42% EBITDA Margin too high for Bookkeeping / tax prep?

March 22, 2025

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Austin, TX, USA

I'm currently looking at an accounting prep / bookkeeping firm with ~$3.7M in revenue and ~$1.6M in EBITDA. I have already backed the fees they earned from ERC filings and PPP out of both revenue and EBITDA - without taking out the associated cost for the work done, so arguably their EBITDA should be a little higher.

That gives me a 42% EBITDA margin, which is in-line with the previous 3 years. They supposedly price competitively, but my research shows most tax prep / bookkeeping companies earn about 20% gross margins, so I am wondering if 40%+ is really sustainable.

As of now I have asked for pricing sheets and personnel costs to try to understand margins at the unit level.

Any thoughts on anything else similar to PPP / ERC that I could be missing? Or anything else I should be looking at?

Reply by a searcher
from Brigham Young University in Dallas, TX, USA

I would poke around to see if theirs some reason costs are abnormally low. For instance I own an insurance agency in an extremely rural area. 1) there isn’t a typical commission structure and 2) people just make less there. Our ebitda margins are over 50%.

I would anticipate that this accounting firm is also not doing much marketing which could be driving margins up compared to what you’ll do.

In your diligence, see if you can make sense of why they are higher. If you can point to a few reasons, then I wouldn’t overthink it. Industry benchmarks are only worth the info they’re built on.

Reply by a searcher
from Northwestern University in Chicago, IL, USA

I talked to a few of these during my search and at a small scale the margins were usually pretty good, but in those cases either the owner was doing a lot or it was an offshoring business. I would also check if implementation work was a part of what they did (it's lower multiple/value and higher margin). In many cases I would guess that the gross margins are sustainable, but the management structure likely doesn't scale as well, at which point it would be more a question of if you can outgrow the increasing cost structure.

+9 more replies.

Join the discussion