Dear AW
I'm currently in negotiations to purchase a block of fees from another small practice. The due diligence has gone smoothly and the seller and I have built up a good rapport. (He's staying in practice, just wants to focus more on FD-for-hire work, rather than compliance). We were introduced privately so we don't have a broker assisting the process.
So, what I'm looking for is any advice that people who have been through this process before in terms of:
- How to communicate the change to clients without freaking them out
- Getting engagement letters in place with those clients who already don't have them
- Any stories about the change in tax agent process
- Anything you wish you did differently for me to learn from
- Or even if there are websites that you could direct me to where this has been discussed before.
I know it's a wide ranging question, but I thought I'd tap into the AW hive-mind just to see what gems turn up.
Many thanks!
Michael
Replies (13)
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Transition
Things that I found to ease the process;
Advise new clients that you are merging with seller and so they can still, in theory, have contact with seller for a period following your purchase, assuming seller agrees of course. A clawback clause in your agreement for any lost clients in the first year may be an incentive for seller to help.
Depending upon number of new clients, do not underestimate the timescale required to get to know so many new people and their businesses and so to be able to call upon seller during this time say for initial meetings may be vey useful and will help from 'freaking them out' the clients. Once they have met and start to get to know you, this makes life a lot easier.
Get all clients to sig 64-8 in new firms name as well as short declaration to continue terms of engagement under new firm's name.
Possibly advise clients no increase in fees in first year which is an incentive to stay.
Don't use seller accounting systems. Start all new work on software you are familiar with as learning new systems can be very time consuming and you may not have a lot of time.
Agent co-ordinator
YOu need to speak to the agent co-ordinator. When we changed name HMRC effected the transfer between agent codes seemlesly. I believe
64-8
I would have the seller send the new 64-8's on your behalf and also new engagement letters.
I found when taking over a practice 5 years ago that the more the seller does on your behalf the more buy in you will have from the transferring clients
What not to do......
This is not really helping you with what you should do but just to show how well you seem to be handling this. A colleague of mine is winding down/retiring early next year/possibly end of this. As she has completed accounts, tax returns etc for her clients she has been putting a clause in her letter saying that she will no longer be able to act for them but she has 'sold' them to xxxxx who will be taking over next year. No introduction, no 'hand over', no help with transfers etc. Result - mass exodus of clients who are not only objecting strongly to being 'sold' but also in a number of cases spreading the word around clients she has not yet done her 'final' accounts etc for and they are all voting with their feet.
A lesson methinks in how the message should be transmitted across to the clients and in your case you seem to have this extremely well covered :)
Buying fees
I have bought two lots of fees. Both from people retiring.
The first I bought and we invited clients in for a week where we were together , the man retiring to say goodbye and to introduce me to the knew clients. So we sent out a nice letter to all clients explain the dates we were available and the retirement and taking over. We had no clients leave and everyone understood what was happening.
The second I bought went differently, as the guy was retiring but wanted to continue doing some subcontract work for me. I allowed him to do letters t the clients and gave him a copy of what had gone out the first time I'd done this, but he wrote to the clients explaining that he was slowing down and needed help with technology and paperwork. We lost a few clients, but for a long time people would ring and ask to speak to him. I did d another letter to my clients after about 9 months, but people still dropped records off to his house etc.. Its been 4 years and all the clients are clear that they are our clients now, but over the first 2 or 3 years we did lose quite a lot of those clients and I ended up not paying for several of his clients due to the terms of the contract we had in place.
I would make sure bot parties were clear on the message to clients an hat the clients were informed of exactly whats happening.
Good luck
Tips
64-8 authority can be transferred to you en bloc if you speak to the agent helpline folks. It worked perfectly for all the clients I took over. Do check that all of his clients actually had a 64-8 as there are always some that manage to duck the system in any firm.
Be clear as to who is 'driving the bus'. First a letter (vetted by you) from the vendor explaining the position to each client and suggesting a meeting. Then a joint meeting to introduce you which should make clear that the new first point of reference is you, but that the vendor is still available until date X or open ended. If everyone knows where they are from day one it avoids confusion. I found 99.9% of the clients don't 'freak out' and accept that times change and things move on. There may be the odd one, elderly pensioner, or extra sensitive sort, who may panic a bit. Run through the client list with the vendor and highlight them. It may be best for the vendor to call/visit them before the letter to re-assure them
You will have looked at respective fee levels during due diligence and so should have highlighted any problem cases. Decide how to proceed with these now as you don't want to be discounting the loss leaders for the next 20 years. It will be better to lose these in the first year if you have a clawback clause (one year is normal, two years would be better!). Therefore, don't be afraid to highlight any fee issues with the client at the initial meeting.
Some clients will bale out on day one. The 'at risks' are often those that are not local and stayed with the vendor out of loyalty and now see the change as an opportunity to appoint someone more local. Again your due diligence will have highlighted the geography involved.
As the vendor is not a principle in your firm you will need to do ML checks as well as engagement letters. These are best done when you meet the clients for the first time. You may be able to do the ML checks from their accounting/SATR info and not actually have to trouble them.
Start new files for each client on day one and close your predecessors, keeping them for reference only. Agree with him about any archive files and don't get lumbered with his old files for his clients lost before the takeover!
Agree up front on any remuneration structure for the vendor to attend handover meetings and future queries/consultancy.
Agree his PI insurance run off period.
If you have common software then you can do an import. We did with IRIS, with assistance from their helpline. If not then you will need to re-set up the clients. This does add to the work, but isn't too scary and can be done as the jobs come in. You will need a bit of a handover time on the software, so agree on what you takeover, most software providers will do a monthly arrangement if the renewal date kicks in at the wrong moment (sod's law no 356). Agree who will pay this though!
Agree any WIP figure. There will be some time on every job, not just those with accounts/tax returns actually in progress. Leave his debtors with him to collect.
I suspect that you have already agreed a price. GRF can however be a bit grey. I agreed to use the fees we charged the purchased clients in the first year capped at the predecessors levels. Payment being staged with an initial deposit of 50% with the balance calculated as above after 12 months. This may need a slight tweak if any clients are retained but not billed in the first 12 months or are billed twice due to timings (30 April year ends on unincorporateds are prone to causing this).
If your software permits allocate all the new clients to one manager/partner (maybe a dummy) this will let you run reports solely on the purchased block.
Agent change over
When we were taken over HMRC agreed to change the SA agent details en masse but was unable to change NI, VAT, PAYE or tax credits. In the end we had to submit new 64-8s for all clients. But because the details had been changed for SA many of the new 64-8s were not processed correctly for other taxes. So we submitted a second batch of 64-8s for the affected clients, then a third. Then we gave up and got the AAM to intervene with CAAT. It took some years from start to finish. With hindsight we would not have had the problems if we had not switched SA and simply sent new 64-8s from the start.
Limited company
Of course, if the firm being sold is operated as a limited company, you could just buy it lock, stock and barrel by buying the shares, in which case there's no need to move 64-8s, no need to re-do letters of engagement, ID proof, and no need to change the PII insurance. Far simpler for the buyer who could walk in and carry on (assuming that they changed the "owners" details with the ICAEW or ACCA). Of course, due diligence is a must and there are higher risks of taking over the liabilities as well as the assets, but a decent legal agreement with indemnities can cover those, maybe also a longer pay-out period or buying the shares in tranches. In the old days when practices were sole traders or partnerships, this couldn't be done, but these days it seems many of the smaller practices are one man limited companies, so are more likely to be share sales rather than business sales surely?
Not seen any so far Ken!
Mainly because you won't get a write off for goodwill if you buy the shares! I therefore wouldn't recommend a share purchase.
@ CYD
That's bad if your friend is selling the clients without any handover or discussion with their clients over say a 12 month period.
if she is not involved in the handover process it reduces the block of fees to just a list of names and makes them almost worthless. If they have been building these clients up for years with a view to selling as a pension they will be disappointed with the outcome.
@CYD
Hopefully the sale agreement had a twelve month retention/delayed proceeds clause! If not, then the main lesson to learn here is human nature rule 1. When somebody has sold something and got the cash in their hot little hand, they move on very quickly unless they have a financial incentive to stay interested!