How to Value an Accounting Firm: The Complete Guide to CPA Practice Valuation (2025-2026)

What Determines the Value of an Accounting Firm?

Every accounting firm owner asks this question eventually: What is my firm actually worth?

Maybe you're five years from retirement and starting to think about exit options. Maybe a buyer approached you out of the blue. Or maybe you're just curious whether the business you've built has real market value.

Here's what I've learned from analyzing over 600 accounting firm transactions: valuation is part science, part art, and entirely dependent on understanding what buyers actually pay for.

The short answer? Most accounting firms sell for somewhere between 0.8x and 1.5x annual revenue, or 3x to 8x adjusted earnings. But that range is enormous—and where you land depends on factors that go far beyond your top-line number.

In this guide, I'll walk you through exactly how accounting firm valuation works, what methods buyers use, what drives value up (or crushes it), and what you can do today to position your firm for a premium exit.

What's Your Firm Worth? Find Out Now

Understanding your firm's value isn't just an exit planning exercise—it's a diagnostic tool that reveals exactly where to focus your improvement efforts.

Our ProfitCoach calculator analyzes your firm against the key value drivers that matter most to buyers. In five minutes, you'll understand:

• Where your firm stands compared to benchmarks
• Which factors are helping or hurting your potential valuation
• Specific actions that would move your multiple higher

Calculate Your Firm's Profit Score →

The 6 Methods Used to Value an Accounting Firm

There's no single "correct" way to value a CPA practice. Different methods make sense for different situations, and sophisticated buyers often use multiple approaches to triangulate value.

Here's how each method works—and when it applies.

1. Revenue Multiple Method

What it is: The simplest approach. Take your gross annual revenue and multiply it by a market-based factor.

Formula:

Firm Value = Annual Revenue × Revenue Multiple

When it's used: Quick valuations, smaller practices, initial screening by buyers.

The upside: It's fast and easy to calculate. Everyone understands revenue.

The downside: Revenue tells you nothing about profitability. A firm doing $1.5M with 35% margins is worth far more than one doing $1.5M with 12% margins—but this method treats them identically.

Example: Your firm generates $1.2 million in annual revenue. At a 1.0x multiple, that's a $1.2 million valuation. At 1.25x (achievable with strong recurring revenue and low concentration), you're looking at $1.5 million.

2. Seller's Discretionary Earnings (SDE) Multiple

What it is: This method values the firm based on the total financial benefit available to an owner-operator, not just reported profit.

Formula:

SDE = Net Profit + Owner's Salary + Owner's Benefits + Personal Expenses + Non-Recurring Costs

Firm Value = SDE × SDE Multiple

When it's used: Small to mid-sized owner-operated firms where the buyer will step into the owner's role.

Why it matters: In most small accounting firms, the owner takes a modest "salary" and pulls additional value through benefits, retirement contributions, and discretionary expenses. SDE captures all of that.

Common add-backs include:

• Owner's full compensation (salary + bonuses)
• Health insurance and retirement contributions for owner
• Personal vehicle expenses
• One-time legal or consulting fees
• Family member compensation above market rate
• Personal travel coded as business

Example: Your firm shows $80,000 in net profit. But you also pay yourself $180,000 in salary, contribute $25,000 to your retirement, and run $15,000 in personal expenses through the business. Your SDE is $300,000. At a 2.75x multiple, that's an $825,000 valuation.

3. EBITDA Multiple Method

What it is: Values the firm based on operating earnings before financing and accounting decisions—the standard for larger, more sophisticated transactions.

Formula:

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

Firm Value = Adjusted EBITDA × EBITDA Multiple

When it's used: Mid-sized to larger firms, private equity transactions, strategic acquisitions.

Why buyers prefer it: EBITDA strips out variables that differ between buyers (how they finance, their tax situation) and shows pure operational profitability. It's the universal language of M&A.

Adjusted EBITDA: Most deals use "adjusted" EBITDA, which normalizes for owner compensation (replacing it with market-rate manager salary) and removes one-time expenses.

Example: Your firm has $150,000 net income, $5,000 interest, $45,000 taxes, and $10,000 depreciation. That's $210,000 EBITDA. After adjusting for above-market owner comp ($60,000 add-back), your adjusted EBITDA is $270,000. At 5.5x, that's a $1.485 million valuation.

4. Market Comparable Method

What it is: Values your firm based on what similar practices have actually sold for recently.

When it's used: When reliable transaction data is available (often through brokers, M&A advisors, or industry databases).

Why it's powerful: This reflects real market behavior, not theoretical formulas. If five firms similar to yours sold at 1.1x revenue last year, that's meaningful data.

The challenge: Accounting firm transaction data isn't publicly available like real estate comps. You typically need access through:

• M&A advisors specializing in accounting practices
• Industry associations and buying groups
• Professional networks and broker relationships

What "comparable" means:

• Similar revenue size (within 25-50%)
• Similar service mix (tax-heavy vs. CAS-heavy vs. audit)
• Similar geography or market type
• Similar client base (individuals vs. businesses)

5. Asset-Based Method

What it is: Values the firm based on the fair market value of its assets minus liabilities.

Formula:

Firm Value = Fair Market Value of Assets − Total Liabilities

When it's used: Rarely for going-concern accounting firms. More common for distressed sales or firms with significant tangible assets.

Why it usually doesn't apply: The real value in an accounting firm is intangible—client relationships, assembled workforce, brand reputation. These don't show up on a balance sheet but drive most of the purchase price.

When it matters: If your firm owns real estate, proprietary software, or significant equipment, asset value becomes more relevant to the total picture.

6. Discounted Cash Flow (DCF) Method

What it is: Projects future cash flows and discounts them back to present value using a required rate of return.

Formula:

Firm Value = Σ (Future Cash Flow ÷ (1 + Discount Rate)^n)

When it's used: Sophisticated buyers, private equity, situations requiring detailed financial modeling.

Why it's thorough: DCF forces explicit assumptions about growth rates, margin trends, capital needs, and risk. It's the most intellectually rigorous approach.

The challenge: Garbage in, garbage out. Small changes in growth or discount rate assumptions create wildly different valuations. Most accounting firm deals don't require this level of complexity.

What Are Current Accounting Firm Valuation Multiples?

Multiples fluctuate based on market conditions, buyer demand, interest rates, and the overall M&A environment. Here's what we're seeing in 2025 (and likely early into 2026) based on our analysis of recent transactions:

Revenue Multiples

SDE Multiples

EBITDA Multiples

Important context: Private equity has significantly impacted the accounting M&A market. PE-backed acquirers often pay premium multiples for firms that fit their roll-up strategy, particularly those with:

• $1M+ revenue
• Strong CAS or advisory practices
• Geographic presence in target markets
• Management willing to stay post-acquisition

What Multiple Should You Expect? A Reality Check

Let me be direct: most firm owners overestimate their multiple.

They read about a 1.5x revenue deal in a trade publication and assume that's the norm. It's not. That deal made news because it was exceptional.

Based on our data from 600+ transactions, here's the reality:

The median accounting firm sells for approximately 1.0x revenue or 2.75x SDE.

That's not pessimistic—it's realistic. And understanding this baseline helps you identify what moves the needle.

Frequently Asked Questions: Valuation Methods

What is the best method to value an accounting firm?

The best method depends on firm size and buyer type. For small owner-operated firms, SDE multiples are most common. For mid-sized and larger firms, EBITDA multiples are standard. Revenue multiples work for quick estimates but miss profitability differences. Most sophisticated buyers use multiple methods to triangulate value.

How do you calculate SDE for an accounting firm?

Start with net profit, then add back owner's salary, owner's benefits (health insurance, retirement contributions), personal expenses run through the business, and any one-time or non-recurring costs. The formula is: SDE = Net Profit + Owner Compensation + Owner Benefits + Personal Expenses + Non-Recurring Costs.

What is the difference between SDE and EBITDA?

SDE (Seller's Discretionary Earnings) includes owner compensation and is used for smaller, owner-operated firms. EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) assumes professional management and replaces owner comp with market-rate manager salary. EBITDA is standard for larger transactions and PE deals.

Are accounting firm valuations based on revenue or profit?

Both. Revenue multiples provide quick estimates but ignore profitability. Earnings-based methods (SDE or EBITDA multiples) are more accurate because two firms with identical revenue can have vastly different profitability. Sophisticated buyers always look at earnings, not just revenue.

The 12 Factors That Drive Accounting Firm Value

Not all revenue is created equal. Buyers evaluate firms across multiple dimensions, and understanding these factors helps you see your practice through a buyer's eyes.

1. Revenue Size and Growth Trajectory

Why it matters: Larger firms command higher multiples because they offer more scale, diversification, and management infrastructure. But size alone isn't enough—trajectory matters too.

What buyers look for:

• Consistent year-over-year growth (10%+ annually is attractive)
• Revenue that's growing faster than expenses
• Clear drivers of growth (new service lines, market expansion, sales investment)

Red flag: Flat or declining revenue with no turnaround story signals operational problems or market challenges.

Example: A $1.5M firm growing 15% annually will command a higher multiple than a $2M firm that's been flat for three years.

2. Recurring Revenue Percentage

Why it matters: Recurring revenue is predictable revenue. The higher your recurring percentage, the more confident a buyer can be that revenue will continue post-acquisition.

What counts as recurring:

• Monthly bookkeeping/CAS engagements
• Payroll services
• Annual tax preparation (yes, it counts—clients return predictably)
• Fixed-fee retainers
• Advisory subscriptions

Benchmarks:

• Traditional tax firms: 50-70% recurring
• CAS-heavy firms: 70-90% recurring
• Advisory-focused firms: varies widely

Example: Two firms each generate $1M. Firm A has 85% recurring revenue from CAS clients. Firm B has 50% recurring with heavy reliance on project work. Firm A will command a meaningfully higher multiple.

3. Client Concentration Risk

Why it matters: If losing one or two clients would devastate your revenue, buyers see that as a major risk—and will discount accordingly.

Risk thresholds:

• Any single client over 10% of revenue: Moderate risk
• Top client over 15%: Significant risk
• Top client over 20%: Serious red flag
• Top 5 clients over 40%: High concentration

How to address it: If you have concentration issues, don't hide them. Instead, show buyers the relationship depth (multi-year history, multiple service lines, strong relationships with multiple people at the client) and your plan to diversify.

Example: Your largest client represents 18% of revenue. That's concerning. But they've been with you for 12 years, use four different service lines, and your senior manager has a direct relationship with their CFO. That context matters.

4. Client Retention Rate

Why it matters: High retention proves clients value your services. Low retention means a buyer might be purchasing revenue that won't stick around.

Benchmarks:

• Poor: Below 85%
• Average: 85-90%
• Good: 90-95%
• Excellent: 95%+

What buyers calculate: Many buyers specifically model "revenue at risk" by looking at historical churn patterns and applying them forward.

Example: You lose 8% of clients annually. Over a three-year earnout period, that compounds to meaningful revenue loss—which affects what a buyer will pay upfront.

5. Service Mix and Advisory Revenue

Why it matters: Not all services are valued equally. Compliance work (tax prep, bookkeeping) is increasingly commoditized. Advisory services (CFO services, strategic consulting, transaction support) command premium pricing and stickier relationships.

The hierarchy of value:

1. Highest value: CFO/advisory services, transaction support, specialized consulting
2. High value: Client accounting services (CAS), outsourced controller
3. Moderate value: Tax planning and preparation, audit
4. Lower value: Basic bookkeeping, commoditized compliance

Example: A firm doing $1.2M with 40% advisory revenue will typically out-value a $1.4M firm that's 90% tax compliance.

6. Owner Dependency

Why it matters: If the firm can't function without you—if you're the primary client relationship holder, rainmaker, and technical expert—buyers face significant transition risk.

Signs of dangerous owner dependency:

• Clients ask for you by name and won't work with staff
• You personally manage more than 30% of revenue relationships
• Critical knowledge lives in your head, not documented systems
• Staff can't make decisions without your approval

How to reduce it:

• Introduce staff to clients systematically
• Document processes and decision-making frameworks
• Delegate client relationships to senior staff
• Build a management layer between you and day-to-day operations

Impact on value: High owner dependency can reduce your multiple by 15-25%.

7. Staff Quality and Retention

Why it matters: Your team is a major asset—or a major liability. Buyers want to acquire a capable, stable workforce, not a retention crisis waiting to happen.

What buyers evaluate:

• Staff tenure (average years with firm)
• Turnover rate (under 15% is healthy)
• Depth of talent (not overly reliant on one or two key people)
• Compensation competitiveness
• Training and development programs

Red flag: If two or three key staff members leave during due diligence, deals often fall apart or get significantly repriced.

8. Technology and Systems Infrastructure

Why it matters: Modern, cloud-based firms are easier to integrate, more efficient, and signal operational sophistication.

What buyers look for:

• Cloud-based practice management
• Automated workflows and standardized processes
• Integrated tech stack (accounting, tax, document management)
• Client portal for communication and document exchange
• Digital signatures and paperless operations

What hurts value:

• Desktop-only software
• Manual, paper-based processes
• Tribal knowledge instead of documented workflows
• Outdated technology that will require immediate investment

Example: A buyer estimating $50,000 in technology modernization costs will effectively reduce their offer by that amount (or more, accounting for implementation disruption).

9. Geographic Market and Client Demographics

Why it matters: Where your clients are located—and who they are—affects both transferability and growth potential.

Factors that help:

• Growing markets or desirable geographies
• Business clients (vs. individual tax clients)
• Industries with tailwinds (technology, healthcare, professional services)
• Clients with growth potential who could expand their engagement

Factors that hurt:

• Declining markets or rural areas losing population
• Aging client base with high mortality/retirement risk
• Industries facing headwinds (traditional retail, declining manufacturing)

10. Financial Cleanliness and Documentation

Why it matters: Sophisticated buyers will scrutinize your financials. Messy books, unclear categorization, or inability to answer detailed questions erodes confidence and trust.

What "clean" looks like:

• Accurate, timely financial statements
• Clear revenue recognition by service line
• Clean separation of personal and business expenses
• Documented add-backs with supporting evidence
• Three to five years of consistent historical data

Example: During due diligence, a buyer asks about a $45,000 "consulting expense." If you can't clearly explain it or provide documentation, they'll either exclude it from add-backs or start wondering what else is unclear.

11. Client Contract Quality

Why it matters: Strong client agreements—with clear terms, appropriate notice periods, and assignment clauses—make transitions smoother and protect revenue.

What improves value:

• Written engagement letters with all active clients
• Clear payment terms and fee structures
• Assignment clauses allowing transfer to new ownership
• Reasonable notice periods for termination
• Auto-renewal provisions

What hurts value:

• Handshake agreements with major clients
• No written terms
• Contracts that terminate on ownership change
• Unclear or disputed fee arrangements

12. Brand Reputation and Market Position

Why it matters: A strong reputation means easier client retention, better referral flow, and reduced integration risk.

Indicators of strong reputation:

• Positive online reviews
• Consistent referral pipeline
• Recognition in professional or industry circles
• Professional web presence and marketing
• Thought leadership (articles, speaking, community involvement)

Frequently Asked Questions: Value Drivers

What increases the value of an accounting firm?

The primary factors that increase accounting firm value are: strong recurring revenue (70%+), low client concentration, high client retention (95%+), growing revenue trajectory, low owner dependency, modern technology infrastructure, quality staff with low turnover, and advisory service mix. Improving any of these factors moves your multiple higher.

What decreases accounting firm value?

Value decreases from: high client concentration (single client over 15%), significant owner dependency, declining or flat revenue, poor client retention, outdated technology, staff turnover issues, messy financials, and heavy reliance on commoditized compliance work. These factors can reduce your multiple by 20-40%.

How important is recurring revenue in accounting firm valuation?

Recurring revenue is one of the most important factors. Firms with 80%+ recurring revenue often command multiples 0.2x-0.4x higher than comparable firms with less predictable revenue. Buyers pay premiums for predictability because it reduces risk of revenue loss post-acquisition.

Does firm location affect accounting practice valuation?

Location matters less than it used to. Remote and cloud-based operations have reduced geographic constraints. That said, location can still impact valuation through factors like state-specific licensing requirements, local referral networks, regional billing rate differences, and market growth trends. An efficient, systematized firm in a smaller market can outvalue a disorganized firm in a major metro.

Deal Structure: How Payment Terms Affect Valuation

The total purchase price is only part of the picture. How that price is structured—and when you actually receive the money—significantly impacts the real value of a deal.

Upfront Cash vs. Earnout Payments

Most accounting firm deals involve a mix of upfront cash and contingent earnout payments tied to future performance.

Typical structure:

• 60-80% paid at closing (upfront cash)
• 20-40% paid over 2-4 years (earnout)

What determines the split:

• Firm transferability and client stickiness
• Buyer's risk assessment
• Seller's negotiating leverage
• Financing availability

Example: A $1M deal might be structured as $700K at closing plus $300K over three years contingent on 90% client retention. If retention falls to 80%, the earnout might be reduced proportionally.

Client Retention Earnouts

The most common earnout structure in accounting ties payment to client retention.

How it works:

• Baseline: Revenue or client count at closing
• Measurement: Revenue/clients remaining after 12, 24, or 36 months
• Trigger: Typically 85-95% retention threshold
• Payment: Pro-rata or threshold-based

Example structure:

• Year 1: $100K paid if 90%+ retention maintained
• Year 2: $100K paid if 85%+ retention maintained
• Year 3: $100K paid if 85%+ retention maintained

Protecting yourself: Negotiate clear definitions of what counts as "retained" (especially for clients who reduce scope but stay), and ensure the buyer can't take actions that drive clients away (like major price increases).

Seller Financing

Sometimes sellers finance part of the purchase price directly, especially for smaller deals or buyers with limited capital.

Typical terms:

• 10-30% of purchase price
• 5-7 year amortization
• Interest rates of 5-8%
• Secured by firm assets or personal guarantee

Why sellers agree to it: It can make a deal happen that otherwise couldn't, it provides ongoing income, and interest income adds to total consideration.

Consulting and Transition Agreements

Most deals include a post-sale consulting period where the seller assists with transition.

Typical structure:

• Duration: 6 months to 3 years
• Time commitment: Declining over time (full-time → part-time → as-needed)
• Compensation: Hourly rate, monthly retainer, or built into purchase price

Why it matters for value: Buyers pay more when confident the transition will go smoothly. A seller willing to commit to meaningful transition support often commands better terms.

How to Increase Your Accounting Firm's Valuation

Whether you're planning to sell in two years or ten, the actions that increase firm value are the same actions that make your practice more profitable and easier to run. Start now.

1. Build Recurring Revenue Systematically

Shift from projects to subscriptions. Every client on a monthly retainer is worth more than one who engages sporadically.

Tactics:

• Convert tax-only clients to year-round relationships
• Package bookkeeping, payroll, and advisory into bundled monthly plans
• Introduce fixed-fee arrangements that encourage ongoing engagement
• Add complementary services (payroll, advisory, CFO services) to existing clients

Target: Get to 75%+ recurring revenue within 2-3 years.

2. Diversify Your Client Base

Reduce concentration risk. If your top client represents 15%+ of revenue, that's a priority to address.

Tactics:

• Set a growth target that specifically grows smaller clients faster than your largest
• Develop systematic business development to add new clients
• Consider "right-sizing" services for overly large clients (this is hard but sometimes necessary)
• Document why large clients are sticky (long tenure, multiple services, deep relationships)

3. Reduce Owner Dependency

Make yourself replaceable. The goal is a firm that runs smoothly whether you're there or not.

Tactics:

• Introduce your senior staff to clients personally
• Transition primary relationship management to team members
• Document your processes, pricing decisions, and client knowledge
• Take a two-week vacation and see what breaks (then fix those things)
• Build a management layer that can make decisions without you

4. Invest in Your Team

Retention matters. Staff turnover is expensive and signals instability to buyers.

Tactics:

• Benchmark compensation and ensure you're competitive
• Create clear career paths with defined milestones
• Invest in training and professional development
• Build a culture people don't want to leave
• Identify and develop your future leaders

5. Modernize Your Technology

Cloud-based, automated, integrated. This is table stakes for premium valuations.

Priorities:

• Cloud-based practice management
• Automated workflows for recurring tasks
• Client portal for seamless communication
• Digital document management
• Integrated tech stack (minimal manual data transfer)

6. Clean Up Your Financials

Get your own house in order. You advise clients on this; apply it to yourself.

Priorities:

• Clear separation of personal and business expenses
• Accurate tracking by service line and client
• Three to five years of clean historical data
• Documentation for any expenses that might be add-backs
• Remove any gray-area deductions that could raise questions

7. Strengthen Client Relationships

Deep relationships transfer better. The goal is clients who are loyal to your firm, not just to you personally.

Tactics:

• Systematic client communication (not just during busy season)
• Regular check-ins and proactive outreach
• Annual reviews to discuss their business and your services
• Excellent client experience (portal, responsiveness, professionalism)
• Multiple touchpoints (they know several people at your firm)

8. Document Everything

Institutional knowledge is worthless if it's not written down.

What to document:

• Client-specific processes and preferences
• Pricing history and rationale
• Standard operating procedures for all service lines
• Workflow templates
• Technology configurations and integrations

Frequently Asked Questions: Increasing Value

How can I increase my accounting firm's value before selling?

Focus on these high-impact areas: increase recurring revenue percentage, reduce client concentration, decrease owner dependency, improve client retention, modernize technology systems, and clean up your financials. Most improvements take 18-36 months to fully impact valuation, so start early.

How long does it take to improve accounting firm valuation?

Meaningful valuation improvements typically take 18-36 months. Quick wins like cleaning up financials or documenting processes can happen in 3-6 months. Deeper changes like reducing owner dependency or shifting service mix take 2-3 years. Start at least 3 years before your target exit date.

Should I grow revenue or profit before selling?

Both matter, but profit matters more. A firm with flat revenue but improving margins often commands a better multiple than one with growing revenue but declining profitability. Focus on profitable growth—adding revenue that doesn't require proportional cost increases.

Common Valuation Mistakes to Avoid

Overvaluing Based on Gross Revenue

The mistake: Assuming a 1.0x revenue multiple without considering profitability, client concentration, or other risk factors.

Reality: Revenue is just the starting point. A buyer evaluating two $1M firms will pay significantly more for the one with 30% margins than the one running at 15%.

Ignoring Transition Risk

The mistake: Assuming clients will simply transfer because they're "good clients."

Reality: Buyers discount for transition risk. What are you doing to ensure clients will stay? How will you introduce the buyer? What happens if you're not available?

Underestimating Add-Backs

The mistake: Not properly calculating SDE or adjusted EBITDA, leaving money on the table.

Reality: Many firm owners forget legitimate add-backs—owner benefits, personal expenses, one-time costs, above-market owner salary. Work with an advisor to identify everything that should be normalized.

Waiting Too Long to Prepare

The mistake: Deciding to sell and expecting a premium valuation immediately.

Reality: The improvements that command premium multiples take years to implement. Start preparing at least 3-5 years before your target exit.

Not Understanding the Market

The mistake: Basing expectations on one headline deal or outdated information.

Reality: Market conditions change. PE activity has increased multiples in some segments. Interest rates affect buyer financing. Get current market data before setting expectations.

When Should You Get a Professional Valuation?

You don't need a formal valuation for every situation. Here's when it makes sense:

Get a professional valuation when:

• You're actively considering selling within 2-3 years
• You've received an acquisition inquiry and need to evaluate it
• You're planning a partner buyout or buy-in
• You're going through a divorce with significant business assets
• You need valuation for estate planning purposes
• You're seeking outside investment or significant financing

A quick self-assessment is sufficient when:

• You're curious about general value for planning purposes
• You want to benchmark against industry norms
• You're evaluating whether it's worth starting the formal process

What's Your Firm Worth? Find Out Now

Understanding your firm's value isn't just an exit planning exercise—it's a diagnostic tool that reveals exactly where to focus your improvement efforts.

Our ProfitCoach calculator analyzes your firm against the key value drivers that matter most to buyers. In five minutes, you'll understand:

• Where your firm stands compared to benchmarks
• Which factors are helping or hurting your potential valuation
• Specific actions that would move your multiple higher

Calculate Your Firm's Profit Score →

Final Thoughts: Value Is Something You Build

Valuation isn't something that happens to your firm—it's something you create through years of intentional decisions.

Every time you convert a project client to a retainer, you're building value. Every time you introduce a team member to a key client relationship, you're building value. Every time you document a process that lives in your head, you're building value.

The firms that command premium multiples didn't get there by accident. They built recurring revenue systematically. They reduced concentration risk deliberately. They invested in their teams and their technology.

Start now. Whether you're three years from exit or fifteen, the actions that increase firm value are the same actions that make your practice more profitable, more resilient, and more enjoyable to run.