How to Sell a Tax Accounting Firm

sell a tax accounting firm

Selling a tax accounting firm has never been easier if you are prepared and have a team in your corner to assist you every step of the way. The following is everything you need to know about selling a tax firm, including a close look at the industry, how to determine your firm’s business value, and the process for selling your firm.

About The Tax Accounting Industry

The tax industry is one of the most stable industries in the country. Taxes will always be an obligation for every person and business. Tax firms that do a good job are likely to see predictable business via return customers every tax season. The numbers also show growth as well as strong projections. Here is the most important data related to the tax industry:

  • There are approximately 130,000 tax accounting firms in the U.S
  • There was a 2.1% annual growth for the tax industry from 2018 to 2023
  • The advertising industry generates $11.9 billion in annual revenue
  • The annual profit for the tax industry is $1.6 billion
  • Experts predict a sizable increase in annual growth (1.2%) from 2023 to 2028

 

Technology has had a strong influence on the tax industry as well. This has helped firms that embrace technology to operate more efficiently and accurately. Consequently, many younger entrepreneurs are purchasing from established firm owners who are nearing their retirement.

Determining The Value of Your Tax Accounting Firm

A business valuation gives you a sense of how much your tax firm is worth. The worth of your firm goes far beyond your profit and loss statements. Instead, it includes your story — the very thing that makes your firm unique. Of course, financial records matter. Specifically, this includes your SDE, annual net sales, and earnings before interest, taxes, depreciation, and amortization (EBITDA). Rule of thumb data is a way to determine the value of your tax accounting firm. This data includes calculated averages of the most recent transactions of tax firms in the United States. The data includes:

  • Tax accounting firms sold between 1.82 to 1.90 times the Seller’s Discretionary Earnings (SDE)
  • Most tax accounting firms sold between 0.53 and 0.89 times the annual net sales
  • Tax accounting firms that had over $5 million in net sales received as high as 4.03 times their net sales
  • Tax accounting firms sold between 3.02 and 3.24 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

 

There are different valuations. The type of valuation that works best for you depends on the specifics of your business. It is best to work with a business broker to determine your firm’s value. For example, here at Sigma Mergers and Acquisitions, approximately 96% of our clients sell for their asking price or more. A professional valuation provides the confidence you need to sell your tax firm fast and with success.

Choosing The Right Time to Sell 

Proper timing is essential if your goal is to maximize the value of your tax accounting firm. In some cases, it is best to go to market right away. However, it is often best to wait for a more opportune moment. Your business broker should help you evaluate your value both in the immediate future as well as long-term. They can also discuss with you what efforts you could make to increase your valuation (if any). This helps you decide when to list your tax accounting firm.

Finding a Buyer With a Confidential Process

For many firm owners, the sales process is the most intimidating and may seem the most challenging. However, the search for a qualified buyer who will continue your vision should not be difficult, particularly if you have a well-formulated business valuation and have prepared all documents you need. 

There are additional steps your business broker may advise that you take to help ensure a fast and successful sale. For instance, a confidential video presentation can help increase your chance of success by 52%. Your business broker should also maintain the confidentiality of the sale throughout the process. Although the ultimate goal for most firm owners is to maximize the sale price, your broker should also find a buyer that meets your other goals as well (i.e. keep your employees, etc.).

The Due Diligence Process

The buyer has the right to due diligence before the purchase agreement. Due diligence is an investigative process during which the buyer may request certain financial and legal documents to verify all details of your tax firm. 

Although this should be a transparent process, and the buyer should have all information they need, it should also be structured and organized. Sigma Mergers and Acquisitions, for example, uses a Due Diligence Map that helps ensure a fast and effective due diligence process for both parties. This process can increase the success rate by 72%.

Closing The Sale and Transferring The Business

The last steps are to close the sale and transfer the business. At closing, you (along with your team) review documents, attain the final signatures, and confirm the payment is properly sent. All details about the business should be confirmed at this point, and the sale should go smoothly without setbacks. 

Your business broker and lawyer can help ensure an efficient process and advise you on what needs to be done throughout closing. You will also need to transfer your tax firm to the seller. This includes providing them with all information and access they need to take over (f this has not already been done before closing).

Contact The Business Brokers Here at Sigma Mergers and Acquisitions

You can receive a free business valuation from Sigma Mergers and Acquisitions to determine the value of your tax accounting firm. We also help our clients throughout the sales process, from bringing your business to the market to ensuring a successful transfer of the firm once the sale is complete. Get started by scheduling a consultation with us today.

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Scot Cockroft Business Broker
Hi, I’m Scot Cockroft.

When I founded Sigma Mergers and Acquisitions back in 2003, I had sold my business the year prior.

Now, that can sound good, but let me tell you, back in 2003, it was not easy to sell a business. Not that I’m saying in modern day times it’s easy to sell a business, but back then I interviewed broker after broker after broker, and no one was interested in actually seeing the value that my business brought to the table.

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Sigma is a the leading business broker in with Corporate offices in Dallas/Fort Worth with roots from 1984. Over 600 businesses sold in Dallas, Fort Worth, Texas, Oklahoma and across the South. Sigma provides full business brokerage services with NO upfront fees. We provide Market approach business valuations for business sales. Sigma is passionate about helping business owners achieve their goal of financial security. Contact us today for a free no obligation business valuation. We are here to help you achieve your goals.

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