I read an interesting statistic the other day from the Business Brokerage Press that only 1 out of every 15 buyers who are looking at buying a business, actually buy a business. I would imagine that these stats are can also be comparable to our accounting practice sales industry.
That being said, there are many reasons for this statistic:
Some buyers may not be financially qualified to buy an accounting practice. Unless the owner is willing to give the practice away and accept very little for a down payment (or worse, seller finance the entire transaction), then the buyer may need to get outside bank financing. Most lenders these are requiring at least a 10-15% cash injection from the buyer.
This amount is determined by the total amount of the proposed loan. If you are looking at buying a $300,000 practice, then you will need to have liquid funds of approximately $30,000 - $45,000 to put down. This amount of money may be too much for some buyers to put down. The larger the practice, the larger the amount required, the smaller the buyer pool for that practice.
Some buyers may not want to operate a second office. It would be great if you could find a tax practice or accounting practice in the same office complex that is looking to sell. Odds are, this will not happen. Most practices are going to be outside 10 miles or so of the buyer's existing office. In order to transition the client base successfully, the new buyer may need to take over the current lease or space and operate it as a second location for a time being. There are a few added overhead costs with this notion, but the benefits can far outweigh the costs, especially with the advances in new technology, satellite offices, etc.
The business and bookkeeping clients may transition easier since there is more personal contact and the buyer may end up going to their office anyways so it is a moot point. However, the 1040 clients may not want to drive across town to get their taxes done. There are some clients that will email or mail in their information so that may not be a big deal, but for the appointment type client, location is a big deal. Keeping the office open should cash flow so retaining as many clients as possible is crucial to keeping that number in line
That being said, there are many reasons for this statistic:
Some buyers may not be financially qualified to buy an accounting practice. Unless the owner is willing to give the practice away and accept very little for a down payment (or worse, seller finance the entire transaction), then the buyer may need to get outside bank financing. Most lenders these are requiring at least a 10-15% cash injection from the buyer.
This amount is determined by the total amount of the proposed loan. If you are looking at buying a $300,000 practice, then you will need to have liquid funds of approximately $30,000 - $45,000 to put down. This amount of money may be too much for some buyers to put down. The larger the practice, the larger the amount required, the smaller the buyer pool for that practice.
Some buyers may not want to operate a second office. It would be great if you could find a tax practice or accounting practice in the same office complex that is looking to sell. Odds are, this will not happen. Most practices are going to be outside 10 miles or so of the buyer's existing office. In order to transition the client base successfully, the new buyer may need to take over the current lease or space and operate it as a second location for a time being. There are a few added overhead costs with this notion, but the benefits can far outweigh the costs, especially with the advances in new technology, satellite offices, etc.
The business and bookkeeping clients may transition easier since there is more personal contact and the buyer may end up going to their office anyways so it is a moot point. However, the 1040 clients may not want to drive across town to get their taxes done. There are some clients that will email or mail in their information so that may not be a big deal, but for the appointment type client, location is a big deal. Keeping the office open should cash flow so retaining as many clients as possible is crucial to keeping that number in line
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