Value Billing vs Hourly Billing

Value Billing vs Hourly Billing: Its effect on the sale of CPA practices and Accounting Practices

Determining the market value range of CPA or accounting practice for sale is not all that difficult. After reviewing sold comparable data and obtaining pricing guidance from industry experts, the task is quite easy. What is not easy is determining the worth of the practice to an individual buyer. Just because the market price for a firm has been established, it does not mean that the firm is worth that amount to a single buyer. Cash Flow Margins or Net Profit Margins on the work completed is something that gets discussed at length. What makes this task more difficult is when sellers are using a value-billing concept that takes into consideration how much work is needed, value created, expert research needed, and financial benefit to the client.

Historically, CPA’s have followed hourly billing rules. Each phone call or email is logged in and tracked to each client and they are subsequently billed or billed higher rate at tax time to accommodate their needs during the year. However, CPA’s and accountants realize that value-billing does have its benefits. Many of these value-billing professionals are billing for services during the year up front. The tax bill for example may include an hour of tax planning later in the year. While many of the clients take advantage of this the majority do not, leaving extra margin in the practice. Still value-billers swear by their methodology indicating that in many practices, clients do not call in for much needed advice because of fear of being billed.

Hourly billing makes for easy due-diligence in this regard as billable rates and hours billed can be directly tracked in the accounting system and shared with any potential buyer. A little extra time and effort can determine an hourly rate on a firm that uses value billing. Most principals are exacting in their own hours and know how many they work each week of busy season and outside of busy season. Compiling the operational flow in the office and determining the total number of professional hours in the firm can still be accomplished.

If you want to know more about looking at the true margins inside a firm that value bills, consider contacting a professional business intermediary with expertise in the accounting and tax industry.

Berkshire Business Sales and Acquisitions specialize in CPA and accounting practice exit and can help.

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