As with any major decision getting the planning right is the difference between a smooth ride with a successful outcome and a bumpy ride that ends sub-optimally, or worse.
But the biggest worry is that so many retiring accountants fail to plan properly and don't even realise that they've sold themselves short.
Many accountancy firms have been fortunate enough to prosper during the havoc wreaked on our economy during Covid, by virtue of being called upon in an unprecedented manner to support clients at their darkest hour.
Even for those practitioners who are counting their blessings, whether from a health aspect or from their emerging unscathed financially in 2020/21, now appears to be the moment that many of them are taking stock of their careers and reflect on what they really want out of their accountancy businesses.
This reflective process has made many consider retirement, whether immediately or in the next few years, something hitherto they might have kicked into the long grass. But people don’t live forever and the changing work patterns that have been thrust upon us has led them to recognise or discover that they can choose between full retirement and “practice-lite”.
For those who want to put their career behind them and do something else there is a lot to consider, but in the absence of a plan and timeframe, we risk selling ourselves short and not receiving the return on our investment for building a successful practice over many years.
This, of course, will directly impact when we can officially retire, work fewer hours and enjoy the lifestyle we’ve aspired to, or perhaps to fund a second career.
Below are the key stages in planning for retirement from practice, often referred to as succession planning. Done correctly it should certainly be a success, but as the old adage goes, failing to plan is planning to fail.
Keep an open mind: You don’t have to firmly decide at the outset whether you want to sell your practice outright or piecemeal, say in client tranches. That can wait until you know what you want to be doing with your life going forward and the amount of leisure time you want. For multiple partner firms, it may be a choice of selling part of your equity and working less hours in return, but even then all the partners might be nearing retirement at the same time, which throws up challenges of its own. The planning process to ensure your practice is valued at a premium is the same for all eventualities.
Set a timeframe: Set a date when you would like to exit the business and how much you would like or need to retire on. Those two figures may not be similar. Be aware that everyone has an approximate number in their minds when they think of ‘what annual income do I need in the future’ or ‘what I think my practice should be worth’. Ultra-low interest rates are undoubtedly a factor in many calculations these days, as might be the low yields on property ownership that historically might have been a good place to park the proceeds of selling your practice.
Where you are now: Take a hard and long look at your practice as if you were a client asking you for advice. What is it worth now? What do you need your practice to be worth in order to achieve your goal? Identify the gap and the timeframe you set to give you a target of what needs to be done. It may be too late or you may not be up for the challenge but at least you can make an informed decision.
The things that will ensure your practice achieves it true worth:
What is unique about your business and why do clients use your services? It’s not just about meeting deadlines and filing accounts on time. That’s a given! Survey clients and obtain evidence on what makes you different and why clients stay with you. What is it that they are really buying? These days it is about value-added – do you really add any value that could be baked into a sale and make your fees attractive to a buyer?
How well do you know your client base? Grade your clients (not just based on what they pay you each year, but -use qualitative measures too). Draw up a list of services of everything you do as a firm then look at how many of these services are used by each client. It might be a bit subjective but it’s still well worth knowing.
Identify where there are gaps: Clients may not be using you for all the services you can provide. Are you missing opportunities to cross sell and upsell? Identify the opportunities and establish why clients aren’t using your firm for these services or financial products. You will either increase fee income by doing this or find out why clients aren’t using you, something a buyer will be interested to know and may make your practice more attractive.
Staff - are they valued, skilled and happy? What can you do to make them feel valued and more importantly, ensure that they will be an asset to the firm in the long term even if you’ve long gone and somebody else is in your seat. Remember, that staff are your human capital and they have the power to derail a deal, and they are well aware of that.
Staffing is an expensive and challenging area for accountancy practices and the staff costs to fees ratio is a key performance indicator that buyers scrutinise. Having a happy and skilled workforce makes the business more valuable and attractive when planning for succession. Without staff, a practice can’t function, but overpaid staff with poor productivity will hinder a sale.
Financials- are your own management accounts up to date and accurate? Many practices don’t have reliable information and worse still, many have a large amount of capital “locked up” in debtors and work in progress, which shouts “mismanagement” when examined closely - something any buyer or incoming stakeholder will do. How will a buyer manage to extract fees from clients who are used to not paying bills for 12 months, or who don’t respond to information requests to enable jobs to get finished and out of the door?
Technology- Where are you with optimising technology to improve production workflow and client service? Is significant investment required? Maybe there is an opportunity to outsource and flatter the bottom line going forward. Perhaps using the right outsourced support will allow you reduce your practice to a size and complexity that you are more comfortable with and allow you to continue for longer.
Systems: how reliant is the business on you as the owner? The more systematised production processes are then the higher the value of the practice. Any firm that is overly dependent on one person will be perceived as potentially unattractive to a third party.
Over dependency means clients may resist moving over to a new ‘handler’ and be perceived as ‘clients at risk ‘of leaving. Incoming partners will also view very close client relationships as a burden often meaning long hours worked and few holidays without continual interruption from clients.
Your role in the business: Are you merely a technician doing compliance work or a real partner managing the business and doing what only a partner can and should do? It’s a tough question to answer truthfully but an important one in terms of what you need to focus on to make your practice more attractive and your exit strategy achievable.
Are you aware of the threats to your practice? Competitors, clients coming to the end of their service life with the firm, staffing challenges, geographical considerations, pool of potential new clients, office space to grow into, cash tied up in debtors and work in progress and the list goes on. Identify what is relevant to your business and plan how to manage these threats.
Of course, most of the above is based on a simple SWOT analysis and won’t be anything new to you. It’s good to be reminded of the basics and the simple stuff that makes a real difference when valuing your practice, often hiding in plain sight but in the everyday cut and thrust you don’t see the wood for the trees.
Consider the entire exercise as having duality of purpose in that it is something you can also offer clients as a service. It’s not just accountancy practices that face these challenges, every single owner-managed business is in the same boat with the same consequences of getting things wrong.
Once you have identified your weaknesses in these categories then you have the basis for an action plan. The key to succeeding is to manage the process of self-reflection in bite-sized chunks. It won’t happen overnight and could take time to implement changes, but you need to address issues because they don’t go away.
If, in the final analysis you are going to put your accountancy practice up for sale, remember that you only do it once, so it’s worth devoting time to ensuring that transaction is a fair reflection of you’re the hours you’ve put in during your working life to get it to where it is now, even if it takes a final herculean push in the months leading up to a sale.