Buying and selling an accounting practice: Are tax returns still worth it?

The article is relevant to members in Australia and was current at the time of publication.

Individual tax return (ITR) clients have been the foundation of many accounting practices. But as more Australian firms seek to position themselves as business advisers, some practitioners are giving up individual tax work altogether.

These firms have opted to transfer or sell their ITR client books and redirect their time towards higher-value advisory services. 

Advisory over compliance

Future Advisory Co-Founder Jason Robinson FCPA, says while many ITR and sole trader clients were long-term supporters and valuable referral sources, the seasonal work involving around 700 to 800 ITRs was labour-intensive and disruptive. 

Clients often wanted to deal only with the firm’s two owners, so they were stuck on the tools instead of developing the business. Employees, too, who had joined the practice to work with business clients were instead tackling tax returns.

“We were trying to look after business owners, but when we were too busy doing ITRs, we were sometimes dropping the ball on our bigger clients. Eventually, we had to make a call about what we wanted to specialise in and what we wanted to be known for.”

Turning to members within CPA Australia and trusted peers, they pursued an off-market transaction with a like-minded local accountant. 

Although the deal was delayed after the Australian Taxation Office announced the temporary A$1000 instant tax deduction, they managed to restructure the arrangement, and earlier this year, successfully transitioned ITR clients without selling the entire practice.

When returns stop adding value

Director of Tyler Wise Forensics, Tyler Wise FCPA CFE, faced a similar decision.

Before selling his practice, Wise sold around 20 to 25 per cent of his fee base, including a significant number of ITR clients.

Those clients, he says, had become increasingly difficult to differentiate in a market where automation and digital tax solutions were reshaping client expectations.

“It was more or less just calculating the figure that people were going to arrive at if they did it themselves or with a cheaper alternative. It became very difficult to demonstrate value.”

Wise says many ITR clients also expected refunds that accountants could not control, creating difficult conversations despite the quality of the advice provided.

Before deciding to sell, however, he recommends firms consider increasing fees, improving systems and streamlining processes to see if the work can be commercially viable.

Not every firm should sell

Practice broker and Quinn + Associates Director John McCulloch says the decision to retain or sell ITR clients depends largely on a firm’s strategy and economics.

For practices with efficient systems and appropriate pricing, ITRs can remain profitable.

“You’ll hear practitioners say an individual return takes them 15 or 20 minutes to do, and they charge A$220,” McCulloch says. “If they do three an hour, that’s A$660 an hour.”

He warns against seeing individual taxpayers purely as annual compliance clients.

“The ITR client can certainly turn into an investor, whether they buy a property or a share portfolio, or they may start up their own business.”

McCulloch says the shift towards advisory is understandable as tax legislation becomes increasingly complex and clients seek more specialised guidance, but that does not automatically diminish the value of individual tax work.

Strategy, not a market movement

Mark Emney, Director and Co-owner of DMY, says his firm has not observed a significant trend of firms selling only their ITR client books.

Instead, most practice sales continue to be driven by retirement, succession planning and lifestyle decisions. Increasingly, larger firms are also selling in pursuit of even greater scale.

“There continues to be huge demand to acquire practices with healthy selling prices,” he says. “Our latest market data indicates that metropolitan practices with over A$1 million in fees are achieving around 126 cents in the dollar and regional practices about 108 cents in the dollar.”

Emney says the decision to retain or exit individual tax work is ultimately about the strategy of the individual practice rather than a broader shift across the market.

Fellow DMY Director and Co-owner Daniel Jones, says that a healthy market for selling practices does not mean a smooth sale process and strong commercial outcome are a foregone conclusion. 

“The sale process can be an emotional rollercoaster and still needs to be carefully navigated to secure the right buyer who will be the right fit for the seller, their clients and their team,” he says.

“It’s also important for both parties to have empathy and aim for a win-win.”

Valuable reflections

Jason Robinson says his firm was able to transition clients without too much upheaval because they found a buyer they trusted, a local they knew personally, who was good at what he did. 

“So while we had to restructure the deal from a retention point of view, marketing post-sale, we were able to tell clients ‘we haven’t just palmed you off, we’re transitioning you to Lance, who is an expert in his field, and you’re going to be looked after’.”

Wise says he, too, was able to sell to people with the same philosophy, and while it took time, there was “no squabbling over dollars at the end”.

Accountants are still needed as trusted advisers, he says, “but the way we’re required is always changing”.

If you are considering selling your ITR client list:

• Be clear about why you are selling. Is it strategic or a response to short-term pressures? 
• Review whether fee increases or workflow improvements can make it more profitable. 
• Choose a buyer who will look after your clients, not just pay the highest price. 
• Plan client communications carefully to maximise retention. 
• Get professional advice on privacy, contract terms and payment structures.