I was speaking to an accountant who has a business assisting accounting firms get their practices ready for sale, usually when they are retiring. He assists both buyers and sellers. Basically the premise of valuation of an accounting firm is a multiple of the annual revenue, with individual returns having a lower multiple than other “stickier” clients. There’s a lot of other variables in the mix: systemisation, cloud use, workforce mix, pricing of services, use of ad-hoc outsourcing etc. However, the basic premise has been historically, and still continues in a changing competitive environment, that the business is valued on the value of the repeat customers.
However, due to the impact of the current Coronavirus, the accountant mentioned all his deals have fallen through. No-one is buying, and no-one is selling accounting firms. With the lack of surety of the depth of the impact of Coronavirus, there can be no way to determine the likelihood of repeat business, and no way to take a multiple of an unknown number.
It’s clear there are plenty of almost retired accountants, and accountants who were thinking of moving away from public practice, that are now staying around for another year.
Until such time as the market can give clarity to the effects on businesses and individuals, then the valuation of firms remains literally impossible. And in a market where accounting firm owners want to push for top dollar to maximise the value of (usually) their main asset, this means a stalling of completed transactions. At the same time, even for completed transactions, there is unlikely to be an incentive to tip cash received into other investment options. The stock market, for which many industry superfunds invest, remains nervous. The Australian dollar still fragile. And property still working out how to conduct auctions and viewings first given the social distancing rules, and more recently with rules halting physical auctions and viewings.
So for the moment, it’s time keep going, keep your head down, don’t look for the goal posts which have certainly moved, and hope the goal posts haven’t disappeared.
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