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Guidance on Gross Recurring Fees (GRF)

When a practice is valued its value is based on the Gross Recurring Fees at the time of valuation, but in reality the value is the client base and future income stream and not the value of specific contracts. Is there any guidance from CCAB, ACCA, ICAEW, CIMA or legal cases on this subject?

Lets say you had 3 clients and you were valuing the practice for sale:

A = £100 in current contracts

B = £200 in current contracts

C = £700 in current contracts

Total GRF = £1000

If 12 months after sale A increased to £300 and C dropped to £500, would the GRF still be £1000 (A £300, B £200, C £500), or would the GRF be £800 (A £100, B £200, C £500)


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Maintainable fees

Hi Steve - I agree with you but, unless you can get hold of Dr Who to advice you the only thing you have to look at to judge whet's going to happen in the future is what's happened in the past.

GRF doesn't just consider fees at the time of valuation but judges, in general, how much each client has (or is expected to) contribute as a base fee each year, in other words, as with many other valuation techniques that look at profits, you are looking at the level of maintainable fees.

So, say in my case, I have recently signed up a new client and have quoted them £1,200 for the year ahead.  Assuming I have a track record of not losing clients pretty soon after I get them, a prospective purchaser may be happy to pay say 75% for this client.  On the other hand I may have a longstanding client with a secure base fee rate of £5,000 pa but who regularly gets me to do more work, as their business develops, and so, in the past couple of years I've billed another £1,000 pa.  I'd argue that, looking forward, because I see more potential in this client a GRF of say £5,500 is more realistic than just core historic fees.

At the end of the day it is all just best guess and the larger the client base the more likely that the plusses will counteract the minuses leaving you with GRF.  The % of GRF paid is then judged on market rates and the nature and stability of the practice and clients.

Thanks (2)
By taxguru
02nd Feb 2012 20:21

Brand value

Technology (Google for e.g.) plays a big role driving business these days. So not sure why a good website that gets thousands of hits a month can't be valued and added to the GRF.  

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