A Firm is Worth What a Buyer Will Pay for It
It is that simple. Complexity creeps in when there are unrealistic expectations by the buyer/acquirer or the seller/upward merger firm. Pricing a CPA firm is a combination of art, financial results, opportunity factors inside the client base being acquired, and location. Real estate can work for or against you. If a firm is seeking to open a location in your area that can be a benefit. If a firm is already in your city, real estate can become a deal killer.
1x is the Common Starting Point
The 1x is a reasonable starting point. Some firms believe that starting point is .7x. Others believe it is 1.4x. You need to be reasonable and look at each deal with different eyes. A firm that should go for .7x may have a lot of wealth management potential or have staff and a location the buyer wants. A firm that wants 1.4 might have a very high performing firm.
Variables That Destroy Pricing or the Potential to Sell
- Large rate gaps
- Low fee, high volume 1040s
- Demanding cash up front
- Expectations of working beyond a firm’s age policies
- Excessive compensation demands
- Holding on too long
- High billable partner hours because it sends a buyer/acquirer a message
- Lack of a strong bench
The Supply and Demand Wildcard
If the supply of firms for sale exceeds the demand, prices, and terms work in the favor of the buyer. In addition, if a practice needs updating, the selling price may drop or become unsaleable.
What Do We Look For?
Revenue per head, rate gaps, and the number of 1040s are our first assessment points. A wide gap in rates is generally only acceptable only if there is a different service involved. A tax department with a $500 average 1040 cannot easily go into a $1,500 average. However, an accounting business with a blended rate of $100 can go into a firm providing tax and audit services at a $175 blended rate because the cost of the labor is so different.
Let Us Conduct Our No-cost Assessment
It takes 15 minutes. Give us a call at (800) 995-9186 to schedule your assessment.