Focusing on a specific niche can give you the edge you need, if you’re starting a new firm or trying to give your existing firm more direction.

This article will look at the benefits of having a specialized niche, how to determine which niche is right for your accounting practice, and 10 interesting niches for accounting firms. 

The Advantages of Niching Down as an Accountant

Having a specific niche allows you and your firm to stand out from the competition in any field. With over 138,000 accounting firms in the US, how will you stand out from your competitors? 

A niche allows you to envision your ideal customer and focus on finding them. A specialty helps your firm determine which specific services to offer and how to market those services. 

By focusing on a single area, you can develop expertise that will increase your efficiency (therefore, your profitability) and allow you to provide better service to your clients. 

7 Things to Look for When Choosing an Accounting Niche

Before getting into any specific niches, let’s cover a few things you want to consider as you analyze which ones might be the best fit for you: 

1. Growth: Finding a niche in its infancy is ideal. A new niche gives you the opportunity to become an expert in your specialty and distinguish yourself by staying abreast of trends, current news, and regulations. If it’s not a new niche, you want to find a growing niche. A growing industry means you’ll find ample opportunity to service new businesses that don’t have existing accounting support. Industries like restaurants and retail may not be growing exponentially but often have a significant number of new businesses opening each year.


2. Profitable clients: To establish long-term relationships and minimize your client churn, you need to find profitable companies. Most startups don’t hit the ground running with positive cash flow. However, you’ll want to find a niche with the potential for profitability in the first few years. This will give you more time to handle your clients’ needs, and you’ll spend less time finding your next client.


3. Recession resilient industries: You’ll want to find a niche that tends to perform well even in a slow economy, or you may lose clients when things are tough for everyone. Though no one can predict when the next recession will hit, you want to be prepared.


4. An industry you’re interested in: Though this might be better listed as a nice-to-have, a passion for the industry you are serving can be helpful. Your clients will benefit from your knowledge and excitement for their field, and you will know you are supporting a business you care about. Spend time talking to your current clients about their work and find out which companies pique your interest.


5. Matches your experience: If you have a background in another field, you can bring that knowledge to your accounting work. Additionally, if your accounting training is specific to certain types of accounting work (such as budgeting or auditing), you can find a field with a greater than average need for those services.


6. Uniqueness: There are a lot of accountants who market themselves for various niches. Is there a niche that isn’t being serviced by anyone (or at least, no one is positioning themselves as an expert in that field?) Finding a unique niche allows you to focus your marketing which can minimize your marketing budget.


7. Specificity: For an example in another industry, consider marketing yourself as a periodontal specialist instead of a dentistry specialist. When potential clients need an accountant, you’re more likely to be found if you serve a very specific niche and have a search engine optimization strategy in place for that specialty. 

10 Interesting and Lucrative Accounting Niches

1. Real Estate

Though real estate is not a new field by any means, it’s still a lucrative field involving a large number of investors. Additionally, new investors are entering the industry in record numbers both as real estate investors and realtors. A record number of individuals secured their real estate licenses in 2021. 

Short-term rentals continue to grow in popularity, which means a record number of people are running small hospitality businesses. These small business owners may be good at running their rentals but often need help when it comes to managing their accounting. 

2. SaaS Startups

The Internet has become a part of our daily lives, and the need for software to service our various needs is growing. The software as a service (SaaS) industry grew by 11.7% in 2021 alone. 

Many software companies are started by a single individual or small team of founders. Though they have a passion for programming and software, they often need assistance with money issues and don’t need full-time accounting staff. Offering fractional CFO services to software companies is a growing niche.

Additionally, software companies seeking outside funding need solid financial statements readily available and may need a financial representative to meet with investors. Because there are specialized accounting regulations regarding investments, this niche is perfect for someone looking to specialize. 

3. Medical, Dental, and Law Firms

Though the number of independent practices in each of these fields has fallen over the past two decades, the number of people working as independent contractors in these fields has risen. Many of these high-earning independent contractors could benefit from forming an LLC or S-corporation, which comes with its own set of books and tax returns. 

Though these fields and their required accounting are fairly similar, each specific specialty allows you to position yourself as the go-to accountant for that field. For example, you might market yourself as the accountant for radiologists or immunotherapy practices. 

Sometimes niches grow organically when you meet one person in the field, and they refer coworkers to you for accounting services. This organic growth is especially likely in highly specialized fields where many of the professionals in the field trained together or still regularly consult each other. 

Once you have a few professionals in a given specialty, you will have a good idea of the accounting pain points for their industry and can work on resolving those issues.

4. Construction

Construction is one of the few fields that has been (mostly) resistant to consolidation. Because building happens on small local or regional scales, many local firms require accounting and tax services. 

Construction companies often require specialized assistance when allocating overhead expenses and ensuring they follow state labor laws when working with subcontractors. 

Most construction firms and contractors don’t require full-time accounting support but would benefit from having an accountant on call to assist with their financial questions. 

5. Restaurants

Though restaurants don’t meet all of the criteria outlined above for the best niches, the large number of restaurants can make it a lucrative niche. 

To differentiate yourself in the marketplace, consider specializing in a specific type of restaurant or cuisine. Though the accounting doesn’t change between types of restaurants, it gives you a chance to stand out in the marketplace. Consider marketing yourself as the boba tea or cereal bar expert. The possibilities are endless within the industry.

Keep in mind that understanding labor regulations is key to providing services to food service companies. Knowing about the relevant credits and being on the lookout for industry-specific regulations will position you as a valuable resource for your clients. Restaurateurs are often passionate about their food and their business. However, unless they’ve owned a business before, they may have had very little exposure to the accounting necessary to run a business and manage cash flow successfully. 

6. Cannabis

Cannabis, while not legal in all states, has seen unprecedented growth and shows no signs of slowing down. Industry experts project the industry’s size will triple between 2020 and 2025. What was once an all-cash business has become mainstream and, as with any mainstream business, needs accounting support to comply with accounting and tax regulations.

With the IRS and bank regulations playing catch up to this newly regulated field, there’s growth available for an accountant who knows the industry well and provides top-notch service.

7. Veterinarians

With many people choosing to have fewer children (or forgo having them altogether), some of that spending has been transferred to beloved pets. The American Veterinary Association reports that annual spending on pets has approached $100 billion. Additionally, the veterinary industry has seen less consolidation than in other fields. So plenty of small businesses in your area need bookkeeping and accounting support.

While most veterinarians have in-house resources to assist with billing clients, they still need financial statement preparation, income tax advice, payroll processing, and sales tax assistance. 

8. Entertainment

A large number of people working in the entertainment industry are independent contractors. While they mainly started as sole proprietors, as their business grows, they may need to consider forming companies and hiring staff members. While you can’t always spot the next star, you can find people with enough revenue to warrant your services.

For folks in the entertainment industry, there are often a lot of accounting questions regarding allowable expenses. Which clothing is a deductible expense? What qualifies as a travel expense? Which meals are deductible? By having these answers readily available, you can start to grow your client list through referrals and marketing.

Within the entertainment industry, there’s room for further specialization. You could focus on a specific talent such as comedy or lighting specialists or talent agents. 

9. Digital Media

Google’s advertising revenue was over 54 billion in 2021. That’s the kind of figure that can’t be ignored and attracts people wanting to earn a piece of the pie. Because of this, there is a growing number of digital marketing, web content, and web design businesses. Each of these small businesses needs accounting assistance and tax preparation. 

This niche may work especially well for a virtual accounting firm since the businesses are also accustomed to doing business virtually. 

10. Cryptocurrency

While there has been a lot of volatility in the cryptocurrency space as of late, there are a lot of smart people putting a lot of their time and attention to building the future of this space. Being a new asset, the accounting rules for cryptocurrency are still evolving. The IRS and states are working on regulations regarding the tax and accounting treatment of this new currency. Because the field is so new, there’s an opportunity to get in on the ground floor and establish yourself as an expert accountant for cryptocurrency investors and firms.

Staying up-to-date on the regulation changes and requirements will take a significant investment of time and resources but will likely pay off in the long run.

No matter the niche, client satisfaction rules all

No matter what niche you choose, making sure your clients are happy should be your first concern. Being responsive and ensuring nothing falls through the cracks are the two key factors to ensuring client satisfaction.

Simplify your workload with our collection of 32 customizable accounting workflow templates. This free resource includes a ton of the most popular accounting templates including monthly bookkeeping, weekly accounting analysis, client onboarding procedures, and common tax return forms.

Whether you are looking to retire from the profession and want to sell off your practice, have a merger in the works, or need to acquire a CPA firm, there is always one top question— what is the firm’s value? 

Unfortunately, there is no one-size-fits-all answer to this question. How much a CPA firm is worth will depend on several factors. It will also depend on your point of view as a buyer or seller? 

This article will help you understand how to value a CPA firm, the factors that could affect the valuation price, and how to make an offer more attractive.  

 

How to Value a CPA Firm

Firms are generally valued using two methods:

1. One time gross revenue
2. Multiple of net cash flow

Arguably the most widely used valuation method is one-time gross. In this method, the buyer pays an agreed fixed amount for every $1 of gross revenue generated in the latest financial year. 

The second valuation method – multiple of net cash flow – is not as straightforward. The multiple varies between firms and parties involved in the transaction. It will be determined by several variables, including the upfront cash investment, retention period, duration of the payout period, and the firm’s profitability. 

 

Upfront Cash Investment

Upfront cash investment refers to how much the buyer is willing to pay as a down payment. It will depend on several issues, primarily operational. For instance, a tax-oriented practice selling before tax season would warrant a higher price and down payment than selling it after the tax season. 

 

Retention Period

Usually, the sale of a firm will require a certain client retention period after closing the deal. A good scenario is when the sale is on an earn-out payment strategy. If the seller accepts a 25% payout over the next four years from its revenue, they will receive the remaining balance from fee collections of retained clients within this period of time. This duration is the retention period. Although some keep this as short as two years, some structure depends on fee collections and client retention for the period. 

 

Duration of The Payout Period

Duration of the payout period is how long it will take the seller to receive all the sale money from the buyer. The period can be 10 years or more (larger firms typically have an extended payout period). Smaller firms have a shorter payout period, ranging from 3 to 7 years. This matters because buyers evaluate a purchase’s profitability based on its future cash flows. A more extended payout period leads to smaller payments and higher cash flows. 

 

Profitability

The profitability variable is based on the buyer’s expected profits, not the seller’s historical values. The buyer’s profitability and seller’s multiple could increase if the buyer expects:

• To get a firm with low and no incremental overhead expense increases
• Creating revenue synergies by selling additional services during the off-season
• Capitalizing on cost synergies, like rent reduction or restructuring an existing office lease

The above four variables – upfront cash investment, retention period, duration of the payout period, and profitability – produce the multiple used in valuing a practice when combined. 

For example, a firm for sale with less upfront money, longer retention, and longer payout periods should have higher profitability for the buyer and a higher multiple for the seller. 

   

5 Factors Affecting the Value of a CPA Firm

While these valuations are great pointers of how much your firm might be worth, the final price will ultimately depend on several factors. 

 

1. Size of the Firm

Larger firms tend to attract more buyers than small firms. That’s because buyers are mostly looking at the firm’s gross revenue and the talent pool. 

On the other hand, many buyers are ready and willing to buy a small CPA firm as long as they perceive it is large enough to support their future business. Smaller firms, especially those owned and operated by the owner, are easier to manage. These become more attractive to buyers hoping to use financing for the acquisition process. 

 

2. Profitability 

In addition, the firm’s profitability will also have a significant impact on the value, regardless of its size. The more positive cash flow, the more attractive the firm, and vice versa. Buyers will be looking at the firm’s billing rates and fee structures. Those with high figures will get more attention from buyers as they translate into a better bottom line. For many buyers, what matters most is the gross revenue and not the cash flows because expenses and synergies are often easier to control. 

 

3. Location 

The firm’s location will significantly impact the number of buyers it attracts and the value. For example, a CPA firm in a metropolitan area will have a higher value and more leverage to attract buyers than one in a small and remote location. 

The exact location within a city or town also matters. The more popular the area, the higher the value of your CPA firm may be. This concept is similar to selling a home. A house in a popular neighborhood or high-end area in the city would cost more than the same house in a different, less desirable location. 

 

4. Terms of the sale

Like any other sale agreement, the terms set forth will impact the firm’s value. The terms of the sale cannot be separated from the price. Neither should one put more weight on the price and ignore the terms. 

When considering terms of purchase, first consider the earning structure. For instance, you could value your firm at $500,000 and have two buyers, one offering $500,000 cash at closing and another with an earn-out basis, like a 50% down payment, and the rest spread over two years. 

Both structures might seem friendly to either party. But what about the risk? You have a higher risk with an earn-out payment system as the seller, which ties you to the practice for years. On the other hand, buyers are more at risk with cash at closing terms. 

Whichever the terms, generally speaking, it is more desirable that the buyer has the higher risk. That’s because the firm’s sale leaves the buyer with more control over the clients’ services, meaning they have greater control over whether they retain the clients. 

 

5. Marketing 

You could sell your practice yourself and attract buyers with marketing copy like “For sale by the owner.” And many individuals do so. But unfortunately, this could lower the firm’s value compared to working with a professional to market it. 

Professional brokers have expertise and experience in the valuation of businesses, negotiating terms, marketing skills, and a network of potential buyers or sellers willing to pay the right price. Working with professionals ensures you have better terms and attractive valuation and price.  

   

Best Ways to Buy or Sell a CPA Firm

Buying or selling a CPA firm successfully hinges on how active the marketplace is. As a seller, your firm will have more value if there are many buyers in the market. On the other hand, acquiring the right firm as a buyer will depend on the available options. How to get access to the best buyers or sellers matters. 

One of the best options is through your networks. For example, if you are a CPA, you are probably a member of a professional body that allows you to network with firm owners. It can be an excellent way to learn about firms in the market and their owners. Your colleagues can also make referrals and point you in the right direction or may even be interested in purchasing your practice themselves. 

Another option is working with a business broker. These are individuals who specialize in mergers and acquisitions. They bring forth a basket of knowledge on how to handle such a deal and open you to an array of potential buyers or sellers. But, on the flip side, these could be costly due to paying a sales commission, especially for small firm buyers and sellers on a tight budget. 

Finally, if you are a seller, you could use a business listing website like BizBuySell, BizQuest, or BusinessBroker.net. These ensure your ad for the firm’s sale is marketed to a vast pool of potential buyers. However, the onus is on you to negotiate the best deal and ensure a buyer is qualified to purchase your CPA practice.

 

Buyers: Ways to Make Your Offer More Attractive to a Seller

Even as a buyer, the market can be pretty competitive. Sellers will receive multiple offers if the practice is worth it. So, how do you stand out as a buyer? 

You can start by understanding the firm’s history and culture. Every seller wants money but they also want to know they are handing over a business they have worked hard to build to someone who will treasure and grow it. Showing you resonate with its culture and understand its history shows the seller you have taken the time to know them and the business better. 

Second, you can make your offer more attractive by setting realistic and friendly terms. For example, how much are you willing to offer as a down payment and subsequent payment percentages if going with an earn-out strategy? You could be offering a 20% down payment and a payout duration of 10 years, while another buyer offers the same upfront payment with a payout duration of 5 years. The question to ask though is whether your offer matches the seller’s stated desires.

 

Sellers: Ways to Make Your Firm More Attractive to a Buyer

Have you put any assets up for sale? Perhaps your car or house? You always find ways to make it more attractive to potential buyers. It could be making overdue repairs, refurbishing fixtures, or even new paintwork. 

The same applies when selling a business, more so in CPA practices. If you are a seller, there are ways to make your firm more attractive to potential buyers, like:

 

Accounting services are not left behind when it comes to technology in an era where almost everything has gone digital. The least you can do to ensure your firm has embraced technology is to go paperless and use cloud accounting and storage. 

For example, Jetpack Workflow is workflow software created to help CPA firms be more productive. The company provides various software solutions for CPA and bookkeeping firms, including business accounting and client management, accounting practice management, and due date tracking.

Although there is a small investment involved, it helps increase the valuation of your firm. In fact, many buyers opt for tech-savvy firms since less time and man-hours are needed to upgrade the system or train the acquired employees. 

 

Be Niche-Specific

It is one thing to say you have a CPA firm. It is entirely different from stating the niches your firm deals in when pitching to potential buyers. For example, you could be offering tax management services, auditing, business advisory, and wealth management. Whichever niche or specialty your firm offers, ensure it is well-captured and communicated when placing your firm up for sale. 

 

Have Good Employees and Clients

When buyers go through the client list or sales, will they see a long list of low-paying clients or those with high fees. Many firms fire low-paying clients before selling or merging, and for a good reason. It improves the firm’s outlook from C and D-rated clients to one with an A and B-rated client base.

The same applies to staff that could be integrated into the new ownership or merger. Good employees with excellent people skills, professional know-how, and tech-savvy make your firm more attractive. It is also essential to have staff with non-compete clauses. 

 

Have a Brand vs. Partner Business Culture 

You want to have a firm where clients are not limited to a particular partner or staff member when dealing with issues. It makes it more challenging to transition such clients than when they are comfortable dealing with various members of your team. This is what is referred to as brand-loyal culture. It is attractive to potential successors because fewer clients will have no problem working with new owners. 

 

Set Realistic Terms 

As outlined above, the terms of the sale are as crucial as the asking price. However, they must be realistic for you to make the sale. For instance, it would not be practical to have a high valuation for a small firm in a remote area with no technology. 

 

Simplify Your Accounting Workflows with This Free Resource

Tired of spending endless hours manually creating and building workflow and process templates for your firm? Simplify your workload with our collection of 32 accounting workflow templates. This free resource includes a ton of the most popular accounting templates including monthly bookkeeping, weekly accounting analysis, client onboarding procedures, and common tax return forms.