READ THIS IF YOU ARE BUYING AN ACCOUNTING FIRM.
March 24, 2025
by a professional in New York, NY, USA
Private Equity is reshaping the accounting industry, and utilization rates are a key metric to look at when buying an accounting firm.
Private Equity firms are rapidly acquiring accounting firms, and their playbook is clear: raise prices, cut costs through outsourcing or technology, and expand service offerings. But utilization rate per employee is often not looked at in a normal quality of earnings.
Utilization is total billable hours divided by total hours worked. When I was at a small firm the goal at the staff and senior staff level was 80% or 1600 billable hours of 2000 total hours per employee.
Utilization rate isn’t just a measure of efficiency; it’s a window into a firm’s profitability and scalability. By analyzing utilization rates, PE firms can gauge whether an acquisition target is operating at peak performance or if there’s untapped potential to optimize.
For any firm considering selling or being acquired, understanding and improving utilization rates can significantly impact valuation.
Some firms will view Low utilization rate as an opportunity to slash employees, while other firms will view low utilization rate a culture of laziness.
How do you see utilization rates impacting valuations in professional services?
from University of Virginia in Gaithersburg, MD, USA
from Walsh College of Accountancy and Business Administration in Detroit, MI, USA