CPA or Accounting Firm Valuation

When trying to find the worth of your business, remember there is no magic formula to “finding your accounting firm valuation in 5 minutes or less”. However, steps can be taken to help approximate the value of your business. Valuation of a business is derived from how much money your business will make in the future. CPA FIrm Valuation

Since, it is impossible to accurately predict the future correctly 100% of the time, we assume that the past can be used to help indicate what the future is going to bring. This is especially difficult with smaller businesses, so business brokers use the Seller’s Discretionary Earnings (SDE) as a metric to help present an accurate valuation for a business. Regarding those transactions with smaller businesses “it can be tough to separate out what the owner/operator gets vs. the earnings of the company. So we combine them together into one number. Another way of saying that is to “add back” one owner’s salary (in addition to the interest, depreciation, excess payments to family staff members, etc. mentioned above). Thus when you are looking at a business that has an SDE of, say, $200,000, you know that you have $200K to spend on living, taxes, interest and capital expenditures. For example, if you historically have been living on a $120K salary, then you can think of the business as making $80K above that, and that $80K is available to service debt, enhance your savings account, etc.” Generally, the value of a small business is equal to 1.5-4.5 times the SDE. But how do business brokers determine the multiple for each unique business? Brokers will look at subjective information such as stability, business comparative sold data, SDE compared to others within the industry, location, cleanliness of books, and other competitive advantages not already factored into the SDE.

Ultimately, valuing your business, or potential business is an arduous and complicated process, it helps to have someone with experience and knowledge on your side. We have found that by having a Brokers Opinion of Value generated several years prior to listing the business for sale, assists the business owner in growing the business, managing the appropriate expense line items more efficiently, maximizing the sale price when it is time to transition the business. Finding your accounting firm valuation can be difficult process so speak to a business broker who can help you identify the strengths of your business to achieve the highest valuation amount.

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