In accountancy the danger zone is the point where your practice becomes seriously less attractive to a buyer and that means one thing - a reduction in the price you can achieve for what is often a lifetime's work.
The danger zone afflicts long established practices with older partners, typically but not exclusively a single practitioner or a two partner firm.
So what exactly is it and how can it be avoided?
Well, the main signs are that the client base is approaching retirement and so are the firm's partners. The reason it is so common is because these clients have literally grown with the firm and they have often prospered in lockstep with your firm..
Cosy. Lucrative. Dangerous
A buyer will take fright because the partners have forged such strong personal bonds with their clients that it is a virtually impossible act to follow, assuming of course they are still interested, given that many of these clients will simply turn the key in the lock and retire themselves - no sale, no kids taking over - just close up from one day to the next.
And even if the kids are now running the business, when Mum or Dad has retired it is often the opportunity they have been waiting for to move accountant to a firm perhaps more dynamic or where they have a personal relationship with the partners. Now that you are also retiring it make sit so much easier for them - no awkward conversations to be had.
There is another cause - failure to modernise. MTD is currently for many the final nail in the coffin but symptomatic of a neglected practice or perhaps more accurately a practice whose partners have failed to move with the times. Things move too fast these days for many people.
So what do you do about it?
The best advice is that you should avoid it in the first place , by constantly seeking new business and not resting on your laurels.
But you can mitigate the impact by selling up when there is still value, giving a buyer enough years of earnings from your clients while they use your practice as a springboard and you are still a consultant.
In terms of failure to modernise - start now. Yes now, even if it is tentative steps to reach out to clients and start the MTD conversation.
It may be a damage limitation exercise but surely if your house was burning down you'd salvage what you could?