Margaret Thatcher famously told The House of Commons that “You cannot buck the market” .
It’s been proven time and time again – she didn’t invent the concept but merely reminding us all about it.
Now, some of you will be thinking to yourselves that there is no shortage of stories of how people have bet against the market and made their fortunes. Of course this happens, perhaps more often than we might think, for those willing to take a contrarian view of the future outlook, say in a commodities market or the whether it’s the end of fossil fuels.
However, when it comes to putting an asset up for sale, the market is king.
That holds true for pricing and the terms you might wish to lay down for a prospective buyer when you sell your accountancy practice, or any other business for that matter.
The market is of course a mechanism to discover what the current price of an asset is but it also makes clear what is and what is not acceptable to a buyer.
As a broker of accountancy practices it riles me constantly when a seller insists on conditions that I know are unacceptable to buyers, in spite of me explaining to them how the market works.
One of the recurring bugbears is the matter of clawback.
Just to remind you, clawback is a mechanism to protect the buyer against clients defecting because they do not wish to deal with the buyer, for whatever reason.
Some accountants are adamant that the buyer should shoulder that risk, but given that they are selling a recurring income stream, if that stream is no longer there, then nothing has been sold. Why they fail to grasp this is one of life’s many mysteries – to me at least!
It is possible to cap the clawback figure as something within the overall purchase price, and in the case of a fire sale this is likely to occur.
The second issue that vexes me is the failure of retiring accountants to properly open their books and allow the buyer to perform adequate due diligence.
Imagine you were purchasing a house at the full price and the seller refuses to let you inspect the basement and attempts to fob you off with a nebulous excuse as to why access cannot be granted. We are talking here about people in a profession that is rooted in accountability and the checking and verification of balances.
Buyers are not stupid.
Maybe these practice sellers think that buyers have little or no knowledge of the state of the market, given that it is extremely fragmented, and many buyers are first-timers who are desperate to get their hands on a bank of fees – a purchase at any price.
Buyers are not ignorant.
Perhaps, given that most retiring accountants only sell their accountancy practice once, they believe that there is something special about their circumstances that means they can pull off what others cannot.
Usually, they wake up and smell the coffee after spending months in fruitless discussions with prospective buyers, but often by then their practice has become a little stale, having been on the market for too long. Just because a market is fragmented doesn’t mean that the players in that market cannot discover things – after all this is the year 2022 and everything is known to everybody.
Prior to putting your accountancy practice on the market it might be worth undertaking some research as to how the market is currently operating, either online or by lifting he phone to a practice broker.