Tax Preparation Valuation Multiples
Are you looking to buy, sell, or secure financing for your tax preparation business? Valuation multiples are a great tool for guiding your decisions. Professional business appraisers frequently use multiples to estimate the market value of a tax preparation business. In this article, we explain some of the most common tax preparation valuation multiples. We also discuss various key insights into what affects the value of your business.
It is important to note that several factors influence which valuation multiples apply to a business. As such, it is best to connect with a licensed business appraiser. An appraiser will conduct a thorough analysis to determine which multiples best apply to provide an accurate business valuation.
As a professional business appraiser, Peak Business Valuation values tax preparation businesses across the country! We are happy to answer any questions you may have about a tax preparation business valuation. Schedule a free consultation today!
What are Tax Preparation Valuation Multiples?
In simple terms, a valuation multiple is a ratio that estimates a tax preparation business’s market value. It measures value based on industry metrics, such as SDE, EBITDA, and revenue. When using the market approach, a valuation expert selects the most appropriate multiples. See Valuation Multiples for a Tax Preparation Business to learn more.
Common Tax Preparation Business Valuation Multiples
In the following sections, we explain SDE, EBITDA, and revenue multiples for tax preparation businesses. Note that the ranges provided are general benchmarks. When determining accurate tax preparation business multiples, it is best to connect with a business appraiser. Peak Business Valuation is here to help! Reach out if you have questions.
SDE Multiples for a Tax Preparation Business
The SDE multiple is a common metric for valuing a smaller tax preparation business. It estimates market value through the seller’s discretionary earnings (SDE). An appraiser adjusts the SDE value for fair compensation and adds one-time and irregular expenses. Finally, the adjusted SDE is multiplied by an industry average to provide the market value. An owner’s involvement in the tax preparation business may also affect the valuation.
Formula: Value = SDE × Multiple
Range: SDE multiples for tax preparation businesses often range from 2.36x – 3.17x SDE.
Tax Preparation EBITDA Multiples
Next, the EBITDA multiple measures a business’s value by its earnings before interest, taxes, depreciation, and amortization (EBITDA). A business appraiser normalizes EBITDA to better account for assets, capital structure, and taxation. This allows for more accurate comparisons to similar businesses across the industry. The EBITDA multiple also predicts future cash flow, which can be helpful for buyers and lenders.
Formula: Value = EBITDA × Multiple
Range: EBITDA multiples for tax preparation businesses typically range from 3.42x – 4.51x EBITDA.
Revenue Multiples for a Tax Preparation Business
Another valuation multiple within the market approach is the revenue multiple. It estimates a tax preparation business’s value based on its last 12 months of revenue. However, this multiple does not account for expenses or other relevant data, making it less reliable. A valuation expert uses a variety of methods and multiples to produce an accurate tax preparation business valuation.
Formula: Value = Revenue × Multiple
Range: Revenue multiples for tax preparation businesses often range from 0.99x – 1.15x revenue.
How to Value a Tax Preparation Business Using Multiples
At Peak Business Valuation, our business appraisers often use a combination of the market, asset, and income approaches. This guarantees a fair representation of the tax preparation business’s market value. An appraiser may also apply weighted averages to account for the nuances of each business.
When valuing a tax preparation business, the appraiser will analyze financial statements, key value drivers of a tax preparation business, and more. To learn more about tax preparation business valuations, schedule a free consultation with Peak. You can also check out How to Value a Tax Preparation Business.
Rules of Thumb for Tax Preparation Businesses
While industry benchmarks and rules of thumb offer quick estimates, they are generally unreliable. An accurate business valuation involves accounting, data analysis, and market research. For credible tax preparation business valuations, it is best to work with a professional appraiser. Peak Business Valuation is here to help! Schedule a free consultation today.
Factors Affecting Tax Preparation Business Multiples
Countless factors affect tax preparation valuation multiples. These facets can have a big impact on a valuation. Below, we list some common elements that might influence valuation multiples. Adjusting to these key value drivers may increase a tax preparation business’s valuation.
- Tax Legislation: Uncertain policies can create volatility for tax preparation businesses. These shifts may deter client investments and impact value.
- AI Advancement: Tax preparation businesses that invest in AI to enhance their services may receive higher valuations.
- Risks: Times of low consumer spending can lower corporate profits. This often leads to decreased revenue and value for tax preparation businesses.
- Client Base: A tax preparation business’s demographics may impact its valuation. For example, a loyal, long-term client base may lead to a higher valuation.
Tax preparation valuation multiples are typically derived from similar market transactions. However, key value drivers can play a big part in the business’s valuation. For accurate valuation multiples, connect with Peak Business Valuation! You can also check out Value Drivers for a Tax Preparation Business for more information.
Conclusion
A valuation multiple is an industry metric that provides a rough estimate of a tax preparation business valuation. That said, they do not account for all the unique factors affecting a business’s true value. Tax preparation businesses are constantly adapting to industry changes, like technology advancements and tax legislation. Therefore, multiples are not reliable on their own. Owners can be better prepared for these shifts through an accurate business valuation. Tax preparation business valuations provide vital information for business expansion and transactions. They can also offer insight into the company’s value drivers.
Peak Business Valuation frequently values tax preparation businesses! We guarantee a thorough and credible valuation through accurate tax preparation valuation multiples. Schedule a free consultation today!
See our other articles Tax Preparation Business Valuations and Valuing a Tax Preparation Business to learn more.
