Selling a CPA Firm: One Times Fees Isn't Enough

Source: The Marc Rosenberg Blog

The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg. 

Partners in accounting firms are familiar with the rule of thumb that a CPA firm's goodwill is worth one times fees; however, like many other “rules of thumb,” this notion is often incorrect.

When buyers begin to think about how much they will pay for a smaller firm, they often have the “1xfees” concept in mind. Then, when sellers are bold enough to ask for a price in excess of one times fees, buyers often balk because they feel that the asking price is too rich. 

The reality is this: Acquiring a small firm for one times fees is a steal (for the buyer). In fact, it's still an outstanding investment at a premium price, say, 1.3 times fees. 

To demonstrate, I will have to painfully take you back to your college days when, maybe, you learned how to perform return-on-investment calculations.

Space doesn't permit me to share with you the calculation details, nor do I want to test the limits of anyone's attention span. So, you'll have to trust me on this:

• The ROI on purchasing a “vanilla” firm at one times fees is an astronomical 50 percent,
• The ROI on paying 130 percent of fees still will net the buyer a very satisfying 29 percent.

Memo to buyers: If you have the opportunity to acquire a good, smaller firm, be willing to pay more than one times fees because there are consultants like me who are routinely selling these firms for a nice premium.

Sellers, don't be shy. If you have a “good” firm, set your sights above one times fees because you can get it.

For the complete entry, read “A Startling Revelation: 1x Fees is a Steal.” 

From The Marc Rosenberg Blog, July 21, 2014, blog.rosenbergassoc.com.