How CPA Firms Are Valued: A Deep Dive Into EBITDA Multiples and Market Trends
As consolidation accelerates across the accounting industry, understanding how CPA firms are valued has become essential for firm owners considering a potential sale, merger, or private-equity partnership.
If your firm generates between $2 million and $10 million in annual revenue, this guide will help you understand how valuations are determined, what adjustments are made to EBITDA, and what your firm may be worth in today’s M&A market.
1. The Foundation of CPA Firm Valuations
Modern CPA firm valuations primarily rely on Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) — a normalized measure of profitability that excludes nonrecurring, owner-specific, or discretionary expenses.
While many in the profession still refer to “revenue multiples” (e.g., 1.0× of annual billings), serious buyers and investors focus on EBITDA multiples as they better reflect sustainable operating performance.
2. Why EBITDA Is Used
EBITDA gives acquirers a clear view of a firm’s cash-generating potential independent of ownership structure or tax strategy. It levels the playing field between firms of varying sizes, service mixes, and geographic markets.
When adjusted correctly, EBITDA represents the earnings capacity a buyer could realistically expect to maintain after replacing current ownership with market-rate management and removing personal or one-off expenses.
3. Key Adjustments That Impact Valuation
Accurate valuation requires a deep understanding of what to include—and exclude—from EBITDA.
Below are common adjustments buyers and valuation advisors make when analyzing CPA firms:
a. Partner and Owner Compensation
Partners often take distributions or discretionary draws rather than salaries.
Buyers normalize this to what it would cost to hire a qualified professional or managing partner at a market rate.
This adjustment ensures profitability isn’t inflated by underpaying ownership labor—or deflated by excessive draws.
b. Rent Adjustments
If the firm operates in partner-owned real estate, rent is often set below or above market.
Buyers adjust rent expense to reflect fair market lease rates for comparable office space in that geography.
Conversely, if rent is unusually high due to related-party arrangements, it’s brought back down to market norms.
Example: A firm paying $20,000/month to a partner-owned entity for rent when comparable space leases for $12,000/month would see an $8,000/month reduction in expense ($96,000 annually), increasing EBITDA accordingly.
c. One-Time or Nonrecurring Items
One-off events like litigation settlements, relocation costs, or consulting projects don’t reflect ongoing operations.
These are added back to EBITDA because they will not recur under new ownership.
Examples:
$50,000 in legal fees for a one-time dispute
$30,000 system migration cost to a new CRM
$40,000 retirement buyout payment
d. Discretionary and Personal Expenses
Many closely held firms include personal or lifestyle-related costs that won’t continue post-sale.
These add-backs often include:
Auto leases and fuel for partners
Travel, entertainment, or meals not tied to client work
Family members on payroll or health benefits
e. Related-Party Transactions
Adjustments are made for transactions between the firm and related entities that differ from fair-market terms, such as below-cost services, equipment leasing, or IT hosting fees.
f. Non-Cash Expenses
Depreciation and amortization are added back, as they represent accounting entries rather than cash expenses.
When combined, these adjustments can change reported EBITDA by 10–30%, dramatically affecting a firm’s ultimate valuation.
4. Typical EBITDA Multiples for CPA Firms ($2M–$10M Range)
Firms with high client retention, diversified revenue streams, and scalable leadership often command the upper end of these multiples.
5. Example: A $7.5 Million Firm
Let’s consider a firm generating $7.5 million in annual revenue with 30% Adjusted EBITDA ($2.25 million).
The firm would likely trade between $8 million and $12.5 million, with $10 million as a midpoint valuation.
Regional Example: Boston
A well-run Boston-based firm with strong CAS/advisory revenue and tech infrastructure could land closer to 5×–5.5× EBITDA, reflecting premium buyer demand and market density.
By contrast, smaller or traditional tax-only firms in secondary markets may transact nearer to 3×–4× EBITDA.
6. Deal Structures: What to Expect
Even when two firms share similar valuations, the structure of the deal can change total proceeds.
Typical M&A structures include:
50-60% cash at closing
10–20% earn-out, tied to client retention or revenue targets
20-40% rollover equity or seller note
PE-backed deals may also include minority equity stakes for a second liquidity event later.
7. What Drives Higher Multiples
8. Preparing Your Firm for Maximum Value
To position your firm for a premium valuation:
Normalize partner compensation early
Review and adjust rent to reflect market value
Eliminate personal or discretionary expenses from books
Strengthen second-tier leadership
Diversify revenue and implement modern systems
These steps signal to buyers that the firm is professionally managed and scalable, often resulting in a 0.5×–1.0× EBITDA multiple premium.
9. The Bottom Line
For firms generating $2–$10 million in annual revenue, valuations in 2025 typically range between 3.0× and 5.5× Adjusted EBITDA, depending on profitability, growth, and market conditions.
Firms that proactively normalize expenses, adjust rent to market, and eliminate one-time items are rewarded with stronger valuations and smoother due diligence.
Whether your goal is to sell in the near term or plan for a future transition, understanding these valuation levers empowers you to build enterprise value—and maximize what your life’s work is truly worth.
Author’s Note:
This content is for informational purposes only and should not be construed as legal or financial advice. Valuation outcomes vary based on each firm’s structure, market, and transaction terms.
To receive a confidential valuation assessment or discuss sale and merger options, contact us today.
About Us
Ashley-Kincaid is a premier mergers and acquisitions firm dedicated to helping CPA firms nationwide grow and succeed through strategic acquisitions, while also providing exit solutions for sellers.
With deep industry experience, Ashley-Kincaid specializes in firm-to-firm mergers and acquisitions, catering to clients with gross revenues ranging from $500,000 to $15 million. If you're a CPA firm aiming to expand or considering an exit strategy, Ashley-Kincaid is your go-to partner. Schedule a Call today to explore their services and arrange a consultation.
