An article in the Journal of Accountancy makes some good observations about the valuation of CPA firms. First, it points out that the value of an accounting firm’s shares differs for an external sale as opposed to an internal transfer. Sales to inside ownership usually use a lower multiple than sales to outside parties. That’s because most retiring partners don’t expect their partners to pay as much as a stranger.

The multiple of billings used to determine the sale price is determined by four main factors: (1) amount of cash, if any, paid upfront; (2) length of the retention period; (3) the deal structure’s profitability for the buyer; and (4) length of the payment period.