buyer Decides What to Pay: How a buyer values an acquisition target: restate earnings, price the risks, test the return and funding limits, then set a walk-away price. With a worked example.
- How to Sell an Accounting Firm: Buyers, Client Retention and Transition: How to sell an accounting practice: who buys, how client retention shapes price and terms, what to prepare and how the filing season affects timing.
- Buying a Supplement Company: Regulatory Risk, Suppliers, Channels and Deal Structure: Buying a supplement company: the screens to run before bidding on regulatory exposure, manufacturer and supplier dependence, channels and customer economics.
- Buying an Engineering or Architecture Firm: Licenses, Backlog and Key Staff: Buying an engineering or architecture firm: check ownership rules and licenses, test backlog durability, read liability history and plan key staff retention.
This guide is general education. It is not a valuation opinion, appraisal, investment advice, or legal or tax advice. How these guides are made.