Letter of Intent Template for Acquiring an Accounting or CPA Firm

Identification of Parties and Transaction Structure

Clearly identify the buyer entity, seller entity, and the specific assets or equity interests being acquired. For accounting firm acquisitions, most deals are structured as asset purchases to allow the buyer to cherry-pick client engagements and avoid inheriting unknown liabilities such as malpractice claims or IRS disputes. Specify whether the transaction covers the full practice, a specific service line such as tax or audit, or a defined book of business by client list.

💡 Sellers often prefer equity sales for tax treatment reasons — specifically to achieve long-term capital gains rates on goodwill rather than ordinary income on client lists. Buyers almost always prefer asset purchases to avoid inheriting undisclosed liabilities. Expect this to be a negotiated point. If you compromise toward an equity structure, ensure robust representations and warranties around pending claims, malpractice exposure, and state board complaints. For SBA 7(a) financing, asset purchases are typically required by the lender.

Purchase Price and Valuation Methodology

State the proposed total purchase price and the methodology used to arrive at it. CPA firms in the lower middle market are typically valued on a revenue multiple basis ranging from 0.9x to 1.4x trailing twelve-month gross revenue, with adjustments for client concentration, revenue quality, and staff depth. Higher multiples are justified when recurring retainer revenue exceeds 60% of total billings and no single client exceeds 10% of revenue. Lower multiples apply when the founding CPA is the sole relationship holder or when revenue is heavily concentrated in tax season.

💡 Sellers will often anchor to the high end of the 0.9x–1.4x range based on informal valuations from colleagues or industry publications. Come prepared with a client-by-client revenue breakdown that applies defensible risk adjustments to concentrated or at-risk clients. If the founding CPA personally controls relationships with clients representing more than 40% of revenue, that is a legitimate basis for a downward adjustment in the headline multiple or a restructuring toward earnout. A CPA M&A advisor or broker representing the seller will push back hard — document your assumptions in writing within the LOI.

Earnout Structure and Client Retention Provisions

Define the earnout mechanics, including the measurement period, baseline revenue, retention thresholds, and payment schedule. Earnouts tied to post-close client retention are the norm in CPA firm acquisitions, typically structured over 12 to 24 months. The earnout protects the buyer against client attrition following the founding CPA's departure while giving the seller a path to full purchase price if clients are properly transitioned.

💡 The single most contentious provision in any CPA firm LOI. Sellers will argue that retention should be measured at a lower threshold such as 70% and that the measurement period should be 12 months, not 24. Buyers will argue for higher thresholds and a longer measurement window. A reasonable middle ground for a well-run firm with good staff depth is a 12-month primary earnout at an 85% retention threshold, with an optional 6-month extension if the selling CPA remains actively engaged in client transitions. Also negotiate what counts as a lost client — clients who leave versus clients who significantly reduce service scope are different risks and should be defined distinctly.

Key Person Transition and Employment Terms

Specify the role, duration, and compensation structure for the selling CPA's post-close involvement. This section is critical because the founding CPA's transition directly determines whether clients stay. A vague or missing transition commitment is the single biggest deal risk in accounting firm acquisitions. Define whether the seller will be an employee, independent contractor, or consultant post-close, the minimum hours of engagement per week, and specific client introduction responsibilities.

💡 Sellers approaching retirement age will push for shorter transition periods and higher monthly compensation. Buyers, particularly those using SBA financing, need to ensure the transition compensation is budgeted into their cash flow model — a $15,000 to $20,000 per month consulting arrangement over 18 months is a meaningful cost. Tie transition compensation to milestones where possible: for example, 50% paid monthly and 50% tied to achieving the client introduction milestones within 90 days. Non-solicitation clauses will be scrutinized by sellers — five years is aggressive but defensible given the relationship-driven nature of accounting clients; three years is often the compromise.

Due Diligence Scope and Timeline

Define the due diligence period, the categories of information to be provided by the seller, and any access restrictions. For CPA firm acquisitions, due diligence must cover client revenue concentration and retention history, staff credentials and non-solicitation agreements, recurring versus one-time revenue quality, technology systems, and any pending regulatory, malpractice, or IRS-related matters involving the firm or its principals.

💡 Sellers are rightfully protective of their client lists at the LOI stage — full client names and contact details are typically withheld until a mutual NDA is in place and the LOI is signed. Accepting anonymized client data (e.g., Client A representing $180,000 in annual tax and advisory billings, 15-year relationship, manufacturing industry) for initial due diligence is reasonable and common practice. The critical test is whether you can confirm the revenue quality and concentration risk before committing to a price. Also ensure your due diligence checklist specifically includes a review of any IRS power of attorney filings, malpractice insurance history, and client engagement letter audit — these are the three items most commonly missing from seller disclosures.

SBA Financing Contingency

If the transaction is being financed with SBA 7(a) funds, include an explicit financing contingency that conditions the buyer's obligation to close on receipt of SBA loan approval. This protects the buyer from being legally obligated to close a transaction they cannot finance. Include the expected loan amount, lender name if known, and a reasonable timeline for SBA approval.

💡 SBA lenders will require a seller note representing 10% of the purchase price on full standby for 24 months in most accounting firm transactions. Sellers who are unfamiliar with SBA deal structures sometimes resist this requirement — explain that standby means no principal or interest payments for 24 months, not forgiveness. The SBA financing contingency is standard and non-negotiable if you are using government-backed lending; sellers who refuse to accept it are effectively requiring all-cash buyers, which dramatically narrows the buyer pool. Also note that SBA lenders will require the selling CPA to sign a personal guarantee on any seller note.

Exclusivity and No-Shop Provision

Secure an exclusivity period during which the seller agrees not to solicit, negotiate, or accept offers from other buyers. This is essential to protect the buyer's investment of time and due diligence costs. For CPA firm acquisitions, 60 to 90 days of exclusivity is standard given the complexity of client roster review, staff interviews, and SBA lender approval timelines.

💡 Sellers represented by brokers will push for shorter exclusivity windows — 30 to 45 days — to maintain leverage. Buyers with SBA financing need at least 60 days given lender timelines. If a seller insists on 45 days, consider negotiating an automatic 30-day extension if the SBA loan application has been submitted and is pending approval. Break-up fees payable by the buyer if they walk without cause are sometimes requested by sellers as a condition of granting a longer exclusivity period — $10,000 to $25,000 is a reasonable range for this deal size.

Binding and Non-Binding Provisions

Clearly designate which provisions of the LOI are legally binding and which are expressions of intent only. In most CPA firm LOIs, the exclusivity, confidentiality, and governing law provisions are binding, while the purchase price, deal structure, and other economic terms are non-binding and subject to definitive agreement. Failing to make this distinction clearly can create legal disputes if either party changes position during due diligence.

💡 This is a standard provision but occasionally misunderstood by sellers who treat the LOI as a firm commitment. Make sure the seller's attorney reviews the binding versus non-binding designation before the LOI is executed. In practice, the non-binding nature of the economic terms gives both parties flexibility to adjust deal structure as due diligence findings emerge — for example, if the client roster reveals that 50% of revenue is concentrated in three clients, a price reduction or earnout restructuring before the definitive agreement is signed is normal and defensible.