Legal Issues to Consider When Buying an Accountancy Firm
Buying an accounting firm like Padgett Advisors is a big investment and one with many legal implications related to it. These are critical elements to understand if you want an acquisition process that goes through your way and not the other parties. Below is an overview of the legal issues to consider when purchasing a bookkeeping company.
- Due Diligence Process
This process is intended to validate what the seller has represented as well as discover any potential problems. All financial records should be carefully reviewed, such as income statements, balance sheets, and tax returns in addition to client billing records, etc. It determines the extent to which a company is profitable, or if it has any red flags.
- Purchase Agreement and Valuation
Properly valuing the accounting firm and carefully crafting a purchase agreement are critical aspects of your acquisition journey. An independent arm’s length professional appraisal may be helpful on this score — in terms of assets, liabilities, and client base plus prevailing market conditions – to a set worth. This includes the goodwill of a firm, which is value attributed to its brand or credibility within an industry (and more broadly with clients).
- Retention and Transition of a Client
The continuous success of the visible accounting firm is ensuring we keep growing and nurturing our client base during and after post-acquisition. They should also develop strategies that help them in retaining many of their customers while transitioning. This could be leading client meetings, ensuring service continuity, and resolving any concerns in a timely fashion
- Employee Considerations
The employees of any accounting firm are an important asset, and their retention a smooth transfer is crucial for the enterprise to continue operating as usual. Also, when you start the recruitment process with a business owner we assist in reviewing any existing employment contracts and agreements so an understanding can be obtained as to what will include terms of employment benefits or restrictive covenants if there is anything required.
- Educational and Licensing Rules
Some certain laws and rules must be followed in the accounting industry. These licensing requirements may be in the form of state and federal licenses, or any specific industry certifications.
Ensure that the firm follows professional standards set by regulatory bodies like the American Institute of Certified Public Accountants (AICPA) and Public Company Accounting Oversight Board (PCAOB).
- Tax Implications
Knowing how the acquisition will be taxed can help with proper planning as well as minimizing a potential surprise bill. It is wise to have a conversation with tax advisors to find the most tax-friendly format for this acquisition. The tax impact of each structure, either an asset purchase or a stock purchase is different for the buyer and seller.
- Post-Acquisition Integration
It is important to plan the integration of the acquired firm into your established operations as doing so may help with a seamless transition. You need to develop a robust integration plan on what this newly acquired firm brings into your fold and how you are going integrate all the operations. This includes finance systems, client management software, and workflows.
When you are investing in an accounting firm purchase the most important thing that needs to be followed is dealing with various legal issues. Working with attorneys and financial advisors for the deal can offer a helpful perspective on these common pitfalls. By approaching the move with a combination of careful planning and execution, snapping up an accounting firm can be one of the most rewarding – both personally and financially speaking – moves you ever make.
