Selling a bookkeeping or accounting practice in Canada

A bookkeeping or accounting practice is mostly trust. A buyer is paying for clients who come back every month and every spring, and those clients can choose to leave once you do. The work is also wrapped in confidentiality rules and CRA access that do not move to a new owner on their own. Here is what to expect, and how to prepare so more of your clients stay.

What buyers look at first

Most buyers of a bookkeeping, tax preparation or accounting practice ask the same questions early. Have clear answers ready before you list:

• Fees. Two or three years of billings, split by client and by type of work, such as monthly bookkeeping, payroll, GST returns, personal tax returns, corporate year ends and advisory work.
• Recurring work. How much repeats every month or every year, and how much is one time.
• Clients. How many there are, how long they have stayed, the largest ten and how much each pays.
• Staff. Who does the work, how they are paid and whether they will stay.
• Systems. The software, the file setup and how work is tracked and billed.
• You. How many hours you work, especially in tax season, and which clients only deal with you.

Buyers will check these during due diligence, so gather them now. Our list of documents needed to sell a business is a good start.

Clean fee numbers

Show billings and collections by month for the last two years, with work in progress and unpaid invoices listed separately. Buyers like to see fees per client, how many clients left each year and how fees have changed when you raised prices. Make sure the totals match your bank deposits and tax returns. If you do most of the work yourself, list your wage and any personal costs as add-backs with proof, and say what it would cost to hire someone to do your hours.

Tax season shapes the year. If a large part of your fees comes from personal tax returns between February and April, say so, and show how the work was staffed. A buyer who plans to run the practice needs to know whether the spring is manageable without you.

Clients, consent and confidentiality

Client files hold some of the most private information there is, so take extra care with who sees what and when. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer agrees to use it only for the deal. Other provinces and federal privacy law have their own rules.

If you are a CPA, the profession's rules are stricter. Rule 208 of the CPA Code says registrants must not disclose confidential information without proper and specific authority, and must get written agreement from anyone given access to keep it confidential. A practical approach is to share totals and anonymous client summaries first, under a confidentiality agreement, and share names and files only once clients have agreed to move. Check with your regulator if you are unsure.

Plan how clients will hear about the sale. A personal letter or call from you, introducing the buyer, does more to keep a client than anything else. See telling customers and suppliers.

CRA access and EFILE do not move on their own

Much of the work depends on access to client accounts with the CRA, and that access belongs to a person or a business, not to the practice as a thing that can be handed over.

• Represent a Client. Clients authorize a representative using a person's RepID, a registered business number or a GroupID. If clients authorized you personally, they will need to authorize the buyer. If they authorized your firm's business number and the buyer buys the shares of that firm, the authorizations can stay in place, and the buyer manages which people are associated with the firm.
• EFILE. The CRA says a new EFILE application is needed when a business is sold or when its ownership, partners or corporate officers change, and the old number should be cancelled through the EFILE Helpdesk. New applicants are screened before full access is given, so the buyer should apply well before the next filing season.

Make a list of every client, what access you hold for each one and when their next filing is due. Time the handover so that nothing is due during the gap. Payroll and GST accounts with other bodies, such as WorkSafeBC or the provincial PST system, may need the same treatment.

Licensing and what the buyer can legally do

Basic bookkeeping is not a regulated profession in most of Canada, but some accounting work is. In British Columbia, the CPA Act says only a CPA member in good standing, a professional accounting corporation or a registered firm may perform compilation engagements, and audits and reviews are restricted too. CPABC also requires its members to hold a public practice licence for tax and statutory filing work they offer to the public.

If part of your fees comes from compiled financial statements or other restricted work, the buyer must be licensed to do it, or that part of the practice cannot transfer. List the work by type so the buyer can see what they are allowed to take on. A CPA buyer may also have firm registration steps of their own. See transferring contracts, licences and permits.

Staff, software and files

Staff who know the clients are a big part of what keeps them. In British Columbia, section 97 of the Employment Standards Act says that if all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Act, so a buyer who keeps your team takes on their years of service. Plan when and how to tell them; see what to tell employees.

List the software you use, who holds each subscription and whether client files can move to the buyer's accounts. Cloud bookkeeping and tax software usually have their own steps for moving client files or changing the firm owner. Old paper and digital files have retention rules, so agree who keeps the records for past years and how clients who do not move get their files back.

Pricing tied to clients who stay

Because clients can leave after a sale, many practice sales tie part of the price to retention. The most common tools are a holdback that is adjusted after the first full year or tax season, and an earn out based on fees collected from transferred clients. Agree in writing how retention is measured, over what period, and how lost clients and price increases are counted. A buyer will also ask for a non compete and non solicit, since nothing stops a seller from serving the same clients again. A handover period where you introduce the buyer and work alongside them through one season helps everyone; see the handover after selling.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split. In most practices, nearly all the value is goodwill. See asset sale vs share sale, goodwill when selling and taxes when selling a business. If you work on your own without a company, see selling a sole proprietorship.

When a registered buyer acquires all or substantially all of what is needed to carry on the business, the section 167 election on Form GST44 can often remove GST/HST on the sale. In British Columbia, PST applies to taxable business assets sold with a business, such as computers, furniture and office equipment, but not to goodwill, and if the seller does not collect it, the Province says the buyer must self assess. See GST and PST when selling.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale, given how clients authorized my firm with the CRA?
• What can I share with a buyer before clients consent, under privacy law and my professional rules?
• Is the buyer licensed for all the work I do, and what happens to work they cannot take on?
• How should part of the price depend on clients who stay, and how is that measured?
• What non compete and non solicit terms are fair here?
• Who keeps old client files, and for how long?
• Can we use the section 167 election, and how does PST apply to the equipment?

For more, read what your lawyer and accountant do and how to sell your business without a broker. Many bookkeepers serve landlords and strata corporations. If you run a management business instead, see selling a property management company. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.