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How Small and Mid-Sized CPA Firms Are Valued in M&A Transactions

Saul Sony

Published on: Jul 30, 2025
121

Summary

Understanding how small and mid-sized CPA firms are valued in M&A transactions is crucial as consolidation accelerates across the accounting industry. This guide outlines how deal structure, buyer type, service mix, succession plans, and even post-sale client retention play key roles in determining firm value. With private equity interest rising and earn-out models becoming more common, knowing what drives your firm’s worth is more important than ever - especially if you're navigating exit or expansion options.

As the pace of mergers and acquisitions accelerates in the accounting industry, one of the most frequently asked questions by both buyers and sellers is: “How do you value a small or mid-sized CPA firm?” The answer isn’t one-size-fits-all. Valuations vary significantly based on multiple factors - ranging from the structure of the deal to the nature of the practice. Below, we break down the key parameters that drive valuations in this space.

Related Resource: Before diving into valuation factors, review our Practical Guide to Accounting Firm Valuation for a foundational understanding of how firms are priced and positioned in M&A deals.

1. Structure of the Transaction

The first major determinant of valuation is how the deal is structured. Common deal types include:

Full acquisition: The buyer takes over 100% of the practice.
Partial acquisition or equity rollover: The seller retains partial ownership and rolls over some equity into the new entity.
Merger into an existing firm: Often structured with shared control or integration into a larger platform.
Upfront payment vs. earn-out: Some deals are cash-heavy at closing, while others stagger payments based on performance post-close.

These variables influence not just valuation, but risk allocation and seller incentives.

2. Type of Buyer

The profile of the buyer also affects valuation multiples:

Private Equity buyers typically offer higher valuations due to their focus on scaling and future exits but may require earn-outs and aggressive growth targets.
Larger regional or national firms often look for synergy and may factor in cost savings, cross-selling opportunities, and internal team structures.
Smaller firms acquiring to transition out existing owners may negotiate lower multiples with longer payout periods.

3. Nature of the Practice

Not all CPA practices are created equal. Several operational and strategic variables impact firm value:

Succession planning: Firms with a documented and functional transition plan command higher valuations.
Profit margins & EBITDA: Strong margins are essential. Higher EBITDA equals better valuation.
Revenue per client & service mix:
- Firms heavy on CAS (Client Accounting Services) tend to have lower margins.
- Tax planning and advisory services are high-margin but require expertise.
- Audit services offer good margins but carry risk due to liability, peer reviews, and regulation.
Client metrics:
- Average client size
- Client concentration (no single client should contribute >15–20% ideally)
- Recurring vs. one-time revenue
- Historical client retention post-ownership transition

4. Other Contributing Factors

Other important elements that can shift the valuation include:

Digital presence: Firms with modern websites and clear branding are often perceived as more progressive.
Technology stack & workflow automation
Billing model: Hourly vs. value-based vs. subscription.
Geographic location & growth potential
Staff leverage and billable hour capacity

5. Post-Transaction Client Retention

Perhaps one of the most overlooked - but critical - components in valuation is client retention after the transition. Buyers increasingly structure earn-outs or clawbacks tied to revenue retention to hedge against client attrition.

Related Resource: If you're exploring the buy-side of a transaction, don't miss our Checklist: Key Questions Buyers Ask When Evaluating a CPA Firm for Sale to uncover the right red flags and opportunities early.

Conclusion

Valuing a CPA firm is part art, part science. There is no single formula, but a combination of financial, operational, and strategic factors ultimately define how attractive - and valuable - a firm is. Whether you’re looking to sell, merge, or acquire, a well-prepared firm with sound metrics and a clear growth story will always command a premium.

FAQs

Ideally, you should begin planning 12–24 months in advance. This gives you time to clean up financials, strengthen client retention, refine your tech stack, and build a transition-ready team - all factors that influence valuation.

Many firm owners focus only on top-line revenue and overlook profitability, client mix, and transition planning. Buyers want long-term stability - not just revenue figures.

Legacy systems alone won’t kill a deal, but they can lower perceived value. Upgrading to cloud-based platforms and automating workflows can boost both valuation and buyer interest.

Negotiate clear, measurable benchmarks (like revenue or EBITDA targets), define the tracking period, and include dispute resolution clauses. Earn-outs should reward future performance - not create post-sale friction.

Yes. Firms with recurring advisory or tax planning revenue typically command higher valuations than those reliant on one-off or seasonal services like tax prep. Buyers favor predictable cash flow.

About the Author

Saul Sony

Saul is a leading expert in partnerships, content strategy, and M&A advisory for the accounting and professional services industry. He specializes in creating impactful learning content, fostering strategic partnerships, and driving firm growth through insightful tax strategies and dealmaking. Saul helps professionals scale their practices, navigate industry shifts, and maximize opportunities in accounting and CPE-focused initiatives.

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