I have recently been asked to value an accountancy practice where the owner was going through a divorce. It is not as simple as applying a multiple to the turnover or the EBITDA. There are many factors that have to be taken into account when valuing a practice.
At Draper Hinks we only sell accountancy practices, this is what we specialise in. We sell no other types of business.
When selling an accountancy practice, if we have more than one offer, it is a fact that each offer will be different. This is because the value of the practice is based on the what the buyer thinks it is worth. This principle applies to all sizes of practices from the sole practitioner working from home with a handful of clients to the large multi-million pound practice that has a global reach.
Factors to be taken into consideration when valuing an accountancy practice:-
- Are you basing the value on the turnover of the practice or the GRF (Gross Recurring Fees)?
- Some buyers will only buy GRF.
- If there is a lot of one-off work then this may not be taken into consideration by the buyer.
- Doing Accounts, Personal and Corporate Tax, VAT, Payroll, Book-keeping etc will all be considered GRF.
- Any clients you know that will be leaving the practice in the next 12 months have to be taken off the GRF and treated separately.
- It is normal to have a separate list of these clients, that the vendor can give to the buyer.
- Obviously, the vendor cannot know all clients that will be leaving the practice, but most clients will speak to their accountant if they are considering retiring or moving away in the near future.
- It is not uncommon to have a client say to the vendor they will find a new accountant should he/she retire. This client cannot in all fairness be left on the GRF listing.
- Is the buyer going to make a single payment, two payments, three payments or work on an earn out basis.
- Where a one-off payment is made with no clawback, the multiple will be lower and this will have a bearing on the value of the practice.
Profitability of the practice.
- If the practice is losing money it will be worth less than a practice making a healthy profit.
Other factors to take into consideration:-
- Staff costings
- Does the practice have any specialisms
- Rent paid by practice
- Any PI claims
- Results from any QAD visits
- Time scale
- Geographical position of the practice.
Now having taken all these factors into consideration you then have to add in the experience of the broker dealing with the case. This is less easy to quantify but cannot be ignored. If you want to discuss the possibility having a valuation done on your practice, then please get in touch for an initial chat. Remember everything we discuss is confidential. You can contact me, Nicola Draper, on 01788 816440 or email me at firstname.lastname@example.org.