Valuing Your Accounting Practice
The financial climate across the US has been thriving over the past ten years. Unemployment rates are near a record low and small business owners are optimistic about the future. Regardless of what is taking place on Wall Street, the number of small businesses continues to increase. One of the industries that have flourished is the accounting industry. This article addresses market multiples to apply when valuing your accounting business and how to increase the value of your accounting business prior to a potential transaction.
The accounting industry is slowly changing due to technology, government, and employees. As such, business owners are striving to adjust their businesses. As business owners look to adjust, some have considered selling as a viable option. With the current market, business owners of accounting firms are in a position to sell all or a portion of their business.
When valuing your accounting business there are common rules of thumb that a business valuation professional follows. For instance, below are current private market multiples for accounting businesses. A business valuation expert will determine an applicable market multiple for your accounting business. This is just one valuation approach the valuation expert will use. For more information, schedule a free consultation with Peak Business Valuation, business appraiser.
Market Multiples for Accounting Businesses
Below are average market multiples for accounting businesses. The spread between these multiples is wide. The reason is, a business valuation professional assesses appropriate multiples to apply to a business based on an infinite number of reasons. For instance, the average profit margin for an accounting firm is around 19.0%. How does the business for sale compare to the average? How diverse is the customer base and what is the loyalty rate if the owner of the business were to leave? There are countless questions that a business valuation professional considers and inquires about when determining the value of an accounting business.
- Revenue multiple: 0.71x – 1.09x
- EBITDA multiple: 2.99x – 4.45x
- Seller’s Discretionary Earnings multiple: 1.81x – 3.25x
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
Through this article, you can understand average market multiples for an accounting business. You will also learn some of the factors that go into calculating a business valuation for an accounting practice. Below we share some tips that can increase the value of your accounting firm. In order to recognize the full effect of these tips, it is best to consider them months or even a couple of years prior to selling. However, if you are in the market to find a buyer today, you can still implement these tips. For specific information about valuing your accounting practice, schedule a free consultation with Peak Business Valuation, business appraiser.
Key Value Drivers for Accounting Businesses
Below are key value drivers for an accounting business. Focusing on these can maximize the value of an accounting business. As a business appraiser, Peak Business Valuation is here to help you understand the value of your accounting practice. Whether you are looking to expand, buy, or sell an accounting practice obtaining a business valuation is important. This article will give tips on how to implement these value drivers.
Sales & Marketing
Contact each client and ask a series of questions that identifies why the client has worked with them and how they see the relationship progressing. One of the questions that should be of key focus is how the client found you. This will help you identify profitable lead sources. If most of your clients are finding you through search results, focus on pay-per-click campaigns to capture more users. If you are finding they are referred to you through word-of-mouth, understand the reason why and the specific words used. This will help target your marketing campaigns.
Taking the time to put in place a sales and marketing plan will increase your visibility and depict a vision for a potential buyer. Brian Swanson over at QuickBooks wrote a great article on practical tips for accounting firms in regard to marketing.
During my time at Deloitte, my thought of culture was work, work, work. I managed to work 70-90 hours a week for 6 months out of the year and about 30 hours a week the other 6 months. After four busy seasons, I was ready to move on. My father has operated an accounting firm for over 28 years. The company culture is much different than what is typically found in the Big 4. As a business owner of a smaller firm, the ability to impact culture is great. Creating an environment of communication where the employee understands they are highly valued, is priceless. When employees feel valued, they express those same values to the clients. This ultimately increases client retention.
Everyone needs an accountant of some sort, so this may not be as important. As mentioned under the sales and marketing section, a feedback survey can help identify areas of improvement and areas of strength.
Every business owner understands lack of cash flow can hurt a business. As such, cash flow is key to increasing not only the potential purchase price but the number of potential buyers. Some of the areas to consider from a billing standpoint consist of the billing cycle. Consider a retainer or potentially billing based on completed work. Start the billing cycle early.
Understanding the value of your accounting business is important, regardless of any near future transactions. By implementing some of the points discussed above, you can increase the value of your accounting practice. The Journal of Accountancy published a great article back in November of 2015, titled “Maximize proceeds in accounting firm sales”. It is a very comprehensive read.
At Peak Business Valuation, business appraiser, we value accounting firms on a regular basis. We are happy to address any questions that you may have about the value of an accounting practice. Feel free to reach out by scheduling a free consultation.
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