- quote -

Harlan, they don't grow us Polish folk that tall.....

Your favorite blonde, female, Polish-type Northern lady.....

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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Harlan Lunsford wrote:
- quote -

Sloppy terminology on my part, for lack of better
terminology. (And sloppy analysis, to some extent, but we
don't normally see a huge variance in volume from year to
year). When we set our prices for the coming year, we
analyze the cost of a client without regard to the time it
takes to do their return, then add a per-hour rate for prep
time. That "fixed cost" includes both the truly fixed costs
you mentioned and (many) variable costs that aren't related
to prep and review time. It helps us remember that we can't
make anything on low-dollar returns, because we don't have
the volume.

- quote -

On a good day, I can get the client to hand over their
information in 36 minutes. Heck, it takes me 36 minutes
to get a return from "ready to print" to "ready to deliver,"
and we e-file all our returns, too! Good thing everyone's
different.

Phoebe

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mark kominkiewicz CPA wrote:

- quote -

Gene Dobre! I think.

You're right, there's absolutely nothing confusing at this
point. I wouldn't touch his former practice with a ten foot
Pole! (pun intended)

Cheer$,
Harlan Lunsford, EA n LA

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Met yet again with the seller. Spoke of "lessor" valuation,
5% down, and terms over 3 years(40/30/30 on receipts, not
revenue.) (instead of 2). Frankly, the vibe I got was kinda
odd.

I figured with the terms I worked up, it might be doable for
me. Not easy though. Thought an extra year would help in
transition. I also spoke of non compete, retention
language, new client language, old client new fees language,
and old client additional fees language.

I told him I wanted to see his Schedule C. He just about
froze. He wasn't comfortable discussing this schedule c,
because he didn't want to "lead me down a confusing path."
Confusing, what's so damn confusing. He mumbled something
about a nice "cash" business. I told him I have no way of
verifying whats going on. No PL, no cash flows, nothing.
Just a schedule showing returns and receipts by month for
the last year. Don't know if there is a spike, or not.
Strikes me as odd I guess, since I figured this kinda stuff
should be at his fingertips.

We went back and forth a few times. I left the meeting with
my list (mentioned above), a request for the sched c, and
gave him a couple of days to think it over.

Say, anything else to discuss if such a contract comes up?

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Phoebe Roberts, EA wrote:
- quote -

While I'm scratching my head I'm wondering about your
definition of fixed costs. My MBA tells me that some of
those items you mention are indeed fixed costs, e.g.
occupancy, CPE, insurance, but the rest are what we refer to
as variable costs, i.e. they vary with the volume.

IF I could speak Polish (instead of mediocre Russian), and
IF the practice were offered to me and IF in this
geographical area, I might consider it, for my variable
costs are low enough. Just my time and a bit more paper and
toner, cause my usual federal and two state returns are all
efiled and I print out client's copy on the spot, wrap it up
in a little blue folder, collect my check, and on average 36
minutes later he's out the door.

Sometimes I wish I did have a clerk, though. Expecially
blonde, ... ohnevermind. I'd just have to raise my rates to
pay her.

Cheer$,
Harlan Lunsford, EA n LA

================================================== ==========
Moderator:
Maintaining a mistress may be an ordinary and necessary
business expense. I know of one case where, upon audit,
the mistress' income was added back in to the business
owner's income. The IRS just does not understand
$60,000 a year clerical workers. It's a rough game. <g================================================ ============

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- quote -

I was offered a small (80 returns, lower than my normal
fees) practice for $10 a client, counting only clients that
I actually prepared a return for the next year. That was
the ASKING price, I didn't even try to negotiate. The seller
was a retired CPA using the retail version of TurboTax with
white-out over the "self-prepared" legend. Bought it,
increased most of the fees, kept about 70% of the clients.

--
Don EA in Upstate NY

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mark kominkiewicz CPA wrote:

- quote -

Your MBA should be able to tell you that, too.

That deal wouldn't make sense at any price for me. Our
fixed cost (software, paper, occupancy, CPE, malpractice
coverage, clerical time to copy and assemble, etc. -
everything but prep and review costs) for a simple return is
about $50, assuming we added the hypothetical 500 new
clients. Assuming 15 minutes of prep and review time, you
could still make a decent hourly rate. But you're probably
going to have 15 minutes of "Hey, I'm the new guy"
conversation, 5-10 minutes to get familiar with the client
and the file (assuming there is a file), 5-10 minutes to set
it up in the computer (assuming the seller hasn't
computerized, which wouldn't surprise me), and 10-15 minutes
of prep and review time. So 35-50 minutes, for which you'll
get about $30.

If your other returns are $100 returns, you probably have a
good system for handling them, and you might be able to make
money on an $80 return. But if your average return is
$200-300, you're just buying yourself the opportunity to
work for cheap.

Phoebe

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Knew that damn MBA of mine would come in handy. Did a quick
SWOT yesterday, about 6 strengths, 20 weaknesses, 2
opportunities, 5 threats. Still waiting for the gent to
respond.

Considering all of this, would a counteroffer of about 45%
to 55% make sense? I am trying to figure out at want point
(diminishing marginal return)such a deal makes sense? Or
this deal doesn't make sense at any price?

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- quote -

As it was so aptly put in Monty Python and the Holy Grail
"Run Away, Run Away".

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mark_kominkiewicz_cpa[at]hotmail.com (mark kominkiewicz CPA) wrote:

- quote -

Yep, spent a couple of hours with this guy on Saturday.
Wants 45K up front or 50K over 2 years.

I thought he ran the practice kinda sloppily. Looked a bit
unorganized, but so what. Considering I was Polish, and he
and his clients were Polish, he thinks it would work out
naturally.

Looking closer at the number, his 1x valuation may be off.
With an average of 80 per return, I doubt there is any
upside in price, or at least very little. Same goes for
other services. Strikes me strictly as a 1040 practice. He
has had these clients for some time, and works out of his
home. Uses his home number as business number too. No
routine in terms of client interaction. They can call when
they want. No rules on business hours or access.

Valuation should be somewhat lower, maybe .75. And the
11.1% per year seems kinda high too ( 22,500 + 2500 int) x 2
years)

I spent today watching the bears win (finally), and getting
some questions together, which I faxed over to him. Big one
was a copy of the schedule c he files for the last 3 years.

No offense, but I think this guy is really old school, and
has a tough time separating business from life.

My big thing is say I purchase and find out in a few years I
want to sell. I think it would be tough to get out. (Old
friend said in whatever deal you get into, whats your exit
strategy? good advise)

Still stewing about it. Was 60/40 to go for it, now 55/45
against. Guy wants out though. He's got to be close to 70
years old now. I probably could come up with an offer.
Plus the us polskis stick with each.

Will keep up to date.

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mark kominkiewicz CPA wrote:

- quote -

I agree with Dick - are you sure you want those clients?
(The only person I know in real life who does that volume of
returns has a staff of 5-6, and she's grossing a heck of a
lot more than $45k.)

We bought a practice that needed a substantial fee increase
(between 50% and 200%, depending on the client), and ended
up retaining about 25% of the prior CPA's clients. Between
paying for those clients (we paid based on our billings, so
if the client didn't return, we didn't pay for them), and
attempting to get and keep the 75% who didn't stay with us
long-term, it turned out to be a bad deal. And that was
without having to do any software conversion, re-entering
data, etc.

Can you do another 500 returns this tax season? We have a
very small practice, so 25 new returns is a big increase for
us, and the years we've added more than that have just been
horrible - new clients take a lot more work than established
clients do, and you usually can't bill for that extra
effort.

- quote -

We've purchased a couple of times. Our standard agreement
is a 3-4 year payout based on our billings to retained
clients for services the prior CPA had performed, capped at
100% of their actual billings on a client by client basis.
One payment in late April, one in late October, no interest.

Example with a 3-year payout:
10 clients, prior CPA did tax returns only, $100 per return.

Year 1: We do returns for 9 clients, billing $150 per return
for a total of $1350. We pay old CPA 1/3 = $450. We have a
maximum of $450 additional liability (9 clients retained
times $100 per return, less $450 already paid), which is
actually a cap of $50 more per client.

Year 2: We do returns for 7 clients, billing $150 per
return for a total of $1,050. We also do a return for one
client's new S-corp and bill $500. We pay the old CPA 1/3
of 1,050 = $350. At this point, we've paid $100 per client,
so we have no liability for Year 3.

Personally, I wouldn't buy the practice you've described.
But if I did, I'd anticipate spending the entire time
between now and April 15th assimilating them, with no time
for additional marketing. I'd also assume no resale
possibility - you might keep some of them long enough to
pass on to your successor, but it's too early to think about
that.

Phoebe

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- quote -

fees of clients that return. This works pretty well for me. Normally it is
50% the first year, 25% the second and third. I don't know if your person
wants all money up front or not.

- quote -


Just a couple of ways to look at things.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
Campaigning for NAEA Board of Directors - Looking for YOUR vote

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- quote -

Unless 45K is a typo, that's less than $80 per 1040 after
you take the 1129's into consideration. Strikes me as
long-term failure to raise rates. I suggest you take a
very hard look at what you would charge for the work and
determine the anount of the underpricing differential.

Be aware that all businesses are very prone to customer
desertion when when prices upon change of ownership.

- quote -

Be aware that ethnic businesses are very prone to customer
desertion just because of change of ownership

- quote -

Others with experience in this area should respond if they
disagree with me. My brother has been trying to sell the
1040 side of his practice for several years. Maybe he
wants too much? But all the takers fade away. So my
suspicion is that you may well be a god-send to this
practitioner.

I would be very wary of buying an underpriced business.
My suggestion is that you merge the practice into one office
and pay him as an employee this tax season with him raising
the rates. Then pay him $x per repeat return you do for
each of the next 5 years. If he raises the rates, he has to
listen to the arguments and you get a decent idea of what
next tax season's volume will be.

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I have been contacted about an interesting opporunity. I am
CPA in the midwest, relatively small practice, but quite
active.

Recently, a small one person tax practice contacted me
inquiring about purchasing his business. Here is what I
know so far:
1. About 45k in revenues, 500 1040's and 30 or so 1129's.
Some yearly writeup work, but not much.
2. He is retiring and had the business about 29 years.
3. His client base is primarily Polish and speak polish.

My story is I am a CPA with small practice, 38 years old,
and speak polish (thought sloppily I might add). Been doing
taxes for some time, got the entrepreneur bug in me.

Whats next? Valuation? CPA firms go for .9 to 1.5
revenues, based on revenue type (compilation, write up,
audit, tax etc). What about retention? A factor here?
Downpayment? Average is 0 to 25%, with terms over 3-5
years, some interest bearing some not. What about growth?
Should I consider marketing now? What about resale? How
difficult would it be to sell if I had too?

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