Warren Buffett said that accounting is the language of business. However, what about accounting as a business. As per research, there are over 50,000 CPA firms in America.
- Of these 90% of them have less than 10 employees and 40% of them are single-person shops.
- Over 50% of these firms are owned by baby boomers who have built their practices over many years and retired. The problem is – why will someone buy his or her practice?
- Recurring revenue – one-time or ad hoc revenue is almost worth nothing in this business. If you have clients who depend on your year after year for their accounting and taxes that is worth its weight in gold to a potential buyer.
- Location – practices in urban areas are worth far greater than practices in small towns or rural areas. Urban practices have access to client fertile surroundings.
- Technology – practices that embrace technology to scale and improve efficiencies are easy to integrate into larger practices and are favored by buyers. Tech is after all the wave of the future.
- CPA practices can sell for 0.9-1.4x multiple on revenue.
- 1.1-1.3x is the mid-range.
- 0.9x is for practices in rural areas with older clientele.
- 1.4x is for practices that have strong technology integration, in urban areas with younger clients, because these clients will (well, hopefully) stick with the practice longer.