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Source: Accounting Today
Marc Rosenberg, accounting firm consultant in Wilmette, Illinois, reports that while accounting firms are often acquired for a multiple of 1.25 times annual fees, partner retirement benefits may be based on lower multiples, often less than one year’s annual fees. According to the 2004 Rosenberg MAP Survey, the average for the latter was about 80 percent of annual fees.
Why the disparity? Here are some reasons:
- Generally there are several interested buyers for a small practice, but only one buyer
for a partnership interest.
- Outside buyers pay for collected revenues, whereas firms pay a fixed amount for the retiring partners’ interests. Since not all clients continue with the firm, this narrows
the gap.
- Partners who are buying out an interest feel they contributed to building the retiring partner’s book of business. This tends to depress the price.
- A retirement of a partner puts added burden on remaining partners. This added burden can lower the price.
From Accounting Today, September 5, 2005. For the complete article, click on the following link: http://www.webcpa.com/article.cfm?articleid=14505&;pg=acctoday
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