Lack of succession planning within the accounting practice world means that many practitioners of a certain age have few options but to sell their practices and like everything in business timing is everything. With the age profile of accountants in practice in Ireland increasing year on year and with fewer in the profession willing to bear the increased risk of ownership it has never been more important to start the planning process for sale early. 3-5 years before intending to retire being the recommended timescale.
A well thought out strategy can reduce anxiety commonly experienced among sole/older practitioners around fair treatment of loyal staff , joint and several liability of auditors, increased complexity and more stringent regulation in the practice arena etc.
Remember good preparation may result in a higher price achieved and a smoother transfer.
- Identify a potential purchaser.
- Sign a confidentiality agreement.
- Prepare a schedule of clients to include their type of business, year end, age profile of owners/directors, analysis of recurring /non recurring fees , condition of books and records, budgeted hours for job etc.
- Valuing work in progress can be difficult for a potential purchaser. Converting as much work in progress as possible into debtors with the vendor responsible for collecting their own debts can guarantee fewer misunderstandings afterwards.
- Allow time for due dilligence. Each party should ensure that the deal is overseen by an experienced broker with a lawyer drawing up a well written legal agreement. These experts will ensure the skills needed in marketing, negotiations, valuation and financing are to the fore.
- 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 €1.25 per euro of recurring fees with higher client recoveries at the upper end of this spectrum.
- Get legal advice on the contract for sale –make it workable and not too complicated.
- 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.
The “golden rule” with any transaction is compromise and no more so than with selling your practice. Leave a little on the table for your successor, proceed with an open mind and above all secure your future!!
John Mc Kenna is Principal at John D Mc Kenna & Co. Limited – a consultancy experienced in the buying and selling accounting practices.