6 KEY FACTORS THAT IMPACT CPA PRACTICE VALUATION

KEY FACTORS THAT IMPACT CPA PRACTICE VALUATION

1. Accounting Firm’s Location?–?An accounting firm’s location will?have a very big impact on the number of potential buyers for a practice. In general, there are more buyers in large metropolitan areas and fewer buyers in remote, rural areas. When you sell a CPA practice, you are also “selling” the location. Areas that are desirable (such as coastal areas) can also help to attract more buyers. When you have multiple buyers competing to purchase your practice, you can get a higher price.. There is a greater likelihood of finding a purchaser who is a good fit and is willing to pay market value. The number of potential buyers for a practice is ultimately what determines the market value. If you have zero buyers then there is no value. If you have 100 buyers, then the value will be set by the buyer who values the practice the most.

2. Size of CPA Practice?–?In general, there are more buyers for practices that can be purchased and operated by a single owner. Practices under $ 1,500,000 generally fit into this category. Compared to larger practices, these firms are easier to manage and it is easier for CPAs to qualify for acquisition financing for these amounts. Buyers of practices where revenue is greater than $1,500,000 per year are often very focused on acquiring talented staff as part of the deal

3. Professional Marketing for CPA Sellers?–?Professionally marketed firms tend to sell for higher multiples with cleaner terms. Owners who sell on their own not only limit their exposure to the full market, but they also end up limiting discussions with a few purchasers at a time. Having an experienced intermediary who can guide sellers on selecting which buyers to spend time with and?facilitate discussions efficiently?helps sellers maximize their time with prospects…and engage with more prospects. This maximizes the number of qualified prospects in the mix, as well as allows owners to maintain proper focus on the business while it is being marketed.

4. Potential Practice Profitability?–?The more profitable the practice, the higher the price. More buyers are certainly interested in highly profitable practices where average client fees are high. Higher fees equate to more money for less work. That being the case, profitability doesn’t have the impact that many would think. This is primarily because there are many capable, experienced buyers who are confident in their abilities to increase profitability once they take over. The profitability of a firm is usually quite malleable.

5. CPA Firm Purchase Terms?–?There is an old saying…”You name the price and I’ll name the terms.” CPA practices do sell for fixed prices. In fact, many of our CPA practices sell for 100 percent cash at closing. Many private transactions involve lengthy earn-out periods. We believe that sellers tend to take too much risk, and this is most often reflected in the terms.

6. Firm’s Office Curb Appeal?–

Having an office in a desirable community, efficient easy to use systems, and a clean organized office all create an impression on prospective buyers.

There can always be situations where other factors will impact value. Employee competitive threats, partner non-compete issues, non recurring revenues, declining clients and large clients are some of the more common issues that Thrive Financial Group has?encountered.