Accounting
Art of Accounting: The vanishing buyers of small practices
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There is no question that there is widespread consolidation of accounting practices, but this is taking place among the larger firms. You can read about a merger or acquisition multiple times a week in Accounting Today. The trend I have seen is difficulty in small practices finding suitable buyers.
I believe the shortage of buyers of small practices is because the potential buyers are not qualified to handle a small practice. When I “grew up” in public accounting, I worked for small firms where I needed to do everything a client needed done. Sure, it was a less complicated period, but I needed knowledge and skills preparing all types of tax returns, as well as financial statements that were mostly compilations but still with a fair amount of reviews and even some audits. I also had to do systems review, not just filling out internal control questionnaires but helping a client work through weaknesses they had discovered or that kept them awake at night. The job involved speaking with bankers about what they wanted, the purpose of the business’s covenants and compensating balance amounts and quality of collateral.
We were reviewing escalation clauses in leases, calming down an IRS revenue officer when a client fell behind paying the withholding taxes, helping a client understand the total costs of their products and their breakeven sales amounts, the layered structure of payments to their salespeople and representatives, how to calculate their interim inventory and industry expertise. We also became sounding boards to our clients and “unlicensed” psychologists. I tell a lot of stories about this in my Memoirs book.
What has been occurring over the last two dozen or so years is a trend toward specialization or partitioning of skills. The reasons are the growing complexity of tax returns, combined with digitization of the input and many of the repetitive processes, along with the even greater difficulty of financial statement preparation, reviews and audits.
The use of virtual work has been growing over this period, with a great acceleration since the COVID shutdown in March 2020 that has reduced the relational interaction with clients. That was an important driver of queries and discussions, providing insights into a client’s thinking and concerns. A lot of higher-level discussions were with the partner but plenty of them also took place with the “kid” spending that day with the client. None of this is good or bad, it is just different, and while it raised specialized skill levels it also served to reduce the one thing that I felt created the smaller firm’s raison d’être as well as a training ground for future CPA practice owners.
Do not misunderstand me. The relationships and interactions still exist, especially with older practitioners. But it is a declining skill or talent. The younger staff are not being presented with the opportunities that were ubiquitous during my and some later generations, but no longer so. This means that the skills needed to succeed in a smaller practice have declined and this serves to decrease the pool of available buyers.
Furthermore, moonlighting, which was prevalent in my day, has become less frequent, primarily because of the longer work hours. When coupled with the drop in skill levels needed to properly service smaller clients, it has reduced the staff people’s “desire” to seek out after hours work opportunities. Again, things have changed, not just one thing but a confluence of actions.
Considering what I suggested here, the pool of available buyers of small practices has declined. It has not exactly vanished as the headline title suggests, but I think we are past the beginning of this trend. That has made it harder to sell a small practice and has served to reduce the prices and lengthen the time to consummate a sale, stretching out the exit period.
Twenty years ago selling a small practice was pretty easy since there was an abundance of buyers. That’s not so anymore. This is a trend that is occurring because of changing circumstances, not because of any predestined plan or conspiracy.
These comments are based on my limited observations of colleagues I have met or spoken with who have had extreme difficulties selling their practices that I know would have been easy sales 20 years ago. The purpose of sharing my thoughts is to provide a heads up of what might be expected, including a longer sale process and a lower sales price. I suggest factoring my thoughts into your planning. If I am wrong, you will have lost nothing.
Comment: My Memoirs as a CPA book has been published and is available in Kindle and print editions at amazon.com. Buy it, read it and enjoy it! Do not hesitate to contact me at
The House unanimously passed four bipartisan bills Tuesday concerning taxes and the Internal Revenue Service that were all
- H.R. 1152, the Electronic Filing and Payment Fairness Act, sponsored by Rep. Darin LaHood, R-Illinois, Suzan Delbene, D-Washington, Randy Feenstra, R-Iowa, Brad Schneider, D-Illinois, Brian Fitzpatrick, R-Pennsylvania and Jimmy Panetta, D-California. The bill would apply the “mailbox rule” to electronically submitted tax returns and payments to allow the IRS to record payments and documents submitted to the IRS electronically on the day the payments or documents are submitted instead of when they are received or reviewed at a later date. The AICPA believes this would offer clarity and simplification to the payment and document submission process while protecting taxpayers from undue penalties.
- H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act, sponsored by Rep. Randy Feenstra, R-Iowa, and Brad Schneider, D-Illinois, which would require notices describing a mathematical or clerical error to be made in plain language, and require the Treasury to provide additional procedures for requesting an abatement of a math or clerical error adjustment, including by telephone or in person, among other provisions.
- H.R. 517, the Filing Relief for Natural Disasters Act, sponsored by Rep. David Kustoff, R-Tennessee, and Judy Chu, D-California. The process of receiving tax relief from the IRS following a natural disaster typically must follow a federal disaster declaration, which can often come weeks after a state disaster declaration. The bill would provide the IRS with authority to grant tax relief once the governor of a state declares either a disaster or a state of emergency and expand the mandatory federal filing extension under Section 7508(d) of the Tax Code from 60 days to 120 days, providing taxpayers with more time to file tax returns after a disaster.
- H.R. 1491, the Disaster related Extension of Deadlines Act, sponsored by Rep. Gregory Murphy, R-North Carolina, and Jimmy Panetta, D-California, would extend the amount of time disaster victims would have to file for a tax refund or credit (i.e., the lookback period) by the amount of time afforded pursuant to a disaster relief postponement period for taxpayers affected by major disasters. This legislative solution would place taxpayers on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period.
“The AICPA has long supported these proposals and will continue to work to advance comprehensive legislation that enhances IRS operations and improves the taxpayer experience,” said Melanie Lauridsen, vice president of tax policy and advocacy for the AICPA, in a statement Tuesday. “We are pleased to work closely with each of these Representatives on common-sense reforms that will benefit taxpayers, tax practitioners and tax administration and we’re encouraged by their passage in the House. We look forward to continuing to work with Congress to improve the taxpayer experience.”
The bills were also included in a recent Senate
The House also passed two other tax-related bills Tuesday that weren’t endorsed in the recent AICPA letter.
- H.R. 1155, Recovery of Stolen Checks Act, sponsored by Rep. Nicole Malliotakis, R-New York, would require the IRS to create a process for taxpayers to request a replacement via direct deposit for a stolen paper check. If a check is determined to be stolen or lost, and not cashed, a taxpayer will receive a replacement check once the original check is cancelled, but many taxpayers are having their replacement checks stolen as well. Taxpayers who have a check stolen are then unable to request that the replacement check be sent via direct deposit. The bill would require the Treasury to establish processes and procedures under which taxpayers, who are otherwise eligible to receive an amount by paper check in replacement of a lost or stolen paper check, may elect to receive such amount by direct deposit.
- H.R. 997, National Taxpayer Advocate Enhancement Act, sponsored by Rep. Randy Feenstra, R-Iowa, would prevent IRS interference with National Taxpayer Advocate personnel by granting the NTA responsibility for its attorneys. In advocating for taxpayer rights, the National Taxpayer Advocate often requires independent legal advice. But currently, the staff members hired by the National Taxpayer Advocate are accountable to internal IRS counsel, not the Taxpayer Advocate, creating a potential conflict of interest to the detriment of taxpayers. The bill would authorize the National Taxpayer Advocate to hire attorneys who report directly to her, helping establish independence from the IRS.
House Ways and Means Committee Chairman Jason Smith, R-Missouri, applauded the bipartisan House passage of the various bills, which had been unanimously passed by the committee.
“President Trump was elected on the promise of finally making the government work better for working people,” Smith said in a statement Tuesday. “This bipartisan legislation helps fulfill that mandate and makes improvements to tax administration that will make it easier for the American people to file their taxes. Those who are rebuilding after a natural disaster particularly need help filing taxes, which is why this set of bills lightens the load for taxpayers in communities struck by a hurricane, tornado or some other disaster. With Tax Day just a few days away, we must look for common-sense, bipartisan ways to make filing taxes less of a hassle.”
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