Benchmarking for Accounting Services
Business Description
Accounting services firms provide comprehensive financial management and compliance services. These include bookkeeping, tax preparation and planning, auditing, financial consulting, and payroll processing. They serve a diverse client base, ranging from individuals to corporations, offering tailored financial strategies and solutions.
Industry Classification
- NAICS Code: 5412 – Accounting, Tax Preparation, Bookkeeping, and Payroll Services
- SIC Code: 8721 – Accounting, Auditing, and Bookkeeping Services
Breakdown in the USA by Employee Count
Here’s a detailed table representing the distribution of firms in the Accounting Services industry by employee count, showcasing the estimated number of firms by size:
| Employee Count Range | Estimated Number of Firms |
|---|---|
| 1 - 4 employees | 25,000 |
| 5 - 9 employees | 18,000 |
| 10 - 19 employees | 10,000 |
| 20 - 99 employees | 14,000 |
| 100+ employees | 3,500 |
Industry Benchmarks
Gross Margin: Typically ranges between 40% to 60%. The margin can be higher for firms offering specialized services such as financial consulting or tax strategy.
Revenue per Employee: Generally ranges from $150,000 to $300,000, depending on the level of service and client base.
SDE Margin (Seller’s Discretionary Earnings Margin): Commonly between 20% to 35%, reflecting the efficiency and scalability of services provided.
Valuation
Typical Valuation Multiples
- EBITDA Multiple: 1x to 2.5x
- Revenue Multiple: .75x to 1.5x
- EBITDA Multiple to SDE Multiple: Multiply the EBITDA multiple by a factor typically ranging from 0.7 to 0.8, depending on the proportion of the owner’s compensation and discretionary expenses relative to EBITDA.
Standard multiples serve as a general guide and should not be seen as a definitive calculation of a specific company’s value, as numerous factors can influence the final valuation.
Key Valuation Drivers:
- Stability and predictability of revenue, particularly from ongoing contracts or retained clients.
- Diversification and quality of the client base to mitigate risk.
- Operational efficiency and the degree of automation in services.
- Expertise and reputation in niche areas that command higher fees.
- Regulatory compliance and risk management capabilities.
Buyers of Accounting Services Firms
Types of Buyers
- Strategic Buyers: Larger accounting firms or multidisciplinary professional services firms looking to expand their market presence or add niche services.
- Financial Buyers: Private equity firms and other investors interested in stable cash flows and potential for operational synergies.
- Individual Entrepreneurs: CPAs or accountants looking to start their own practice by acquiring an established firm.
Target Company Sizes
Small to Medium: Typically targeting firms with $200,000 to $10 million in annual revenue.
Large Firms: Attracting buyers looking for substantial operations with significant market share.
This document provides a detailed overview of the accounting services industry, highlighting operational metrics, financial benchmarks, and acquisition interests. This framework aids in evaluating the performance and strategic positioning of accounting firms within the broader market.
