When selling your accounting practice, there is no “going rate” or average selling price. You can speak to one prospective buyer that will tell you that accounting practices sell for 1 x’s revenues. These are typically buyers that have not purchased a practice in the past or have been reading stale literature. Most practices in today’s market will sell for at least 1.0 x’s revenues and depending on the location, upwards of 1.50 x’s revenues. There are a variety of different things that you can do to increase the value of your practice in the eyes of the buyer.
1. Stable Income Numbers – Buyers like consistency. Having a consistent 3 year revenue patter without significant influxes shows the buyer stability in the practice and client base. Obviously with the shape of the economy over the last few years, a 5-10% decrease would not be too alarming. On the contrary, if revenues have spiked greatly over the years, you as a seller should be ready to explain this pattern. Increasing to stable revenue patterns will show the buyer that your practice is on solid financial ground.
2. Accurate Financial Records – This goes without saying in the accounting industry, but up to date and accurate internal financial statements will increase the value of your accounting practice. Current financial information is imperative from a business management perspective, but will also help support the claim that your firm is consistently profitable. Buyers will ultimately have to perform due diligence before purchasing and having accurate and up to date financial records will help speed this along as well as increase the value of the practice in the eyes of the buyer.
3. Well Established and Reputable Business – Buyers that are looking to buy your CPA or accounting practice are looking long-term. They are not buying your client base with the expectations that clients will turnover or leave after a tax season or two. They want your client base to adapt and become clients over the long haul. Practices that have a good reputation in the area and have been well established in the area will yield a higher market demand. The buyers will value the fact that most of the clients have been with this CPA or accountant for longer than 5+ years. This will show the buyer that the clients appreciate the seller and respect his or her opinion as they step away from the firm. This should help with transitioning the clients over to the new buyer as well as starting to maintain a more personal relationship.
4. Clean and Organized Office Environment – Buyers are proud of the fact that they are going to be buying a business. What better way to show off their pride than to maintain a clean, professional and organized office environment. This will not only make for a more efficiently run practice, but will also show the clients that they are truly professionals in what they do and how they do it. A clean desk during interview appointments will set the tone to the client that they really care about my situation and are devoting all of their time. Clients appreciate this and if the buyer can see and envision this, it will help to increase the overall value of your accounting practice when trying to sell.
5. Above "Average" Fees – The higher the average fees per client, the more value the buyer will find in the practice. Below “average” individual tax returns fees is not always a negative. If you are charging $100 per return, but this return only takes 15 minutes to complete, then your average billing rate would be $400, not bad. However, the problem is that some buyers will not dig deep enough to understand this point and dismiss the practice right off the bad because their firms minimum 1040 are $200. They may be doing more complicated and difficult returns for $250 and it may take them 30 minutes to complete. The key is to explain to the buyer why your fee structure is what it is and how they too can make this a profitable business.