Art of Accounting: Buying a Practice from an Estate

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IMGCAP(1)]This column was precipitated by my hearing of the untimely death of a sole practitioner who was a friend. His family wanted to sell the practice and was shopping around for a buyer.

He died two and a half months ago and a deal still hasn’t been consummated. Another friend who was trying to acquire what was left of the practice has kept me advised of the progress.

I was surprised and disappointed that the deceased did not make any arrangements for his possible sudden death since he was a really great accountant, a great advisor to his clients, and very well versed in estate planning and business sales.

I have purchased a number of practices. Some were from older people who wanted to retire, some from younger people who developed side businesses that grew much greater than their accounting practice, some from people who joined employers that did not let them maintain a side business or clients, some from accountants whose clients outgrew them, and some from people who had terminal illnesses.

Every acquisition was successful. What I have not done was buy a practice from a widow or from the family of someone who suddenly became totally disabled.

I had requests from widows but turned them down. Early on it became apparent that the family always thought the practice was worth more than I thought was fair. Additionally it is a wasting asset that declines rapidly soon after the death or disability. Negotiations usually drag on, with the family speaking to more than one potential buyer, and that reduces the retention possibility. Also, the family has to consult with an attorney and will need an agreement that further delays the process. This was not for me.

I have consulted with accountants who acquired practices under these conditions and their experiences reflected my feelings. While some acquisitions were very successful, I did not want to spend time and energy where I felt what I did would not be fully appreciated.

I had practice continuation agreements with more than 10 practitioners, and fortunately none were implemented. They are all still alive and kicking and practicing. I would have acquired those practices because we had a plan in place that the family was aware of, we could quickly assume control of the practice, and the necessary information was organized by the practicing accountant.

Here is a compilation of some of the problems in acquiring a practice where the deceased did not make prior arrangements:

• When clients hear of the accountant’s death they usually start looking for a new accountant…right after expressing their condolences.

• Usually the client service and pricing and billing information for each client is not in order, nor does it need to be for the accountant running his practice, but it is a necessity for a transfer.

• Accountants usually have considerable hardware and software, but the value is usually not too great, as most of the equipment is usually outdated (although it was fine for the deceased accountant). Further, learning about the systems and transferring information to the acquirer’s systems is usually a daunting process, eating up time that could be better spent introducing yourself to and meeting with the clients.

• If there are employees, they will need to be reassured about their job, interviewed and asked to stay at least until things can be put in order. There is also a danger the employees can take clients, especially if the process drags on.

• A decision needs to be made about keeping the office for at least through the first tax season, but certainly keep the mailing address, telephone, fax numbers and website. These will need to be transferred pretty quickly. Also the phones need to be answered right away.

• My advice is to not get involved in any type of bargaining or bidding. Make your offer. Give a two-week (or three-week maximum) deadline, and don't chase it. I believe increasing your offer in response to other buyers or the seller’s request indicates you did not give your best offer upfront. That will lessen their trust in you (they are extending you credit possibly up to or over five years), delay the transaction from taking place, and hinder the transition because you will have a skeptical seller assisting you.

Stress your experience to continue providing what the clients need and your ability to retain the clients because of your reputation, and desire to work hard at the retention. If there are protracted “negotiations,” walk away—it will not be worth it in the long run. Keep in mind that the deceased did a disservice to his/her family by not making arrangements—you are bailing out the family.
Never lose sight that the sooner the practice is acquired, the better.

For those of you that do not have a "practice continuation" agreement, get it done. You can download a sample by clicking here.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, published by and “Managing Your Tax Season, Third Edition,” published by the AICPA. Ed also writes a twice-a-week blog addressing issues that clients have at Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or

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