Accounting practice valuations

At Lotus Amity we prepare accounting practice valuations. We prepare accounting valuations in disputes and transactions and for tax purposes.

Often a key component in preparing an accounting practice valuations 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.

Experience

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

Why choose Lotus Amity for accounting practice valuations?

Granular and comprehensive approach. We provide a granular and comprehensive approach to valuation. This includes modelling cash flows and discount rates and providing fully referenced appendices.

Detailed analysis. Each valuation has a story. We carefully research, analyse and explain each valuation story and how the numbers (the cash flows and discount rate) relate to that story.

Compliance. Our reports comply with the Australian accounting, ethical and valuation standards, the International Valuation Standards and the relevant expert witness requirements.

Quality Control. Each valuation report and model is reviewed for accuracy, completeness and transparency by an external firm of Chartered Accountants and business valuation specialists