Understanding recurring revenue in an accounting-practice sale

Recurring revenue is usually the first number discussed when an accounting practice changes hands, and it is often the least precise. Two practices can both report that most of their revenue “comes back every year” and be very different businesses. This guide explains the vocabulary CPA Acquire asks sellers to use, and the factors that determine whether reported revenue survives a change of owner.

It is general education about how these terms are commonly used. It is not valuation guidance, not advice about any particular practice, and not a substitute for your own advisors.

Three kinds of revenue that repeat differently

The single word “recurring” hides a distinction that matters enormously in practice. CPA Acquire asks sellers to split revenue three ways.

Why separate them? Consider two practices, each reporting 70% of revenue as returning work. The first is monthly bookkeeping and payroll under written arrangements, billed every month. The second is individual tax returns that have come back each spring for years. Both descriptions are honest. But the first produces cash throughout the year and the client relationship is continuously active; the second concentrates delivery into a few months, and the relationship goes quiet in between. A buyer taking over in June meets those two books in completely different states.

Neither is inherently better. A seasonal tax book can be an excellent acquisition, particularly for a buyer with the capacity to absorb it. The point is that the two require different plans, different staffing, and different working capital — and a single blended percentage tells you none of that.

Retention: does revenue actually return?

Repeat revenue is a historical description, not a promise. What matters to a buyer is retention: the share of revenue from clients who stay. A practice where most work returns each year, but a tenth of clients leave annually, is on a different trajectory from one where almost none do.

Retention around a change of ownership is also not the same as retention in a stable year. Client attrition frequently rises during a transition, for reasons that have nothing to do with service quality — a client re-evaluates simply because something changed. Historical retention is useful evidence, but it describes the practice under its current owner.

Transferability and owner dependence

This is, in practice, the factor most likely to make reported revenue fail to materialize. If clients engaged the firm — its team, its systems, its reputation — the relationship can transfer. If clients engaged a particular person, and that person is leaving, then some portion of the revenue may be leaving with them regardless of what any schedule says.

Practical questions on both sides of the table: Who signs the return, and who does the client call in March? Is there a second point of contact on major relationships? Do engagement arrangements name the firm or the individual? Will the owner remain available through at least one full cycle of the work, and in what capacity?

A seller who reports high owner dependence honestly is not weakening their listing. They are helping the right buyer self-select — one who plans for it, rather than one who discovers it afterwards.

Concentration

Concentration measures how much revenue rests on a small number of clients. A practice where the largest client is 4% of revenue and one where it is 30% carry very different risk, even at identical revenue. The same applies to the top ten collectively.

Concentration is not automatically bad — a large, long-tenured, well-served client can be the most durable revenue in the book. But it changes what diligence should focus on, and it changes what happens if that client leaves. CPA Acquire reports concentration as a band rather than an exact figure, because an exact percentage combined with a state and a service mix can identify a practice that is supposed to be anonymous.

Service mix, staffing and billing practices

Service mix shapes both seasonality and the licensing a buyer needs. Attest work in particular carries independence and licensing requirements that vary by jurisdiction, and not every buyer can take it on.

Staffing determines whether capacity transfers with the book. A practice whose staff expect to remain is materially different from one where delivery depends on someone who is retiring. Expectations about staff are just that — expectations — since employees make their own decisions.

Billing practices affect how transferable pricing is. Fixed-fee arrangements tend to carry a clear scope and price a buyer can honour; hourly work can be more sensitive to who performs it and how quickly. Billing cadence — monthly, quarterly, annual — determines how evenly cash arrives, which matters most in the first year when a buyer is also absorbing transition costs.

Marketplace information is a starting point, not diligence

Everything on a CPA Acquire listing is reported by the seller. CPA Acquire does not audit, verify, or independently confirm any of it, does not value practices, and does not advise on price. A listing exists to help two parties decide whether a conversation is worth having.

Confirmation happens in diligence, with your own advisors, against source records — engagement arrangements, billing history, client rosters, staffing records, and the practice's own financial statements. Nothing published on a marketplace should be relied on as a substitute for that, and a seller declining to publish something confidential is behaving correctly rather than evasively.

What must never appear in a public listing

A practice listing describes a business without identifying its clients. Client names, taxpayer identifying information, Social Security or employer identification numbers, tax returns, bank statements, payroll registers, and workpapers must never be placed in a listing or sent through an inquiry.

This is not merely a platform rule. Practitioners hold confidentiality obligations to their clients — professional, and in the case of taxpayer information, statutory — that do not pause because a practice is being sold. CPA Acquire is a directory, not a data room, and provides no facility for exchanging confidential client records. Share that material, if at all, only in diligence, under appropriate agreements, through appropriate channels, and on advice from your own counsel.