Determining the Multiple for Buyouts of Retiring Partners in External Sales or Mergers

Max T. Krotman, JD

Professionals seeking to sell their practice must ask themselves: “What is the multiple?” It is a simple question, but the only simple answer is: “That depends.” There's no such thing as a universal multiple, because there are too many variables involved. By “multiple,” accountants refer to the multiple of one year's collected billings that is used to compute the total payments made when buying and selling a practice. For example, if the seller receives one year's revenues for his practice, then the price is referred to as a “one-time multiple.” The discussion below will cover the computation of payments for the acquisition and merger of external partners. Internal payouts raise a host of different issues and parameters.