The acquisition decision began with the cost of organic growth
Peter Vander Wall opens by asking Ryan Bakke to unpack the full process behind his purchase of an accounting-firm client list producing about $2.5 million in revenue. The conversation covers why Ryan decided to buy, how the opportunity surfaced, what he evaluated, how the agreement worked, and which parts of the transaction he would examine more closely next time.
Ryan had previously expected to grow only through marketing. Organic growth was profitable for his firm, but moving from roughly $3 million to $6 million required a different team and skill set than the first stage. He estimated that advertising, commissions, additional staff, and training could cost his business about $1 million and take a year and a half to two years to double. For his specific situation, buying became the faster and less expensive path.
That comparison was made before this particular deal appeared. The lesson is to define the strategic reason for buying first, using the buyer’s real economics and capacity, instead of letting an available listing create the acquisition strategy.
An internal relationship exposed an off-market target
The lead came through one of Ryan’s coaching students, who was doing contract review work for a firm after it lost a key CPA. Her direct exposure let Ryan learn that the practice had roughly 300 client relationships and a desirable concentration of doctors, high-net-worth individuals, and real estate investors in Los Angeles. It also gave him an early view into the quality of the tax work and the operation behind the financial statements.
Ryan later says he generally prefers off-market opportunities where he can connect directly with the seller. He is not categorically opposed to brokers, but expects a brokered deal to cost more, move more slowly, and make seller financing or an earnout harder to negotiate because the broker is motivated to maximize cash paid at closing. He would still consider those deals when the target justified the tradeoff.
Revenue quality mattered more than the top-line number
Ryan’s initial screen focused on the mix of business and individual returns and the amount of revenue attached to each client relationship. He preferred a book with substantial business-return work because the business filing, owner’s individual return, and ongoing advisory or bookkeeping needs can create a deeper relationship than a stand-alone 1040. In the acquired book, churn was concentrated among individual-only clients, while business-owner relationships left at a much lower rate.
Monthly bookkeeping provided another signal. Ryan estimates that the target had roughly $600,000 to $700,000 of recurring bookkeeping work. That revenue arrived on a more predictable cadence and tied the client to multiple services, unlike annual tax work whose collection date depended on when the client supplied documents.
He also wanted evidence that the work itself was sound. The contractor inside the target could see the return-review process and did not find widespread errors. Ryan’s assessment was that the operation mainly lacked repeatable systems from intake through delivery—a gap his existing firm believed it could address.
Monthly cash timing became the most important hindsight lesson
The acquired firm was unusually lenient about document collection. Some clients supplied information so late that returns were extended while the team waited for IRS wage-and-income transcripts. Ryan says this pushed roughly half of the annual tax work into the final three months of the year. The annual revenue could still look healthy while the buyer had to fund employees through slow collection periods.
His hindsight recommendation is to break the P&L out by month and inspect cash receipts, not only annual totals. He distinguishes contractual monthly recurring revenue from annual revenue that is likely to reoccur but does not arrive on a guaranteed date. Both can be valuable, but they create different working-capital requirements and should not be modeled as though they have the same predictability.
Seller goals, timing, and broker involvement shaped the negotiation
An introductory seller call should uncover the desired exit timeline, the seller’s end goal, and at least the outline of expected terms. Timing around tax deadlines matters because a close after the fall deadline may look operationally convenient while leaving the buyer with months of expense before the next heavy collection period.
Ryan originally made an offer that the seller rejected after receiving a broker’s advice. He heard nothing for about two months. Three days before Christmas, the seller called to reopen the deal; the parties moved through a contract and diligence, and Ryan owned the client list by early March. The sequence shows why an initial rejection does not always end an otherwise suitable acquisition, while also underscoring the need to keep the later process disciplined.
His diligence included tax returns, P&Ls, workpapers, employee interviews, and questions about client concentration. He did not expect perfect access to every client detail before closing, but wanted enough financial and operating evidence to decide whether the book and team could be transferred responsibly.
The earnout connected purchase payments to collected revenue
The final contract used a four-year earnout instead of one fixed sale price. The sellers receive 22.5% of revenue collected from the client list that existed on the sale date. Each measurement period asks which of those clients remain and how much revenue the buyer actually collected from them. Client attrition therefore reduces the eventual acquisition cost rather than leaving Ryan committed to a fixed note based on revenue that disappeared.
Ryan contrasts this structure with seller financing. A fixed seller-finance note shifts more retention risk to the buyer because the amount remains due even when clients leave. An earnout keeps the seller economically involved in the transition. Ryan also discusses possible upside for cross-sold services and the value of presenting sellers with a choice between less money sooner and a potentially larger amount over time.
Peter frames the logic as incentive alignment: the buyer can accept paying more when that payment reflects a better retained-revenue outcome, and the seller can earn more by supporting continuity. Ryan would prefer a future deal in which the prior owner remains available to answer questions because that cooperation benefits the buyer, seller, and clients.
The handoff depended on consent and persistent communication
Accounting client files require consent before transfer. Ryan’s team first announced the ownership change through carefully written emails and mailed notices. He traveled to meet some clients who were uncertain, then the team followed the email campaign with phone calls. Ryan reports that email alone retained roughly 60% to 65% of the list and direct calls helped bring the result to about 80% to 85%.
The deal acquired the client list, not stock in the seller’s company. Ryan’s business did not inherit the old office, furniture, accounts receivable, every employee, or all prior liabilities. It chose which employees to hire, transferred billing and client relationships, and merged the work into the buyer’s existing operation. He preferred that structure because the value he wanted was the client base, while the systems and processes would come from his firm.
A repeatable operating system is the prerequisite for buying more
Ryan’s broader recommendation is to grow a firm organically far enough to learn the work before using acquisition as an accelerator. He suggests that the owner may first build 50 or 100 client relationships and document the ideal process from the first step through delivery. With that foundation, the firm can buy a client list and move the acquired work onto systems, people, and processes it already understands.
He believes integration can create value when several accounting firms operate under common control with shared systems and employees. At the same time, Peter and Ryan caution against assuming every small acquisition will work. Peter describes another buyer whose two small-firm purchases produced sharply different outcomes, including one office that was closed after most clients and employees were lost. A buyer needs enough scale, judgment, and operating capacity to absorb the target rather than simply adding its revenue to a spreadsheet.
Ryan says his preferred future target is generally a firm in the $2 million to $3 million revenue range: large enough to support a team, but often still controlled by one owner rather than several partners with conflicting goals. He plans to continue acquiring, but the durable lesson is not a target size alone. It is the sequence of building an operating base, finding revenue that fits it, allocating transition risk deliberately, and earning client retention through a controlled handoff.
