When a buyer prices an accountancy practice, the headline number is built up from a view of two distinct things: what proportion of the fee book is genuinely recurring, and what the rest of the fees actually are. The shorthand for the first half is "recurring revenue"; the shorthand for the entire intangible value is "goodwill". The two are related but they are not the same. Sellers who treat them as interchangeable end up surprised at how the offer is constructed. This article walks through what the buyer is paying for in 2026, where the lines are drawn, and how the recurring proportion drives the multiple in practice.
Goodwill and recurring revenue: the definitions that matter
In accounting terms, goodwill is the intangible value of a going concern that exceeds the fair value of identifiable net assets. It is the embedded value of the client relationships, the brand, the staff, the systems, and the position in the local market. For a chartered accountancy practice, almost all of this resolves into client relationships: the value of clients who will continue paying fees after the seller has left.
Recurring revenue is the subset of fee income that has demonstrated stickiness. The same client paid the same fee, broadly, last year and the year before. The relationship is structured so that absent some triggering event, the fee will recur next year and the year after.
The two concepts overlap but are not identical. Goodwill includes the recurring revenue stream and also includes the option value of continued non-recurring engagements with the same clients (an audit client who also calls you when they need transactional advice; a personal tax client whose business work occasionally lands in your firm). Recurring revenue, in the strict sense, is the predictable annuity portion of the relationship.
For valuation purposes, the buyer cares about both, but pays differently for them. The recurring revenue portion is priced at a multiple that reflects its predictability. The non-recurring portion of goodwill is priced at a discount because its persistence is more uncertain. The blended result is the headline GRF multiple.
What counts as recurring
The clear recurring categories are:
- Annual compliance fees for limited companies, sole traders, and partnerships. Year-end accounts, corporation tax computations, partnership tax returns, the work that has to be done once a year and that is paid to the same firm year after year unless the client actively switches. This is the largest single category of recurring fees in most general practices.
- Personal tax compliance for the same clients (directors, partners, family members), where the practice prepares and files the Self Assessment returns. Predictable, sticky, low-friction.
- Monthly bookkeeping and cloud accounting subscriptions where the practice manages the client's monthly accounting records, runs the bank reconciliations, processes the receipts, and provides monthly or quarterly management information. These are typically billed monthly or quarterly and are highly recurring.
- Payroll services billed monthly or per-payslip. Sticky because changing payroll providers mid-tax-year is more disruption than most clients want.
- VAT compliance billed quarterly. Recurring almost by definition.
- Advisory retainers where a client pays a fixed monthly or quarterly fee for an agreed bundle of advice, support, and meetings. These are recurring while the retainer is in place but require renewal at agreed intervals.
- Audit fees for clients where the practice is the appointed auditor and the engagement is renewed annually. The renewal is a formality in most cases but the engagement does carry annual reappointment as a structural matter.
- R&D claim work where the practice has done the prior year's claim and is on track to do this year's. The work is genuinely annual but the client can move providers between years without changing anything else, so the stickiness is lower than for compliance work.
What does not count as recurring
The non-recurring categories are:
- Year-end engagements without follow-on work. A client who walks in once for a single set of accounts, pays the bill, and is never seen again. The fee is real but it is not goodwill.
- One-off transactional tax work. Capital gains computations on a one-time disposal, IHT planning for a specific event, deal structuring for a single transaction. The fee is often substantial but it is a project, not an annuity.
- M&A advisory and corporate finance work. Project-based by nature. The same client may instruct again in five years; that is hope, not recurrence.
- Specialist work led personally by the principal. Where the relationship and the technical expertise are tied to a specific person who is leaving on completion, the work does not transfer with the practice. The buyer should not pay for it as if it does.
- Recently acquired clients with no track record. Clients won in the last six to twelve months have not yet demonstrated stickiness. They are recurring on paper but their persistence is unproven.
- Clients on notice or known to be leaving. Where the principal already knows the client intends to move, retire, or wind up their company, the recurring revenue from that client is illusory. Honest disclosure of this in due diligence is in the seller's interest because it preserves the trust that holds the rest of the deal together.
- Volatile consulting work. A client who instructs the practice on advisory matters but at unpredictable intervals and with no retainer. The relationship may be valuable but the recurring revenue line is not.
The buyer's lens: durability, transferability, predictability
When we look at a fee book on the buyer's side, the recurring proportion is pulled apart along three axes.
Durability is the question of whether the client will still be a client in two and three years' time. Some sectors and client types are inherently more durable than others. A mid-sized owner-managed business with stable operations and no immediate succession pressure is highly durable. A construction subcontractor in a sector that is going through consolidation is less durable. A sole trader nearing retirement is durable for as long as they keep working. The durability test is applied client by client when due diligence reaches the client list, but at the book-level it is approximated by sector mix and client demographics.
Transferability is the question of whether the client relationship transfers cleanly to the new firm or whether it is tied to the seller personally. A compliance client who deals primarily with the practice manager and only occasionally with the principal is highly transferable. A client who insists on dealing with the principal directly, who has known the principal personally for thirty years, who came to the practice specifically because of the principal's reputation: that relationship may not transfer. The buyer's job in due diligence is to identify which clients fall into which category. The seller's job in deal preparation is to broaden the relationships in the run-up so that more of them are transferable than would otherwise be.
Predictability is the question of whether the fee is stable in size and frequency. A client paying a flat monthly retainer of £450 is highly predictable. A client whose annual fees swing between £8,000 and £25,000 depending on what is happening in their business is less predictable. The recurring fees in the book are weighted by predictability when the buyer builds the value model.
A book where 80 per cent of the fee income is high on all three axes (durable clients, transferable relationships, predictable fee patterns) prices very differently from a book where 80 per cent of the fee income is high on one axis but low on the other two.
How recurring proportion drives the multiple
In our pricing approach, recurring proportion is the single largest factor moving the GRF multiple inside the range that small UK practices typically transact at. The mechanism is straightforward.
The recurring portion is priced at a multiple that approximates an annuity discount. If we assume a five-year holding view, an attrition assumption of 5 to 7 per cent per year, and an internal hurdle rate that reflects integration cost and capital cost, the implied multiple on £1 of high-quality recurring revenue lands in the 1.1x to 1.4x range, depending on durability, transferability, and predictability.
The non-recurring portion of goodwill is priced at a discount because its persistence is uncertain. The implied multiple on £1 of non-recurring fee income, where there is some prospect of repeat work but no contractual or structural recurrence, is more typically in the 0.4x to 0.7x range.
The blended multiple is the recurring proportion weighted at the recurring multiple, plus the non-recurring proportion weighted at the non-recurring multiple. The arithmetic is what produces the headline number.
For a £500k book that is 80 per cent recurring and 20 per cent non-recurring: 0.80 × 1.25x + 0.20 × 0.55x = 1.00x + 0.11x = 1.11x GRF, equivalent to a headline of around £555k.
For a £500k book that is 50 per cent recurring and 50 per cent non-recurring: 0.50 × 1.25x + 0.50 × 0.55x = 0.625x + 0.275x = 0.90x GRF, equivalent to a headline of around £450k.
The same headline gross fees produce a difference of around £105k in offer price, driven entirely by the recurring mix. This is why the recurring proportion question is the first question we ask on any first-call conversation.
Worked example one: £500k book, 80 per cent recurring, clean client mix
Imagine a Manchester general practice with £500k of total annual fees. The breakdown is:
- Compliance work for around 90 limited companies and 40 sole traders, totalling £290k. Mostly long-tenured clients (average relationship length over six years).
- Personal tax compliance for the same clients and their family members, totalling £75k.
- Monthly bookkeeping for around 25 clients on cloud software, totalling £55k.
- Payroll for around 35 clients, totalling £20k.
- Audit work on three retained audit clients, totalling £35k.
- One-off advisory work, R&D claims, and project tax work, totalling £25k.
The recurring components total around £475k (compliance, personal tax, bookkeeping, payroll, audit), which is 95 per cent of the book. The non-recurring portion is about 5 per cent. We round the recurring proportion to 80 per cent for the worked example here, accepting that some of the audit work and some of the bookkeeping should arguably be discounted for predictability, and the headline calculation lands at around 1.11x GRF or £555k.
The top client at this book represents about 6 per cent of total fees: low concentration. The principal works through two senior managers and a small team, so the bulk of relationships are not personally tied to the principal. The geographical fit for a Manchester buyer is strong. The book transacts towards the upper end of the offered range; we would price this at around 1.10 to 1.15x GRF on the asset structure, equivalent to £550k to £575k.
Worked example two: £500k book, 50 per cent recurring, principal-led specialist work
Same headline, very different shape. £500k of total annual fees, but the breakdown is:
- Compliance work for around 50 clients, totalling £180k. Many are long-tenured but the practice manager has historically dealt with very few of them; the principal does the senior review and the client meetings.
- One-off and recurring tax planning work, including IHT planning, capital gains structuring, and trust work, totalling £130k. Genuinely high-value work but largely principal-led.
- Specialist advisory in a single sector (assume media-related personal tax for entertainment industry clients), totalling £100k. Almost all relationships are personal to the principal; the practice manager is not on first-name terms with most of the clients.
- Year-end one-off engagements, totalling £55k. Annual but with no retainer or structural commitment.
- Other transactional and project work, totalling £35k.
In this case the recurring proportion is closer to 50 per cent, the principal-led portion is large, the transferability of the specialist work is doubtful, and the durability of the year-end one-offs is unproven. The blended multiple lands closer to 0.85 to 0.95x GRF, equivalent to £425k to £475k.
The book is the same gross size as the first example and arguably contains more interesting work. It transacts at around £100k less. The reason is not that the work is less valuable in the abstract; it is that the value belongs to the principal more than to the practice. A buyer purchasing the practice does not, in any meaningful sense, also purchase the principal. So the value that depends on the principal does not transfer.
Sellers in this position have two practical choices. They can accept the discount, sell the book at the range it commands, and exit cleanly. Or they can spend the eighteen months before sale broadening the client relationships, pulling more of the work down to the practice manager level, and demonstrating that the relationships persist even when the principal is not in the room. The second route is more work and takes longer, but it can move the multiple by 0.10 to 0.15 multiple points, which on a £500k book is meaningful money.
How software stack and cloud accounting affect recurring quality
One factor that has become more material over the past five years is the software stack the practice runs on. A book where 70 per cent of compliance clients sit on a current cloud accounting platform (Xero, QuickBooks Online, FreeAgent, Sage Business Cloud) and where the practice has live access to the books, has set up the standard automations, and has client engagement letters that anchor the platform relationship, is a different proposition to the buyer than a book where the same clients are on desktop software, on legacy platforms, or on no consistent platform at all.
The reason is integration cost. The buyer who acquires a book of cloud-based clients can absorb them into their own systems with modest setup work and continue billing within a month or two of completion. The buyer who acquires a book of desktop or legacy-platform clients faces either a forced migration project (which damages client relationships and creates churn risk) or an extended period of running parallel systems (which costs money and complicates the integration economics).
The pricing effect is in the order of 0.03 to 0.07 multiple points: small but real. More importantly, where the software state is poor, the buyer's diligence sometimes uncovers it late and renegotiates the offer accordingly. Sellers who address the software state in the eighteen months before sale typically capture the full multiple. Sellers who present a mixed software estate at heads of terms and have it discovered properly during diligence often see the headline trimmed.
The same logic applies to engagement letters. A book where every client has a current, signed engagement letter on the firm's standard terms is presented as a clean asset. A book where engagement letters are out of date, missing, or on inconsistent terms is presented as a less clean asset. Buyers do not pay the same multiple for the two states.
The recurring revenue conversation in the first call
From our side, the first conversation with a potential seller usually opens with a high-level question on book size and shape, followed almost immediately by a question on the recurring proportion. The way the seller answers the question is itself informative.
Some sellers know the recurring proportion of their book to within two percentage points and can break it out by category in the first call. These sellers have typically thought about exit for some time, have run the analysis themselves or with their accountant, and are at the operational stage of preparation. The conversation moves quickly because the substantive numbers are in hand.
Other sellers respond with a confident-sounding "almost all of it" or "well over 80 per cent" without supporting detail. These sellers are usually in the early-thinking phase. The proportion turns out, on examination, to be lower than the initial answer. We do not hold this against anyone; the analysis is not natural to do until the question of sale has come into focus. But it is the case that the conversation slows while the underlying numbers are clarified, and the heads of terms typically follows the clarification, not the initial conversation.
For the seller, doing the recurring proportion analysis before the first call is one of the highest-value uses of preparation time. It makes the conversation more productive, anchors the discussion in the right numbers, and signals to the buyer that the seller has thought about the practice as a buyer would.
What this means for sellers preparing for exit
The first question to ask when looking at your own fee book is which fees are recurring under the strict definition above and which are not. The answer is often surprising. Principals who have been running the same practice for thirty years sometimes find that 30 per cent of their fees are work they had assumed was recurring but that is, on examination, project-led or principal-led.
The second question is which clients have relationships that transfer and which have relationships that do not. This is rarely a yes-or-no answer; it is a continuum. A useful exercise is to mark each significant client on a simple two-by-two of "compliance contact" (practice manager / principal) and "personal contact" (practice manager / principal). The clients in the bottom-right (principal-only on both axes) are the ones that need attention before sale.
The third question is what the book actually looks like through the buyer's lens. The valuation tool on this site (the practice valuation calculator) weights recurring proportion as the dominant factor and produces a range that approximates the way we actually price. The range is not a quote; it is the same range we would arrive at internally before a serious conversation, and it is calibrated to the pricing methodology described in this article.
The wider point on goodwill
The temptation in any practice sale conversation is to think about goodwill as a single number that the buyer either pays for or does not. The reality is that goodwill is a composite of recurring revenue, transferable relationships, durable clients, predictable fees, and a working operational state. Each of these is priced separately, and the headline multiple is the blend.
The seller who understands the composition of their own book has a clearer view of why an offer is structured the way it is and a stronger position from which to negotiate. The seller who treats the multiple as a single mysterious number does not.
From our side, the analysis above is how we build offers. It is not a survey of completed deals across the sector; the data on actual transaction multiples is patchy and not all of it is reliable. It is our pricing methodology, applied consistently to each book we evaluate, and it is the basis on which we engage in any first-call conversation.
Related reading
- Accountancy practice valuation: the GRF multiple in detail the eight factors that drive the headline multiple, of which recurring proportion is the largest.
- Practice valuation calculator the on-site tool that produces an indicative range using the same methodology.
- How we structure the deal covering the payment schedule and the protections that sit alongside the headline number.
- The realistic options for a retiring UK chartered principal the overview that places this article in context.