Advice income and the sale price of an accountancy practice

How accountancy practices are priced

The ICAEW’s The accountant’s guide to selling your practice, based on Della Hudson’s account of selling her own firm and published on 10 September 2020, states that the price paid for a practice is based on a multiplier of gross recurring income, excluding one-off fees, and puts the multiplier at between 0.8 and 1.2 of annual fees. Heather Townsend, in Price in buying an accountancy practice (AccountingWEB, 11 October 2019), gives the same range of 0.8 to 1.2 times gross recurring fees.

0.8 to 1.2

times gross recurring income, excluding one-off fees, is the price range for a practice.

1 to 2 years

is the normal period over which the price is paid. Payment up front may mean a lower price.

100%

of the recurring income lost when clients leave in the first 12 months may be clawed back.

50%

is a further clawback that may apply to clients who leave in months 12 to 24.

ICAEW, The accountant’s guide to selling your practice, 10 September 2020

The same guide lists what a buyer asks for once a non-disclosure agreement is signed: a client list showing recurring fees with one-off work excluded, the work done for each client, the age profile of the principals, their industries and their trading format. It says a seller who can show the practice runs independently of them may achieve a higher multiplier, and that the multiplier is also affected by the nature of the clients, including their age profile.

What a buyer takes out of the fee figure

Townsend tells a buyer to ask the seller to take two kinds of income out of revenue before the multiplier is applied: software costs recharged to clients, and any fees or commission received for introducing clients to other firms, unless that income is set to carry on into the future.

Her factors that raise the multiplier include clients paying monthly by direct debit or standing order, a practice that can prove it runs without the owner, high gross and net margins, a high proportion of revenue from cloud and advisory clients, and a young and growing client base. A practice with a high proportion of clients selling up or exiting their businesses sits at the low end. She gives 0.25 times recurring fees as possible where that combines with a seller who wants full payment up front and little handover.

Under Townsend’s test, income outside the accounts and tax fees stays in the revenue a buyer prices only when it is set to carry on after completion.

Two partners reviewing papers at a meeting table

A worked example

This example uses a made-up practice and made-up figures. None of the figures is an Altro commercial term.

A two-partner practice bills £640,000 in its last full year before sale, and both partners plan to retire when it sells. The billing includes £70,000 of one-off work (a company purchase of own shares, two business sales and a probate estate), £15,000 of software subscriptions recharged to clients, and £25,000 of commission from an informal arrangement with a local adviser that ends when the partners retire.

Recurring income a buyer prices

Made-up practice and made-up figures

Total fees billed in the year£640,000

Less one-off work−£70,000

Less software recharged to clients−£15,000

Less commission that ends when the partners retire−£25,000

Gross recurring income£530,000

At the ICAEW range of 0.8 to 1.2, £530,000 of gross recurring income prices the practice at between £424,000 and £636,000. The £110,000 taken out of the billing figure is left out of the price.

Clawback then turns on what clients do after completion. Suppose the sale agreement uses a multiple of 1.0 and claws back 100% of lost recurring income in the first 12 months and 50% in months 12 to 24, the terms the ICAEW guide describes. Clients paying £45,000 a year leave in the first year, and clients paying £20,000 a year leave in the second. The price falls by £45,000 and then by £10,000, a total of £55,000. The guide adds that unless the sale contract says otherwise, fee increases on other clients can offset those losses.

Ongoing Income and Capital Value

A firm in the Altro partnership shares in the initial revenue and chooses one of two commercial models in its partner agreement with Equity & General. Both are set out in partnership options.

Ongoing Income

A share in the initial and ongoing revenue, which gives your firm a recurring income. In a sale of the practice it is a line of income outside the accounts and tax fees, and the buyer’s test is whether it carries on after completion. The partner agreement is the document that answers that test.

Capital Value

A share in the initial revenue, and value built up in the client assets Equity & General manages, for your firm’s succession or exit. Client assets from your firm’s introductions are tagged to your firm and ownership is shared with Equity & General. If either side wants to sell its share, the other has first refusal at an independent valuation. If the other side declines, both go to market together.

Under either model your firm stays the client’s accountant and keeps the accounts, tax and payroll fees that make up the recurring income a buyer prices. Equity & General gives the advice and carries the regulatory responsibility for it. The commercial terms are agreed with your firm in writing before anything starts.

The partner agreement also provides for the client assets to move to another Equity & General contract if both sides agree to change the structure. Read that clause alongside the first refusal when you plan a sale, and ask the partnership manager how your firm’s share is treated if the practice itself is sold or merged.

Client age and the multiplier

The ICAEW guide links the multiplier to the age profile of a practice’s clients, and Townsend puts a high proportion of clients selling up or exiting their businesses among the reasons for a low one. Those clients are owner-managers approaching an exit of their own, and their accountant has prepared their accounts every year.

Client Watch in the partner portal reads your firm’s client list against Companies House and lists the clients with a director past 55, from the dates of birth on the public record. Set against the client list, that gives the share of your recurring fees held by owners nearing their own exit.

An owner selling a company or drawing a pension faces decisions on business asset disposal relief, pension contributions before completion and what happens to the proceeds. The tax and accounts work is your firm’s. Advice on pensions and investments is regulated advice from the Equity & General financial adviser, covered in financial planning before a business sale.

Your firm

Describes what is in the file, asks whether the client would like a conversation, makes the introduction through the portal in your firm’s name and stays the client’s accountant throughout. Your firm sees each introduction tracked in the portal from the first call to advice implemented.

Equity & General

The Account Manager is the person the client is introduced to and meets first. The financial adviser gives the regulated advice on pensions, protection, investments and retirement income, and Equity & General carries the regulatory responsibility for it.

The division of work is set out in what the accountant does and what the financial adviser does.

Steps for the ten years before a sale

Split three years of billing. Separate recurring fees, one-off work, recharged costs and any other income, client by client. A buyer starts from the recurring figure.
Put every income line that is not a fee in writing. Record what happens to it if the practice is sold, so a buyer can see whether it carries on after completion.
Move clients onto monthly payment. Clients paying by direct debit or standing order are one of the factors Townsend lists as raising the multiplier.
Show the practice runs without you. Document the systems and hand client relationships to other partners or managers, which the ICAEW guide links to a higher multiplier.
Count the fees held by owners past 55. Client Watch lists the clients with a director past 55 from Companies House once your client list is in the portal.
Read the sale clauses in your partner agreement. If your firm is in the Altro partnership, ask the partnership manager in writing how your firm’s share is treated on a sale or merger of the practice.
Check your own relief. Business asset disposal relief charges 18% on qualifying gains from 6 April 2026, with a lifetime limit of £1 million and a two-year qualifying period (gov.uk, Business Asset Disposal Relief).

What is not settled

The range of 0.8 to 1.2 comes from articles published in 2019 and 2020. A broker prices a practice against the deals done in the year it is marketed, and the ICAEW guide notes that a seller who wants payment up front may need to accept a lower price.

The ICAEW and AccountingWEB articles cited here do not cover a share in client assets held with a financial advice firm. Under Capital Value, the partner agreement sets the route for selling that share: first refusal for the other side at an independent valuation, then a joint sale if the other side declines.

Whether Ongoing Income continues after a sale of the practice depends on the partner agreement, and a buyer will ask to see that clause.

Common questions

What is gross recurring income?

Gross recurring income is the fee income a practice can expect to bill again each year for continuing work such as annual accounts, tax returns, payroll and bookkeeping. The ICAEW guide to selling a practice (10 September 2020) defines the base for the price as gross recurring income excluding one-off fees, and a buyer asks for it client by client. One-off work, such as a share buyback, a business sale or a probate estate, is left out. Heather Townsend’s AccountingWEB guide (11 October 2019) also takes out software recharged to clients and commission that does not carry on after the sale. The figure is gross, before staff and overhead costs. A buyer weighs profitability separately, and Townsend lists high gross and net margins among the factors that raise the multiplier.

Do buyers count income from financial planning introductions in the price?

A buyer counts it only when it carries on after the sale. Heather Townsend’s AccountingWEB guide (11 October 2019) tells buyers to take fees or commission for introducing clients to other firms out of revenue, unless that income is set to carry on into the future. An informal arrangement that ends when the selling partner retires fails that test. Income under a written agreement that continues after completion can be put to a buyer, with the agreement as the evidence. How a buyer then prices it is a matter for the buyer and for your own adviser on the sale. The Altro commercial terms are agreed with each firm in writing.

Which commercial model suits a partner planning to sell within ten years?

The choice is your firm’s, made in the partner agreement with Equity & General. Ongoing Income gives a share in the initial and ongoing revenue, which appears as a recurring income in the practice’s accounts. Capital Value gives a share in the initial revenue and value built up in the client assets Equity & General manages, for your firm’s succession or exit. Under Capital Value, if either side wants to sell its share, the other has first refusal at an independent valuation. When comparing the two, take your own advice on the sale of the practice and its tax, and ask the partnership manager to set out in writing how each model operates if the practice is sold or merged.

Does introducing clients to Equity & General affect our recurring fees?

Your firm stays the client’s accountant throughout and keeps the accounts, tax and payroll work. Equity & General advises on pensions, protection, investments and retirement income. Each introduction is made through the portal in your firm’s name, and your firm sees it tracked from the first call to advice implemented. The client meets the Equity & General Account Manager first, and the financial adviser gives the advice. The recurring fees a buyer prices are the fees your firm bills for its own work, and the partnership leaves that work with your firm.

What will a buyer ask to see about the partnership?

Expect a buyer to ask for the partner agreement between your firm and Equity & General, the commercial model your firm chose, and the income received under the agreement in each year, as it appears in your accounts. The record of introductions is held in the portal. Under Capital Value a buyer will also ask how your firm’s share in the client assets is treated if the practice is sold, and what the first refusal at an independent valuation means for them. Put that question to the partnership manager in writing before the practice is marketed, so the answer is in the sale file. The ICAEW guide says a buyer sees client names only once the sale is agreed.

Can we raise a client’s own exit with them before we sell our practice?

Yes, within the line between accountancy work and regulated advice. The accountant can describe what is in the file, such as a director past 55, retained profits building up or an approach from a buyer, and ask whether the client would like a conversation with a financial adviser. The tax work is your firm’s: business asset disposal relief charges 18% on qualifying gains from 6 April 2026, with a lifetime limit of £1 million and a two-year qualifying period (gov.uk). Recommending a pension contribution, an investment or a product is regulated advice, and it sits with the Equity & General financial adviser. The introduction goes through the portal in your firm’s name, and the client meets the Account Manager first.