Valuing Accounting Firms
LEON W. PARIS
Of all the professions, accounting has continued to be one of the most popular among college graduates. The profession has experienced tremendous growth in recent years, verified by the fact that there are now approximately 100,000 candidates nationwide who are sitting for each semiannual session of the CPA exam.
Accountants are found in all areas of business and industry today. The regulatory agencies such as the American Institute of CPAs, as well as most state accounting boards have sought to strengthen the requirements necessary to practice as a public accountant. A five-year degree is now required in many states for certification, as well as increased work experience requirements.
For many years, accountants were restricted from openly soliciting new business. This was looked upon by practitioners as unprofessional conduct. Naturally, to acquire new business, many accountants sought to purchase accounts from others leaving the profession as a means of increasing their revenue. Thus, accountants in their eagerness to find new business have driven up the price of practices and created what is known today as a seller's market.
Generally speaking, the accounting firm's clientele carry the majority of the value of the practice. This is generally known as the income stream of the business. Most firms possess only a minor amount of fixed assets, such as equipment and fixtures. There generally are no secret formulas, patents, trademarks, or other special assets that may carry a substantial value as with other businesses.