Most ETA operators walk past accounting practices. That is a mistake. The U.S. has roughly 44,000 CPA firms, the majority owner-operated, and the principal is typically 55 or older. Baby boomers built these practices over 30 years. Now they need out. Few have a succession plan. Many will sell to the first credible buyer who understands the asset.
This is where an ETA operator with institutional capital, a repeatable process, and a tolerance for professional services should be paying attention.
Why Accounting Fits the ETA Criteria
The ETA acquisition checklist reads like it was written for professional services firms. Here is why accounting practices clear it consistently:
- Recurring revenue: Monthly bookkeeping, payroll, outsourced CFO, and Client Advisory Services (CAS) engagements are contracted, auto-renewing, and predictable. The best practices run 60% or more recurring fees.
- Low capital intensity: No inventory. No equipment. No real estate unless the owner bought the building separately. The capital goes into the business, not depreciating assets.
- High client retention: Accountants are trusted advisors. Well-run practices retain 90 to 95% of clients annually. Switching costs are high. Clients stay because leaving means rekeying two years of financial history somewhere else.
- Owner exit pressure: Most principals are 55-plus. Many have no junior partner ready to buy them out. The industry term is "aging solo practitioners," and it describes the majority of practices in the $1M to $5M revenue range.
- EBITDA margins: A well-run practice at $2M revenue can generate $500K to $700K in adjusted EBITDA after normalizing the owner's compensation. That is 25 to 35% margins on a service business with no physical product risk.
These are not edge cases. They describe the majority of lower-middle-market accounting practices currently on the market.
The Two Valuation Regimes
Accounting firms trade on two different metrics depending on size. Getting this wrong in underwriting is how buyers overpay and sellers leave money on the table.
Small practices (under $2M enterprise value): These price on gross recurring fees, not EBITDA. The typical range is 0.75 to 1.5 times annual recurring revenue, or 1.8 to 3.25 times Seller's Discretionary Earnings. The buyer is stepping directly into the owner's seat. Price reflects that risk.
The search fund sweet spot ($750K to $3M EBITDA): These price on adjusted EBITDA. Market data from CT Acquisitions' 2026 accounting firm valuation analysis puts the range at 4.0 to 6.0 times adjusted EBITDA for practices in this band, with the midpoint around 4.5 to 5.0 times for a clean, recurring-heavy firm. Above $2M EBITDA, revenue multiples are a sanity check, not the deal driver.
The single most important normalization step is the partner-compensation scrape. Take the owner's draw out. Replace it with what you would pay a market-rate managing director to run the same firm. That adjusted number is what you are buying a multiple of. Many sellers present EBITDA without this adjustment. Many buyers miss it in diligence. Do not miss it.
What Moves the Multiple
The 4.0 to 6.0 times EBITDA range spans two full turns. That is a $2M to $3M difference on a $1M EBITDA practice. Here is what puts you at the top or bottom of that band:
Recurring revenue percentage. Sixty percent recurring is the premium threshold. Firms above it trade at the high end of the range or above. Tax-season-concentrated practices with 40% or less recurring trade at the low end. The gap can be 1.0 to 2.0 turns of EBITDA.
Customer concentration. A single client above 25% of gross fees triggers a material discount. Above 35%, expect earnout provisions tied to that client's retention. Underwrite as if that client leaves on day one. Structure the deal accordingly.
Owner dependence. Transferable relationships move in files. Non-transferable relationships leave with the partner. If the clients know the owner and only the owner, you are buying a job, not a business. Look for a second-tier team that holds client contact and a documented client onboarding process that does not require the founder's signature.
Service mix. Advisory and outsourced CFO revenue is valued at 1.5 to 2.0 times the multiple of seasonal tax compliance work. A firm generating $800K in CAS revenue and $200K in annual tax prep is worth more than the reverse, even at the same total EBITDA.
Technology stack. Cloud-native firms on QuickBooks Online, Karbon, or Practice Ignition move faster in diligence and command a 0.5x premium. Firms on legacy desktop software with paper client files discount by a similar amount and present integration risk.
Deal Structure for a Search Fund Buyer
Search funds and private equity structure accounting acquisitions differently. Sellers often prefer search fund terms for legacy reasons. Here is what the deal typically looks like:
- Cash at close: 50 to 70%. Less than PE because search funds use more SBA financing, which limits what they can put to work at close.
- Seller note: 15 to 30% of purchase price. Five-year amortization at 6 to 8% interest. SBA rules require the note to be on full standby for deals using 7(a) financing — no principal or interest during the SBA loan term. Sellers who understand the structure accept this. Many do not understand it.
- Timeline: Six to eight months from first contact to close. SBA financing adds time. Sellers who need a fast exit should know this upfront.
- Transition period: Twelve to eighteen months of seller support is standard. Often structured as a consulting agreement. This is not optional. The seller's relationships are the business. A six-week transition is a risk factor, not a negotiation win.
See our breakdown of search fund deal structure mechanics for a full comparison of financing paths and equity splits.
What to Verify Before Signing an LOI
Accounting practice diligence has specific failure modes. Here are the four you cannot miss:
Client concentration map. Require a list of the top 25 clients by annual fees with client tenure. Calculate what happens to revenue if the top 3 leave. If the math is tolerable, proceed. If it is not, price it accordingly or pass.
Three-year retention rate. A clean practice shows 92% or above. Below 85% indicates either pricing problems, service problems, or both. Get the churn data before diligence, not during.
Revenue by service type. Break gross fees into recurring engagements, project work, and annual tax compliance. Recurring should be contractual, not habitual. Ask for signed engagement letters, not verbal arrangements.
Partner transition plan. Who calls the clients today? Who will call them after close? The answer determines your retention risk. If the answer is "just the owner," build that risk into the structure with an earnout tied to retention floors.
The PE Roll-Up Signal
Institutional capital has entered accounting M&A. Blackstone-backed Citrin Cooperman, Hellman & Friedman-backed Baker Tilly, and Apax-backed Cherry Bekaert are all executing roll-up strategies at 7 to 15 times EBITDA for platform-scale firms. That demand compresses at the lower-middle-market level. ETA operators buying $1M to $3M EBITDA practices today are buying into a market where institutional exit buyers are already active one size up.
The exit path is not guaranteed. But the institutional appetite for accounting assets is real, and it points in one direction for disciplined operators who buy right, professionalize the operations, and grow recurring revenue before they sell.
Accounting practices will not be a secret for long. The operators who move now get the 4.0 to 5.0 times EBITDA entry point. The ones who wait compete against PE for the same assets at 6.0 to 7.0 times.
Frequently Asked Questions
What EBITDA multiple should I expect when buying an accounting practice?
Most search fund acquisitions in the $750K to $3M EBITDA range close at 4.0 to 6.0 times adjusted EBITDA. Where you land in that band depends on recurring revenue percentage, customer concentration, and how transferable the client relationships are. Tax-season-heavy practices trade at the low end. Recurring advisory and outsourced CFO firms trade at the high end.
How much cash do I need at close to buy an accounting firm?
A typical search fund deal puts 50 to 70% in cash at close. The rest is structured as a seller note, commonly 15 to 30% of the purchase price at 6 to 8% interest over five years. SBA 7(a) financing can fund a significant portion of the cash-at-close requirement with as little as 10% buyer equity injection under SOP 50 10 8 rules, which took effect in June 2025.
What is the biggest risk when buying an accounting practice?
Owner dependence. If the clients know the seller and only the seller, revenue walks with the seller. The mitigation is a structured transition period of twelve to eighteen months, a retention earnout tied to specific client accounts, and a documented handoff process that introduces the new owner to clients before the seller departs.
How long does it take to close an accounting firm acquisition through a search fund?
Six to eight months from first contact to close is typical. SBA financing adds time because underwriting and approval timelines are longer than conventional institutional financing. Sellers who need a 90-day close should understand this upfront. A rushed close on a relationship-driven business is a risk factor, not a negotiation advantage.
