Valuing Small & Medium-Sized Accounting Firms in Canada (Under $10M Revenue)

Selling or buying an accounting practice is a major decision. This guide provides an approachable yet professional overview of how to value a small or medium-sized accounting firm in Canada (typically those under $10 million in annual revenue). We’ll cover common valuation methods, key factors that influence value, real-world valuation multiples and deal examples, and important regulatory considerations (like ownership rules for CPAs vs. non-CPAs). Whether you’re a firm owner considering a sale or a potential buyer, this guide will help you understand the M&A valuation of accounting practices in the Canadian context.

Common Valuation Methods for Accounting Firms

Valuing an accounting firm often comes down to a few standard approaches. In practice, multiple methods may be used to cross-check each other. Here are the most common valuation methods used in firm sales:

• Multiple of Revenue (Gross Fee Multiple): Perhaps the most widely used quick method in this industry is applying a multiple to the firm’s annual gross revenue (fees). Many small practice sales are discussed in terms of “X times revenue.” A benchmark of around 1.0× annual revenue is often cited as a rule of thumb (When is it a Good Time to Sell your Accounting Practice |). In fact, one common saying is “100 cents on the dollar,” meaning a firm with $1M in yearly fees might sell for about $1M (When is it a Good Time to Sell your Accounting Practice |). In reality, the multiple can be higher or lower: a typical range is about 0.8× to 1.2× of annual revenue (When is it a Good Time to Sell your Accounting Practice |). Firms with very stable, high-quality revenues might fetch at or above 1×, whereas firms with riskier or declining revenues might see offers below 1×. (We’ll see examples of these ranges in a later section.)

• Multiple of Earnings (EBITDA or Net Profit Multiple): Another approach is to value the firm based on its earnings or cash flow, such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or SDE (Seller’s Discretionary Earnings, which is EBITDA plus the owner’s compensation and perks). Here, the valuation is determined by multiplying normalized annual earnings by an appropriate factor. For example, if a firm has an EBITDA of $500,000 and the chosen multiple is 4×, the implied value would be $2,000,000. For small and mid-sized accounting firms, EBITDA multiples commonly fall in the range of roughly 3× to 5× EBITDA in many cases (Valuation Multiples for an Accounting Firm - Peak Business Valuation). One survey of accounting practice sales found an average EBITDA multiple between ~3.0× and ~4.5× (Valuation Multiples for an Accounting Firm - Peak Business Valuation), and an average SDE multiple of about 1.8× to 3.3× (Valuation Multiples for an Accounting Firm - Peak Business Valuation). The exact multiple depends on factors like the firm’s profit margins, growth, and risk (discussed below). High-margin firms or those with scalable models might command the higher end of the range (or beyond), while a firm with lower profitability may see a lower multiple. Buyers ultimately focus on the future cash flow they can obtain from the practice (The Valuation of a Professional Service Practice - BMO Private Wealth), so a firm’s sustainable earnings are critical.

• Discounted Cash Flow (DCF) Analysis: The DCF method involves forecasting the firm’s future cash flows and discounting them back to present value using a chosen discount rate. In theory, DCF is the most “precise” valuation method, as it accounts for the time value of money and the specific cash flow projections of the firm. In practice, DCF is less commonly used for small practice sales because it requires detailed forecasts and many assumptions. However, for a buyer looking at a firm with steady long-term clients, doing a DCF can help ensure the price makes sense relative to expected future earnings. Professional valuators might use DCF or similar income approaches for larger firms with robust financials (The Valuation of a Professional Service Practice - BMO Private Wealth). Keep in mind that the value in an accounting practice is largely in goodwill (client relationships, reputation, etc.), so if those relationships are expected to continue, a DCF can capture that. On the other hand, if much of the goodwill is personal to the seller, DCF becomes tricky – the projections might not hold if clients leave with the partner. (For smaller firms where personal goodwill is high, simpler rules of thumb are often relied upon instead (The Valuation of a Professional Service Practice - BMO Private Wealth).)

• Market Comparable Transactions: This approach (a subset of the market method) looks at actual sales of similar accounting firms to derive valuation multiples. In effect, the “multiple” approach above is an example – it’s informed by what other firms have sold for. Brokers and M&A advisors maintain data on practice sales to guide pricing. For example, if similar local firms have sold for about 1× revenue or ~4× EBITDA, that will set an expectation for new deals. The market approach is considered reliable because it’s based on real-world transactions (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm). The challenge is finding truly comparable sales (each practice can be quite unique in client mix, size, location, etc.), and market conditions can change. Nonetheless, checking against recent practice sales data in Canada or North America provides a reality check for valuation. We include some recent valuation multiples and examples in a later section to illustrate this.

• Asset-Based Approach: Traditional asset-based valuation (summing up the fair market value of net assets) is usually not the main method for accounting firms, because such firms have minimal tangible assets. Most value lies in intangibles (client lists, goodwill). However, there is one asset component that can be relevant: work-in-progress (WIP) and receivables. In some sales, especially structured as an “asset sale,” buyers and sellers pay close attention to WIP and AR. For instance, a buyer might effectively purchase the WIP by paying the seller for the profits to be earned on completing that work (The Valuation of a Professional Service Practice - BMO Private Wealth). The tangible assets (computers, furniture) usually don’t drive the price much – they might be thrown in or valued at book value. The adjusted net asset approach could set a floor value (e.g. covering net tangible assets plus WIP) (The Valuation of a Professional Service Practice - BMO Private Wealth), but almost always the transaction price exceeds the tangible assets, due to goodwill.

Quick Tip: In the accounting firm market, simple “rule of thumb” valuations (like 1× revenue) are a starting point, but savvy buyers will also consider the firm’s profitability and risk. A practice with $1M in fees and $200k in profit might not fetch the same multiple as one with $1M in fees and $400k in profit. Likewise, two firms both grossing $1M could be valued very differently if one has more stable clients or less owner-dependence. Always use multiple methods to triangulate a reasonable value range (The Valuation of a Professional Service Practice - BMO Private Wealth).

Key Factors That Influence Value in an Accounting Practice

Not all accounting firms are created equal – and thus, even the “typical” multiples above will adjust up or down based on a firm’s characteristics. Here are the key factors that influence the value of a small/medium accounting firm in the context of a sale:

Client Base Quality and Recurring Revenue

One of the first things buyers examine is the firm’s client base and the nature of its revenue stream. Accounting practices with a high proportion of recurring revenue (such as monthly bookkeeping/book-closing services, recurring annual engagements, ongoing advisory work, etc.) are generally valued higher than those reliant on one-off projects or seasonal spikes. Predictable, repeat client work reduces risk for the buyer (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm) (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm). For example, a firm that generates most of its income from recurring monthly contracts or annual engagements with loyal business clients will command a higher multiple than a firm generating the bulk of revenue from one-time consulting projects or sporadic tax filings (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm).

• Diversification and Client Concentration: A broad, diversified client base is a positive value driver. If no single client makes up an oversized portion of revenue, the firm’s cash flow is more secure. Conversely, heavy reliance on a few large clients can drag down value due to concentration risk (losing one big client post-sale would have a big impact). Prospective buyers will evaluate the concentration of revenue to see if the firm relies heavily on a small number of clients or if revenue is well-distributed (Buying an Accounting Practice: The Complete Guide - Future Firm). Having many financially healthy, stable clients in a variety of industries is ideal (When is it a Good Time to Sell your Accounting Practice |). A related point is client loyalty and retention rates – firms with high client retention (low churn) and multi-year relationships signal strong goodwill that can transfer to a new owner.

• Type of Services (Compliance vs. Advisory): The makeup of the firm’s services (and clients) also affects value. Certain types of work are seen as more valuable in an acquisition. For instance, basic personal income tax return preparation (T1s for individuals) is often considered a lower-value service in a sale context (When is it a Good Time to Sell your Accounting Practice |). These engagements can be price-sensitive (clients might switch accountants for a small fee difference) and face competition from DIY tax software, meaning this revenue is less “sticky.” In contrast, business clients on monthly/quarterly accounting plans or requiring annual audits/reviews are stickier and thus more valuable. Audit and assurance engagements, for example, tend to generate higher fees and require ongoing relationships, so a book of audit clients can add value (with the caveat that the buyer must be a licensed CPA to take over audit work) (When is it a Good Time to Sell your Accounting Practice |). Likewise, firms known for a particular specialization – say tax planning for medical professionals, or bookkeeping for a certain industry – might enjoy higher pricing if those niches command premium fees or have strong demand.

• Recurring vs. Seasonal Work: If a firm’s revenue is heavily seasonal (e.g. a large portion from tax season only), a buyer has to manage cash flow swings and the risk of clients disappearing year to year. On the other hand, a steady flow of work year-round is more valuable. Many buyers especially love the “subscription” style accounting models (clients paying fixed monthly fees for continuous service) because it ensures income continuity (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm). To illustrate, a practice that has figured out how to turn once-a-year tax clients into year-round advisory clients will be more valuable than one that only sees those clients in April (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm).

In summary, strong recurring revenue and a diverse, loyal client base are key value drivers. If your firm has that, expect interest from buyers and potentially higher offers. If not, enhancing the recurrence and stability of revenue (for example, by signing clients to service packages or diversifying industries served) can improve value before a sale.

Specialization and Service Mix

The areas in which the firm specializes can influence its attractiveness and value. A firm’s niche expertise or service mix will affect both the pool of potential buyers and the price they’re willing to pay:

• Industry or Niche Specialization: If an accounting firm has a recognized specialty (e.g. a practice dedicated to dental clinics, nonprofits, real estate developers, etc.), this can add value. Niche firms often command higher fees and have reputational goodwill in that space, which a buyer may pay a premium for. Specialized knowledge can mean the firm faces less competition in that niche and enjoys strong referrals. A buyer who wants to enter or expand in that niche will find such a firm especially valuable. On the flip side, a very niche firm might also narrow the buyer pool to those interested or competent in that area. The ideal scenario is a specialization that is transferable (the buyer can learn or hire staff for it) and profitable. Higher fees due to specialized expertise generally indicate a higher practice value (When is it a Good Time to Sell your Accounting Practice |).

• Service Lines (Audit, Tax, Bookkeeping, Advisory): The composition of revenue across service lines matters. Audit and Assurance services (if the firm is licensed for those) are usually viewed differently from, say, pure bookkeeping firms. Audit engagements can add value because they are often recurring (annual requirement for clients) and have higher billing rates, but they also require the buyer to have (or obtain) the necessary license and expertise. Tax and compliance services (personal and corporate tax prep, compilations) are the bread-and-butter for many small firms; they’re generally stable, but the value will depend on the client mix and whether the work is routine vs. complex. Bookkeeping practices can be attractive for their monthly recurring revenue, though buyers will consider the risk of automation or clients moving bookkeeping in-house or to DIY software (When is it a Good Time to Sell your Accounting Practice |) (When is it a Good Time to Sell your Accounting Practice |). Advisory and consulting services (like business consulting, CFO-for-hire, etc.) may fetch a premium if they indicate strong client relationships and high-value expertise – but if they rely heavily on the selling partner’s personal skills, a buyer might discount this (because that goodwill could leave with the seller).

• Reliance on Specific Services or Clients: A firm heavily focused on one service area may have more risk. For example, a practice that is 90% personal tax returns has the risk noted earlier (seasonal, price-sensitive). A practice that is, say, 70% bookkeeping and 30% year-end tax might be seen as more balanced. If a firm has some consulting or special projects revenue, buyers will want to know if that’s repeatable or was one-off. Ideally, a firm’s service mix includes a stable base of compliance work (to ensure baseline revenue) plus some higher-margin advisory work (for upside). Firms that have developed additional services to cross-sell (like wealth management, software implementation, etc.) might also stand out – these can be upside opportunities for a buyer, though again the buyer will consider if those services can be continued by them.

In summary, a well-rounded service mix with strengths in high-value areas (and not over-reliant on low-margin or one-off work) tends to support a better valuation. If your firm has a unique specialty or high-demand niche, that can be a selling point that boosts the multiple.

Quality of Staff and Team Retention

There’s a saying in professional services: “90% of your goodwill goes down the elevator every night.” (When is it a Good Time to Sell your Accounting Practice |) In other words, the value of an accounting firm is largely in its people – the staff and professionals who deliver the service. For a buyer, inheriting a strong, capable team can be as important as inheriting the clients.

• Staff Skills and Credentials: Buyers will evaluate the experience and qualifications of the firm’s staff. A team of well-trained, autonomous accountants (CPAs or technicians) who can serve clients with minimal involvement from the owner is ideal. If the staff have specialty skills (e.g. a tax expert, audit specialists, etc.), the buyer isn’t immediately required to hire new experts. Conversely, if the firm’s staff are mostly junior and heavily reliant on the owner for supervision and technical guidance, a buyer might view the firm as riskier (or see additional cost, effort, and training needed post-sale) (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm).

• Tenure and Relationships: Long-tenured staff who have established relationships with clients are extremely valuable in a transition. When key team members stick around after the sale, clients feel continuity. If a firm has high staff turnover, it’s a red flag – it could indicate issues with culture or workload, and it means clients might not have strong relationships beyond the owner. A buyer will likely interview or at least review profiles of the staff during due diligence to assess who they can count on going forward (Buying an Accounting Practice: The Complete Guide - Future Firm).

• Retention and Morale: The morale and satisfaction of the staff can indirectly affect value. Happy employees are more likely to stay through an ownership change. Buyers may ask about compensation structures, workload (busy season hours), and any incentive plans to gauge how likely the team is to remain. If the staff are well-compensated and enjoy good work-life balance, the buyer might assume a smoother transition. If there’s pent-up burnout or under-market pay, the buyer might worry about an exodus after acquisition (and possibly factor in the cost of raises to retain people).

• Dependency on Key Employees: While the owner (partner) is usually the biggest factor (see next section), sometimes a non-owner employee is also crucial – for example, a senior manager who manages most client relationships. If such an employee is integral, the buyer might require assurances that the person will stay (perhaps through a stay bonus or even making them part of the deal). If the key employee isn’t interested in staying, that can reduce the price or kill a deal.

In summary, a strong, stable team that is likely to stay on board will significantly enhance a firm’s valuation. From a seller’s perspective, investing in your team (training, retention, making sure clients interact with multiple people, not just you) will pay off in the sale. From a buyer’s perspective, evaluating the team is as critical as evaluating the client list – after all, you’re acquiring a functioning operation, and the employees are the ones who will help maintain and grow it.

Reliance on Owners/Partners (Transition Risk)

This factor is closely tied to the previous (staff quality) but focuses on the role of the current owner(s) and how much the practice’s value is “personal” vs. institutional. In a small firm, often the founding partner has outsized importance – they might hold the majority of client relationships, make all management decisions, and even be the firm’s brand in the community. Buyers will assess how dependent the firm is on the seller and how easily that goodwill can be transferred.

• Personal Goodwill vs. Firm Goodwill: Personal goodwill refers to client relationships or reputation that are tied to a specific individual (the partner), whereas institutional goodwill is embedded in the firm (clients associate with the firm’s brand or team as a whole). Personal goodwill is not fully transferable – if clients only trust the seller, there’s a risk some will leave when the seller exits (The Valuation of a Professional Service Practice - BMO Private Wealth). Firms that have institutionalized their client relationships are more valuable. For example, if each client has multiple touchpoints at the firm (partner, manager, staff) and is used to being served by a team, those relationships are easier to transition. As a seller, one way to boost value is to gradually introduce other team members to client relationships well before you sell, so clients don’t feel lost without you. Buyers will often ask: “How would the clients react if the partner stepped away?” The more confidence they have that clients will stick (because they’re accustomed to dealing with a team or because there’s a detailed transition plan), the higher the price they’ll pay.

• Owner’s Involvement in Day-to-Day: If the owner of a CPA firm is heavily involved in all aspects of the work (signing off every file, managing every client personally), that indicates higher risk. It’s often the case in very small practices or sole proprietorships. The buyer might need the seller to stay on for a longer transition, or might price in an expectation of client loss. In contrast, if the owner has already delegated a lot of the work (e.g. a manager handles client meetings, staff handle most production, and the owner mainly oversees quality or high-level advice), the firm is more self-sustaining.

• Transition Period Agreements: In many deals, to mitigate owner-dependence risk, the seller is asked to stay on for a transition period – which could be a few months to a couple of years, depending on the situation. While this is more of a deal term than a value factor, it does relate: a firm might secure a higher price if the buyer knows the seller will remain for say 1 year to personally reassure key clients and transition relationships. However, not all sellers want (or are able) to stay long. If a seller is exiting due to health or immediate retirement, the firm’s value may be a bit lower unless there is strong evidence that clients and staff will manage the transition without the seller. Some practices even tie final payout to client retention as a way to account for this risk (more on that in deal structures below).

In short, the less a firm’s success relies on the current owner’s personal involvement, the higher the valuation. Buyers seek firms where the goodwill resides in the business (the team, the brand, the processes) rather than just in the individual seller. Sellers can increase their firm’s value by systematizing the practice and making themselves less indispensable prior to sale.

Location and Market

Location can play a surprisingly important role in the value of an accounting firm – not because of the physical real estate, but because location affects the market dynamics (client opportunities and buyer interest).

• Urban vs. Rural: Accounting practices in major urban centers or economically vibrant areas tend to have more potential buyers and often command higher multiples, simply due to demand (Key Factors in Valuing a CPA Firm | Poe Group Advisors). In large cities, there are more accountants and firms looking to acquire practices, and more clients to potentially expand services to. Also, an urban practice might have a more diverse client base (which, as discussed, can reduce risk). Conversely, a firm in a very small town or remote area might have fewer interested buyers (fewer local CPAs to take over), which can lead to a lower sale price or a longer time to find the right buyer (Key Factors in Valuing a CPA Firm | Poe Group Advisors). That said, if the location has some attractive features (e.g. a growing small city with few existing CPAs, or a desirable community where people want to live), it can still attract interest.

• Local Economy and Client Geography: Buyers will consider the health of the local economy where the firm operates. For example, an accounting firm in a booming region (say, an area with lots of new businesses or a strong resource economy) might be more valuable because of growth opportunities. Also, are the firm’s clients mostly local to that area, or spread out? With today’s cloud accounting, some firms serve clients remotely across provinces or nationally. A broader geographic reach could be a plus (more diversification), though a very local firm with strong community ties can also be valuable if that community is stable.

• Competition and Market Position: The firm’s position in its local market can affect value. If it’s one of the only established CPA firms in town, that could be attractive (built-in client base, local reputation). If the market is saturated with many firms, a buyer might be more cautious or may only pay a premium if this firm has clear differentiation. Location can also tie into cultural or language factors – for instance, a firm serving a specific community (like a multilingual practice serving particular ethnic communities in a city) might have value to certain buyers who understand that market, but if a buyer doesn’t have those ties, they might discount it.

In Canada, another aspect of location is the provincial regulatory environment – while CPA Canada unifies standards, each province has its own CPA body and rules. A buyer from another province might need to navigate transferring their registration or might prefer to buy in their home province. So, a practice will likely attract local buyers more than distant ones, barring unique circumstances.

Overall, think of location as influencing buyer demand. A great practice in a less populated area might still sell, but perhaps to a regional firm or someone willing to relocate. A practice in a prime location (say downtown of a major city) might draw multiple bidders, helping drive up price. You are not just selling the firm, but also essentially “selling” the location to a buyer (Key Factors in Valuing a CPA Firm | Poe Group Advisors) – if the buyer is happy to work/live there and sees opportunity there, that’s a plus.

Growth Trajectory and Future Outlook

Past and projected growth of the firm is a significant factor. Buyers are essentially buying future earnings, so if a firm is on an upward trajectory, it’s more enticing.

• Historical Growth Rate: A firm that has been consistently growing its revenue (and client base) year over year will instill confidence in buyers. For example, a firm that has grown 10% annually for the past few years shows positive momentum. If another firm of similar size has been flat or declining, a buyer will view it as higher risk (they might wonder if clients are leaving or if the firm is stagnant). Higher historical growth can lead to higher valuation because buyers expect that trend to continue (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm). One source notes that a high growth rate (e.g. 20–30% per year) can significantly increase valuation, as buyers pay for that future upside (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm).

• Growth Opportunities: Beyond just the track record, what is the future potential of the firm? This is somewhat subjective, but sellers will often pitch the growth opportunities to justify a higher price. Examples: untapped local market potential, ability to offer new services to existing clients, minimal marketing done so far (meaning a buyer could grow by marketing), or cross-selling opportunities (perhaps the firm only does tax, and a buyer could introduce bookkeeping or vice versa). If the firm is located in a high-growth area (new businesses opening, etc.), that’s part of future outlook. Buyers will assess whether the firm has low-hanging fruit to grow. If it does, some buyers might be willing to pay a bit more, expecting to realize that growth post-acquisition.

• Technology and Modernization: A subtle factor that ties to future outlook is how modernized the firm is. A firm that has embraced efficient technologies (cloud accounting software, client portals, automation) might be better poised for growth (or at least easier to take over). If a firm is still very old-school (all manual processes, paper files), a buyer might see a growth opportunity (modernize and improve efficiency) but also a cost (they’ll have to invest in tech). We mention this here because a tech-forward firm can be a selling point especially to younger buyers, and it may indirectly boost value. In Canada, many small firms have been gradually moving to cloud systems – if one firm is ahead of the curve, it might distinguish itself.

• Financial Health Indicators: Growth is not just revenue; buyers will also look at trends in profit margins. If the firm’s revenues grew but profits shrank (maybe due to rising costs or pricing issues), that might be a concern. Ideally, a firm shows scalable growth (able to add revenue faster than it adds costs). Metrics like client acquisition rate, average fee per client trending upward, etc., all paint a picture of a healthy growing firm.

Overall, a firm with a strong growth story will generally fetch a higher multiple than a similar-sized firm that’s stagnating. However, prudent buyers will evaluate if the growth is sustainable and realistic. For example, if growth was due to one large client addition, that’s different than broad-based organic growth. As a seller, demonstrating a clear growth path (and perhaps leaving some growth for the buyer to achieve) can help maximize value.

Other Factors and Intangibles

In addition to the major factors above, there are a few other considerations worth noting:

• Profitability and Efficiency: While revenue is often the headline in practice sales, the profit margins of the firm do matter. A more profitable firm (after giving the owner a market salary) is inherently worth more, because a buyer’s return on investment is higher. Interestingly, some buyers might overlook an inefficiency if they think they can fix it. For example, a firm might have below-average profitability, but a buyer experienced in practice management might see how to cut costs or increase fees. Still, all else equal, higher profitability = higher value (Key Factors in Valuing a CPA Firm | Poe Group Advisors). Efficiency metrics like billing rates, utilization of staff, WIP and receivables management (low bad debts, timely billing) also signal how well-run the firm is (When is it a Good Time to Sell your Accounting Practice |) (When is it a Good Time to Sell your Accounting Practice |). A well-managed firm reduces risk for a buyer and can command a better price.

• Clean Books and Records: It should go without saying, but a practice that has clean financial records, documented processes, and is well-organized will be viewed more favorably in due diligence than a disorganized one. It’s a bit meta, but accountants are expected to have tidy financials – if a buyer finds the firm’s own accounting and work papers are a mess, they may question the quality of service and could lower their offer or walk away. Ensuring your internal finances and client files are in order is part of preparing for a sale (and can only help value).

• Liabilities and Commitments: Buyers will look at any looming liabilities: pending legal issues, debts, long-term lease commitments, etc. Typically, small firm sales are structured as asset sales (the buyer doesn’t assume past liabilities), but something like an expensive office lease can affect value. If the lease is above market rate, a buyer might see that as a negative (they either have to move the office or bear that cost). Conversely, if you have a great lease or you own your office and plan to lease it to the buyer at a reasonable rate, it could be a slight plus.

• Reputation and Brand: The firm’s reputation in the market is part of goodwill. Positive brand recognition, awards, community involvement – these soft factors can make a difference. They are hard to quantify, but a strong reputation means clients trust the firm, which means they’re more likely to stay after a sale. Any tarnish on the reputation (even minor disciplinary history with the CPA regulator, for example) could give buyers pause.

• Regulatory Compliance: A prospective buyer will consider if the firm has a good compliance track record – e.g. passing CPA practice inspections or peer reviews. In Canada, CPA firms undergo practice inspections; if the firm has had clean inspection results, it’s one less thing to worry about. If there were issues, a buyer might factor in the work needed to address them.

• Seller’s Willingness to Assist: Though this crosses into deal structure, it’s worth noting as a factor: if a seller is very cooperative – willing to stay during tax season, introduce every client personally, or even finance part of the sale – the deal can be more valuable from the buyer’s perspective. Sometimes sellers who offer seller financing or earn-outs can get a slightly higher price (since they’re effectively sharing risk). We’ll discuss this more in the deal structure section.

As you can see, valuation is multi-faceted. A firm’s price is ultimately a function of these factors combined – revenue, earnings, client base, team, growth, etc., all interplaying. No two firms are identical, which is why the range of multiples can be broad. Next, we’ll look at some real-world valuation multiples and examples to ground this discussion in actual market data.

Valuation Multiples and Real-World Examples

To give context to the valuation methods and factors above, let’s look at typical valuation multiples for small and mid-sized accounting practices and some examples of recent transactions or deal structures. Keep in mind these are general ranges – individual firm values will vary based on the specific factors we discussed.

Typical Valuation Multiples for Accounting Firms (<$10M revenue):

To visualize the core ranges: a typical small practice might sell for around 0.8–1× its annual fees, which usually corresponds to roughly 3–4× its annual earnings (because many small firms have profit margins in the 20–30% range). These multiples can be higher if the firm is very attractive (e.g. a cloud-based firm growing fast) or lower if it has risk factors.

(Valuation Multiples for an Accounting Firm - Peak Business Valuation) Typical valuation multiple ranges for accounting firm sales (based on industry data) (Valuation Multiples for an Accounting Firm - Peak Business Valuation) (Valuation Multiples for an Accounting Firm - Peak Business Valuation). Small Canadian practices often transact around 0.8–1.0× revenue or ~3–4× EBITDA, though exact pricing depends on the firm’s specifics.

Now, let’s consider some real-world examples and scenarios:

• “1× Revenue” Paid Over Time (Traditional Structure): A very common deal structure for small firms is to effectively pay around 100% of annual revenues, but spread over a few years and contingent on client retention. For example, a $1 million revenue practice might be sold on terms of 20% of collections per year for 5 years (Accounting Practice Sales Price Terms | Poe Group Advisors). This means if all clients stay and keep paying, the seller eventually gets $1M (100% of revenue), but if some clients leave, the payments shrink proportionally. This structure shares risk: the buyer doesn’t overpay for clients that might leave, and the seller only gets the full price if the book of business stays intact (How to value a CPA firm for sale) (How to value a CPA firm for sale). According to industry experts, many private practice sales have used formulas like this (an earn-out based on revenue collection) (Accounting Practice Sales Price Terms | Poe Group Advisors). The down-payment upfront in such deals might be minimal (often 0–20% upfront is common, with the rest paid via the earn-out) (How to value a CPA firm for sale) (How to value a CPA firm for sale). The presence of an earn-out/retention period usually reduces the total price risk for the buyer, which is why pure revenue multiples above 1× are uncommon without strong assurances.

• All-Cash (or Fixed-Price) Deals: In recent years, especially when brokers or multiple bidders are involved, some sellers achieve a fixed price (no earn-out) deal. For instance, a practice might sell for a fixed $800,000 cash (or financed) at closing, rather than a formula. Brokers like to note that if you can get multiple buyers competing, you may secure full price and get paid upfront (Key Factors in Valuing a CPA Firm | Poe Group Advisors) (Key Factors in Valuing a CPA Firm | Poe Group Advisors). Poe Group Advisors (a broker in North America) mentions they often sell practices for 100% cash at closing with no seller risk on retention (Accounting Practice Sales Price Terms | Poe Group Advisors) – though this usually happens when buyer demand is strong and the practice fundamentals are solid. In such cases, the agreed price might be a bit lower than it would be with an earn-out (since the buyer is taking on all risk). For example, instead of 1× revenue over five years, a buyer might pay, say, ~0.85× revenue in cash now, regardless of client retention. Some sellers prefer the certainty of an upfront payment, even if the nominal multiple is a little lower; others don’t mind an earn-out if it potentially gets them the full 1× (or more, if growth occurs). It often comes down to price vs. terms trade-off.

• Mid-Sized Firm with Private Equity Involvement: As a more exceptional example, consider a firm with around $5 million in annual revenue. Historically, one might value such a firm a bit under 1× revenue if it’s a traditional sale (maybe $3.5–4.0 million, reflecting a multiple in the 0.7–0.8× range given its size and perhaps ~4× EBITDA) (Deal Making (M&A) Observations on Private Equity in the Accounting Industry | Poe Group Advisors). However, with new players like private equity entering the accounting space, valuations for larger independent firms have been rising (Deal Making (M&A) Observations on Private Equity in the Accounting Industry | Poe Group Advisors). A recent case saw a $5M revenue CPA firm sell a majority stake for $7.5M (Deal Making (M&A) Observations on Private Equity in the Accounting Industry | Poe Group Advisors). That equates to about 1.5× revenue, which is much higher than traditional deals. In that deal, the seller (partner) retained a minority share and continued working for a few years, with the promise of a second payout when they fully exit (Deal Making (M&A) Observations on Private Equity in the Accounting Industry | Poe Group Advisors). Essentially, the infusion of a PE buyer doubled the immediate sale price compared to what it might have been a few years prior. This example illustrates how deal structures can be creative – the seller got a high valuation by partnering with a growth-focused investor, with part of the compensation deferred (a secondary buyout later). While this example may be U.S.-based, Canadian mid-sized firms are seeing similar interest from larger consolidators. Generally, firms in the $3M–$10M range are attracting more institutional buyers, which can drive up multiples if the firm fits the buyer’s strategic needs.

• Smaller Solo Practitioner Sale: On the other end, consider a solo CPA with, say, $300,000 annual revenue mostly from personal tax and small business bookkeeping. The “market” for a practice like this might be a local CPA wanting to grow their client base. A common outcome might be a sale around 0.8× revenue, i.e. roughly $240,000, structured as payments over a couple of years (perhaps $60k/year for 4 years, tied to client retention). If the practice has very high client turnover risk or is very dependent on the seller’s personal rapport, the buyer might insist on an earn-out and possibly a lower multiple (like 0.6–0.7×). If the practice has something making it more valuable (for example, it’s $300k of mostly recurring bookkeeping with loyal clients), the seller might push for closer to 1×. These small deals are often quite local and relationship-driven – the “multiple” is a guide, but the final price may also factor in how badly the buyer wants the client list and how smooth they think the transition will be.

• Inside Succession vs. External Sale: It’s worth noting that when partners sell internally (to employees or junior partners), the multiples are often lower than an open-market sale (How to value a CPA firm for sale) (How to value a CPA firm for sale). A retiring partner might sell their stake to an internal colleague at, say, 0.5× to 0.8× revenue, recognizing that their colleagues helped build the firm. External sales (to outside buyers) typically command higher multiples (closer to the ranges we’ve discussed) (How to value a CPA firm for sale). For owners, this means if you have a capable internal successor, the “price” you get might be lower but you have more continuity; selling to an outside party might yield a higher price but can be more disruptive. Our focus here is external market value, which generally is higher due to competitive bidding and buyers willing to pay for growth opportunities.

Summary of Deal Structures: Most accounting practice sales involve some balance of price and terms. If you get a high multiple, check what strings are attached (usually a longer payout or retention terms). If you want a clean break (all cash), expect the multiple might be a bit more conservative. As one advisor puts it: “You name the price, I’ll name the terms” (Accounting Practice Sales Price Terms | Poe Group Advisors) – meaning a seller can perhaps get any price they want if they are flexible on how they’re paid. A fair deal finds a middle ground: a reasonable price with terms that incentivize both sides to make the transition successful.

Regulatory and Professional Considerations in Firm Sales

When buying or selling an accounting firm in Canada, there are professional regulations and restrictions to be aware of that can affect the transaction. Unlike a typical business sale, accounting practices (especially CPA firms) are subject to rules set by provincial CPA bodies. Both buyers and sellers should keep these in mind early in the process:

Ownership Restrictions – CPA vs. Non-CPA Buyers

In Canada, professional accountancy is regulated, and there are rules on who can own an accounting firm (particularly if it’s a licensed CPA firm offering assurance services). Generally, a firm must be majority-owned by licensed CPAs to be registered as a CPA firm (Q&A on SSOs & Alternative Accounting Structures in Canada). This means if you are selling a CPA practice (one that provides services as a Chartered Professional Accountant, like audits, reviews, compilations, or uses the CPA title), the buyer typically needs to be a CPA or a group of CPAs. For example, Ontario regulations require that any firm providing public accounting services be registered and have a CPA in charge, and only licensed CPAs can sign off on assurance engagements (Starting an Accounting Firm in Ontario: CPA Requirement Clarification and Practicality of Hiring or Partnering with a CPA : r/Accounting).

• Non-CPA Buyers: Can a non-CPA buy an accounting firm? It’s possible, but there are important caveats. A non-CPA (e.g. an investor or an entrepreneur) cannot independently own and operate a CPA firm – they would not be allowed to hold out as a CPA or provide regulated services like audits. However, a non-CPA can be a partial investor in a firm in some provinces, as long as CPAs retain majority ownership and control (Q&A on SSOs & Alternative Accounting Structures in Canada). For instance, a private equity firm could buy, say, 40% of a CPA practice and partner with CPAs who own 60%. The exact allowed percentages and structures are determined by provincial rules, but the common theme is CPA majority for firms offering regulated accounting services. Non-CPA ownership tends to be limited to a minority stake to ensure professional independence and adherence to standards.

• Alternative Structures: If a non-CPA wants to acquire an accounting business, one approach is to focus on an unregulated segment. In Canada, services like bookkeeping, tax preparation (to an extent), and consulting can be provided by non-CPAs (one just can’t call it a CPA firm). A non-CPA buyer could purchase a firm’s book of business that is primarily bookkeeping/tax, and either not use the CPA title or hire a CPA to sign off where needed. We also see models where the non-CPA buyer sets up an entity for consulting/bookkeeping, and the assurance work (if any) is spun off to a CPA whom they contract with or employ (this gets complex and would need CPA body approval). The simplest route for a non-CPA is often to partner with a CPA: e.g. bring in a CPA co-owner or hire a CPA as a permit holder who will be the face of the firm for regulatory purposes.

• Provincial Differences: Each province’s CPA regulator may have specific requirements. For example, many require that corporations offering public accounting be CPA Professional Corporations, which often means all voting shares owned by CPAs (and sometimes immediate family can own non-voting shares, but those family members typically can’t be involved in practice). Before a sale, it’s wise to consult the provincial rules. In some provinces, even if a non-CPA can own a stake, the managing partner or director must be a CPA. The rationale is to maintain professional accountability and quality – CPA firms are handling the public’s trust, so they must be controlled by CPAs in good standing.

Bottom line: If you are a non-CPA looking to buy in, plan to structure the deal to meet ownership rules – this could mean taking on a CPA partner, structuring it as two entities (one CPA firm for the work, one consulting firm for other services), or limiting your ownership percentage. From the seller’s side, if you’re fielding interest from non-CPAs, you’ll need to ensure any deal is compliant. In many cases, the easiest sale is to another CPA or CPA firm, due to fewer regulatory hurdles.

Client Consent and Confidentiality

Another professional consideration is handling client information and consent during a sale. Accountants are bound by confidentiality; you generally cannot simply hand over client files to a prospective buyer without client permission. Typically, the sale agreement will include provisions for client consent. The standard approach is that after signing a definitive sale agreement (or in the later due diligence stage under strict NDA), clients are notified of the change and their consent is obtained to transfer files to the new firm. Most clients, if they trust their accountant, will continue with the new owner especially if introduced properly. But technically, clients have the right to choose their service provider, so the deal usually includes a clause that if a client refuses to transfer, they are excluded (and often purchase price adjustments or earn-out structures account for that).

For sellers, it’s important not to violate confidentiality in courting buyers – usually you would disclose aggregate numbers and example clients without names initially. Only when a serious buyer is in due diligence (under a Non-Disclosure Agreement) would you share client lists or details, and even then, best practice is to seek client permission if required by your provincial code. Some provincial bodies or practice brokers have guidelines for client notification, often suggesting a joint letter from seller and buyer to clients explaining the transition.

Practice Licenses and Transition

If the firm offers assurance services (audit/review), the buyer must have a Public Accounting Licence (PAL) or equivalent in that province to continue those engagements. A detail to plan for: if a buyer is from out-of-province or currently works in industry, they might need to obtain the proper license before taking over. Provincial CPA bodies may need to approve the firm registration under the new ownership. It’s wise to involve the CPA regulator early on – they can often provide guidance on what filings or approvals are needed for the firm’s change in ownership. In some cases, the timing of the sale might be planned for after key deadlines (e.g. after busy season or after an audit cycle) to smooth regulatory and client transition.

Other Professional Obligations

• Non-Compete and Practice Restrictions: CPA sellers often agree to some non-compete period as part of the sale (not to start a new firm or solicit clients). This isn’t a regulatory rule per se, but it’s common in deals to protect the buyer’s interest. These have to be reasonable in scope and duration to be enforceable.

• Liability Insurance and Claims: Responsibility for any past liabilities (like negligence claims) should be clarified. Usually, the seller retains liability for work done pre-sale (and keeps their professional liability insurance tail coverage for that period), while the buyer’s insurance covers post-sale work. Provincial bodies require professional liability insurance to be in place for firms – a buyer will need to secure their own policy or endorsement.

• Notification to CPA Body: Many provincial CPA organizations require notification when a firm is sold, merged, or when a member retires from public practice. Ensure those steps are taken so that the firm’s registration and the member’s status are updated accordingly. For example, the CPA body may want to know who the new owner is and that they have a practising certificate, etc.

• Clients’ Perspective: Though not a “rule,” it’s professionally important to handle client transitions ethically. This includes providing clients with options, ensuring all their documents are transferred or returned as needed, and generally making the handover smooth. Happy clients staying on will determine if that earn-out pays out (if that’s in play), and even in an all-cash deal, a seller usually wants to maintain goodwill in their community or abide by the professional code of conduct regarding withdrawal from an engagement.

Regulatory takeaways: Selling an accounting firm isn’t as simple as selling a storefront – because of the CPA regulations, you must ensure the buyer is properly qualified or structure the deal appropriately. Always consult with the provincial CPA association or a lawyer experienced in professional firm sales to navigate these requirements. If you are a buyer who is a CPA, make sure your licenses are up to date and you’re eligible to take over (for instance, have your practice permit and insurance ready). If you’re a non-CPA buyer, know that you’ll need a plan involving a CPA partner or employee to fulfill the professional obligations.

Conclusion

Valuing a small or medium-sized accounting firm involves a combination of financial analysis and qualitative judgment. As we’ve seen, common valuation benchmarks (like revenue or EBITDA multiples) provide a starting point (When is it a Good Time to Sell your Accounting Practice |) (Valuation Multiples for an Accounting Firm - Peak Business Valuation), but the final price will be adjusted up or down based on factors such as the stability of your client base, the presence of recurring revenue, the specialization and reputation of your practice, the strength of your team, and how dependent the firm is on you as the owner. In Canada, one also must consider the framework of CPA regulations, which can shape who your potential buyers are and how a deal must be structured (Q&A on SSOs & Alternative Accounting Structures in Canada).

For sellers: preparing well in advance can pay off. Work on diversifying and solidifying your client relationships, retaining quality staff, and systematizing your operations. Not only will these make your firm more attractive (and valuable) to buyers, they will also make the transition smoother for everyone – including your clients, whom you likely care about deeply after years of service. Consider getting a professional valuation or consulting an M&A advisor who knows the Canadian accounting firm market to set realistic expectations. Also, think about your goals: is getting top dollar most important, or is legacy and client care a priority? Different buyers (another CPA vs. a big consolidator) might offer different trade-offs in this regard.

For buyers: do your homework on the firm’s fundamentals, but also on the less tangible aspects like client loyalty and staff culture. An accounting practice can be a fantastic acquisition, providing ready cash flow and a base to grow from, but success often hinges on retention – of both clients and staff. Pricing a deal with the right terms (for example, including retention-based payments) can protect you, but also be prepared to invest your time in client relationship building post-acquisition. And if you’re not a CPA, realize you’ll need a licensed practitioner as part of your plan – you might even approach a CPA to partner with you in the investment.

Finally, look at market comparables and trends when valuing a firm. The accounting industry is experiencing consolidation; large national firms in Canada (like MNP, which has been acquiring smaller firms aggressively) are expanding, and even outside investors are eyeing accounting firms as regulations slowly evolve. This means there may be more buyers in the mix, which can elevate valuations for high-quality firms. On the other hand, the traditional “rules of thumb” still hold for many small practices, especially in ordinary locations and situations.

By understanding both the numbers and the nuances behind them, you can arrive at a fair valuation and structure a deal that works for both sides. Selling your accounting practice or buying one is not just a financial transaction – it’s a transition of relationships and responsibilities. With the information in this guide, you’ll be better equipped to navigate that process confidently and successfully.

Sources:

• CPA Canada/Pivot Magazine – “What to look for when buying or selling an accounting practice” (June 2022) – discusses unique aspects of small/medium practice sales (When is it a Good Time to Sell your Accounting Practice |) (When is it a Good Time to Sell your Accounting Practice |).

• CPABC Knowledge Base – “Valuation of an Accounting Practice” by Hugh Livingstone, CBV – outlines factors in determining fair market value and common rules of thumb (e.g. 80%–120% of revenue) (When is it a Good Time to Sell your Accounting Practice |) (When is it a Good Time to Sell your Accounting Practice |).

• Future Firm (Ryan Lazanis, CPA) – “How to Value a CPA Firm [13 Key Factors]” (Sept 2024) – details valuation methods (revenue, cash flow multiples, etc.) and factors like growth rate, client base, team, recurring revenue (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm) (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm) (How to Value a CPA Firm [Plus 13 Key Valuation Factors] - Future Firm).

• Poe Group Advisors – “6 Key Factors That Impact CPA Practice Valuation” (2021) – emphasizes location, size, profitability, terms, etc. in practice value (Key Factors in Valuing a CPA Firm | Poe Group Advisors) (Key Factors in Valuing a CPA Firm | Poe Group Advisors).

• Poe Group Advisors – “Breaking Down Accounting Practice Sales: Price and Terms” (2020) – compares earn-out deals (e.g. 20% for 5 years) vs. all-cash deals, and how terms affect the effective “multiple” (Accounting Practice Sales Price Terms | Poe Group Advisors) (Accounting Practice Sales Price Terms | Poe Group Advisors).

• Journal of Accountancy – “How to value a CPA firm for sale” (Nov 2013) – explains that sale prices are often based on collections over a period (retention-based), and notes most deals cluster around 1× or less of billings depending on terms (How to value a CPA firm for sale) (How to value a CPA firm for sale).

• BMO Private Wealth – “The Valuation of a Professional Service Practice” (July 2023) – provides insight on valuing goodwill, personal vs. commercial goodwill, and structuring professional firm sales (asset vs share deal, WIP payouts) (The Valuation of a Professional Service Practice - BMO Private Wealth) (The Valuation of a Professional Service Practice - BMO Private Wealth).

• Peak Business Valuation – “Valuation Multiples for an Accounting Firm” (July 2023) – gives average market multiple ranges in the U.S. for accounting firms (Revenue ~0.7–1.1×, EBITDA ~3.0–4.5×) (Valuation Multiples for an Accounting Firm - Peak Business Valuation) (Valuation Multiples for an Accounting Firm - Peak Business Valuation).

• Canadian Accountant – news article on MNP’s acquisition of multiple BDO offices (Dec 2024) – an example of consolidation in Canadian market (though financial terms undisclosed) (MNP LLP closes year strong with major acquisition of 21 BDO Canada accounting firms).

• JustAnswer (Law) – expert answer on alternative practice structures in Canada – confirms that Canadian CPA firms must be majority-owned by CPAs (limiting non-CPA control) (Q&A on SSOs & Alternative Accounting Structures in Canada).