Ever since we commenced selling accounting practices in 2001 the normal range of price for accounting fee parcels hasn't varied much from where it sits today which is 70 cent to $1.10 of expected recurring turnover.
For various reasons, however, price may move outside that range – especially in a region of high demand, or if the practice is highly profitable, if the practitioner is deceased, if the client demographics are outside the norm and for many, many other possible reasons.
With that said some of the key determinants in valuing accounting fee parcels are:
- Location - City locations attract a higher value.
- Composition - SME and SMSF attract a higher value than individual returns.
- Trend - Growing Fee bases attract a higher value than static or diminishing bases.
- Future Growth Potential - Fees bases that have good fee growth prospects attract a higher value.
- Profitability - Clearly buyers will pay more for a more profitable practice.
- Fee Level - Whether an appropriate fee is being charged for the service i.e. if the fee being charged is too low than this will affect the price paid.
- Transition - The vendor’s commitment to transitioning the clients is essential if they are to receive a good price and terms.
- Lock-up - You need to consider what the days of lock-up is for the base i.e. (debtor + WIP)/annual billings x 365. If this is materially more than the norm this will impact the price negatively.
- Restraints - Appropriate restraints on the outgoing vendor and key staff (particularly where they are the main point of contact with clients) need to be agreed to in order to receive a market price.
- Earnings Potential - The buyer gets to enjoy the full income earning potential of the fee base – for example accounting fee may be sold where the buyer is required to agree not to provide financial planning services to that base – in which case the value may be lower.
- Age profile of clients – Anecdotally, we find that the normal range of clients falls 10 years either side of the principal's age. Buyers like to see that the portfolio has some life left in it and that clients are generally relatively young and vibrant business owners versus a collection of business owners who themselves are about to retire.
Given that each fee base will differ with regard to the abovementioned determinants then it's fair to say that there is no one valuation for accounting practices.
Furthermore, different buyers will have different priorities, and will thus weigh these factors differently when coming to their own opinion on price. Any answer to the question "What is my practice worth?" needs to be prefaced with another question - "To whom?"
Ultimately, the best approach to determining a fair value is a competitive tender, with the widest possible audience of interested and funded buyers.
If you a looking to sell we’re more than happy to chat with you about your practice and what you could expect in the event of a sale or your full or partial interest.
