Fair market value

Fair multiplier to use to value sole trader

Didn't find your answer?

One man band accountancy practise, minimal physical assets, mainly intangible.

Main turnover is fixed fees, very good retention rate, 20+ years for most clients. Would it be fair to value the sole trader as 1.0 x average of last 3 years turnover?

I apreciate I haven't given much info, I'm just trying to gauge an opinion on what you feel would be a fair rate given the senario. 

Thanks in advance.

Edit. I guess I should say this is a valuation for the purposes of transferring a sole trader to Ltd company. 

Replies (6)

Please login or register to join the discussion.

avatar
By andy.partridge
18th Dec 2018 13:51

Accountanty practiCe. What is it you are trying to achieve?

If 'most' clients have been retained for 20+ years I guess many of them must be coming up for retirement. That'll reduce their 'value' to a 3rd party.

Thanks (0)
Replying to andy.partridge:
avatar
By SXGuy
18th Dec 2018 14:07

Yes I noticed my error thank you.

All I'm trying to achieve is a fair valuation in order to calculate the goodwill on transfer.

I'm not interested in the technical aspect, just an opinion on the fairest way.

Some say 3 to 5 times net profit after salary, some say multiplier of turnover, and there's a few other ways.

Thanks (0)
Glenn Martin
By Glenn Martin
18th Dec 2018 14:05

1 x GRF is about going rate but it depends on the quality of the fee bank.

are the clients xero based, are they paper based, what is age profile etc.

As some will attract a premium some may drop down 0.6 x GRF if they old style clients who will struggle with MTD.

A lot of the practices i have seen were retirement sales to avoid MTD so paper based (accountant and client) for me the amount of work needed to bring them up to date was a lot and also there would have been a fallout of clients leaving.

For me it was worth a punt at say 50% to 60% of GRF with no clawback, but the exiting guy seemed to think they were worth a lot more at 1.2x

That was 3 years ago and he still hasnt sold. I suspect he will has just traded on to get a few years more earnings then will just retire as MTD roles out.

After wasting a lot of time I decided to spend some money on marketing. I spent about £7000 and won £70k fees in 12 months which was a better ROI.

As they were clients I chose to work with not a batch of someone elses took on as a big lump.

Thanks (0)
Replying to Glennzy:
avatar
By SXGuy
18th Dec 2018 14:09

Apreciate your reply. This is just a valuation for transfer, the same person still controlling the business.

So the buyer isn't technically looking for a good deal, just a fair one, since they are also the seller.

Thanks (0)
Replying to SXGuy:
avatar
By Tax Dragon
19th Dec 2018 06:52

IANAV, but I can tell you that seller and buyer are connected and the legislation in that context refers to market value. It looks to me as if the replies you have had are intended to assist with determining a market value.

If your "fair valuation" (whatever you mean by that) differs from market value, there may be additional tax consequences.

Thanks (0)
Replying to Tax Dragon:
avatar
By SXGuy
19th Dec 2018 07:43

I understand what your saying, and it's probably my fault for not wording it correctly. I just wanted to determine the fairest way to value the business in order to calculate the goodwill on transfer. Its just a sole trader moving to a Ltd company. I understand the cgt aspect etc, thats not really my issue.

I believe the best answer so far was 1x grf with seems reasonable.

Thanks (0)