Contents
- Why practices are valued on recurring fees
- Step 1 — Establish your gross recurring fees
- Step 2 — Apply a multiple based on quality
- Step 3 — The eight value drivers buyers scrutinise
- Step 4 — How deal structure changes what you receive
- Sole traders, limited companies and specialist firms
- Common valuation mistakes owners make
- How to get a proper valuation
- Questions
When you start thinking about a sale, the first question is what the practice is worth. Valuing a general accountancy practice follows a clear method that you can learn quickly and then spend two years improving against. The headline number is built from recurring fees and a multiple. Eight quality factors move the multiple up or down. The deal structure decides how much of the price you receive and when. Knowing the method also helps you avoid common mistakes that can cost an owner tens of thousands of pounds.
Why practices are valued on recurring fees
Most businesses are valued on a multiple of profit (EBITDA). Small and mid-sized accountancy practices are usually valued differently — on a multiple of gross recurring fees — for a simple reason: the reported profit of an owner-managed firm is heavily distorted by the owner's own remuneration, dividends, pension contributions and discretionary costs. Two identical practices can show very different "profit" depending on how the owner pays themselves. Recurring fees are an objective, comparable measure of what a buyer is acquiring: a base of clients who pay predictably every year. (Larger deals, particularly private-equity-backed consolidation, are increasingly framed in EBITDA terms, typically 4–7×. For independent firms, the recurring-fee multiple is the standard measure.)
Step 1 — Establish your gross recurring fees
GRF is the predictable, repeating annual fee income from work clients need every year. Be rigorous about what counts:
Counts as recurring
- Annual accounts & corporation tax
- Personal tax returns (ongoing)
- Bookkeeping, VAT, payroll retainers
- Company secretarial & confirmation statements
Does not count as recurring
- One-off R&D or grant claims
- A single restructuring or valuation job
- Probate or one-time advisory projects
- Ad-hoc consultancy that won't repeat
A client you've filed accounts for three years running is recurring. A client who used you once for a mortgage reference is not. If you overstate recurring fees, the valuation will come in lower than you expect, because a good buyer will strip out anything that does not repeat.
Step 2 — Apply a multiple based on quality
The market range for UK general practice is broadly 0.8× to 1.2× GRF, but it's wider than that at the extremes. Where you land is a function of quality:
| Practice profile | Typical multiple |
|---|
| Heavily owner-dependent, concentrated, under-priced, weak systems, declining | 0.5–0.8× |
| Solid book, some owner reliance, average systems, stable | 0.8–1.0× |
| Low owner reliance, broad client base, good retention, clean systems | 1.0–1.3× |
| High-quality, growing, high recurring %, advisory income, documented | 1.3×+ |
On identical fees, the top band can be worth roughly double the bottom band. Improving quality before you sell is how a firm moves up the bands.
Step 3 — The eight value drivers buyers scrutinise
Behind the multiple, a buyer is assessing how safe and transferable your income is. Eight factors drive that assessment, listed roughly in order of impact:
- Owner-dependency. The single biggest driver. If relationships, pricing knowledge and processes live in your head, the buyer inherits risk, and much of the value can leave with you on completion day. Firms that run through people and systems are worth far more.
- Recurring percentage. The share of total fees that repeats. A fee base that's 85%+ recurring is worth more per pound than one that relies on one-off work.
- Client concentration. If your top 10 clients are a large slice of fees, losing one hurts. Buyers discount concentration risk; a broad base earns a premium.
- Retention history. How long clients stay, and your recent record of wins and losses. Clients who stay are what the buyer is paying for.
- Fee adequacy. Under-priced clients reduce value in two ways: lower income now, and a re-pricing job (with churn risk) for the buyer later.
- Systems, WIP and lockup. Documented processes, disciplined billing, low lockup and clean debtors all signal a well-run, low-surprise firm.
- Team. A capable team that owns client relationships de-risks the transition and supports a higher multiple. Key-person risk (everything through one manager) does the opposite.
- Growth & advisory. A growing firm with real advisory income is worth more than a flat firm doing only compliance, because the buyer has more to build on.
Two firms with the same fees
Two sole-practitioner firms each bill £300,000, of which £270,000 is recurring.
| | Firm A | Firm B |
|---|
| GRF | £270,000 | £270,000 |
| Owner runs all key relationships | Yes | No — team-led |
| Top-10 concentration | 48% | 22% |
| Recurring % | 72% | 90% |
| Multiple applied | 0.85× | 1.15× |
| Indicative value | £229,500 | £310,500 |
The difference is £81,000 on identical fee income, almost entirely due to owner-dependency and concentration. Most of that gap can be recovered with 12–24 months of deliberate work (see 7 ways to increase value).
Step 4 — How deal structure changes what you receive
The headline value is normally paid in stages. A typical deal blends an upfront payment with deferred consideration, and sometimes a retention-linked earn-out. A representative structure:
| Component | Typical share | When paid |
|---|
| Cash on completion | 50–70% | Day one |
| Deferred consideration | 20–40% | Over 1–3 years |
| Retention-linked (earn-out) | 0–20% | Subject to clients staying |
A clean break (you leave quickly) usually carries a different risk profile — and sometimes a slightly lower or more heavily deferred number — than a phased step-down where you stay on to transfer relationships. Staying involved for a handover often supports the total figure, because it reduces retention risk for the buyer. Two offers with the same headline can be worth very different amounts once you account for how much is contingent and when it's paid.
Sole traders, limited companies and specialist firms
Whether you trade as a sole practitioner or a limited company affects the mechanics (an asset sale vs a share sale) and, importantly, your tax — but the underlying fee-multiple logic is the same. Defensible specialisms (a strong niche, high-value advisory, a sticky sector) can lift the multiple, provided they aren't entirely dependent on you personally.
Common valuation mistakes owners make
- Confusing turnover with recurring fees — and being surprised when one-off work is stripped out.
- Fixing on a single headline number when a valuation is a range, and ignoring structure.
- Judging an offer on the top-line only, without checking how much is cash, deferred or contingent.
- Leaving it too late to lift value, and selling a tired, under-invested firm.
- Assuming owner-dependency doesn't matter because clients are loyal to you. A buyer treats loyalty to the owner as a risk, because it may not transfer.
How to get a proper valuation
You can estimate your own ballpark from GRF and recurring percentage, and our valuation calculator gives an instant indicative range. For a fuller version of this method — fee mix, client concentration, owner hours, team depth and client tenure, with every adjustment to the multiple itemised and the starting multiple under your control — use the practice valuation calculator, and score the biggest single driver with the owner dependency check. For a real figure, a buyer will want to see your fee analysis by client and service, your recurring split, top-10 concentration, staffing and retention history — the same evidence reviewed in due diligence. At Practice Group the range comes directly from the buyer, with the reasoning behind it.
