This series of blogs will give you an insight into selling an accountancy practice, one of the biggest decisions of your professional career, certainly financially and most likely emotionally too.
For many accountants it heralds a new era in their life, often ushering in retirement or part-time flexible working as a consultant.
Whatever your reason for selling it is all too easy to turn what should be a fairly straightforward transaction into a nightmare.
Even if you are not a retiring accountant but wish to remain in practice to some extent much of these blogs is still relevant.
Remember, no two deals are the same and everybody seeks something different from an accountancy practice disposal, so it pays to be flexible and maintain an open mind where possible, especially as the landscape of a deal can change during the buyer’s due diligence and negotiations.
This first blog looks at the starting point in the decision to sell an accountancy practice.
Normally, people don’t wake up and declare that today they are going to sell their business. The decision to commit to selling a business, and let’s not forget that your accountancy practice is a business, is a culmination of several factors over a period of time.
Invariably it starts following a conversation with a friend or colleague, a throwaway comment at a dinner party, a serious problem in the office involving a client or member of staff, or simply a realisation that you’re battle weary and not prepared to confront the rapid and unremitting changes the profession is undergoing.
Other causes are simply that it is time to retire or a life changing event such as illness, bereavement or family relocation forces your hand.
Whatever the catalyst it is important to be 100% sure that you are making the right decision as there is no turning back once the contract is signed, nor do you want to spend many weeks in preparation and legalities only to wake up one day, look in the mirror and realise you have made a mistake.
It pays to discuss your decision with people whose judgment you trust, especially as your decision may be emotionally charged during a difficult time in your private life or simply that you have overlooked opportunities within your practice that could easily be exploited with a little planning and perseverance.
One of the advantages of using an agent or broker is that they will ask you to complete a comprehensive questionnaire about your practice, and this process gives you time to think and reflect about your decision.
This is the first question that every potential seller asks. The “smart” answer is that your practice is worth the amount somebody else is willing to pay for it!
Deals done in recent months will be the starting point although one has to take into account a number of variables in order to arrive at the valuation, which can vary significantly. A good agent will have a sound grasp of local market conditions and be a strong negotiator on your behalf. A GRF multiple is the most popular basis for ascertaining price, but others do exist.
Typically, an accountant looking to sell up will have given it several months of thought but there is no reason why you cannot make the decision now to sell a couple of years down the line. The earlier you have clarity about where you want to be within a particular timeframe the easier the process will be. If you are using a practice sales broker they should understand the need for a long lead time and will not put any pressure on you to sell earlier.
Finding a buyer can take from minutes to years, depending on the state of the economy, how
specialised a particular practice is but most importantly the location and size of the practice. Often a practice will be put up for sale and the owner is adamant that they will not accept less than a certain sum, which therefore means that it will take much longer for them to sell their practice, assuming they can sell it at all if their price is not realistic. Similarly, a practice with a bad history, in a remote location or with insufficient goodwill may take a long time to find a buyer or could be virtually unsellable.
A deal can complete in days or months. Typically though, a deal will take around three months, although in a distressed sale where a low price is being sought, the deal will move much faster, often in a couple of days, and the buyer will accept that the lack of due diligence is part of his or her risk and is being reflected in the price. When there is a
bereavement or sudden ill health a quick sale is highly recommended if any value is to be salvaged. The value will drop precipitously after the initial period of good grace any sympathy.
Like selling your house, there is no procedural reason why you cannot sell your practice yourself and this does take place, usually to a friend or family member. However, it is important to make up your mind early on which route you will take – the DIY way or the traditional route via a broker – as bringing in a third party once you have started and had regrets is messy and can cost you a sale.
Sometimes either or both parties match themselves up but request a broker to assist them from the outset. Obviously you can expect to pay less in professional fees as the hardest part – the matchmaking -
has been done. Many DIY jobs end up using a broker somewhere along the line and two of the main advantages are:
- Knowledge of contractual pitfalls and procedures specific to practice disposals
- Emotional detachment, allowing potential stumbling blocks to be removed or resolved
Using a broker from the outset has the added advantages of:
- Speed in finding a buyer
- A vetting process to root out timewasters
- Wider choice of candidates to choose from
- Better ability to make comparisons and guidance as to price
The $64,000 question – “how much should I pay in fees to the broker?”
Some charge the seller, some charge the buyer and some charge half to each, and some even charge a commitment fee.
Often market condition and the circumstances surrounding the sale will influence the fee arrangements.
Ultimately it is not about who is paying and feels that they are in the driving seat but rather a case of ensuring the broker or agent can actually get the deal done professionally and efficiently, without sweeping problems under the carpet so they only become apparent once the ink has dried and their fee has been paid.