Q&A: How small firms finance an acquisition

M&A talk usually centers around private equity, but you help existing accounting firm owners grow through acquisition as well. What are some signs that a firm is ready to expand through acquisition?

Private equity may dominate the headlines, but independent accounting firm owners are still making acquisitions every day. The opportunity isn't reserved for the biggest players. 

I think that's an important message because too many accounting professionals assume they need significant personal capital or private equity backing to grow through acquisition. That's simply not always the case. 

Readiness starts with understanding the opportunity and having a plan. Does the firm generate consistent cash flow? Can it absorb additional clients? Does the buyer have the experience, leadership and infrastructure to manage a larger practice? 

I also encourage buyers to think about why they're acquiring. Are they expanding geographically, adding services, acquiring talent or building a succession strategy? An acquisition should create a strategic opportunity, not just make your firm bigger. 

And sometimes the biggest hurdle isn't whether an owner is capable of acquiring another firm. It's whether they understand the financing options available to make it happen. 

Are there other strategic ways accounting firm owners can use financing to support growth?

Absolutely. Acquisitions get most of the attention, but financing can support several stages of an accounting firm's growth. 

Partner buyouts are a big one! When a partner retires or transitions out, financing can help the remaining partners purchase that ownership interest without depleting the firm's cash reserves. 

Succession planning, expansion, eligible working capital needs and refinancing existing business debt are other opportunities. SBA financing can be particularly valuable for accounting firm acquisitions because eligible borrowers may be able to finance a substantial portion of the transaction while preserving capital for the transition and future growth. 

And that's something I wish more accounting professionals understood. Financing isn't necessarily about lacking money. Sometimes it's about making a strategic decision to preserve the capital you already have. My philosophy is that financing should be part of your growth strategy, not an afterthought once you've already committed to a transaction.

What are the most important factors lenders consider when evaluating an accounting firm for financing?

Cash flow is always important, but with accounting firms, there's much more to the story. 

We're evaluating recurring revenue, client concentration, historical financial performance, profitability and whether the business can comfortably support the proposed debt. 

But we're also evaluating the buyer, their experience and the transition plan. Accounting firms are relationship-driven businesses. Client retention, employee continuity and the seller's involvement after closing can all influence the success of an acquisition. 

This is where specialized lending experience makes a tremendous difference. 

A lender who finances 50 different types of businesses may approach every transaction with a similar playbook. But someone who specializes in accounting firm acquisitions understands the nuances of these transactions, the opportunities available through SBA financing and the challenges that need to be addressed early. 

I often compare it to medicine. You wouldn't go to your general practitioner for brain surgery. You'd go to a specialist who performs that procedure every day. It's not just about understanding the numbers. It's about understanding the business behind them.

What are the biggest financing mistakes you see accounting firm owners make, and what advice would you give someone planning to seek financing in the next 12–24 months?

The biggest mistake I see is not getting educated early enough. I've seen buyers become overwhelmed by the SBA financing process, not necessarily because their transactions were unusually complicated, but because they didn't fully understand what would be required. 

There's a big difference between learning what you need before you need it and discovering it when you're already trying to close. 

We recently worked with an accounting firm buyer who initially had no idea just how much SBA financing could accomplish. He also didn't realize there were certain requirements and non-negotiables that would need to be addressed along the way. 

By taking the time upfront to explain his financing options, answer questions and walk through the requirements, we helped him understand what was possible and what to expect. That education gave him the confidence to move forward with his acquisition. 

And that's really what I believe our job is. Sales through education. 

SBA financing creates tremendous opportunities, but it comes with requirements. Things like operating agreements, insurance, leases and other closing documentation can become obstacles when they're discovered too late. 

My advice to anyone considering an acquisition in the next 12–24 months is simple: Start the conversation early, and make sure you're talking to someone who understands accounting firm acquisitions. 

You don't need to know everything about SBA financing. That's our job. But you should have someone in your corner who knows what questions to ask, what challenges to anticipate and how to help you navigate the process with confidence.

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