I would pay some % of collected revenues (depending on client quality) over a 5 year period - 20% a year. It is important that the clients remain after the transition period is over. – T.W.

The issue isn’t so much ‘value’ as it is ‘price’ and ‘terms.’ Accounting Today had an excellent article on valuing CPA practices - Looking to Sell Your Firm?
http://www.webcpa.com/article.cfm?articleid=10413. My experience has been that regardless of the price, the terms are generally over time on a residual basis. For example, if I’m paying “x” for the practice, I would pay 20 percent at closing, then 20 percent of the residual billings in each of the next 4 years. That resolves the issue of whether or not the clients are going to be around. – B.Q.

These responses were collected by Eva Lang, CPA/ABV, ASA, who also commented: Hope this helps you. Good luck with your deal.

A lot of accounting practices are valued roughly somewhere around 1x revenue or 2-4x cash flow (profit before any partner compensation/benefits). It probably depends how profitable and consistent the cash flows as to what type of premium/discount might get paid off this amount. Seems like looking at this prospectively makes the most sense as mentioned below. Many accounting firm acquisitions are installment sales over several years and/or may have earn out provisions based on clients that transitioned over. – P.D.

The couple of transactions with which I have been involved contain a “plow back” provision. The plow back relates to the volume retained by the successor. If there is a reduction in volume, the same multiple used in pricing is used to reduce the deferred payment obligation. Regarding client files, the answer is yes, but a Confidentiality Agreement should be in place. – J.E.