“1mil”

My phone illuminated around 4:00 AM as I was reviewing a presentation my team created for an IT Company that is going from a Chicago presence to a national powerhouse. 

I had to rub my eyes and look at my phone again. The coffee was just starting to kick in and I thought maybe my eyes were playing tricks on me. 

I looked at who the text was from. Who was texting me this early in the morning? What did “1mil” mean? I opened my phone and saw the green bubble from an unknown contact. “What in the world,” I thought. I googled the number and discovered it was the number of a CPA who had emailed me a few weeks back. The CPA had reached out to me to see if I was considering purchasing a tax practice and if maybe I’d consider purchasing his. I had emailed him back a few weeks prior to receiving this text asking what ballpark his sales price was in. This must have been his attempt at a joke. 

“1mil” 

Really?!

Let me give you some backstory here. The Strategic Voyages Team and I are and have been exploring options for expansion through an acquisition. In fact, we’ve been considering this approach for the past few years. We see tremendous value in the unique offerings our firm provides and the success our clients see when utilizing our CFO Services and going through our Strategic Approach. We work hand in glove with CPAs as our conversations, relationships, and goals are typically mutually aligned.

In this article from last year, Maintaining Integrity in Negotiations, I wrote about how I had attempted to purchase a CPA Firm but it fell through right at the finish line. I had literally gotten a cashiers check for the exact amount the CPA wanted for purchasing a tax practice only to be shot down the day before we were supposed to close. 

Back to the text. A few weeks prior to receiving the text message, I had received an email from a CPA who was considering selling his tax practice. I say “considering” because as I soon found out, he wasn’t serious about actually selling. Serious sellers are prepared with reports and data and the discussions usually become about process and how their clients will be taken care of. The buyer shouldn’t have to chase around the CPA.

When I got the short email, it indicated that this CPA was inquiring about my desire to purchase his firm. I told him I would be interested in a conversation but I didn’t want to waste his time or mine. I needed to quickly understand how serious he is about selling his firm before I spend too much time on due diligence, discussing the deal with my attorney, planning the money, discussing it with my team, etc. I had to know where his expectations were relative to purchase price and timing and the onboarding involvement. These are typically the three biggest parts of negotiating a business acquisition.

So, I replied to his email. Something direct but sweet. “Hello so and so. Thank you for reaching out. It’s October. Hope you’re ready for the annual reminder parents give their kiddos about taxes on Halloween.”  Cute. Right? “I am indeed interested in purchasing a tax practice, but to be sure we don’t waste each other’s time, could you provide any high level information? Purchase Price. Annual Revenue. What’s actually included in the purchase. Breakdown of personal to business tax work. Report of the various services as it relates to their respective revenue percentages. Anything on paper that I can evaluate would be greatly appreciated.” Oh. And to make my attorney happy, I attached a Mutual Non-Disclosure Agreement. I wrapped up the email with, “I’ve attached my standard Mutual NDA. Please review, complete, sign and return with whatever materials you have prepared for me to evaluate this transaction.”

Mutual Non-Disclosure Agreements are essential in business as they protect both parties discussing sensitive information. It essentially prohibits either party from disclosing financial information, the specific nature of the deal, or other incriminating information. As I write this blog, I realize some people may wonder why I’m creating a blog discussing my business deal. Don’t worry, this blog has no specific information and my attorney said I could. 

So, I sent the CPA this email in response to his email which asked if I was interested in purchasing a tax practice. I figured, a CPA who is proactively reaching out to me would have some basic information readily available and my request would be received as a very normal request in the course of a transaction like this. If there were any issues, he should have called me. 

Two weeks went by and I hadn’t heard anything from this CPA. Not the end of the world. Our team hadn’t really put too much time or thought into the possibility of purchasing his firm as we literally had nothing to evaluate other than his website (which looked to be a standard website purchased around 2005 and subsequently forgotten about.) 

Then. Out of nowhere, I got this text around 4:00 AM. “1mil” from the CPA (who’s number I hadn’t saved in my phone.) Quite odd, if you ask me. 

As I predicted, the next few emails shed more light on his misconception that I’d want to purchase his tax practice without evaluating any actual information. He eventually sent me an email with an excel file showing “Tax Return Price” and “Number of Tax Returns Completed” and then a column for years. I honestly thought he was joking; this is NOT how I’d expect someone expecting a check for “1mil” to act.

Maybe it’s an annual thought process every seasoned CPA goes through as they consider going through the insanity of another tax season. With the Pandemic in 2020, the PPP craziness, the EIDL push, everchanging guidance from the government (through what has seemed like endless “Interim Final Updates”) and Employee Retention Credit work, CPAs and Accountants have begun to call the tax season of 2020 and 2021 a never ending work load. They’re not wrong.

I write this article to say that if you’re a CPA and you’re considering selling your tax practice, here’s a few things to consider:

What is most important to you? 

Perhaps it’s money. Maybe it’s impact. It could be status. But usually, it’s prestige. CPAs don’t want to sell for the wrong amount of money. And they definitely don’t want their clients to be supported by a sloppy CPA who will not provide the two essential things a CPA is supposed to do for their clients;

Typically, clients of a Tax Practice want two things: 1) assurance that their taxes, accounting, and payroll are done correctly and on time 2) guidance if they have a potential (or sometimes already completed) tax implication. Great CPAs give both these things to their clients. 

What is most important to your team? 

The people who count on you are your team. They don’t have to be employees on a salary to be counting on you. It might be your landlord, your insurance agent, your contractors, your networking connections, your spouse, or your part time secretary. These people are on your team. What’s most important to them? How can you work with a professional to ensure the proper transition for everyone? 

What is most important to your clients?

Many CPAs I work with and know are highly intelligent people. They’re educated. They’re savvy. They’ve seen a lot of business deals. They know how taxes work. They’re great people. They like to be liked and what they like even more than being liked is being right. And, the best CPAs I know are usually right. That is, unfortunately, why it’s hard for CPAs to admit that they can’t do everything. 

But, is that really what’s most important to your clients? Or, is it business growth presenting as marketing analysis and strategies, acquisition vs organic growth, reducing overhead through systems implementation, leadership support when growing the team through hiring. 

These are all topics I discuss in my book, Taboo Business Questions. Get your copy today!

Yes. The Strategic Voyages Team is still interested in purchasing a tax practice. Why? Because we make excellent partners with our accounting, bookkeeping, and tax friends. They know all the compliance, love tying out financial statements, and ensuring proper tax filings. It’s a very needed service that takes a highly skilled professional to do right. 

If you’re interested in getting an evaluation of your business (doesn’t have to be a tax practice), we should talk. Our team has helped dozens of companies buy, sell, and otherwise transition their business. 

I’m curious though, if you were me and you were considering purchasing a tax practice, what information would you want to know upfront? What would be the deciding factors? How would you determine if the risk is worth the reward?