Recurring fees are the foundation, but not every fee recurs
Compliance work, bookkeeping, payroll and regular management reporting produce fees that tend to return each year. One-off advisory projects, restructures and transaction support produce fees that depend on winning the next engagement. Separate the two before treating total fees as maintainable revenue.
A fee listing by client and service type shows the mix. Group fees by whether they arise from an ongoing engagement, a fixed-fee package or ad hoc instructions. A practice with a high share of recurring fees usually presents a clearer earnings base than one whose fees swing with project work, even if the totals match.
Retention and client age show what continues
Compare the client list across three or more years to see gains, losses and fee movements. Losses through business closure or a client's retirement differ from losses to a competing firm, and each tells a different story about the relationships. Ask how new clients arrive and whether referral sources are personal to a partner.
Client age matters in two senses. The age of the relationship shows loyalty and the depth of the practice's knowledge of that client's affairs. The age of the clients themselves shows how much of the fee base may retire or wind up in the coming years. A fee base concentrated in older sole traders carries different risk from one built on growing companies with successors in place.
Fee per client and partner dependence
Fee per client indicates whether the practice serves many small clients or fewer larger ones. Many small clients spread risk but cost more to serve. Fewer larger clients raise concentration risk and may follow a particular partner. Look at the top clients by fee and identify who holds each relationship.
Partner dependence is the central question in most accounting practice valuations. If the departing partner signs the returns, meets every client and reviews every file, a buyer must replace that role at a market salary and may still lose clients in the transition. Where managers hold the relationships and the partner reviews at a distance, the goodwill sits more with the practice than the person. Our guide on business goodwill explains how this distinction affects value.
Staff, work in progress and lock-up
The team converts fees into earnings. Examine roles, charge rates, tenure and the ratio of professional staff to partners. High turnover, unfilled positions or staff who are related to the owner can all change the cost base a buyer would face. Check whether family members work for less than replacement cost.
Work in progress and debtors show how quickly fees become cash. Lock-up, the combined days of unbilled work and unpaid debtors, ties up funding and can hide write-offs. A practice that bills monthly on fixed fees usually has a shorter lock-up than one that bills annually after the return is lodged. Reconcile recorded time to invoices raised and cash received before accepting the fee total.
Software and process matter for the same reason. Cloud ledger platforms, standardised workpapers and documented procedures let a buyer take over without rebuilding the practice. A practice run from a partner's memory and a shared drive costs more to absorb.
Why cents in the dollar misleads
Accounting practices have long been discussed in terms of a price expressed as cents in the dollar of annual fees. The figure is easy to quote, but it is a price convention, not a valuation. It ignores the profit margin behind the fees, the cost of replacing the partner, the retention risk, the quality of the client base and the terms on which the price is paid.
Two practices with identical fees can differ widely in earnings. One may run at a strong margin with a stable team, while the other needs the partner to work unpaid overtime to lodge on time. A buyer paying the same cents in the dollar for both would be paying very different multiples of the earnings they receive. An earnings-based approach, with a clear view of what happens to fees and costs after settlement, answers the question the rule of thumb skips.
Succession structures and how they affect value
Practice sales are commonly structured with a deferred or retention-based component, where part of the price depends on fees retained after settlement. Earn-outs of this kind shift retention risk from buyer to seller. When a valuation is used to test a proposed deal, distinguish the headline price from its expected value once the retention adjustment is applied. Our business sale valuation service addresses that comparison, and your lawyer should review the mechanism itself.
For an internal succession, where a partner buys in or is bought out, the partnership or shareholder agreement may set a formula for the interest. A formula price is not the same as market value, and the two may need to be reported separately. The shareholder exit valuation page covers that situation.
Records and the questions they answer
| Record | Valuation question it answers |
|---|---|
| Fee listing by client and service type | How much of the fee base recurs and what depends on new work |
| Client gains and losses over three years | Whether the client base is stable, growing or ageing out |
| Partner and manager relationship map | How much goodwill leaves with the departing partner |
| WIP, debtors and lock-up report | How quickly fees become cash and where write-offs hide |
| Staff schedule with rates and tenure | What the team costs to keep and whether any roles are underpaid |
| Partnership or shareholder agreement | Whether a formula price applies to the interest being valued |
Tell us whether the matter concerns a sale, a shareholder exit or another purpose. The purpose determines the scope, the basis of value and whether the whole practice or a partner's interest is being assessed.
Before we begin
Your industry information checklist
- Financial statements and current management accounts
- Fee listing by client, service type and partner
- Client gains, losses and client age profile
- Work in progress, debtors and lock-up days
- Staff list with roles, charge rates and tenure
We confirm the documents needed once the purpose and scope are clear. For the common starting documents, see our valuation preparation guide.
General business valuation guidance. Service suitability, specialist input and fee are assessed for the individual matter.