When onboarding new tax clients, gathering general details about their tax history and current income level is a necessity. However, you also need to get more specific and inquire about taxable considerations, such as:

• Alimony paid or received
• A change in marital status in the past year
• Significant assets sold
• College tuition costs for themselves or dependents

These factors can have important implications for a client’s tax liability. So, what are the best questions to ask to get the relevant information you need for a new tax client?

We compiled a comprehensive list of the 20 best questions to ask new clients during the onboarding process. We also share where to collect and file their responses to avoid delays during the busy tax season ahead.

Initial Overview Questions

1. Can you provide a brief overview of your current financial situation?

Start by asking new tax clients some broad questions like this one, which can give you a better idea of the client’s general financial standing.

Their answer may impact how you handle their tax return based on their unique needs or circumstances. It can also help you decide which staff member you assign to their account.

 

2. What was your total income for the last tax year?

Next, follow up by asking about their prior year’s total income for further details on their financial situation. This question helps you establish a baseline for understanding the client’s income in the current year and their potential tax liability.

 

3. Are you currently employed, self-employed, or have income from other sources (like investments or rental properties)?

For proper tax preparation, you need to know a client’s sources of income. That’s essential to ensure you correctly categorize their income and complete the appropriate forms, like the Schedule C form for clients who are sole proprietors.

Some tax credits and deductions are also specific to certain types of income. Therefore, knowing how and where a client generates income can help you determine which deductions they may qualify for.

 

4. Do you have any foreign income or financial interests in other countries?

Tax prep for clients with financial interests abroad can be more complex.

An awareness of any client’s foreign involvement before filing can ensure regulatory compliance with both domestic and international tax laws.

You may need to fill out Form 2555, Foreign Earned Income, Form 8938, Statement of Specified Foreign Financial Assets, or other relevant forms for such clients.

Personal and Family Information Questions

 

1. Have you experienced any significant life changes in the past year (e.g., marriage, divorce, children, buying a house)?

Life changes like getting married or having children in the past year can significantly affect a client’s tax liabilities, filing status, and possible deductions.

If any of these changes apply to your client, you can be sure they receive the tax benefits they’re entitled to and meet any new tax obligations they have. For example, you might enter a new tax bracket for newly married couples filing jointly for the first time.

 

2. Do you have any dependents? If so, can you provide their details?

Dependents affect the tax credits and deductions someone may qualify for, such as the Child Tax Credit or Earned Income Tax Credit. Ask new clients if they have any dependents and, if so, how many, since this could help minimize their tax liability.

 

3. Are you currently paying or receiving alimony?

Similarly, you should know if a new client currently pays or receives alimony, which can impact their level of taxable income. Be aware that receiving or paying child support likely has no implications for taxpayers, but alimony payments can in certain instances. 

 

Tax History and Compliance Questions

 

1. Are your previous years’ tax returns available for review?

Requesting a new client’s previous years’ tax returns (or Form 1040 from prior years) can offer insight into a client’s tax history and past deductions.

This information may help you determine whether your client follows a specific tax strategy you should continue in the current tax year.

You may also be able to identify deductions and credits available to them overlooked by their previous CPA or tax preparer.

 

2. Have you encountered any past issues with the IRS or state tax agencies?

If a client has had prior issues with the IRS or state reporting agencies, it’s critical to understand what happened to avoid making the same mistake again.

IRS negotiations and investigations of any nature can be costly and time-consuming. So, be proactive and learn about any possible issues to avoid penalties or recurring problems with the current year’s filing.

Deductions and Credits Questions

 

1. Have you made any charitable donations or significant contributions this year?

Ask your new clients if they’ve made charitable contributions in the past year, which can help them qualify for certain tax deductions.

The general regulatory standard for charitable contributions is that these itemized deductions must be included on a client’s Schedule A in order to qualify.

 

2. Have you incurred any significant medical expenses not covered by insurance?

If your new client paid for any significant medical expenses out of pocket in the current tax year, not covered by health insurance, you can sometimes deduct these costs.

The current industry guidelines on medical deductions are that taxpayers can deduct the portion of their medical and dental expenses that exceed 7.5% of their AGI.

 

3. Did you pay for education-related expenses for yourself or a dependent?

Qualified education expenses could warrant certain tax benefits, so inquire about any such payments the client has made to help them minimize their tax liability for the current year.

That typically includes any amount paid for tuition, fees, or other related expenses.

 

4. Do you have any outstanding debts or loans, such as student loans or a mortgage?

New clients should share details on any outstanding debts that could support their tax strategy. The interest expense on certain types of loans, including qualified mortgage interest, student loan interest, and others, can be claimed as a deduction or tax credit.

Investments and Assets Questions

 

1. Do you have any retirement accounts (like IRAs or 401(k)s)? Have you made any contributions or withdrawals?

Have new clients disclose this vital tax information about their retirement planning and any contributions or withdrawals made to their retirement accounts in the current year.

These transactions can have significant tax implications, and you need to be aware to fill out the appropriate forms, like Form 5498 for IRA contributions.

 

2. Have you sold any major assets this year, such as property, stocks, or a business?

Significant assets the client sold over the previous year can result in capital gains or losses. You must report these sales on Form 8949, Form 1099-S, Form 1099-B, or other relevant forms for tax compliance.

 

Business or Freelance Work Questions

 

1. Have you conducted any business or freelance work? If so, can you provide details about your income and expenses?

You can ask clients if they have any self-employment or freelance business income to report for the year, which can be critical for tax calculation purposes.

Such individuals are typically subject to an additional self-employment tax, though they may also qualify for certain deductions and credits based on their business-related expenses throughout the year.

 

2. Are there any industry-specific tax issues we should be aware of (for business owners or professionals)?

Clients who own businesses in certain industries, like those working in agriculture or child care, may have unique legal requirements or tax obligations.

You need to know about these requirements because they can impact the tax deductions and credits your client is entitled to. It also helps you provide tax advisory and strategy services specific to their needs.

Future Planning and Concerns 

 

1. Do you have any upcoming transactions or major financial changes planned for the next year?

Anticipating future events can help with tax planning for the following year.

Being aware of these circumstances means you can be proactive and offer advice so your client can optimize their tax positioning for the year ahead.

 

2. Do you have any specific concerns or questions about your tax situation?

Wrap up your tax-focused inquiries by asking this open-ended question so clients can share any additional thoughts or concerns about their current tax situation.

Directly addressing their concerns allows you to meet their needs and expectations and improve service satisfaction.

Client Preferences

 

1. How do you prefer to communicate and receive information (e.g., email, in-person meetings)?

From a practical standpoint, ask your clients how they prefer to communicate on matters related to their tax preparation.

Be sure you agree on a preferred communication channel, whether over email, phone, or in person, to ensure efficient and effective interactions for timely financial reporting and filing.

When Is the Right Time to Ask a New Client Questions?

You don’t immediately need to bombard clients with a long list of questions. However, these 20 questions do contain important information you need to know to accurately file a client’s tax returns by the proper deadline.

Initial Consultation (Broad Questions)

During your first meeting with a new client, start with the broader or more general questions covered above. That can help you get acquainted with one another beyond your tax preparation services relationship.

Begin with the questions in these categories:

• Personal and family information
• Overall financial situation
• Income sources
• Tax history and compliance

Follow-Up Meetings (More Detailed Questions)

Once you’ve had the chance to review the initial information the client provided, you may schedule a follow-up meeting in person, virtually, or over the phone to get the more specific details you need to file their tax return, like the questions listed in these categories:

• Deductions and credits
• Investments and assets
• Business or freelance work
• Future planning and concerns
• Client preferences

Successful mergers and acquisitions (M&A) in the accounting industry primarily depend on finding the right acquisition target.

If you haven’t navigated this process before, you probably have questions about determining which deals are worth your time—and money.

Though no two firm acquisition deals are alike, there are some universal strategies and tips that can help you procure a suitable accounting practice to grow your business.

We recently sat down with two accounting experts on the Growing Your Firm podcast, Gretl Siler and Brannon Poe, and both have successfully closed numerous firm acquisitions throughout their careers.

In this guide, we’ll share their expert tips and suggestions for accounting firm acquisitions so you can evaluate the firm’s worth investing in and easily navigate the post-deal transition. We’ll cover crucial considerations for firm acquisitions, such as:

• The current M&A landscape in the accounting industry
• How to find accounting firms for sale
• What factors make a firm attractive to buyers
• How to price/value a firm
• The types of acquisition financing available
• How to ensure a successful post-acquisition transition

 

Understanding the Market Landscape 

As we approach the new year, unique market dynamics are impacting M&A deal activity across the accounting sector, an issue we discussed with Brannon Poe, the founder of Poe Group Advisors & Accounting Practice Academy.

Specifically, Poe points out the current trend of buyers placing significant value on staff longevity in accounting firm acquisitions, owing to the ongoing staffing challenges impacting the accounting profession.

“Buyers are rightfully more interested in the likelihood of employees staying with the firm when they take over and the quality and experience of the staff at the firm they’re acquiring,” he says.

 

As Poe explains, long-term employees who have been with a company for 5, 7, or 10 years often indicate a stable, well-run firm. That positively impacts its valuation and attractiveness to buyers.

On the flip side, high staff turnover can be a major red flag, suggesting internal issues that can potentially lower the firm’s appeal in the market.

Also, more than ever, prospective buyers are considering acquiring firms based outside their area, even if they don’t intend to keep the physical office space or real estate.

Since the pandemic, many clients are now accustomed to meeting with their accountants virtually, making this shift possible.

 

Where to Find Accounting Firms for Sale

If you’re interested in growing your business by acquiring an accounting firm but don’t know where to find firms for sale, you can take a few possible routes.

One option is to contact local firm owners directly by letter or phone to gauge their interest in selling. If they’re nearing retirement age or experiencing other significant life events, passing their clients to another firm in the area may be appealing.

Gretl Siler, owner and founder of Lighthouse CPAs, reveals her approach to finding firms to acquire. She says, “Lots of times, I just go out and search the internet to see what firms are available for sale, and lots of times they end up being through a broker—sometimes they’re not—then I get information on them and start looking at what the business looks like.”

To start your search, here are some well-known websites and brokers where you can browse accounting firms for sale:

• Accounting Practice Sales 
• BizBuySell
• Accounting Practice Exchange

 

5 Tips for Choosing the Right Firm to Buy 

Naturally, not all firms are good acquisition targets.

Attempting an M&A deal with the wrong firm can lead to internal staff frustration, lost resources, and a compromised reputation as the deal frays and ultimately falters.

Potential buyers should understand what makes an attractive M&A agreement and the red flags to avoid. As you perform your due diligence and assess a firm’s overall business and financial state, look for these positive signs that a bookkeeping or accounting practice is a worthwhile acquisition target.

1. Focus on Business Clients

One of Siler’s top strategies for identifying good acquisition targets includes looking for firms that focus on business clients rather than tax preparation for individual clients.

She explains that this approach better aligns with her existing firm’s service model, making the transition more seamless after acquiring a new CPA firm.

 

Consider your firm’s unique focus and look to purchase other firms with a similarly aligned client base, whether that may be individual tax clients or business clients.

This way, it’s easier to begin serving these clients and causes less disruption once the deal is complete. That’s because your staff already has a solid level of expertise and familiarity with the type of accounting services this client base requires.

2. Distinct Service Mix 

As you evaluate a firm’s client list, another critical factor to look for is how focused their client base is within a specific niche, industry, or service.

Firms tend to be more attractive to prospective buyers if they have a narrow client focus rather than one that’s too broad or more than their staff can handle.

Again, this makes it easier for the purchasing firm to take over the seller’s client services since they already serve clients in the same niche. According to Poe, a more focused service mix often leads to greater profitability.

Determine what types of clients a firm serves when considering a merger or acquisition. The deal could be a good fit if they serve clients in the same or similar industries as your firm.

Be wary if they offer too many different services and the staff is spread too thin, which likely impacts their financial performance.

3. High Cash Flow to Owner

Poe explains that firms generating high cash flow levels to the owner are generally more attractive acquisition targets.

This metric is a good indicator of a firm’s profitability and reflects the degree of incremental profits or earnings your firm can expect to generate after an acquisition.

So, what’s a good level of cash flow to the owner?

Poe offers an example of a previous client who was generating a 50% cash flow off of approximately $2.3 million in annual revenue—a solid target for acquiring firms to keep in mind.

 

When analyzing the finances of a firm you’re considering purchasing, be sure this metric is one of the key figures you look for, among other due diligence. Before your audit, it may be beneficial for your internal team to deliberate and set a target cash flow-to-owner benchmark.

4. Long-Tenured Staff

As Poe mentions in our interview, a strong indicator of a stable firm and attractive acquisition target is a staff that has remained with the firm for a good period.

“When you see too many team members that are in for less than a year or less than two years, that’s evidence of higher turnover,” states Poe. “And a lot of times, higher turnover is a symptom of a bigger problem within a firm.”

When evaluating the potential acquisition of a firm or CPA practice, inquire how many employees have been with the firm for 5 years or more.

If a good portion has stayed with the firm for that long, it’s a good indicator they’re doing something right to retain certified public accountants in today’s competitive landscape.

5. Low Owner Involvement

While you want to seek out firms to buy that have a high cash flow to the owner, you also want to avoid deals with firms where owners are still highly involved in their operations.

Firms that are too dependent on the owner, or for that matter, any specific staff member, may suffer once that person is out of the picture post-acquisition.

Heavily relying on just one individual is likely a sign the firm lacks the robust systems and structure to run smoothly without key personnel involved.

Speak with the firm’s employees and owner when considering an acquisition to see how involved the owner is in day-to-day operations.

If an owner is significantly involved in all processes and services delivered, it can make the deal less attractive due to the substantial roadblocks you may encounter post-acquisition.

 

Evaluating Firm Valuation and Pricing 

Once you determine whether a firm’s business is a good fit for your operations, it’s likely time to assess the firm’s valuation and how you might price a potential deal.

Given his experience in the accounting firm acquisition market, Poe shares some vital factors that can impact a firm’s valuation and purchase price, such as:

• Location
• Cash flow to owner
• Service mix

Location still reigns supreme in a firm’s valuation. Rural accounting practices typically have lower deal values than firms in major metropolitan areas because of the lower demand and smaller pool of interested buyers.

However, Poe does point out that virtual-based or “cloud accounting firms” are experiencing rising valuations as remote work becomes more standard across the industry.

He states, “The multiples for virtual firms are still increasing as the market becomes more comfortable with those firms.”

Poe notes that a 30% cash flow is a significant threshold for firm valuations, though this can vary based on the context and unique factors of the firm.

For instance, he states that cash flow issues can stem from improper service pricing, having the wrong service mix, or “when a firm is trying to be too many things to too many people.”

To determine what a firm acquisition deal might cost, consider the factors above to help you find the best multiple for your business. For example, a firm that generates a high cash flow or is in a larger city with numerous interested buyers will likely have more competitive pricing and drive up valuation.

The Importance of Staff and Culture in Acquisitions

Another vital factor to focus on during an acquisition is how well you merge and integrate the seller’s staff with your own once the deal closes.

In today’s accounting environment, it’s become increasingly difficult for firms to attract and retain qualified talent. In fact, Siler notes she recently ran a job ad for 3 weeks and didn’t generate any matching applicants.

As a result, if the acquired firm has long-tenured and dedicated staff, you want them to feel supported and provide an easy transition after the acquisition to avoid staff turnover. Otherwise, you could face the costly and time-consuming process of trying to attract and hire skilled accountants.

If you absorb part of the firm’s staff as part of the acquisition, avoid making drastic changes immediately, a sentiment both Poe and Siler emphasized.

Allow employees to continue handling the services and clients they’re accustomed to as they integrate into your operations and become comfortable working with a new employer.

Even if there are changes or process improvements you’d like to make, it’s best to wait for 9 to 12 months after the acquisition so your business can stabilize. That can even help with client retention post-acquisition.

Managing Client Transition and Relationships

A substantial factor in the success of an acquisition is how well you manage the client transition after the deal closes.

You want to minimize any friction and service disruption to help boost client retention and loyalty. That’s easier to do if you retain some of the acquired firm’s existing employees, so your new client base works with a familiar face.

Siler’s approach is to build trust before implementing significant changes for the client. She stresses the importance of making only slight internal changes that the client may not even notice until after you gain their confidence.

She says, “Make sure that they know that you’re there to work with them [clients], and then if you want to recommend changes, you can.”

After acquiring a firm, focus on building relationships with your new clients before recommending new services or making suggestions for their business. Maintain good communication with them, and try to deliver the same or an improved level of service than they received from their previous provider to earn their trust organically.

 

How to Finance the Deal

There are multiple ways to finance an acquisition deal; you don’t have to pay for it all in cash. Specifically, Siler mentions that many banks offer SBA 7(a) loans for the CPA industry, which are good financing sources for these transactions.

You should thoroughly evaluate the financial aspects of taking out a loan to acquire a firm to determine the acquisition’s feasibility. In other words, you should assess the return on investment (ROI) you can expect the deal to generate.

Once you know a firm’s purchase price and determine it’s a fair valuation, you should assess the amount of funding you need to secure.

Combining this funding amount with the potential payback period and interest charged on the loan, you can estimate how long it will take for the deal to break even.

Different lenders have varying loan terms and qualification criteria, so you should shop around to find the best option for your given situation. The following are some of the banks that offer SBA 7(a) loans for accounting firms:

• Live Oak Bank
• First Business Bank
• Sunwest Bank

 

How to Grow Post-Acquisition

Once your firm stabilizes, within the first year or so of the acquisition, you can start pursuing growth strategies to expand your business, making some of the changes or improvements you held off on immediately after the deal closed.

Acquiring firms can focus on a specific client type and narrow their focus on certain services or niches. They may pare down or transition away from certain services that the acquired firm previously offered to focus more on their area of expertise. Doing this can help eliminate certain expenses and increase profitability.

It may also be time to raise prices to grow gross revenue, which can help the firm get all clients on the same pricing structure if they aren’t already.

Siler recommends small 3–4% annual price increases, which clients accept more readily than a larger 12% price increase every few years.

As the dust settles from the acquisition, evaluate where you can improve the acquired firm’s processes, boosting efficiency and profitability.

Perhaps some services are too resource-intensive, or you can integrate the tax software with your existing