Plus how to factor in RIAs.
By Rory Henry
The Holistic Guide to Wealth Management
Why are accounting firms measured in revenue multiples while most other businesses are measured in EBITDA multiples?
According to Allan Koltin, accounting industry transaction guru, there is no better reason than because that’s how we’ve always done it in the accounting profession.
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“Accounting firms have zero EBITDA; they clear out the register every year,” noted Koltin. “When I talk to firms about private equity, I have to walk them back and explain how you’re going to create your own EBITDA. And the biggest piece of it is what we call the ‘scrape of partner compensation.’ You’re making $1.2 million. Can you live on $800,000 if we move that extra $400,000 into an EBITDA category and put a multiple of 7x to 11x on that and get capital gain?” asked Koltin.
“Partners 55 and older love it. Partners who are 35 are not so sure.”
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