There is no single correct fee multiple that tells a buyer what to pay for an accounting firm. A defensible price starts with the future cash the buyer reasonably expects the acquired practice to produce, after paying market costs for the work and funding the changes needed to retain clients and deliver services.

Use a fee multiple, if one is available, only as a market cross-check. Build the decision from verified maintainable earnings, cash conversion, fee and client quality, staff capacity, work in progress, debtors, technology, claims exposure, transition requirements and transaction terms. The outcome should be a price range with stated assumptions—not a precise number made credible by one ratio.

Separate price, value and affordability

Value is an estimate under defined assumptions. Price is the amount negotiated between a particular buyer and seller. Affordability asks whether the buyer can fund that price and still operate the firm safely. Those questions can produce different answers.

CPA Australia’s seller checklist says price and value are not the same and describes a gross-fee approach as simplistic where the buyer is concerned with profit and cash flow (CPA Australia). Avoid carrying any published or broker-quoted multiple into a transaction without checking its date, market, practice size, included assets and deal terms.

Government guidance likewise says there is no single valuation method and suggests considering a combination of market, return, asset, replacement-cost and future-profit approaches (business.gov.au). A buyer may use those lenses to challenge one another. They do not replace a specialist valuation where one is needed.

Rebuild maintainable earnings

Start with at least three years of profit-and-loss statements, general ledgers, tax returns, billing data, payroll and bank receipts. Reconcile reported fee income to client-level invoices and collections. Government acquisition guidance recommends independently checking three to five years of financial information, including receivables, payables, balance sheets, profit-and-loss records, cash flow and sales records (business.gov.au).

Then restate the result on the buyer’s operating basis:

  • remove demonstrably one-off fees and non-business expenses;
  • insert a market cost for every working owner role, including technical delivery, client management and administration;
  • reflect award-compliant or contractual staff costs, leave coverage and realistic recruitment expense;
  • replace seller-specific rent, software, insurance and outsourcing arrangements with costs available to the buyer;
  • allow for bad debts, write-offs and under-recovered work; and
  • separate genuine recurring work from projects, catch-up assignments and revenue already ending.

Do not automatically accept every seller add-back. Ask whether the expense disappears for this buyer without reducing revenue, service quality or capacity. Produce a reconciliation from reported profit to maintainable earnings, with evidence beside every adjustment.

Test the fees behind the earnings

Two practices with the same annual fees may deserve different price conclusions. Segment the client base by service, billing basis, tenure, industry, responsible partner, entity group and fee band. Examine churn, new-client wins, price changes, scope creep, discounts and collection history.

CPA Australia’s purchaser checklist specifically directs buyers to identify major clients, test fee maintainability, remove one-off assignments, review departures and assess billing arrangements (CPA Australia). Apply that analysis to client groups rather than invoice names alone: one family or controller may account for several entities and a larger concentration than the ledger first suggests.

Ask what must happen for fees to continue. A seller-dependent relationship, underpriced fixed-fee engagement, ageing client base, weak engagement documentation or service the buyer cannot lawfully or competently provide may reduce the amount of income that is maintainable. Conversely, a sound team, current engagements, documented workflows and diversified relationships can support continuity—but should still be verified.

Follow profit through to cash

Accounting profit does not pay acquisition debt on its own. Bridge invoiced fees to cash received and identify the timing of annual work, tax-payment seasons and billing cycles. Review aged debtors, credits, disputed invoices, write-offs and collection days by client cohort.

Treat work in progress and debtors separately from goodwill. Establish what is included in the asking price, what will be adjusted at settlement, how completion percentages were determined and who bears collection risk. A practice can report acceptable earnings while consuming cash through slow billing, excessive WIP or delayed collections.

Build a monthly post-completion cash model that includes purchase payments, working capital, tax, staff costs, principal remuneration, software migration, professional indemnity cover and a buffer for disrupted collections. Test whether the business can meet these obligations without assuming immediate growth.

Price the capacity and investment gap

The buyer is acquiring a workload as well as a revenue stream. Map recurring jobs and statutory deadlines against qualified staff capacity. Identify unpaid seller hours, expected retirements, contractors, offshore arrangements and single points of technical knowledge.

Next, cost the gap between the acquired practice and the buyer’s required operating standard. This may include:

  • recruitment, retention payments and temporary capacity;
  • practice-management, document, tax and cyber-security migration;
  • file remediation, quality reviews and incomplete lodgements;
  • increased insurance premiums or claim-related exclusions;
  • duplicated premises and software during integration; and
  • seller handover time, client meetings and communications.

Some costs are recurring and reduce maintainable earnings; others are one-off and reduce what the buyer can afford to pay now. Do not count the same item twice. Also distinguish buyer-specific synergies from value already present in the target: anticipated savings may support the buyer’s private economics, but they are not automatically owed to the seller.

Let risk and deal terms affect the conclusion

A headline price cannot be compared without its terms. Cash at completion, vendor finance, deferred consideration, retention adjustments, working-capital treatment, guarantees, security, restraints and seller-support obligations change both risk and economic cost.

Model at least three evidence-based cases:

  • Base case: verified fees, realistic retention, market staffing and supported normalisations.
  • Downside case: selected client losses, slower collections, a key hire, integration delay and higher remediation costs.
  • Upside case: only improvements for which the buyer has a funded, practical plan—not unspecified growth.

For each case, show earnings, cash available after reinvestment, funding commitments and the time needed to recover the buyer’s total outlay. Reverse-test the asking price: what client retention, margin and cash collection does it require? If the answer depends on several optimistic assumptions occurring together, the issue is the price or structure, not the spreadsheet.

A retention mechanism may allocate some uncertainty, but it must define the opening fee pool, measurement period, exclusions, buyer and seller conduct, information rights and disputes. It cannot rescue an unsupported valuation.

Assemble an evidence-backed price range

Before making a binding commitment, ask for an assessment pack containing:

  1. the reported-to-maintainable earnings reconciliation;
  2. client-level fee, retention and concentration analysis;
  3. monthly billing, WIP, debtor and cash-collection bridges;
  4. staff capacity and owner-role replacement costs;
  5. technology, insurance, compliance and integration budgets;
  6. comparable-market evidence with transaction differences identified;
  7. base, downside and upside cash scenarios; and
  8. a term sheet showing how timing and conditions alter economic value.

Engage appropriately qualified valuation, accounting, tax, legal and finance advisers where the transaction requires them. APESB’s current pronouncements list APES 225 Valuation Services and APES GN 20 on the scope and extent of valuation work; they distinguish professional valuation work from an informal buyer calculation (APESB). Confirm the valuer’s scope, valuation date, information relied on and limitations. A commercial buyer model is useful for deciding what you can pay, but it should not be presented as an independent formal valuation.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.