What 10% Means When You’re Buying a CPA Firm Depends If You’re Making an Offer or Borrowing Money

If you’re looking at buying an accounting or CPA firm, there’s one financing issue that causes a lot of confusion.

It’s the term “10% down.”

You’ll sometimes hear us talk about 10% when you’re putting together an offer for the seller. Then you’ll talk to a bank or SBA lender, and they’ll also start talking about 10%.

Those are actually two completely different 10% numbers.

Here’s an easy way to think about it.

The first 10% is about your deal with the seller.

Let’s say you’re buying a CPA firm for $1 million.

If the firm is attractive and there are several buyers interested in it, you want to make your offer as competitive as possible.

Typically, that means offering the seller something like 90% cash at closing, with the remaining 10% paid through a seller note, sometimes called seller financing.

So on a $1 million purchase, the seller might receive $900,000 in cash at closing and agree to finance the remaining $100,000 for 12 months.

That’s the first 10%.

But here’s where buyers sometimes get confused.

That doesn’t necessarily mean you only need to come up with $100,000 and the seller finances everything else.

If you’re using a bank or an SBA lender to finance the purchase, there’s another completely separate 10% that may come into play.

That’s your buyer cash injection, or equity injection.

The lender may require you to put some of your own money into the transaction—often around 10% of the total project cost, although the exact amount can vary depending on the lender and how the deal is structured.

So in our $1 million example, you might contribute approximately $100,000 of your own cash, and the bank provides most of the remaining financing of $900,000 for a total of $1 million.

That bank financing, together with your cash, provides the money that’s ultimately used to pay the seller at closing.

So the easiest way to remember the difference is this:

The seller’s 10% answers the question:

“How much of the purchase price will the seller agree to receive later?”

The bank’s 10% answers the question:

“How much of my own money do I need to put into the transaction?”

Two completely different questions.

One is about negotiating the purchase price and payment terms with the seller.

The other is about financing the acquisition with your lender.

Once you separate those two concepts, the whole idea of “10% down” becomes much easier to understand.

If you have a question about this topic, feel free to give us a call at (317) 546-7720 or visit our website at www.acctsales.com