Valuation
How do we value a Practice?
- 3 different ways for practices
- Compare the results of each to come to overall answer
- Traditional cents per $, also solely used for fee block sales
- PE multiplier
- Payback period
- Valuation methods
- ‘Rules of Thumb’
- Pay-back Period
- EBIT Multiplier
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Traditional cents per $
- Need to have regard to a variety of factors:
- Region/location
- Profitability
- Nature/type of work
- Scope to add value/new services
- Age of client
- Niche/specialisation
- Write offs
- Average fee per return
- This is a subjective factor
- We see fees in Auckland ranging from $0.60 or less to over $1.25
- Most are at the lower end of the scale
- Fee block sales will typically be lower than practices
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PE Multiplier
- Allow wage for senior staff member of associate to service
- Stability of income and future growth (blue sky) drive multiplier up
- Normalisation – can be done but better to get the private costs out or clearly identified and verifiable
- PE of 4 for a good practice, higher for great
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Payback Period
- Clients don’t stay forever
- Buying an income stream
- You are not paying to go and find yourself new clients
- Especially relevant for fee blocks
- Again allow cost for servicing
- Payback 3-4 years for fee block, 5-year max for practice interests
- Calculated after tax and interest so that purchase price/debt fully repaid within these time frames