How much is a Canadian accounting firm currently selling for?
Bridget Noonan of Clearline Consulting on the factors that determine the valuation of small accounting practices
VANCOUVER, June 12, 2018 – With a significant portion of the Canadian accounting profession getting ready to retire, is there still a market to sell your practice? Or is the value of a small accounting firm on the decline, much like that of a medical practitioner’s client base?
We hear a lot in the news about the mid-tier and large firm acquisitions and mergers. What about the sale and merger of small firms? Within the last six months, we at Clearline Consulting have assisted in the closing of six deals in B.C. Compensation ranged from $0.375 to $1.00 per dollar of billings.
This is a very significant range and if you go in with a preconception that all firms are worth $1.00 paid over three years based on retention you are likely to be disappointed. Here are a few factors that contributed to the significant range in purchase prices:
• Size of client block
• Type of engagements (assurance, compilation, bookkeeping)
• File quality, documentation and programs used
• Additional overhead assumed or to transition clients to current structure
• Ongoing compensation for retiring practitioner
• Timing of transition and ultimate exit of retiring practitioner
• Risk of retention and inclusion/exclusion of upside potential
Note that I have not categorized these factors by the impact on purchase price, as each may increase or decrease the desirability depending on the acquirer. So if you are looking for $1.00+ for your practice, you will need to find the acquirer who likes the full package.
In most circumstances it is the office location, the type of clients or your staff that are the most valuable asset you are transitioning. The purchase price may be attached to these rather than the retention of your full client listing.
For those of you with limited experience in public practice, or you’re just starting out, there is always the question of buy versus build. Personally, I would recommend buying 100 per cent of the time, especially in a market with downward pressure on valuations. However, if you have a significant network and a targeted client base in mind, building may work for you.
In our experience, just hanging up a shingle — these days, I suppose that translates into building your website and online presence — and waiting for clients to engage with you is not a successful strategy. But be prepared: If you have limited experience in public practice, you will have a difficult time acquiring clients.
I recommend you identify a retiring practitioner who is committed to a three to five year transition period. Then build your business with an experienced hand to guide you.
Bridget Noonan, CPA, CA, is a partner at Clearline Consulting, which provides practitioners and their staff with the tools, training and advice they need to succeed and build thriving accounting firms. If you are buying or selling a block of clients or a small firm please provide your contact information here. To receive our public practice newsletter visit our website or sign up here.