A multiple of gross recurring fees is a convenient shorthand, not a complete valuation. Buyers price the income they expect to retain, the profit they expect to earn and the risk involved in getting there.
Sustainable gross recurring fees
Recurring compliance and advisory income is usually more valuable when it is well documented, fairly priced, collected reliably and spread across a healthy client base. Fees that are overdue for review or dependent on unusual owner relationships may be treated more cautiously.
Maintainable profitability
A buyer may adjust reported profit for owner remuneration, personal costs, one-offs and the resources required after completion. Strong margins are helpful, but the calculation must also reflect the people and systems needed to deliver the work.
Client quality and concentration
A broad base of loyal, profitable clients generally reduces risk. Buyers will examine large relationships, sector exposure, average fees, client age, service breadth, payment history and how many relationships sit entirely with the owner.
People and transferability
An experienced team with clear responsibilities can support continuity and reduce the buyer’s recruitment risk. However, salary levels, retention concerns, skills gaps and reliance on a few individuals also affect the assessment.
Technology, workflow and records
Consistent digital records, modern software, clear workflows and useful management information make due diligence and integration easier. Poor data does not only slow a deal; it can make buyers reduce their offer to reflect uncertainty.
Growth, service mix and strategic fit
A practice may be especially attractive to a buyer because of its location, staff, specialist client base or complementary services. Equally, underpriced work or services that do not fit the buyer’s model may need investment before they contribute fully.
Deal structure and payment risk
Value must be considered alongside the way it will be paid. Upfront cash, deferred instalments, earn-outs and retention-based adjustments expose seller and buyer to different risks. Security, definitions and responsibilities matter as much as the headline total.
How to improve the position before sale
- review prices and disengage from persistently unprofitable work;
- improve client and recurring-fee data;
- build relationships beyond the owner;
- document workflows and responsibilities;
- strengthen management information;
- address avoidable staff, lease, debt or compliance issues;
- allow enough time for improvements to become visible in the figures.