The old shortcut is revenue times a multiple. Buyers are asking a harder question: what will keep working after you step back?

Start with the earnings a buyer can keep

Picture two firms with the same revenue. At one, clients know several people and managers can run the work. At the other, the founder holds the relationships, niche knowledge and pricing judgment. Same top line. Very different handoff.

That is why understanding the quality and transferability of earnings comes before selecting an appropriate valuation multiple.

Revenue, SDE or EBITDA?

Smaller owner-led practices may be discussed in revenue or seller’s discretionary earnings. The distinction between SDE and EBITDA is primarily driven by the size and operating structure of the business, particularly whether the owner is actively performing a role that would need to be replaced after closing. EBITDA becomes more useful when the firm can pay market rates for the owners’ jobs and still produce a durable profit. For the types of businesses Merge typically represents, adjusted EBITDA remains our gold standard. There is no universal switch at a particular size.

A third-party sample of 331 small and midsize accounting-services transactions classified 45% on net or gross sales and 55% on a profit measure (EBITDA, SDE or EBIT). That does not mean revenue multiples disappeared. Nor does a median from mixed deals quote a price for yours.

How the math usually works

  • Recast the financials for legitimate personal and nonrecurring items.
  • Charge the business market compensation for every job that still has to be done after closing.
  • Look at retention, service mix, client concentration and the quality of the revenue.
  • Test whether client and referral relationships belong to the firm or to one partner.
  • Assess management depth, systems, margins and near-term growth.
  • Apply the valuation method that fits the firm and the buyers likely to pursue it.
  • Then examine how the price is paid: cash at close, seller note, earnout and rollover equity.

The question I’d ask first

Start here: If you stepped back, who would keep the clients, make the decisions and win the next engagement? What would it cost to pay them? And could a buyer serve those clients more broadly? Those answers do more work than a headline multiple.

Sources and context

Industry profile and transaction sample for small and midsize accounting practices

Educational material only. A firm’s value and transaction structure depend on its specific facts, buyer universe, market conditions, tax considerations and legal requirements.