A consideration facing firms of all sizes today is that of succession – how to fund retirement of the sole practitioner or of the older partners.
Lack of succession planning within the world of accounting practices means that not only are firms facing problems, the picture for many retiring partners is grim. Reduced pension values, plummeting annuity values, lack of funds within the practice to pay out goodwill means that many partners face the prospect of working into their 70’s or accepting a much reduced retirement income than they had anticipated.
The age profile of the practitioners is directly proportional to the value of the practice as older practitioners tend to have clients with an older age profile and thus perceived in the market as less valuable. Thus it makes sense for older practitioners to consider selling/merging their practices 3-4 years before they actually want to retire. Some thought and planning can reduce anxiety commonly experienced among practitioners around keeping good quality staff, joint and several liability of auditors, increased complexity and regulation in the practice arena etc.
Valuation –a practice is typically worth less than the owner thinks. Disposing of part of a practice (pro rata) is worth less than the whole.Vendors should expect to receive between 75c and €1.15 per euro of recurring fees with higher client recoveries at the upper end of this spectrum.
Usually involves a compromise between vendor and purchaser. Typically payments are spread over a period of time (say 3 years) with an initial down payment on signing the contract. There is usually a clause in the purchase contract to deduct from the final payment the price paid for any clients which were on the original list and did not transfer.
Becoming a consultant within the acquiring entity facilitates the smooth transfer of clients and gives the seller a certain amount of control over perserving the relationship between client and the new practice and ultimately his/her earnout while at the same time giving him/her a sense of purpose with the risk significantly reduced. A consultancy agreement should be specific with regards to duties,responsibilities, timing and pay and conditions.
John Mc Kenna is Principal at John D Mc Kenna & Co. Limited – a consultancy experienced in advising buyers and sellers of accounting practices. He can be contacted on 01 9011677 / 086 8530013 firstname.lastname@example.org or www.jmckenna.ie