Stuart Bronstein wrote:

- quote -

Remind me to sell out to you! Around here, tax practices
go for 1 times gross plus fixed assets, usually paid out
over 4 years and adjusted for (lack of) retention.

Phoebe

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Stuart Bronstein wrote:

- quote -

I think you are confusing the value of a productive asset
with an infinite shelf life with a personal services'
business with an unpredictable shelf life.

Upon the sale of a tax practice, at least 20% of the clients
can be expected to leave. So the only way to price it is
based on retention.

A doctor I have been seeing for several years left the
practice and moved to Cleveland. He is being paid by his
partners based on client retention. I went in for an
annual check up. The partner I chose told me that Matt
said I would never leave unless I died or moved. I sat
there and nodded yes. But everyone is not like me.

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- quote -

I was scratching my head on that too. but I suppose he's
talking about the previous net profit before the sale.

And I've always heard rule of thumb says start with 100% of
gross and then adjust accordingly.

ChEAr$,
Harlan Lunsford, EA n LA

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- quote -

As a rule of thumb, what I do (I'm not an appraiser so don't
take this too seriously) is to figure what the net would be
to someone who bought a business but didn't work in it
himself. Then take that annual amount and divide it by a
reasonable interest rate for an investment.

For example, say a small business grosses $200,000, nets
$100,000 and there'd be $50,000 left if the owner hired
someone to replace him. The IRS discount rate for life
estates and long term investments is about 4% at the moment.

For an investor to receive $50,000 a year at 4% he'd have to
invest $1,250,000. So to me that seems to be a good
estimate of true value.

Stu

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Let me clarify - the "net" I've seen used is net cash income
(net taxable income less non-cash expense items, e.g.
depreciation, amortization, etc.).

Jason

Jason Richardson
Attorney, CPA
Sherman, Texas

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Barry Picker wrote:
- quote -

Thanks, Barry. Already thought of that and will propose
either 1/3 per year of returning clients for 3 years, or 25%
for 4, her choice.

ChEAr$,
Harlan

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- quote -

We've always computed on gross. What kind of costs do you
deduct to arrive a net? Just general operating costs (e.g.
payroll, supplies, etc.) or are the specific costs used in
getting to net?

Larry A. Mitchell, E.A.
Knoxville, TN

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"Harlan Lunsford" <hlunsford[at]bellsouth.net> wrote:

- quote -

Other than the assets with a tangible FMV (f/f/e), I think
the lion's share goes to covenant and client files/goodwill
- that's the economic reality.

Jason
Attorney, CPA
Sherman, Texas

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"Harlan Lunsford" <hlunsford[at]bellsouth.net> wrote:

- quote -

Harlan,

What about nothing down, percentage of net income derived
from the files over next tax season/12 months (if any write
up work)?

If that won't sell (grin), how about very little down as an
'advance,' with the rest based on *net* income for the next
tax season/12 months?

The last several tax practices I've seen sold around here
are going for 1.5 times net, not gross. FWIW.

Jason
Attorney, CPA
Sherman, Texas

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Harlan Lunsford wrote:

- quote -

Goodwill is good for the seller but not the buyer, so I'd
limit that number. Covenant not to compete is ordinary
income to seller but can be written off by buyer, again not
a huge number.

Equipment is probably tax free (or capital gain?) for
seller, and can be written off by buyer, so that's a great
place to put a good portion of the price.

And the client list should be capital gain to seller and
able to be written off by buyer, so another good place to
allocate the price.

Stu

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"Harlan Lunsford" <hlunsford[at]bellsouth.net> wrote:

- quote -

My opinion, whatever percentages you decide, make it based
upon collections. You don't want to pay for clients you
never get.

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A small time (less than 200 individual tax returns)
preparer is retiring due to health reasons and selling.
Doesn't matter what gross is, I'm just asking for your
opinion IF YOU were the buyer, as to how you would structure
the deal, ignoring any equipment which would of course go at
FMV.

What percentages would you attribute to client files,
goodwill, covenant not to compete; anything else?

ChEAr$,
Harlan Lunsford, EA n LA

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