How To Value An Accountancy Practice?
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Despite the turbulent economic conditions of the recent years, the trade in the buying and selling accountancy practices is still relatively brisk. A profitable practice with a comprehensive and loyal customer base will always be attractive to a potential buyer, but the main problem for the seller of the business is how to price their practice correctly and where to find a buyer. In the accountancy industry, most accountants who are thinking about buying or selling a practice do so through a specialist accountancy broker like our company. Brokers are market specialists and are the best people to advise on setting the correct price. However, before buyer and seller sign on the dotted line there are several variables which should be considered.
Reasons for Sale: Why are you selling your accountancy practice?
As with any sales transaction, the reasons for deciding to make the move should be considered as this may affect the ultimate selling price. A practice owner who is not in a rush to move on, retire or take another job may be happy to set the price for their business slightly above market rate in the hope of eventually attracting a buyer and achieving a high price. On the other hand, a seller who has an urgent need to liquidate his assets or has a fixed time period to sell the business is better advised to set the price low, in the hope of attracting many more potential buyers and achieving a much quicker sale.
Turnover: Accountancy practice gross recurring fees.
One of the most simple methods of valuing a business is to take a look at its turnover and balance sheet. Outside the accountancy industry, business brokers will look at the normalized profits of a company and then using an average over several years trading to come to a valuation of the business. Considered in isolation however, turnover is a very raw measurement of how well a company is doing and does not take into consideration other factors such as any assets the company holds, liabilities and any long term debts or loans. As a starting point for a business valuation, multiples of annual gross figures will give a rough approximation of the business value. This appears to be the case in the accountancy industry where between 0.8 and 1.7 multiples of gross recurring fees can be achieved. This depends on other detailed factors about the accountancy practice for sale. Speak to an accountancy broker such as us and we can give you a better indication of where your practice lies. We aim to generate multiple interested buyers to get the true, achievable market price for our clients. In this "holy grail" situation larger multiples are achieved. This is the real benefit of using a specialist broker like us.
The major asset which any company owns is property. Although in the accountancy industry most firms operate from rented or leased premises, a business which owns its own offices or holds assets in other property elsewhere will require to be valued differently. The valuation of property is a relatively straightforward business and a surveyor or commercial estate agent can put a value on offices based on size and what other similar properties are selling for. Other assets such as office furniture, IT equipment and any company vehicles are also straightforward to value.
Not even the best accountancy industry expert has a crystal ball, and any estimate of the future turnover and profitability of the business can only be best guesses. When trying to work out the future revenue, the valuer will look at issues such as projected wage costs, whether rents are likely to increase, whether the owner has been paying himself a fair dividend from the profits of the company, the stability of key customers and many other factors. Determining what revenue a company may earn in years to come is a very specialized field and it is wise for all business owners to get expert assistance with this.
Accountancy Practice Goodwill Valuation
The issue of goodwill is what causes most problems when it comes to the valuation of any accountancy practice. Goodwill cannot be easily measured in terms of absolute numbers and this is what causes issues with valuations. Goodwill refers to both the reputation of the business and the depth of its customer base. Some of these items can be measured, such as looking at the number of customers who return to the practice each year to get help with filing their tax returns, or the businesses who use the firm each year to prepare their end of year accounts. An accountancy practice which has a good standing in the local community, is thought of as being reliable, honest and easy to work with, and which has a high number of customers returning year after year for their accounting requirements will score far higher on the goodwill scale than a business to which all of the opposites apply. Judgement is a large proportion of valuing goodwill, and this is where using a professional and experienced broker like us comes into play. We have extensive experience in looking at different practices will find it far easier to put an accurate figure on the goodwill of a business than even the most experienced accountant whose experience is limited to his own company only.
Once the decision has been taken to sell the practice and the owners/vendors have considered how quickly they want to sell their business, the decision must be made as to whether the business will be sold privately, or through an agency or brokerage business. There are many advantages to selling a business with the assistance of our company which include: