Every accounting and law practice carries a number quietly in the background: goodwill. It sits on the balance sheet in some firms and off it in others, but either way it is supposed to represent everything the practice is worth beyond its physical assets and cash in the bank. For years that number has been calculated more or less the same way, as a multiple of fees or a multiple of maintainable earnings. What a buyer or an incoming equity partner is actually prepared to pay for is narrower than that, and most practice owners only discover the gap once someone is sitting across the table running due diligence.
The gap comes down to a single test. When a client’s usual partner or principal steps back, retires, or sells out, does the client stay with the practice. That is the client transfer question, and in our experience it decides more of the eventual price than the billings number the practice has always used to describe its own value.
This is not a criticism of how practices are run. Client relationships concentrating around individual partners is the natural result of how professional services work, since clients hire people as much as they hire letterhead. But it means the value sitting in a set of billings can be considerably more fragile than it looks, and that fragility is exactly what a buyer, or a partner buying in, is pricing before they commit to a number.
Why billings and goodwill have always been out of step
Most practices still describe their value with a rule of thumb, a multiple of fees or a multiple of maintainable earnings that has circulated in the profession for decades. Partners watch utilisation and realisation rates closely because those numbers drive the current year’s profit, and they assume the same numbers will carry across into a sale price. They often do not. A buyer is not purchasing this year’s fee base. They are purchasing next year’s fee base, under someone else’s name, and that is a different question entirely.
The disconnect shows up clearest in firms with a strong senior partner and a thinner layer underneath. Realisation looks healthy, utilisation looks healthy, and the P&L looks exactly as it should. None of that tells a buyer what happens to the top ten clients the day that partner’s name comes off the door. An indicative business valuation run on a practice like this often produces a number meaningfully below what the fee multiple would suggest, not because the practice is underperforming, but because the valuation methodology is finally asking the transfer question directly.
What buyers and incoming partners are actually testing
When due diligence starts on a professional practice, three things get scrutinised well before the financials do. The first is whether each significant client relationship already involves more than one person at the firm, or whether it runs through a single point of contact. The second is whether engagement letters, retainers and referral arrangements sit with the practice as an entity, or personally with the partner. The third is how concentrated the top clients are around one partner’s book relative to the rest of the practice.
None of these are unusual questions to ask of any owner-led business. What makes professional practices distinct is how easily a strong billings year can mask all three. A locum, an associate, or a second-chair solicitor sitting quietly across every major client file changes the answer completely, and it is one of the more affordable moves a practice can make well before a sale or partner transition is on the table.
The succession timeline most practices start too late
Transferring a book of clients is not a paperwork exercise. It is a multi-year process of introducing a second person into meetings, letting them run the smaller matters first, and gradually shifting who the client calls when something urgent comes up. Done well, this takes two to three years. Done in the final six months before a retirement or a sale, it rarely holds, and buyers price that risk into the offer whether or not the transition has actually started.
For practices approaching a partner’s retirement, a sale, or a new equity partner buying in, an exit readiness diagnostic gives a clear read on where the client base actually sits today, rather than where the org chart suggests it sits. That distinction is usually the single biggest driver of the eventual number, well ahead of any adjustment to fees or overheads.
None of this changes what makes a good practice good. Clients who trust a particular partner and want that partner’s judgement are the reason the practice exists in the first place. But when the conversation turns to what the practice is worth to somebody else, the billings number stops being the answer, and the transfer question becomes the one that matters. Practices that start treating that question as a multi-year project, rather than something to solve in the months before a sale, are consistently the ones that see the fee multiple and the sale price land close together. ProfitPulse works alongside accounting and law practices across Queensland and the East Coast on exactly this kind of preparation, starting with an honest read on where the client relationships actually sit.
Frequently asked questions
What determines the value of an accounting or law firm in Australia?
Value in a professional practice comes down to more than the fee base. Buyers and incoming partners weigh how much of the client relationship sits with one named partner against how much is genuinely held by the practice as an entity. An indicative business valuation tests both, which is why two practices with similar billings can produce quite different numbers.
Why do two accounting practices with the same billings sell for different prices?
The billings figure describes this year’s fees, not what happens to those fees once a partner steps back. A practice where client relationships are shared across two or three people typically prices higher than one carrying the same billings through a single partner’s personal book, because the buyer is pricing the risk of client attrition after settlement.
How does client concentration affect the sale price of a professional practice?
When a small number of clients sit predominantly with one partner, a buyer treats that as concentration risk rather than a strength, regardless of how loyal those clients currently are. The more those relationships are shared internally well before a sale process begins, the less that risk gets priced into the eventual offer.
How long does succession planning take for a law or accounting practice?
Meaningful client transfer typically takes two to three years of deliberate work: introducing a second person into key files, letting them lead smaller matters, and gradually shifting who the client contacts first. Starting this inside the final year before a retirement or sale rarely gives the relationships enough time to genuinely transfer. An exit readiness diagnostic is a useful way to see how much runway is actually needed.
What is goodwill and how is it valued in a professional services firm?
Goodwill represents the value of a practice beyond its physical assets and cash, typically the client relationships, reputation and referral network built up over time. In professional practices it is usually the most contested figure in a sale, since its size depends heavily on whether those relationships are transferable to a new owner or tied personally to the departing partner.
Can a professional practice increase its value before an owner retires in Brisbane?
Yes, and the most reliable lever is deliberately spreading client relationships across more than one person well before retirement becomes imminent. Reviewing engagement terms so they sit with the practice rather than the individual, and documenting referral sources, both help. A structured readiness review gives a practical starting point for where to focus first.
Do realisation and utilisation rates matter when valuing a professional practice?
They matter for understanding current profitability, but they do not answer the transfer question a buyer actually cares about. A practice can show strong realisation and utilisation and still carry a heavy valuation discount if those healthy numbers depend on one partner’s personal client relationships rather than systems the whole practice can run.
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