I’m thinking about buying a client book for my bookkeeping and tax firm but I’m nervous about how many clients will leave. Has anyone here done this before? How was your experience?
I’ve bought 5 businesses. About 60% of clients stick around for at least 3 years. After that, it’s just regular losses here and there.
Morgan said:
I’ve bought 5 businesses. About 60% of clients stick around for at least 3 years. After that, it’s just regular losses here and there.
Got it. Does that include monthly bookkeeping clients too?
It can really depend. I bought a business book and lost about 50% of clients in the first year. A chunk of them, around 25-30%, left immediately because they had issues with the seller. Others were businesses that couldn’t afford advice or closed up shop within months. It was a shock, but thankfully, I had a clawback clause in my deal to help with that. Don’t overextend if you can help it and let it be a good starting point. After that, just focus on growing through ads and client referrals.
My first practice had clients that already knew me, so I had almost full retention, around 100%. My second purchase was about 80%, but a lot of clients either retired, closed businesses, or passed away within a year or two. I expected some of this because the original CPA was retiring too.
When you’re buying, make sure the price you pay is based on the clients that stay, not the ones who might leave immediately. If the CPA is retiring, the clients are likely older too, and many may have backup plans already. Make sure your purchase deal reflects this by spreading payments over multiple years, so the seller has a reason to help clients transition to you.
@Morgan
How long were you at that practice before you bought it? I’m in talks with a few retiring partners, but I haven’t built a relationship with the clients yet. I’m curious how long it usually takes to gain their trust and make sure they don’t leave.
Hart said:
@Wyatt
Is this your first time buying a practice? Why do you think 60-75% will stay?
Yeah, it’s my first time. That’s just my guess based on conversations I’ve had with the seller, but I could be wrong.
There are some articles out there about how to value a business, especially if it’s an employee buying vs. an external company. From what I’ve seen, around 80-90% retention in the first year is normal, but as much as 80% of clients can leave by the third year.
On the bright side, clients can bring in new clients through referrals. You can see something like 30% growth each year from that. I’d plan for about a 20% loss after the original CPA leaves, but if you’re not back to previous revenue levels after 3-5 years, it may be time to rethink your approach.
@Brenner
I’m curious, how do you figure out how much a practice is worth? Is it based on the number of clients or revenue?
Are you buying or selling?
Wyatt said:
Are you buying or selling?
I’m buying.
I’m about to close on one next month. I’m estimating that 60-75% of clients will stick with me for at least the first year. I’m keeping prices similar to the current owner’s rates to start.
I bought my first practice 2 years ago and kept about 60% of the clients. I paid $1.2 million for it, but if I were to do it again, I wouldn’t pay more than $800k. Good luck!
If you do everything right, you should keep about 90% of clients. What’s ‘right’? Well, it’s a long list, but make sure your prices don’t skyrocket after you take over. Raising prices too much is a recipe for disaster.
Eli said:
@Shiloh
Do you often see firms for sale in the $50k-75k range?
I don’t usually deal with firms that small, but they’re out there. Most of the smaller firms I’ve seen are priced closer to $120k though.
@Shiloh
Are these smaller firms more focused on bookkeeping? I’m looking for something around that size.