Buying an accounting practice: what to check in the numbers
Short answer
When buying an accounting or tax practice, check revenue client by client: fees billed and collected for each client for three years, what work each pays for, how long they've been a client, and who at the firm serves them. Look at seasonality (how much comes in tax season), staff who'll stay, software and file quality, and state rules on who can own a CPA firm.
Price is often tied to how many clients stay after the sale, so plan the client transition as carefully as the numbers.
An accounting practice is a book of client relationships plus the people and systems that serve them. The financial statements are usually clean, ironically, because the owner is an accountant. The risk is elsewhere: whether the clients will stay with someone new.
How the revenue works
- Recurring work: monthly bookkeeping, payroll, quarterly estimates, annual individual and business returns.
- Seasonal work: tax season compresses much of the year's billing into a few months.
- Advisory and one-off projects: less predictable; value less in a sale.
- Attest work (where performed): subject to licensing and peer review requirements.
Check revenue client by client
| For each client | Why |
|---|---|
| Fees billed and collected, 3 years | Retention trend; write-offs and collection problems |
| Services provided | Recurring vs one-off |
| Tenure | Long-tenured clients are more likely to stay |
| Who serves them | Seller only, or staff too? |
| Fee level vs market | Underpriced clients may leave when fees rise |
| Engagement letter | Scope, fees, and whether it can be assigned |
Add-back traps
- The seller does most of the client work. SDE includes their pay, but if you won't do that work yourself (or can't, for licensing reasons), you'll pay a credentialed person.
- Family members on staff doing real seasonal work.
- Software and continuing education sometimes labeled as personal; they're costs of running a practice.
- Write-offs. Billed fees that weren't collected aren't revenue.
Documents to request
- Billing and collections by client, 3 years; work-in-progress and receivables aging.
- Firm tax returns and bank statements.
- Staff list, credentials, compensation, tenure.
- Engagement letters and any client contracts.
- Software licences and data ownership; file storage and security practices.
- Professional liability insurance and claims history.
- Peer review reports and licensing status if attest work is performed.
Accounting firm valuation multiples: what moves them
Accounting practices are one of the few small business types routinely priced on revenue, usually a multiple of annual gross fees, because what a buyer acquires is a set of client relationships that will hopefully keep paying. Deals often include retention terms that adjust the price based on how much of the fee base stays after the sale. We don't quote ranges, because we couldn't find a reliable public source that separates asking from sold prices; credentialed appraisers and practice brokers work from completed-sale data. What we can tell you is what pushes a practice up or down within whatever range applies:
| Factor | Supports higher | Pulls lower |
|---|---|---|
| Work mix | Monthly bookkeeping, payroll, recurring returns | One-off projects, consulting |
| Client tenure | Clients of many years | Recent, price-shopping clients |
| Seller relationships | Staff handle clients; seller introduces | Clients loyal only to the seller |
| Fee levels | Market-rate fees | Underpriced fees that will need raising |
| Seasonality | Year-round work | Heavily concentrated in tax season |
| Concentration | Many small clients | A few large clients |
| Systems and staff | Modern software, credentialed staff who'll stay | Paper files, solo practitioner |
For how revenue-based pricing works in general, see revenue multiple valuation. For the goodwill side, see valuing goodwill.
Worked example: how retention changes what you paid
Illustrative example, not a real practice or a market multiple
A practice bills $500,000 a year. Say buyer and seller agree a price equal to 1.0 times fees that are retained after twelve months (the 1.0 is made up for the arithmetic, not a market figure). If clients paying $440,000 stay, the price settles at $440,000. If only $380,000 stays, it settles at $380,000. On a flat price of $500,000 with no retention terms, the buyer would carry all of that risk: losing $120,000 of fees means paying $500,000 for a $380,000 book. In an SBA-financed deal the mechanism has to fit the rules (seller earnouts are prohibited), so this risk-sharing is usually handled through how the seller note or the price is set. Agree the structure with your lender and attorney before the LOI.
Licensing, ownership and the transition
State boards of accountancy regulate CPA firms, including who can own them and how they're named; most require that a majority of a CPA firm's owners be CPAs, which limits a non-CPA buyer to non-attest practices or a different structure. Your state board's rules are the authority. If the practice prepares tax returns, the FTC's Safeguards Rule (16 CFR Part 314) applies and requires a written information security plan. Clients have to agree to their files moving; plan joint letters and meetings with the seller. Under SBA rules the seller can consult for up to 24 months after a full change of ownership. See seller transition.
Worked example: tax-season cash and working capital
Illustrative example, not a real practice
A practice bills $500,000 a year. $260,000 (52%) is billed from February to April, and most of it collects by June. Payroll is fairly level at $22,000 a month, plus seasonal staff of $30,000 in the spring. If you close in July, you inherit the slow half of the year: perhaps $25,000 a month of billings against $22,000 of payroll and $8,000 of rent, software and insurance, a shortfall of about $5,000 a month until the next season. Over five months that's $25,000 of cash you need on hand, before any loan payments. Close in January instead and the first season pays for the slow months, but you're learning the practice at its busiest. Neither is wrong; the point is to plan working capital around the calendar.
Red flags specific to accounting practices
- Extensions piling up. A large number of returns on extension every year can mean the firm is understaffed, and the backlog becomes yours.
- Write-downs hidden in billing. Compare standard rates times hours with what was billed; big gaps show where fees can't be raised.
- A seller who won't introduce clients. Retention depends on it.
- Preparer penalties or board complaints. Ask, and check the state board's public records.
- Client files held on personal devices or consumer cloud accounts.
Questions to ask the seller
- What share of fees comes from your personal clients versus clients served by staff?
- How many clients left in each of the last three years, and why?
- Which staff hold which credentials, and will they stay?
- Is any attest work performed, and when was the last peer review?
- Any malpractice claims, IRS preparer penalties or board complaints?
- Will you sign letters to clients and meet the largest ones with me?
Client consent and confidential records
Client files contain tax return information, and in the US, IRC section 7216 limits how a preparer can use or disclose it. Ask your attorney how the transfer of files will be handled, whether client consent is needed, and how clients will be told. A joint letter from the seller introducing you is usual, and it matters for retention.
Frequently asked questions
Can a non-CPA buy an accounting firm?
Generally yes for bookkeeping and tax preparation practices. Firms that perform attest work (audits, reviews, compilations in some states) or use 'CPA' in their name are subject to state board of accountancy ownership rules, which typically require a majority of CPA owners. Check your state.
How is an accounting practice priced?
Often as a multiple of annual gross fees with a retention adjustment, rather than earnings. The valuation factors are covered in the section below.
What's the biggest risk?
Clients leaving because their relationship was with the selling accountant. A long, planned introduction period and keeping staff who do the client work reduce it.
How do I verify fees?
Practice management and billing reports by client, matched to bank deposits and to the firm's tax returns.
What are accounting firm valuation multiples based on?
Small accounting and tax practices are commonly priced as a multiple of annual gross fees rather than earnings, often with terms tied to client retention after the sale. The multiple moves with work mix, client tenure, fee levels, staff and how dependent clients are on the seller. We don't publish ranges we can't verify; credentialed appraisers and practice brokers track completed sales.
How do I verify an accounting practice's fees independently?
Match billing by client from the practice management system to collections in the bank and to the firm's tax returns, which you should check against IRS transcripts. For tax clients, the count of returns e-filed each season is another cross-check on the client list.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (seller earnouts prohibited; seller consulting up to 24 months)
- IRS: Get Transcript
- NASBA (state boards of accountancy)
- FTC Safeguards Rule, 16 CFR Part 314 (applies to tax preparers)
- 26 U.S.C. § 7216: Disclosure or use of information by preparers of returns (Cornell LII)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.