There are a lot of accountants who have the perception that all accounting and tax firms are valued at 1x gross revenue. I can certainly understand why anyone wanting to buy a firm would want to pay 1 x gross revenue, it’s a great deal!
Especially when considering the profit margins an accounting firm has to offer. If you think that is how all firms should be valued, then I want you to consider one thing; is this what you want to sell your practice for when it’s time for you to retire?
Also consider this; If a firm has $500k of gross revenue from 1000 clients, with an average fee of $500 and net profit of $250k, and another firm has $500k of gross revenue from 400 clients with an average fee of $1250 and $350k of net profit, should they really be valued the same, at 1x gross?
While 1x gross is not a typical valuation, it is used as a starting point.
Firms with lower-than-average fees, that may be located in a remote region, and who see a lot of clients in-person may be valued at less than 1x gross.
But if you are willing to provide Seller financing, or sell on an earnout, then it could increase that value for a Buyer. On the other hand, firms with high-net profits, higher-than-average fees, and located in a populated high-income region will be valued at more than 1x gross.
On average, most firms sell between 1x gross to 1.3x gross.
There are many factors we must consider in determining the market value of your firm.
These factors are based on what we have been experiencing in California over the past decade and always subject to change based on the economy, current accounting business trends, as well as many other factors. Some of the most important factors are; net profit/SDE, location, type of services provided, average fees, experienced staff, and how clients interact.
