- Annual tax preparation counts as recurring revenue in most buyer models, because clients return predictably every year, even though it's billed once.
- Ad hoc consulting and one-off engagements don't count as recurring even if the same client has hired the practice for years, because there's no standing commitment.
- Traditional tax-heavy firms typically run 50-70% recurring; CAS-heavy (client accounting services) firms run 70-90%.
- Firms with 80%+ recurring revenue can command multiples 0.2x-0.4x higher than otherwise comparable firms with a less predictable mix.
A seller lists the practice at 85% recurring revenue. The buyer’s diligence team comes back with 61%. Nobody lied. They were just answering different questions, and the seller’s version is the one that’s wrong by the standard that actually sets the price.
That gap shows up more often than the multiple negotiations that get talked about. It’s worth understanding before a practice goes on the market, not after an offer comes in lower than the seller expected.
The test isn’t “does this client come back”
Most sellers define recurring the way they’d define a loyal client: someone who’s used the practice for years and will probably keep doing so. That’s a reasonable definition of a good client. It’s the wrong definition of recurring revenue, and the difference is what trips up the number.
The buyer’s test is narrower: is there a standing commitment, or is the practice re-selling the same client every time. Monthly bookkeeping and CAS retainers pass easily; there’s a fee, a scope, and an expectation that renews without a new sales conversation. Annual tax preparation passes too, even though it’s billed once a year and looks like a project on an invoice, because the client shows up every March without being pitched. What fails is exactly the work that feels the most secure to the seller: a consulting engagement the same client has bought every year for a decade, with no retainer and no auto-renewal, just a phone call each time. The client is loyal. The revenue isn’t recurring. A buyer underwriting next year’s cash flow can’t put that phone call on the schedule.
Where a practice’s mix actually lands
The benchmarks split by what the firm mostly does, and the range is wide enough that “my mix is decent” isn’t a useful sentence without a number attached. Traditional tax-heavy firms, the kind built around a filing-season rush, typically run 50-70% recurring once ad hoc consulting and one-time projects are stripped out. Firms built around client accounting services, monthly books plus payroll plus a fixed advisory retainer, run 70-90%. A firm that thinks of itself as “mostly tax with some advisory on the side” is often sitting closer to the tax-heavy band than the owner assumes, because the advisory work is the part most likely to be unstructured.
Two firms doing the same $1M in revenue make the point concretely. One runs 85% recurring off a CAS client base: bookkeeping retainers, payroll, a handful of advisory subscriptions. The other runs 50% recurring, with the rest coming from project-based tax planning and consulting that gets re-sold every year but isn’t contracted. Both firms bill the same dollar amount. The first is priced meaningfully higher, because the buyer’s underwriting model treats its revenue as something closer to already-signed next year, and the second firm’s revenue as something the new owner still has to go re-win.
What the gap is worth
The number attached to that gap isn’t trivial. Firms with 80% or more recurring revenue can command multiples 0.2x to 0.4x higher than otherwise comparable firms with a weaker mix. On a $1M-EBITDA practice already trading in the 4-5x range that a tax-concentrated firm typically sees, a 0.3x swing is $300K, before anything else about the two firms differs. It’s not the kind of gap a seller can negotiate back at the closing table. It’s baked into which multiple gets applied before the negotiation even starts.
That’s also why a seller who spends the two years before a sale nudging the mix, moving a few tax-only clients onto a bookkeeping retainer, turning ad hoc advisory work into a subscription, isn’t doing cosmetic work. Each conversion moves revenue from one side of the buyer’s test to the other, and the multiple moves with it.
Why the seller’s own number is usually optimistic
None of this is about sellers inflating the figure on purpose. It’s that the practice’s own books were never built to answer the buyer’s question. A bookkeeping system tags revenue by client and by service line, not by whether a written commitment exists behind it. So when a seller pulls “recurring revenue” out of the P&L, what actually comes out is “revenue from clients who’ve been here a while,” which folds in the loyal-but-uncontracted work without flagging it, and the buyer is going to strip that part back out.
The fix isn’t complicated, but it does take an afternoon most sellers don’t spend until a buyer forces the issue: go through the client list and sort each engagement by whether there’s a standing retainer or renewal behind it, not by whether the client feels permanent. The number that comes out the other side is usually lower than the one on the listing. Better to find that out before the number is quoted to a buyer than after.
Fixing the mix before it gets tested
A seller who runs that exercise eighteen months out from a sale, rather than during diligence, has time to actually change the number instead of just discovering it. Converting a tax-only client to a bookkeeping retainer, or turning a recurring-but-informal advisory relationship into a signed subscription, doesn’t require new clients. It requires going back to existing ones and asking them to sign something they were probably going to keep paying for anyway.
The seller who does that work shows up to the sale with a mix that survives the buyer’s test instead of one that only looked good on the listing. The seller who doesn’t finds out the hard way that “recurring” was never really up to them to define.