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Valuation of an accounting firm will focus on five major variables and fifteen key contributors to those major variables. The five major variables focus on making your firm attractive with regard to the framework of the deal itself. To use a real estate expression, your practice must have "curb appeal" to get the attention of potential successors or acquirers and receive the highest possible value. The five major variables in determining the value of a practice are:
- The amount of the down payment
- Length of the payout period
- Profitability of the deal for the successor firm
- Duration of the retention period relating to clients being transitioned and other adjustment periods
- Price/Revenue multiple
The twelve key contributors to the five major variables help establish a potential value baseline and focus on the following:
- Percent of service mix (Service mix is the percent by allocation of the work you and/or your staff perform for your total client base.)
- Percent of business clients
- Percent of individual clients
- Client demographics
- Staff
- Location of practice
- Cross-selling opportunities
- Time & Timing
- Average number of times a client is serviced per year
- Lease obligations
- Cash flow
- Billing rates
- Realization rates
- Profitability
- Size of practice (gross billings)
More information on valuing an accounting firm:
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ASK THE ADVISORS
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The Advisors Panel is comprised of members of Transition Advisors, an independent consulting organization performing merger, acquisition, transition and succession services exclusively within the tax and accounting profession.
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