Retirement Planning Tips for Tax Preparers

A tax preparer discusses retirement options with her granddaughter

Whether you’re decades away from retirement or hoping to retire in the next few years, there are always steps you can take to ensure that you, your family, and your tax practice are taken care of. Here are practical things to consider and a few steps to take years before you’re ready to wrap up your career.

Selling your tax practice

Most tax preparers sell their business when they retire, and this process can vary greatly from one practice to the next. How you decide to sell your business is ultimately your decision. Here are a few of the methods for making the sale:

Collection pricing

When you sell your business with a collection pricing model, you’ll usually receive a downpayment of around 20% of the value of your business and then an additional 20% of the business’s earnings each year for the next four years. This model is popular with buyers as it gets the seller more motivation to help with client retention and keep revenue high for the first several years after the sale.

Seller-financed

Some small business owners choose to finance the sale of their business themselves, typically giving the buyer 3-5 years to repay the loan.

Cash pricing

Cash buyouts are less common as they require the buyer to have a large amount of capital. Because the seller is paid in full, this option is less attractive to many buyers who want the seller to have financial motivation to retain clients and keep revenue up after the sale. However, some buyers do prefer this model to a seller-financed sale as they typically have 10 years (as opposed to 3-5 years) to pay off a loan from their lender.

Merging your tax practice

In order to create continuity for their clients, some tax practice owners choose to merge with another tax business several years before they plan to retire. This allows them to continue serving their clients after the buyout and is thought to increase client retention after you retire. This method can also make the months leading up to retirement less stressful since clients are well-prepared for the transition and your business is already sold.

How to hand off clients

Whether you’re selling via collection pricing, getting cash value for your business, or merging with another practice, both you and your buyer benefit when clients are happy and prepared for the transition.

Introduce the buyer

When it’s time to retire, take every opportunity to the new owner of the practice using company newsletters, emails, in-person meetings, and social media channels. Highlight their credentials, how long they’ve worked as a tax preparer, and why your clients will be in good hands. 

Follow up

Depending on how your business was sold, you may have some responsibility or motivation to help retain clients after the sale. If you used collection pricing, for example, increasing client revenue in the four years after the sale increases your payments. It may be wise to contact clients who are unsure if they will return to the tax practice.

The Tax Preparer Retirement Timeline

As Soon as Possible

  • Begin contributing to retirement accounts.
  • Consider working with a financial planner.

5-7 Years Before Retirement

  • Consider options for selling your practice. 
  • If you may sell to a trusted employee, begin preliminary conversations to gauge his or her interest in acquiring the practice.
  • Consider working with an exit planner to learn how to increase the value of your business before selling and create a written exit plan.

3 Year Before Retirement

  • Possibly begin merging if you plan to merge with another practice before retirement
  • If you plan to sell to a trusted employee, begin introducing that employee to clients and building trust in his or her capabilities. 

1-2 Years Before Retirement

  • Consult a broker who specializes in selling accounting and tax practices

1 Year or Less Before Retirement

  • Continue working with your broker as you find a buyer or finalize the sale
  • Begin to prepare clients for the change. Introduce and celebrate the new owner using in-person meetings, newsletters, and emails, etc.
  • Talk with your financial planner about drawing from your investment accounts

After Retirement

  • Depending on the terms of your sale, possibly help ease the transition and increase client retention.

Consider an exit planner

Working with a professional exit planner can make the process of selling your business easier and more profitable. They can help you:

  • identify ways to increase profits in the years before you retire, increasing the valuation of your business
  • create a thorough written exit plan, reducing stress and uncertainty leading up to retirement
  • prepare clients for the transition, helping your practice continue to thrive after you retire
  • create a succession plan if you plan to pass your business down to a family member