Not All Revenue Is Equal

Hey, it’s David!

Recently, we got a great question: Can you share more industry-specific insights? That makes sense, we’ll start weaving these in from time to time.

Today, we’re diving into Accounting Services, a space we’re actively involved in right now.

Let’s kick things off with a big one: How do you effectively value an accounting firm?

…what’s this seat really worth?

I was boarding a flight when I overheard two passengers debating seat upgrades.

One guy was convinced first-class wasn’t worth the price. “It’s just a seat,” he said.

The other laughed. “It’s not just the seat…it’s the space, the comfort, the experience. It’s how you value the trip that matters.”

And I couldn’t help but think: That’s exactly how most approach accounting firm valuations. Some buyers just look at revenue multiples. The best buyers? They dig deeper.

How Accounting Firms Are Valued

Valuing an accounting firm? It’s not just numbers; it’s part art, part science.

Not all firms are created equal, and the right valuation method depends on firm structure, revenue mix, and how reliant it is on key partners. Here are four common approaches:

1. EBITDA Multiple: The Traditional Benchmark, But…

• Many default to EBITDA multiples, but margin variability is huge in accounting firms.

• Two firms with identical revenue can have wildly different valuations if one is lean and tech-driven while the other drowns in overhead.

• A high-margin firm with recurring advisory revenue? Premium multiple. A compliance-heavy, partner-driven firm? Not so much.

Key takeaway: Not all EBITDA is equal. Dig into realization rates, pricing models, and overhead structure.

2. Revenue Multiple: The Simplicity Trap

• Revenue multiples give a quick read…but miss critical context.

• Not all revenue is equal. Tax work is recurring and often pulls through high-value advisory, audit, and consulting revenue.

• Firms with diversified services (tax, audit, CFO services, and advisory) command higher multiples than those concentrated in one area.

Key takeaway: Look beyond the revenue number. What’s the mix of services, and how stable is the client base?

3. SDE Multiple: The Owner-Dependent Reality Check

• SDE (Seller’s Discretionary Earnings) matters when the owner plays a dominant role.

• In many firms, the founder is the business. If clients won’t stick around post-acquisition, revenue disappears.

• A firm with strong second-tier leadership, standardized processes, and non-owner revenue generation drives higher multiples.

Key takeaway: The less a firm depends on the owner, the more valuable it is post-acquisition.

4. Partner Compensation Model: The Revenue Puzzle

• Accounting firms are built on billable hours…but who’s billing?

• A firm where partners generate revenue solely through their own work? Growth ceiling.

• A firm where partners manage client relationships while leveraging staff? Scales more efficiently = higher multiple.

Key takeaway: Partner realization rates and work leverage determine future scalability.

The Bottom Line

Smart buyers don’t just see revenue, they see what makes it last.

Firms that command premium multiples tend to have:

• A well-leveraged team (not overly reliant on one person)

• Strong margins with advisory-heavy revenue

• A stable, diversified client base

• Efficient operations + smart technology adoption

Brand strength, low employee turnover, and growth potential all matter.

So the real question is… would you rather buy a firm that scales, or one that sinks the moment leadership steps away?

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Thank you!

David