Most owners have a rough number in mind long before they decide to sell. The question is whether that number matches what a buyer will actually pay, and on what terms. This guide explains how tax and accounting practices are priced, what moves the price up or down, and what you can do in the year or two before a sale to raise it.
The quick answer
That range is wide on purpose. Two practices with identical revenue can sell for very different prices if one has loyal, year-round business clients and the other depends on a single busy season of individual returns. The rest of this guide is about what puts a practice at the top or the bottom of the range.
Why practices are priced on revenue
Most businesses are valued on profit. Small tax practices are usually priced on gross revenue instead, for a practical reason: owner pay, staffing and overhead vary so much from firm to firm that profit says more about how the current owner runs the business than about what the client base is worth to someone else.
A buyer is really purchasing a list of client relationships and the fees those clients pay. Revenue measures that directly. Once they own the practice, buyers fold the clients into their own staffing and systems, so their profit on those clients will look different from yours anyway.
Larger firms, roughly those above $1 million to $2 million in revenue, are more often checked against earnings as well. We cover that below.
What your revenue mix tells buyers
Not all revenue is equal. Buyers look closely at where your fees come from, because it tells them how much of the revenue will still be there in two years.
| Type of work | How buyers usually see it |
|---|---|
| Individual returns (1040s) | The core of most practices. Stable when clients are loyal, but concentrated in a few months a year. |
| Business returns (1120-S, 1065, 1120) | Valued highly. Business clients tend to stay longer and pay higher fees. |
| Bookkeeping and write-up | Recurring monthly revenue that smooths out the season. Usually raises the multiple. |
| Payroll and sales tax filings | Recurring and deadline-driven, which keeps clients tied to the firm all year. |
| Advisory and tax planning | Valuable if it's billed on a retainer; less so if it depends on the seller personally. |
| One-time or resolution work | Often discounted, because it doesn't repeat each year. |
The share of revenue that comes from monthly or quarterly work is one of the clearest signals of value. A practice with 30% to 40% recurring revenue is a very different asset from one that earns almost everything between January and April.
The factors that move the multiple
- Client retention. What share of last year's clients came back this year? Above 90% is strong; below 80% is a warning sign for buyers.
- Recurring revenue. The more revenue that arrives month after month, the higher the multiple.
- Fee levels. Fees at or above the local market show the clients value the work. Underpriced work leaves a buyer two bad options: accept thin margins, or raise fees and risk losing clients.
- Client concentration. If your ten largest clients bring in more than about a quarter of revenue, losing one or two after the sale would hurt. Buyers price that in.
- Client demographics. A client base that is aging along with the owner carries more risk than a mix of ages and life stages.
- Your transition commitment. A seller who introduces the buyer personally and stays through one tax season protects retention. That is usually worth real money.
- Staff and systems. Trained staff who will stay, modern software, and documented workflows make a practice easier to take over.
- Location. Practices in growing metro and suburban areas attract more buyers than practices in places with few nearby firms, although a rural practice with no local competition can be very attractive to the right buyer.
- Who can buy it. Licensed CPA firms are subject to state ownership rules, which can narrow the pool of buyers. Fewer eligible buyers can mean less competition on price.
A worked example
Consider a suburban practice with these characteristics:
| Factor | This practice |
|---|---|
| Trailing-12-month revenue | $420,000 |
| Client retention | 92% |
| Recurring monthly work | About 30% of revenue (bookkeeping and payroll) |
| Client concentration | No client above 3% of revenue |
| Fees | In line with the local market |
| Seller transition | Will stay through one full tax season |
Starting from a 1.0× baseline, strong retention adds roughly 0.1, the healthy share of recurring work adds a little more, and the seller's commitment to a full season adds a little more again. That puts this practice at about 1.2×, with a realistic range of roughly $460,000 to $540,000.
You can run your own numbers in our valuation estimator. It uses the same approach and takes about a minute.
Why terms matter as much as price
The headline price is only half of an offer. How and when the money is paid matters just as much. Compare two offers for the practice above:
| Offer A | Offer B | |
|---|---|---|
| Headline price | $500,000 | $450,000 |
| Paid at closing | $150,000 | $450,000 (bank-financed) |
| Paid later | $350,000 over two years, adjusted for client retention | Nothing |
| If 90% of clients stay | $465,000 in total | $450,000 |
| Our 10% fee | $46,500 | $45,000 |
| You keep | $418,500, mostly over two years | $405,000, all at closing |
Offer A pays more if retention holds, but most of the money arrives later and depends on how the transition goes. Offer B pays less but is certain and immediate. Neither is automatically better. It depends on your plans, your appetite for risk and how confident you are in your clients. Comparing offers on what you actually take home, and when, is a big part of a broker's job.
The earnings check on larger practices
For larger firms, and for any deal funded by a bank, buyers and lenders also check whether the price can be paid for out of the practice's earnings. They look at the cash flow left after a market-rate salary for whoever will do the owner's work, and compare it with the loan payments the purchase would create.
If the revenue multiple suggests a price the earnings can't support, the price usually comes down or the terms change. This is one reason buyers with SBA financing pay close attention to cash flow. Our guide to SBA loans for practice purchases explains how lenders look at it.
How to raise your value before you sell
Most of these take a season or two to show up in your numbers, which is why the best time to start is well before you list.
- Bring fees to market. Raise prices gradually over a couple of seasons rather than all at once right before a sale.
- Grow recurring work. Offer bookkeeping, payroll or quarterly planning to clients who already trust you.
- Reduce dependence on a few clients. If a handful of clients dominate revenue, adding mid-sized clients lowers the risk a buyer sees.
- Clean up your records. Clear revenue by service and by client, signed engagement letters, and organized client files make due diligence faster.
- Modernize systems. Current tax software, a client portal and documented procedures make the handoff easier to picture.
- Plan your transition. Decide how long you want to stay involved. Buyers pay more when the seller will introduce them to clients in person.
If you're thinking about selling in the next few years, a free, confidential valuation will show you where you stand today and which of these steps would make the biggest difference.