Valuation for Buying an Accounting Firm
Accounting firms frequently undergo mergers and acquisitions. Smaller firms want to grow, while larger firms seek specialized services to stay competitive. No matter your reason for buying an accounting firm, knowing its worth is key. A business valuation for buying an accounting firm helps buyers understand the market and plan for success after the sale.
Peak Business Valuation is an accredited business appraiser. Our valuation experts work with accounting firms across the United States. We are happy to help you get the most out of your accounting firm acquisition! Start an accounting firm valuation today by scheduling a free consultation with Peak!
What is a Business Valuation for Buying an Accounting Firm?
A business valuation for buying an accounting firm uses several analyses to determine the firm’s market value. This involves reviewing financial documents, assets, liabilities, and more to report the accounting firm’s financial health. By obtaining an accounting firm valuation, buyers gain a clear understanding of the firm, allowing them to move forward with confidence. Check out Valuing an Accounting Firm to learn more.
In this article, we highlight the importance of a business valuation for buying an accounting firm. If you have any questions, schedule a free consultation with Peak Business Valuation today!
Accounting Firm Valuation Methods
At Peak Business Valuation, business appraisers use several methods to accurately value an accounting firm. Below, we discuss the most common approaches:
Market Approach:
This method compares the accounting firm to similar firms that recently sold. To compare them, valuation experts use market multiples based on the firm’s financials, such as revenue or seller’s discretionary earnings (SDE). To learn more about the market approach, read Valuation Multiples for an Accounting Firm.
Income Approach:
The income approach values an accounting firm based on its earnings potential. Business appraisers project future income and apply a discount rate to account for risk and reflect present value. For more information, see How to Value an Accounting Firm.
Asset Approach:
Business appraisers use the asset approach to estimate a firm’s value through its assets. For accounting firms, this usually means measuring the value of intangible assets.
At Peak Business Valuation, business appraisers identify the methods that best apply to an accounting firm. This guarantees a well-rounded and accurate report of the firm. To learn more, check out Common Business Valuation Approaches.
Negotiating a Fair Purchase Price for an Accounting Firm
Negotiating the purchase price is a critical part of buying an accounting firm. Without a clear understanding of the firm’s value, buyers risk overpaying. An accounting firm valuation offers an objective view of the firm’s fair market value and reveals key strengths and risks. With this information, buyers can enter negotiations with confidence. This leads to smoother conversations and a deal that satisfies both parties. Take a look at Negotiating a Purchase Price of a Business for more.
Building a Strong Accounting Firm Business Plan
A solid business plan is key when buying an accounting firm. Business plans direct new ownership and may prevent unnecessary pitfalls. A business valuation for buying an accounting firm offers insights to build a strong plan. It highlights the firm’s finances, strengths, weaknesses, and potential risks or opportunities. Buyers can use this to understand the business and plan for growth. See Using a Business Valuation for a Business Plan to dive deeper.
Understanding Opportunities for an Accounting Firm
A business valuation helps buyers both before and after a sale. In addition to calculating a firm’s market value, it also highlights key value drivers. Value drivers are factors that heavily impact an accounting firm’s valuation. Understanding these drivers helps new owners direct their efforts to increase their firm’s value. Common value drivers for accounting firms include:
- Service Range: Offering a wide range of services helps accounting firms maintain consistent revenue. This may also protect the firm from possible setbacks. Examples of service diversity include auditing, consulting, and tax preparation.
- Technology Applications: Adopting AI and other new technologies can set an accounting firm apart from the rest. This can aid in work efficiency and market reach.
- Digital Practice: Reducing in-person operations may increase the value of an accounting firm. Factors like lower overhead costs and improved client flexibility are key benefits of this.
- Client Diversity: Reaching a diverse clientele is a significant benefit to an accounting firm. Serving clients across different geographies, industries, and business sizes helps reduce client concentration.
By aiming for growth in these areas, owners can increase their accounting firm’s value. For more insights, read Value Drivers of an Accounting Practice.
As a professional business appraiser, Peak Business Valuation frequently works with individuals looking to purchase an accounting firm. We can provide you with an accounting firm valuation and answer any questions you have. Schedule a free consultation with Peak to get started!
Identifying Risks of Buying an Accounting Firm
Just as business owners should be aware of potential opportunities, they should also determine potential risks. Failing to recognize them can lead to negative financial consequences. Receiving an accounting firm valuation identifies blind spots and helps owners plan well. Below, we outline some common risks associated with accounting firms:
- Client Retention: Ownership transitions often lead to some discord within an accounting firm. Retaining employees and their clients may be a challenge.
- Size of Firm: Smaller accounting firms tend to rely more on a few key individuals. Acquiring these types of firms is more risky should these individuals decide to leave.
- Economic Conditions: An accounting firm’s success typically follows the highs and lows of the economy. During downturns, clients may cut back on services, reducing the firm’s revenue and profitability.
- Service Limitations: Providing just one or two services may present risks. If one of these areas falters, accounting firms may lose clients and revenue.
Identifying and preparing for risks with a business valuation helps owners succeed. See Risks when Buying a Business for more on this topic.
Securing Financing for Buying an Accounting Firm
Preparing to buy an accounting firm is exciting, but it can also be stressful. Securing financing is a challenge for many. The Small Business Administration (SBA) offers several loans designed for entrepreneurs. These loans are ideal due to their low interest rates, small down payments, and long repayment terms. Peak Business Valuation works with over 90 SBA lenders. We are happy to connect you with an experienced accounting firm SBA lender. Reach out to Peak today for more guidance! To continue reading on this topic, check out SBA Loans or SBA Financing.
When applying for an SBA loan for an accounting firm, SBA lenders may request an SBA business valuation. Peak Business Valuation is happy to provide an accounting firm valuation to help you secure an SBA loan.
Obtaining an Accounting Firm Valuation Report
At the end of an accounting firm valuation, you receive a valuation report. This report summarizes the accounting firm’s valuation and the analyses performed by valuation experts. It also shares information on the firm’s financial health, opportunities, and risks. Firm owners can use this document in every step of the buying process. You can read Business Valuation Report Made Simple to learn more.
Conclusion
A business valuation for buying an accounting firm helps buyers with various aspects of the purchase. It provides the firm’s fair market value, which is vital for productive negotiations. Accounting firm valuations also offer insight into the firm’s strengths, weaknesses, opportunities, and risks. This information promotes a positive buying experience and helps owners maximize their firm’s value after the sale.
As a professional business appraiser, Peak Business Valuation regularly works with potential buyers. We can help simplify the purchase process with a professional accounting firm valuation. Get started today by scheduling a free consultation with Peak!
