The predecessor firm should also consider obtaining an acknowledgement letter from the successor firm restricting use of the working paper files. Were there any allegations or complaints made against the firm? ABC The successor firm will not release the working papers of the predecessor firm (or copies thereof) to any party without the written authorization of the predecessor firm, unless required by law. ones you will use to contact us. In fact, you are not quite sure what you would have done without this CPA's valuable advice for the last 15 years. ), Description of assets being kept by the seller, The key to successfully navigating a deal through the contract negotiation process is to avoid spending too much time on everything else. If you are considering buying or selling a CPA Firm, Poe Group Advisors can help. The transition plan should be one part of an overall business plan developed by the buyer with the seller's input prior to closing. Remember, reporting doesnt always mean issuing a clean opinion. Little things can make a difference in perception. Learn how to navigate environmental and social risks and opportunities at this event for CPAs, leaders and other professionals from every industry. Your resignation might cause your client significant harm, and litigation is much more likely to occur. be a part of. In most instances, the recommended method of transferring the requested files is for the predecessor firm to maintain possession of the original files and to provide copies to the successor firm. The If Effective communication and proactive implementation of a well-written plan by both the buyer and seller can make the transition virtually effortless from the clients' perspective. CFO, Company Name. How could life insurance fit into your retirement plan? R.2 MANAGEMENT R2.1 Management Representation Letter . 3. In light of this fact, I typically recommend the following: During the first couple of years after closing, the buyer should make every effort to minimize change for the clients. A knowledgeable professional will be able to coach and assist you in changing your CPA firm seamlessly. Any such appeal made to clients should be warmhearted, passionate, and sincere while maintaining a high level of professional decorum. It is accurate to the best of the authors knowledge as of the date of the article. It helps to also know what bank requirements are for the non-compete section. By implementing some formal procedures, including a written communication to your client, you can avoid misunderstandings and ease the transition to your successor. We'll contact you when listings that fit your criteria come along. Will my relationship with the firm change? This, of course, is different from a situation where a firm might have to terminate an engagement in order to avoid being associated with unethical or illegal activities. From the seller's perspective, minimizing the major transitional risks after selling a CPA practice should be considered as important as maximizing the sales price and terms. that will not change: We Do you have enough life insurance for your stage in life? The contract should clearly define the due diligence period and the process for withdrawing from the agreement. Essential Term 5: Purchase Agreement Closing Conditions. 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Read ourprivacy policyto learn more. There is a sweet spot for firms. Change too many things too fast and you risk losing clients. Be responsive. The seller should also indicate whether he or she intends to work part time for the buyer and for how long. professionals and invested in their training, development and A CPA recommendation letter are for Certified Public Accountants who may need a reference for a graduate school application, a job, promotion or when seeking new clients. From the perspective of both the buyer and seller, many potential issues could lead to the loss of this hypothetical client. & Co. shares the same values we do. larger organization will also mean our associates will benefit from As indicated in my November 2015 JofA article "Maximize Proceeds in Accounting Firm Sales,"the most important aspect of any deal from a seller's perspective should be whether the buyer has the qualifications, ability, capacity, desire, and incentive to provide quality service to the seller's soon-to-be former clients. Private Companies Practice Section and Succession Planning Resource Center. There are many reasons why you might decide to terminate a client relationship. The successor firm will indemnify the predecessor firm, its partners, officers, and assigns and hold them harmless with respect to any and all costs, claims, lawsuits, fines, and penalties arising from: the successor firms failure to provide the predecessor firm with unrestricted access to its original working papers in a timely manner, provided that the predecessor firm or its legal representatives first submitted a written request for such access to the successor firm, and, the successor firms failure to maintain the predecessor firms working papers in the original state and format, and. If the former owner did not have a history of filing tax extensions for certain clients, do not file extensions for those clients. Perform work with the same timeliness as the former owner. Let us assume for a moment that the buyer in the example above is a great fit for the practice in every respect including professional qualifications, people skills, firm culture, and the capacity to perform the seller's work after closing. And yet, Working collaboratively with the Canada Revenue Agency (CRA) we aim to bring clarity on pressing tax questions and COVID-19 tax updates. If the buyer has made an earnout offer with a small down payment and large contingency, the seller should consider another deal with significantly more cash and more buyer incentive to perform. Such incorrect assumptions can prove detrimental to establishing the preliminary footing necessary for good relationships to materialize for the buyer. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. It is scheduled to take place officially on May 1, 2009. Fee quality and owner hours are also major considerations when evaluating profitability. the client understands what you will or will not do to transition them to another accounting firm. Full disclosure by a widow or widower (or his or her representative) of the contingent financial arrangement coupled with an appeal to the better aspects of the clients' nature will most often elicit sympathy for the CPA and his or her familythus facilitating client retention. Randi a dbut sa carrire en assurance puis dans le domaine bancaire. Making sure I had a full coffee in hand, I was prepared to spend eons dealing with issues and kept thinking about the worst possible outcomes. point out that will not change: XYZ There is a "sweet spot" for firms. The number of potential buyers for a practice is a key concept that must be top-of-mind when considering market value. Sincerely, (Seller Name) CPA FIRM MERGERS AND ACQUISITIONS 240 services we have provided you in the past will continue. People often need communication and reassurance during a time of change. We look forward to discussing those in more depth The Journal of Accountancy is now completely digital. wider array of services and more depth. What is Commercial Property and Liability? The successor firm will give the predecessor firm unrestricted access to the working papers upon their written request. If you are buying or selling a CPA Firm, your purchase agreement should cover these five essential deal terms accurately, completely and simply. It is imperative to make certain that the nature of the announcement corresponds with the legal structure of the transaction. In certain situations, practitioners might need to end client relationships with the emergence of a conflict of interest, an independence issue, or perhaps some suspected fraudulent or illegal activity. Invite key clients to lunch, dinner, a ballgame, or other event. We are engaging XYZ CPAs to provide services to us in the future. This could cause financial and/or reputational harm to the client and might result in them taking legal action against the predecessor firm. If clients meet in the seller's office, the buyer should try to keep that location of the seller open at least through the first busy season. Leaving the transitional plan to chance or memory could be detrimental to client retention. referrals of our client base and those of other professionals. The predecessor firm is the exclusive and continuing owner of working papers generated by the predecessor firm. The Six Factors That Impact Accounting Firm Values, Essential Term 2: Payment Terms of CPA Firm Purchase Agreement, Allows seller to move on to their next endeavor (vs a retention based deal), Allows buyer to fully control operation of the practice, Fixed prices are easier to document in a contract. The plan should be in writing, outline specifics, and be communicated to all parties involved in the transition. On the part of the predecessor, there must be readiness to co-operate with the successor, although client documents may be withheld where there are fees owing to the predecessor by the former client. When approaching the due diligence process, focus on only the high-level information. 2023 Poe Group Advisors - All Rights Reserved |, Legal contracts can be very lengthy and at times repetitive. If a large number of clients will be affected, consider sending an authorization letter to each affected client with a stamped return envelope to facilitate the transfer of client information. Contact, How Good Legal Contracts Impact Your Business, with Chris Sloan. firm began its professional practice in 1972. Are there any other engagements for this client in progress? window.hsFormsOnReady.push(()=>{ We Chicago (Remote Role) (100% Review Role) Complete Review of complex Partnership, S-corp, C-Corp & complex individual federal and multi . The successor firm will maintain custody of the working papers exclusively for the purpose of providing professional services to the client, and in accordance with all other terms of the agreement. Value pricing surprise #3. Partners and Associates of ABC & Co. Downloada Word document with both letters here. , the non compete agreement can be quite succinct as long as the below 4 primary points are well documented: Essential Term 4: Establish The CPA Firm Transition, 4 concepts for a successful accounting firm transition. The buyer wants access to the existing working papers to ensure continuity of service to the clients. and invested in their training, development and growth. << /Length 4 0 R /Filter /FlateDecode >> Sample 1: "Resignation letter for a CPA" "Jane Votalo 123 Lane Road Seattle, Washington 49571 April 12, 2020 Dear Ms. Jones, I am writing to inform you that I am resigning from my position as Staff Accountant at All The Accountants Incorporated. It is advisable to engage legal counsel to review your template to ensure that it would help and not hinder you in the event of a lawsuit. If the successor firm ceases to practice, merges, or sells its practice, it will immediately notify the predecessor firm in writing of this and return the predecessor firms working paper files to the predecessor firm. It is scheduled to take place officially on May 1, 2009. This misplaced risk often keeps the seller involved in the practice for a long time after a sale. cessor firm's expertise in customized letters to each type of client.) Registrants should be cognizant of the provisions of any federal and provincial legislation, including securities legislation regulating changes in professional engagements or requiring notification of such changes to predecessors. [Conclusion City, State ZIP around May 1. & Co. exceeded our hopes for a firm we can combine with and Marcus Gray. Write the resignation letter. %%EOF Bear in mind that most of Poe Group Advisors accounting practices sell for fixed prices at closing. A letter is one of the best ways to terminate the relationship/engagement with a client in a professional fashion. All rights reserved. Although the sample successor auditor acknowledgement letter pertains to audit engagements, CNA encourages providers of other accounting professional services to request a similar acknowledgment letter from the successor firm. CPA Firm Mergers & Acquisitions: How to Buy a Firm, How to Sell a Firm, and How to Make the Best Deal. Be prepared to smooth over client relationships in the rare instance of a client's becoming irritated with the buyer. ABC Provide background information on relevant major client technical issues. To the extent that the audit client's audit committee pre-approves the acquisition of the income tax preparation software from the accounting firm, it would be permissible for the accounting firm to license or sell its income tax preparation software to an audit client, so long as the functionality is, indeed, limited to preparation of returns for filing of tax returns. Ultimately, price depends on what a buyer is willing to pay, how a buyer is willing to pay, and what a seller will accept. Stating the price in a contract is relatively straightforward unless there are, From our experience, the lions share of practices sell in the range of .9 to 1.3 times gross fees. There are many CPA firms up for sale, and it's not uncommon for entrepreneurial CPAs to buy into a firm instead of starting from scratch. CPAs must remember that good client service does not include making things difficult for their clients. When there is a change in ownership at a firm, it may be necessary to provide the successor firm continuing access to the predecessor firms working paper files. And in 2015, when there were 134 mergers or acquisitions involving the top 500 firms, nearly one - third (31%) of firms with between $5 million and $10 million in yearly revenue reported that . When a successor has been asked by a prospective client to accept an engagement it is recommended that the client be advised that the predecessor should be notified of the proposed change by the client. these relationships are terminated in a respectful and professional manner; the client is informed that you will no longer be providing services to them; and. Skip navigation. Some of the issues firms frequently run into with earnouts directly relate to misunderstood roles of the seller and buyer after closing. Our If the seller wants to do other types of work that could be considered public accounting then that needs to also be specific and clear. will be moving our offices to ABC & Co.s offices at Address, [Alternative When clients are uninformed, they may erroneously conclude that the only criterion used in selecting the seller's replacement was finding the highest bidder. How life insurance can help pay for educational expenses. you have any questions about this exciting news and what it will According to SRS/Acquiom, in general business sales, 2/3 of retention based deals give rise to conflicts with escrowed funds. This information is produced and presented by CNA, which is solely responsible for its content. This comprehensive report looks at the changes to the child tax credit, earned income tax credit, and child and dependent care credit caused by the expiration of provisions in the American Rescue Plan Act; the ability e-file more returns in the Form 1040 series; automobile mileage deductions; the alternative minimum tax; gift tax exemptions; strategies for accelerating or postponing income and deductions; and retirement and estate planning. search within our region looking for an opportunity like this. 2 0 obj directly related to the success our clients have had in their If the withdrawal or resignation resulted from incapacity of the registrant to continue, that should be communicated. Termination letters are important tools in managing risk when terminating a client relationship.