Outsourced Accounting, CPA, Payroll and Tax Firms

January 08, 2024

by a searcher from Yale University - School of Management in Austin, TX, USA

Hi all, I'm currently looking into this space for a self-funded transaction and have heard that the lack of a CPA license could be off-putting to intermediaries and brokers. I understand the audit side of things, but what is the true story? Is the CPA only required if the company needs to remain a "CPA firm" or if audit/attestation work is a majority of the business or do intermediaries and brokers want a CPA for legacy reasons?

I'm interested in a 2.5-7m EV business.

Also, although I'm a technologist, my prior experience has been rooted in accounting and ERP systems, thus this is a space where I have experience-adjacency.

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Reply by a searcher
from University of Tennessee in Nashville, TN, USA

CPA firms can be owned by non-CPAs, but it may hamper professional association. The following is an excerpt from my Virginia-specific Ethics course (CE) this past year, but applicable to all states:

".04 A firm may not designate itself as “Members of the American Institute of Certified Public Accountants” unless all its CPA owners are members of the AICPA.

Each state is responsible for determining what forms of ownership may be used to practice public accounting; however, the AICPA notes that a practitioner can practice only in a business organization form that conforms to resolutions of the AICPA Council.

The AICPA allows a CPA firm to be owned by non-CPAs if the form of ownership is sanctioned by the particular state and if the following guidelines are observed: • Fifty-one percent of the ownership (as measured by financial interest and voting rights) must be held by CPAs. • A non-CPA owner must be actively engaged in providing services to clients of the firm. • A CPA must be ultimately responsible for all services provided by the firm that involve financial statement attestation, compilation services, and “other engagements governed by Statements on Auditing Standards or Statements on Standards for Accounting and Review Services.” • A non-CPA may not hold him or herself out as a CPA, but may be referred to as a(n) principal, owner, officer, member, shareholder or other title allowed by state law.

While the resolution allows for accounting firm ownership by non-CPAs, those individuals are not eligible for membership in the AICPA."

Reply by a searcher
from University of Illinois in San Diego, CA, USA

Sven is right, it is state-specific, and yes, the brokers will give you a hard time. I doubt you'll see a lot of audit firms for sale, as this is typically performed by larger partnerships. It's mostly small individual or two-person CPA firms that do tax work with Sellers looking for someone to buy their book of business so they can retire, which is tricky. I'm a CPA and looked into this myself; even met with some firm owners looking to sell. I just couldn't imagine myself sitting in their seat and signing hundreds of tax returns every year. Even if you outsource it to India, it's still your name on the return, dealing with the IRS and the clients. The clients want to talk to the "expert" and the tax laws change every year so you really have to stay close. You can't really hire a CPA to do it all for you because they can just leave and start their own shop. The brokers know that non-CPAs might find it challenging to talk to a client about their tax situation, filings and strategies, so they just want to focus their time on people who have been trained and are already experts in the trade.
If you can find a pure bookkeeping service, that's a completely different story, or in your case an ERP implementation consulting firm might make sense. Bookkeeping services at $2.5-7M EV are rare (and sell quickly), but I've seen quite a few software consulting firms in that range. They are just more project-oriented so don't have the recurring revenue that bookkeeping services provide.

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