After managing the day to day tasks of your CPA practice for years, you may be considering selling your firm. Whether you are retiring or looking to move onto another venture, selling your CPA practice can help ensure your clients are taken care of and that you receive a fair sale price for your time and effort to build the practice.
One of the most common questions asked by our clients at Accounting & Tax Brokerage is how to find the right valuation for your CPA or tax practice. Here, we break down some insights as to how you can place a value on your practice.
How to Value Your CPA or Tax Firm
There are two common methods used to place a value on a practice. Typically, you may want to start at 50% of the practice’s total revenue and continue to add to that percentage for any positive factors. Some CPA practice valuations start at 150% of a firm’s total revenue and deduct for any negative aspects.
Whichever method you end up using to value your practice, the average firm will sell for approximately 70-130% of revenues. Another method includes starting at net profit and multiplying by 2-2.5%.
Some practice buyers believe that all practices should be valued simply at 100% of the prior year’s revenue, however this does not apply in most circumstances. If that were correct, it would mean that a practice generating $300,000 would always sell for $300,000, regardless of if they prepared 500 returns at $600 each or 2,000 returns at $150 each. The same could be said if the overhead is 60% of fees, 80% or even 20%. Realistically, a practice buyer is looking for a stable practice that shows steady growth and has an average EBIDA of 50% or more.
What Factors Impact a Firm’s Value?
There are many factors sellers will need to consider when placing a valuation on their practice. Some of the more important factors in any valuation include location, overhead, average fee per return, and whether the seller is able or willing to provide financing. Other factors can also include any compliance issues, the age and demographics of the clients, and the growth of the practice.
Final Note
If you are looking to buy or sell a CPA or Tax practice, the team at Accounting & Tax Brokerage can help. Our practice brokers have over 50 years of experience and only provide services to the accounting & tax industry. As seasoned tax professionals ourselves, we understand the importance of relationships. Our firm offers assistance to both buyers and sellers, ensuring that buyers find the right CPA or tax practice that meets their needs, and that sellers find a successor who will care for their firm as much as they do.
To learn more, or to get a free consultation, contact Accounting & Tax Brokerage here or call us at (855) 428-2225.