Accounting practice valuation
A key component in preparing an accounting practice valuation is determining a market salary for the owner practitioner(s). This is particularly relevant when valuing a smaller accounting practice, where adjusting for a market salary may eliminate any profits available to an investor. Owner compensation is a key issue in court cases, see Corbon & Klousner (2015) and Scott & Scott (2006), an accounting practice and medical practice respectively.
An accounting practice often includes little or no productive tangible asset base. Consequently, a large proportion of the practice value sits within intangible assets. These intangible assets include the assembled staff and the repeat business client base.
A key issue can be determining the extent that the client relationships reside with the practitioner. Does the goodwill reside with the accounting practice or with the practitioner?
A common rule of thumb for accounting practice valuations is a cents in the dollar of revenue multiple; this typically ranges at between 80 to 120 cents in the dollar. Rules of thumb, however, are exactly that, they are not a recognised valuation method but a sanity check.
Accounting practice valuations can vary significantly based on location, margins, the type of client base and the stability and availability of staff.
Another valuation factor to consider is who the hypothetical purchaser maybe, this could be a listed company. There are listed entities that “roll up” practices with the aim of reducing back-office costs. Listed companies typically have a lower cost of capital and offer cost savings, so the value to a listed acquirer could be more worth more than to an individual practitioner.
Accounting practice valuation engagements
Accounting practice valuation engagements have included the following:
- Preparation of a valuation expert report relating to a mid-sized accounting practice to assist in a partner dispute and refinancing
- The valuation of a boutique corporate advisory practice for restructuring purposes
- Valuation and pricing advice in relation to the potential acquisition of a regional accounting practice