We had an interesting conversation with a CPA firm owner recently and it got us thinking about what really makes an accounting practice attractive to buyers.
The owners have built an exceptionally profitable business. It's a relatively lean operation, with one office, a small team, clean financials and very little complexity.
They're also younger than the typical CPA firm owners we speak with about succession.
And the interesting part..
They're ready to cash out the value they've built but they're not particularly interested in retiring. They'd be happy to sell, receive a significant portion of their proceeds upfront and continue working in the practice for several years on an agreed salary.
They enjoy what they do. They simply recognize that they've built something valuable and would like to realize some of that value while they still have plenty of working years ahead.
Their valuation expectation? Around 5x EBITDA.
And from what we've discussed so far, that expectation isn't unreasonable because of the business they've built behind that number.
It's Not Just About How Much EBITDA You Make
We speak with CPA firm owners across North America who have very different expectations about valuation.
Some generate $500,000 in EBITDA and are looking for a 4× multiple. Others have considerably larger earnings and expect a higher valuation.
The question is what a buyer is actually acquiring.
Let's say a practice reports $500,000 in annual EBITDA and the owner wants $2 million for the business.
That might be perfectly reasonable.
But what if the owner handles most of the client relationships, manages the staff, reviews every file and works 60 hours a week? What happens when that person leaves?
If a buyer needs to hire an experienced CPA to replace the owner's work, that cost has to be reflected in the firm's maintainable earnings.
And suddenly, the $500,000 EBITDA figure might not tell the full story.
This is why buyers spend so much time looking at normalized EBITDA, the earnings a practice can reasonably sustain after adjusting for non-recurring items and the ongoing costs required to operate it.
For a practical starting point, CPABC's guidance on practice valuation explains how normalized earnings and valuation multiples are considered when valuing an accounting practice.
It's also why two firms with the same reported EBITDA can attract very different offers.
A Highly Profitable Firm Doesn't Need to Be a Complicated One
Something else stood out during our recent conversation.
The business isn't spread across multiple locations. It doesn't have an elaborate corporate structure or layers of management. It's simply a focused, highly profitable accounting practice.
That can be very appealing to a buyer.
- One office can mean a more straightforward operational review.
- Clean financial statements make earnings easier to assess.
- Clear ownership and a manageable number of employees can reduce some of the complexity involved in due diligence.
And when a firm hasn't accumulated significant debt, the conversation around the seller's eventual proceeds becomes much simpler.
Of course, a small team isn't automatically a positive. A buyer still needs to understand whether the business relies too heavily on its current owners, how clients are serviced and whether the profitability can continue after the sale.
But the framework is worth remembering.
You don't necessarily need a large organization to build a valuable accounting firm. You need a business with earnings that a buyer believes can continue.
We've discussed this before in our article on founder dependence and CPA firm valuations.
Debt Can Change What You Actually Take Home
Here's something we think CPA firm owners should pay more attention to before they start discussing sale prices. There's a difference between what your firm is valued at and how much money you personally receive when it sells.
Imagine your firm has an enterprise value of $2 million.
If the business has $600,000 in debt that must be repaid at closing, your equity proceeds could be closer to $1.4 million before transaction expenses, taxes and other adjustments.
The business might still have an enterprise value of $2 million but that doesn't mean the seller receives $2 million. And this is where the purpose of the debt matters. Borrowing to acquire another profitable accounting practice, invest in technology or grow the business can create value if the investment produces sustainable earnings.
But borrowing against the business to fund personal spending doesn't create additional operating earnings for a future buyer.
If those personal obligations sit on the company's balance sheet or are secured against its assets, they may need to be settled as part of the sale.
Personal debt held entirely outside the firm is different: it generally doesn't reduce the company's enterprise value, although it can affect how much wealth the owner ultimately keeps.
And acquisition debt isn't automatically harmless either. If it remains outstanding at closing, it still needs to be accounted for in determining equity proceeds.
The distinction is whether the borrowing helped build a more valuable business, not simply what the loan was called.
For sellers, we'd encourage looking beyond the headline valuation and understanding what the capital structure means for the final proceeds.
Because a great valuation and a great cash outcome aren't always the same thing.
Cashing Out Doesn't Have to Mean Walking Away
This was probably our favourite part of the conversation.
The owners aren't looking for an immediate retirement. They're willing to continue working, serving clients and supporting the business after an acquisition.
Imagine being able to realize a substantial portion of the value you've spent years building, while continuing to earn a professional salary doing work you enjoy. You no longer have to carry the same ownership responsibilities or have so much of your wealth tied to one business.
For younger CPA firm owners, that can open up an entirely different set of lifestyle and financial choices.
And for buyers, having experienced partners remain involved can help preserve client relationships and provide continuity through the transition.
It's an attractive possibility for both sides. But the employment arrangement needs to make commercial sense.
What will the former partners be paid? What responsibilities will they retain? How long will they stay, and what happens if someone wants to leave early?
Buyers will also consider those salaries when assessing the practice's sustainable profitability. An owner agreeing to remain on a $300,000 salary, for example, doesn't mean that salary can be ignored when calculating future EBITDA.
And receiving the entire purchase price upfront isn't guaranteed. Buyers may negotiate deferred payments, seller financing, retained equity or performance-based consideration.
Those details matter.
Still, the broader idea is compelling.
Selling your accounting firm doesn't have to mean you're finished with accounting.
It could simply mean you're ready for a different relationship with the business you've built.
Before You Ask for 5x, Ask Yourself This
We often encourage firm owners to think about their business from the buyer's perspective. Can someone review your financial statements and quickly understand where the profits come from?
Are your earnings sustainable after accounting for the work currently performed by the owners? Do you have manageable debt, reliable recurring revenue and clients who are likely to stay after a change in ownership?
And perhaps most importantly, are your valuation expectations based on the actual financial performance of the firm?
These are the questions that help buyers decide what they're willing to pay.
A practice earning $500,000 in genuinely sustainable EBITDA may be a very attractive acquisition.
A practice reporting the same earnings but requiring substantial replacement costs, carrying significant debt or depending entirely on one owner will present a different picture.
It's not simply about being big or small. It's about how much of the firm's profitability is transferable.
You've Built the Business. Now Think About What Comes Next.
We love speaking with owners who have a clear idea of what they want from a sale.
Some are ready to retire completely. Others want to merge into a larger firm, take some money off the table and keep working. And increasingly, we're seeing owners consider a sale much earlier in their careers.
Our recent conversation was a reminder that there's no single age or stage at which selling an accounting practice makes sense.
But the businesses that give owners the most options tend to have a few things in common.
Strong, sustainable earnings. Clean financials. A sensible capital structure. And realistic expectations about valuation and the transition. You don't have to wait until your firm reaches a particular EBITDA threshold before considering a sale.
But understanding what makes your business valuable and what might reduce the proceeds you receive can make a tremendous difference.
At RSSL Mergers, we work with CPA firm owners evaluating acquisition opportunities, succession plans and different ways to realize the value they've built.
Because sometimes the next chapter isn't about retiring.
It's about finally enjoying more of what you've worked so hard to create.
