A reference for the deal

Know what the
words mean.

Plain-language explanations of accounting practice transaction terms. These definitions organize the discussion; agreement wording and current professional rules determine the obligations in your deal.

1040 practice

A practice with a substantial individual income-tax return service line.

Acceleration

A contractual right to make remaining debt immediately due after specified events.

Access control

Rules and technical measures limiting who can use information or systems.

Accounting practice

A business providing accounting, tax, bookkeeping, or related professional services.

Accounts receivable

Amounts billed to clients but not yet collected.

Accrual basis

An accounting approach recognizing revenue and expenses according to the applicable recognition policy.

Acquired growth

Growth resulting from a purchase or merger.

Add-back

An adjustment adding an expense to a specified earnings measure when adequately supported.

Add-on acquisition

A purchase integrated with an existing platform or acquiring business.

Adjusted EBITDA for a CPA firm

Earnings before interest, taxes, depreciation, and amortization after supported normalization adjustments.

Advisory services

Professional guidance beyond a defined compliance or bookkeeping assignment.

Alternative practice structure (APS)

An arrangement separating an attest practice from an affiliated non-attest service business.

Amortization schedule

A schedule showing principal, interest, and remaining balance over the repayment period.

Anonymized client schedule

A client analysis using codes or grouped data instead of identifying details.

Asset sale

A transaction transferring specified business assets and assumed obligations.

Assignment clause

Contract terms addressing whether rights or responsibilities may be transferred.

Attest vs. non-attest services

A service distinction that affects professional requirements, independence, and transaction structure.

Audit practice

A service line performing audit engagements under applicable professional standards.

Average fee

A defined fee total divided by the number of assignments or clients included.

Baseline revenue

The starting revenue amount specified for comparison or a contractual formula.

Basket

A threshold affecting recovery under an indemnification provision.

Billable hours

Time classified as chargeable to a client engagement.

Billing rate

A price assigned to a unit of professional time or service.

Blind teaser

A preliminary transaction summary designed to avoid identifying the seller.

Book of business

A group of client relationships and related revenue opportunities subject to transfer and retention limits.

Bookkeeping firm

A business maintaining financial records and related reporting for clients.

Business tax

Tax compliance and planning services for business entities and their owners.

Busy season

A period of concentrated filing deadlines and client-service demand.

Buy-sell agreement

Terms governing transfers or repurchases of ownership after defined events.

Capacity plan

A forecast connecting workload, deadlines, staffing, and available hours.

Capital gain

Gain classified under the applicable tax rules rather than assumed from the transaction label.

Cash at close

Cash consideration paid at completion before or after specifically identified seller deductions.

Cash basis

An accounting approach generally centered on receipts and payments.

CFO services

Outsourced financial-management support within an agreed client engagement.

Change-of-control clause

Contract terms triggered by a defined ownership change.

Circular 230

Treasury regulations governing practice before the Internal Revenue Service.

Claims history

The documented record of asserted or potential professional claims.

Client accounting services (CAS)

An ongoing combination of accounting support and reporting defined by the firm's engagement scope.

Client churn

Loss of clients or client revenue during a specified period.

Client cohort

A defined group of clients tracked consistently through a measurement period.

Client communication plan

A coordinated sequence of messages and introductions supporting a service transition.

Client concentration

The share of practice revenue represented by one client or a defined related-client group.

Client deposits

Payments received from clients before the related work or obligation is completed.

Client retention rate

The share of an identified starting client group or revenue base retained during a defined period.

Closing condition

A requirement that must be met or waived before transaction completion.

Closing statement

A reconciliation of funds, adjustments, payoffs, and disbursements at completion.

Collateral

Property pledged to secure repayment or performance.

Collections-based earnout

Contingent purchase consideration calculated from specified cash collections over an agreed period.

Compilation

A financial-statement service distinct from a review or audit.

Confidential information memorandum

A detailed transaction presentation distributed under a controlled sale process.

Covenant

A contractual promise to take, avoid, or maintain a specified action or condition.

CPA firm

A professional practice using the CPA firm designation subject to applicable licensing rules.

CPA mobility

Practice privileges allowing qualifying professionals to work across jurisdictions subject to applicable conditions.

Cross-selling

Offering additional services to an existing client relationship.

Data migration

Transfer of records and system information into a new operating environment.

Data room

A controlled repository of transaction records and diligence materials.

Deadlock

A governance impasse arising when the required approval cannot be obtained.

Debt service

Scheduled principal and interest payments during a defined period.

Debt-service coverage ratio

A defined available-cash-flow numerator divided by scheduled debt service.

Default

Failure to meet a contractual obligation under the agreement's definition.

Deferred revenue

Amounts received before the related revenue is recognized under the accounting policy.

Depreciation recapture

Tax treatment that can reclassify gain associated with prior depreciation deductions.

Dilution

A reduction in an owner's relative interest or economic participation after new issuance or other changes.

Disclosure schedule

A schedule identifying exceptions or details related to agreement representations.

Distribution waterfall

The order and rules used to allocate transaction or investment proceeds.

Drag-along right

A contractual power to require other owners to participate in a qualifying sale.

Due diligence

Investigation of the evidence and obligations relevant to a proposed transaction.

Earnout cap

The maximum contingent amount payable under an earnout formula.

Earnout floor

A contractual minimum contingent payment, if the agreement provides one.

EBITDA margin

EBITDA divided by the defined revenue base.

EFIN

The electronic filing identification number associated with an authorized IRS e-file provider.

Eligible collections

Receipts included in an earnout or retention calculation under its definitions.

Employment agreement

Terms governing an employee's role, compensation, and other agreed obligations.

Engagement letter

A written statement of the parties, scope, responsibilities, and terms of a professional assignment.

Enrolled agent practice

A tax practice operated by a federally authorized enrolled agent.

Enterprise value

The value assigned to business operations under a stated transaction convention.

Equity injection

Buyer capital contributed to the acquisition project under the financing structure.

Equity value

Value attributable to ownership after the applicable debt, cash, and other adjustments.

Escrow

Money or property held by a third party under agreed release instructions.

Excluded clients

Relationships omitted from a transaction or measurement group by agreement.

Exclusivity

An agreement restricting specified competing transaction discussions for a period.

Extension season

Work and collections associated with returns completed after initial filing deadlines.

Fee realization

A measure comparing collected or billed fees with a stated value of time or work.

Financing contingency

A condition linking completion to the agreed financing requirement.

Firm naming rules

Jurisdiction-specific restrictions on names and professional designations used by a practice.

Firm permit / firm license

State authorization required for specified firm activities or designations.

Fiscal year

The annual accounting period used by the business.

Fixed interest rate

A rate held constant for the period defined in the loan agreement.

FTC Safeguards Rule / WISP

The federal safeguards framework and a written information security plan for covered businesses.

Goodwill allocation (practice sales)

The portion of transaction consideration assigned to goodwill under the applicable allocation analysis.

Governance

The system of authority, approvals, and accountability within a firm.

Gross margin

Revenue less defined direct costs, expressed as an amount or percentage.

Headline price

The advertised or stated total consideration before analyzing conditions and timing.

Holdback

Purchase consideration withheld pending specified conditions or resolution of defined issues.

Incident response plan

A documented approach for detecting, containing, assessing, and responding to security events.

Indemnification

A contractual allocation of specified loss or liability between parties.

Indemnity cap

A limit on specified recovery obligations under an agreement.

Independence

Professional requirements addressing relationships and interests relevant to specified engagements.

Independent contractor

A service provider whose legal and tax classification requires a fact-specific assessment.

Installment sale

A sale with payments across periods whose tax treatment requires review of the applicable rules.

Integration plan

The work plan for combining people, services, systems, and responsibilities after closing.

Internal rent

Rent between entities within the economic group being analyzed.

Internal successor

An existing professional or employee considered for future ownership or leadership.

IRC §7216 client consent

Authorization relevant to a preparer's use or disclosure of tax-return information when required by the rules.

Key employee

A staff member whose departure could materially affect relationships or operations.

Lender underwriting

The lender's assessment of repayment capacity, eligibility, documentation, and risk.

Letter of intent (LOI) for a practice purchase

A preliminary transaction document identifying proposed economics, structure, and process terms.

Lien release

Documentation ending an identified encumbrance on property.

Liquidity event

An event allowing an ownership interest to be converted into proceeds under applicable terms.

Loan maturity

The date or period when the loan is scheduled to be fully repaid.

Market compensation

A compensation assumption supported by relevant evidence about a defined role.

Membership interest sale

A transaction transferring ownership interests in a limited liability company.

Merger-up

A smaller firm's combination with a larger practice under agreed ownership and operating terms.

Migration reconciliation

Testing that transferred records agree with the defined source records and totals.

Multifactor authentication

A sign-in process requiring more than one category of authentication evidence.

Multiple of gross revenue (accounting practices)

Purchase value divided by the defined annual practice revenue base.

Net proceeds

The amount remaining after the deductions included in a stated proceeds calculation.

Non-compete and non-solicit

Contractual restrictions on specified competition or solicitation, subject to applicable enforceability limits.

Non-CPA ownership rules

State-specific conditions governing ownership of a regulated CPA firm.

Nondisclosure agreement

A contract restricting use and disclosure of specified information.

Nonrecurring expense

An expense identified as unusual rather than part of continuing operations.

Normalized earnings

Reported earnings adjusted for supported differences from an intended operating case.

Organic growth

Growth generated by operations rather than acquiring another business.

Owner dependence

The extent to which revenue and operations rely on the owner's personal involvement.

Owner replacement cost

The budget needed to perform duties previously carried by the departing owner.

Partner buy-in

A transaction admitting a professional to an ownership interest.

Partner buyout

A transaction purchasing a departing partner's ownership rights.

Partnership interest

An ownership position whose economic and governance rights depend on the governing agreement.

Payroll services

Processing payroll and related reporting under the agreed service scope.

PE-backed platform

An operating business supported by private-equity ownership or investment.

Peer review

An external evaluation of an accounting firm's professional practice under an applicable program.

Per-client revenue

Revenue divided by the defined number of clients or related-client groups.

Personal expense adjustment

A supported recast for owner-specific spending that the buyer will not continue.

Personal guarantee

An individual's contractual promise to answer for another party's obligation.

Post-close true-up

An adjustment completed after closing using the agreement's measurement process.

Professional liability

Exposure arising from the delivery of professional services.

PTIN

The preparer tax identification number relevant to an individual paid tax return preparer.

PTIN and EFIN transfer

A transaction issue requiring separate review of individual preparer identification and firm electronic-filing authorization.

Purchase agreement

The definitive contract stating the assets or interests, consideration, and transaction obligations.

Purchase-price adjustment

A change in consideration determined by the purchase agreement's calculation rules.

Quality of earnings (QoE) for an accounting firm

An analysis of the evidence, sustainability, and normalization of practice earnings.

Receivables aging

A report classifying unpaid balances by the time outstanding.

Recurring vs. one-time revenue

The distinction between continuing service revenue and completed or nonrepeating assignments.

Related-party rent

Rent paid between parties with a shared ownership or other related interest.

Relationship owner

The person principally responsible for maintaining a client relationship.

Representation

A statement of fact made by a party in a transaction agreement.

Reserved matters

Decisions requiring a stated approval level or specific party consent.

Retention bonus

Compensation conditioned on continued employment or another defined retention requirement.

Retention clawback

A contractual adjustment that reduces proceeds when defined client-retention conditions are missed.

Review engagement

A financial-statement engagement providing a different level of assurance from an audit.

Rollover equity

An ownership interest retained or received by a seller as part of a transaction.

Run-rate revenue

An annualized estimate based on a stated current period and assumptions.

SBA 7(a)

A federal loan-guarantee program with eligible uses that can include changes of ownership.

Seasonality

Recurring differences in workload, revenue, or cash flow during the year.

Section 197 intangible

An intangible asset whose tax treatment must be assessed under the relevant statute.

Security interest

A creditor's agreed interest in specified collateral, subject to applicable perfection requirements.

Seller financing

Purchase funding provided through a payment obligation owed to the seller.

Seller note

A written debt obligation from the buyer or acquisition entity to the seller.

Seller's discretionary earnings (SDE) for an accounting practice

An owner-operator earnings measure that requires a clearly stated recast and owner assumptions.

Service continuity

The ability to keep performing agreed client work through ownership or staffing changes.

Staff leverage

The relationship between owner or partner work and work performed by other staff.

Standby agreement

Terms restricting payments or enforcement of an obligation for a stated period.

Stock sale

A transaction transferring ownership interests in a corporation.

Subordination

An agreement placing a creditor's rights behind specified senior obligations.

Succession plan

A documented approach to transferring ownership, leadership, and client responsibilities.

Survival period

The period during which specified contractual rights or claims remain available.

Tag-along right

A contractual right to participate in another owner's sale on specified terms.

Tail coverage

Insurance addressing specified post-policy claims under its coverage terms.

Tax allocation

The assignment of consideration among assets or categories for the applicable tax analysis.

Tax basis

The amount used to calculate specified tax consequences for property or an interest.

Tax practice

A business centered on preparing returns and providing tax-related services.

Technical reviewer

The professional assigned to review work within the engagement's approval process.

The 90-Day Transition Ledger

An original responsibility record for the first three months of a practice handover.

The Confidential Sale Sequence

An original staged-disclosure process linking buyer readiness to information access.

The Four-Number Practice Screen

An original review of recurring revenue, replacement earnings, closing cash, and contingent proceeds.

The Retention Risk Map

An original method for assigning client-transition risks to evidence, controls, and agreement terms.

Trailing twelve months

The latest rolling twelve-month reporting period.

Transition agreement

Terms governing the seller's and buyer's responsibilities during the practice handover.

Utilization

The share of available professional capacity used for a stated category of work.

Variable interest rate

A rate that changes according to its contractual index and adjustment terms.

Voting rights

Rights to participate in specified ownership or governance decisions.

Warranty

An agreed assurance whose meaning and remedy depend on the contract.

WISP

A written information security plan for the organization's applicable data risks and responsibilities.

Work in progress

Unbilled services or production recorded under the firm's accounting method.

Working capital

Operating current assets less operating current liabilities under a stated definition.

Working-capital peg

The agreed target used in a closing working-capital adjustment.

Write-up work

Accounting work that organizes client records into financial statements or reports.

Write-ups / write-downs (WIP)

Adjustments between the recorded value of work and the amount ultimately billed or recovered.