Valuations for accounting firms, fee parcels and partner equity.

An accounting practice valuation prices either the fee base — conventionally quoted in cents in the dollar of recurring fees — or the equity of the firm, valued on a multiple of maintainable earnings. Prismi prepares evidence-led valuations for fee-base sales, partner admissions and exits, succession, family transfers and restructures, concluding at the most supportable position within a defended range.

When an accounting firm needs a formal valuation

Equity moves inside accounting firms more often than in almost any other business: partners are admitted and retire, fee parcels are bought from and sold to neighbouring firms, consolidators make approaches, and structures are reorganised out of partnerships into companies and trusts. Many of these events carry a tax consequence that depends on market value — a restructure relying on the Subdivision 328-G rollover, a small business CGT concession claim under Division 152 on a partner's exit, a buy-in funded through loans that must sit inside Division 7A terms, or a related-party transfer where the market value substitution rule in s 116-30 can override the price the parties chose. Others are commercial or contentious: weighing a consolidator's offer, a partnership dispute, family law, or the death or incapacity of a principal. The basis of value differs by trigger — market value under IVS 104 and the Spencer willing-but-not-anxious principle for tax and dispute purposes; sometimes a deed formula that deliberately departs from it. The report must say which it is applying. Prismi prepares the independent valuation; the firm's own tax and legal advisers apply it.

Cents in the dollar or an earnings multiple — two languages, one value

The profession prices itself in two parallel languages. Fee-parcel sales — a block of clients moving to another firm — are quoted in cents in the dollar of recurring maintainable fees, most commonly between about 80 cents and $1.10, with small or lower-quality parcels below that band and exceptional fee bases above it. Whole-of-firm equity transactions — where the buyer acquires the enterprise, its staff, systems, lease and brand — are priced on multiples of maintainable EBIT or EBITDA, as any other business would be. The conventions answer different questions. Cents in the dollar is shorthand for a revenue multiple applied where the buyer absorbs the clients into existing infrastructure and prices retention risk through a clawback; the earnings multiple applies where a standalone profit stream is changing hands. The two must reconcile: a fee base bought at one dollar per dollar of fees, on a practice running a 25 per cent EBITDA margin, is a four-times-EBITDA price. A report that quotes one convention without reconciling it to the other has not tested its own conclusion — and the reconciliation is where the most supportable position is found.

What moves the price: fee quality, concentration, lock-up and offshoring

Not every dollar of fees is worth the same cents. Recurring annual compliance work is the most maintainable revenue a firm has and anchors the top of the range. Bookkeeping recurs but at thin margins with growing automation pressure, so it prices lower per dollar. One-off advisory and project work is profit, not maintainable revenue — it is generally excluded from the cents-in-the-dollar base and captured, if at all, through the earnings analysis. Concentration is measured per partner, not just per client: relationships in accounting firms attach to individuals, and a fee base where one departing partner controls a third of the clients is a different asset from one spread across a stable team. Lock-up — WIP plus debtor days — is a direct price adjuster: high lock-up hands the buyer a working capital burden and a write-off history the file must analyse, which is why WIP and debtors are usually dealt with separately from goodwill or through a completion adjustment. Retention clawbacks over one to two years mean the headline cents figure is not the price; the valuation should distinguish the certain component from the contingent one. Offshoring cuts the other way: offshore processing lifts margins, and because cents-in-the-dollar pricing ignores margin entirely, a well-run offshored firm is systematically undervalued by the fee-base convention — its supportable position usually sits with the earnings methodology.

Partner buy-in pricing versus open-market pricing

Internal buy-ins are routinely struck below what the firm would fetch on the open market, and that is not necessarily wrong. A partnership deed formula prices a continuing relationship: no competitive tension, an incoming partner funding equity from future drawings, income risk passing to someone who must service the clients personally, and an implicit trade where today's discounted entry becomes tomorrow's discounted exit. An open-market sale to a consolidator prices something else — synergies, scale and competition between bidders. Both prices can be legitimate; they answer different questions, and the valuation must name which question it is answering. Market value under IVS 104 asks what the willing-but-not-anxious buyer would pay, which is not the deed formula. Where the buy-in price will also do tax work — the exiting partner's CGT position, a concession claim, a related-party structure — the gap between formula and market value needs to be documented, because the tax law generally cares about the latter. The working file records both figures and the reasoning between them.

Valuing your own profession: the APES 225 independence problem

APES 225 Valuation Services governs how members of the accounting profession perform valuations — the scope of the engagement, the type of valuation issued, and the objectivity of the valuer. It bites hardest when the subject is an accounting firm, because the people most qualified to value the business are usually inside it or advising it. A partner valuing their own firm for an incoming partner's buy-in holds a direct financial interest in the answer. A firm valuing a long-standing client it also advises faces self-review and advocacy threats that disclosure alone does not cure. That is why buy-in valuations are referred out, and why the referring accountant's own credibility rides on the independence of whoever takes the file. Prismi's reports carry an independence statement, are senior-reviewer signed, and are prepared on fees fixed at engagement, never contingent on the outcome. Where a party wants a particular number rather than a supportable one, we will say so and decline the engagement on those terms. The full working file is retained so the reasoning can be produced if the valuation is later tested.

What the valuation file needs from the firm

The quality of the conclusion is set by the quality of the fee analysis, and most of the evidence already exists inside the practice management system.

• ·Fee listing by client for the past three years, flagged as recurring compliance, bookkeeping or one-off advisory
• ·Fees attributed by partner, to evidence per-partner concentration and transferability
• ·Aged WIP and debtors, write-off history and lock-up days
• ·Partner remuneration, profit-share and drawings, for normalisation to market salaries
• ·Offshoring and outsourcing arrangements with fully loaded costs
• ·Staff list below partner level with tenure, salaries and restraint terms
• ·Partnership or shareholders agreement, including any deed valuation formula
• ·Terms of any prior fee-parcel purchases or sales, including retention and clawback provisions

Which Prismi engagement fits an accounting firm

Essential (from $1,495 + GST, 10–14 business days) suits a straightforward single-entity practice or fee-parcel appraisal where the fee base is clean and the purpose is internal or preliminary. Comprehensive (from $3,995 + GST, 15–25 business days) is the standard engagement for partner admissions and exits, whole-firm sales and restructures — it carries the full fee-quality grading, lock-up analysis, normalisation and the reconciliation of both pricing conventions. The Defensible Valuation File (from $8,995 + GST, 25–35 business days) is built for positions likely to be tested: partner disputes, family law, and restructures where ATO review is plausible — documented with ATO market valuation expectations in mind, so the evidence and reasoning behind the position are already on file if it is ever reviewed. Firms weighing a consolidator approach or planning staged succession are usually better served by the Valuation Range & Scenario Review, which models the fee base under different retention and offer structures. Accounting structures commonly include a service trust; additional entities are $750 each. Retrospective valuations at a historical date carry a $495 surcharge per date, and rush delivery is +30% of the base fee, subject to capacity.