Historically, accountancy practices were valued on the basis of a multiplier of their turnover when they were selling to other practices. Consolidators - often funded by private equity - have changed that and higher multipliers of EBITDA or profit are possible for the right type of practice. 

Whether or not you use a broker or adviser, a sale to another practice is likely to be intially based on turnover with a multiplier somewhere between 0.8 and 1.5. However many buyers will now convert a potential acquisition's turnover to EBITDA to get a more realistic view of cash generation and that could end up looking more like 0.6-0.8.

Consolidators value accountancy practices along the same lines as they would any other business which is generally a multiplier of EBITDA or profit. The multiplier can be anywhere between 4 to 12 times the profit.

The multiplier is affected by a multitude of factors such as:

  • whether your practice is a modern cloud-based practice - if it isn't then a buyer would have to factor in the cost of making it one
  • whether your clients pay by direct debit monthly or whether you bill in arrears
  • how profitable the practice is
  • your client profile - the average age of your clients and whether their businesses are growing or winding down
  • the type of services you offer - advisory services in particular
  • whether you have up to date engagement letters for all your clients covering all the services that you offer
  • how comprehensive your AML procedures are
  • whether you have up to date employment contracts in place with non-competition and confidentiality clauses
  • whether your working papers could be followed by anyone
  • whether your processes are streamlined
  • whether you have signed long leases at office premises
  • how dependent your practice is on you or whether it can run without you - if the buyer has to replace you then the practice may not be profitable for the buyer
  • How strong your branding is and whether it is built on the practice or the owner - if the latter then the risk of clients leaving post-sale is higher
  • whether you would be willing to stay on in the practice post-sale to help with the transition
  • the size of the initial payment you want on completion
  • the claw back provisions that you negotiate.

And that's just some of the factors!