Please help I am a new practice and I have just been offered a list of clients by a retiring accountant with fee income of £5k.
He is flexible on how to value this list?
Please can someone explain how this usually works and how do I value this? I don't want to appear stupid or to be taken advantage of.
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Multiple of fees usually between 0.5-1.2 depending on the market forces at the time and in your area. You should bear in mind the quality of what you are buying which will include but is not limited to: accuracy of files, age of debt to current accountant,age of clients themselves and their likely trading future, if there fee structure clients are used to fits in with your own, etc.
Edit - also suggest you stage payments.
£5k block of fees is so low
£5k block of fees is so low its almost unmarketable. You could offer as little as a one off .3 upfront = £1,500 (without clawback) or say 15% of fee income over 5 years, paid annually. For such a small block you hold the aces really. As said in the last post how high/low you go is ultimately very dependent on the variables of the clients being offered.
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Beware retiring accountants fees may be:
(a) Painfully cheap so you may struggle to put them on decent rates
(b) Full of errors if they haven't kept up and/or losing it a bit
(c) Full of clients the outgoing accountant's age who's requirements may be ending
(d) The rump of what he couldn't sell to someone else
You should go through the clients one by one before buying and maybe offer some £££ for the decent ones, and agree to take the rest of his hand for nothing.
Check out . .
Type of client?
Age of client?
How long he has had them?
What help he will give in handover and communication with them about change of circumstances?
Worst case scenario is that you pay £5k for what amounts to 'leads' rather than business, so you will want to structure any fee around those that actually move to you and stay with you.
The other thing you will need to consider, if you bought the practice, will all clients agree to work with you, as sometime you tend to see when a practice is sold, some clients wants to make the choice of choosing another accountant. What you don't want is paying for this sort of clients and then after you have paid they end up looking for another accountant.
Is the seller retiring or just downsizing?
All good points above, but the small block size makes me wonder whether the seller is really retiring or just downsizing.
If downsizing, then guess what type of clients he / she will want to offload. Clue: It ain't the good ones. Like others have said, go through the list with a fine toothcomb before you commit.
Starting up
I am starting up too, or will be soon. I have ruled out "buying" clients, I think it better to pick up my own and that way I really know what I am getting, even though it wil be slower of course.
"Buying a block of fees"
It always makes me smile when I read accountants talking about how little they would expect to pay for a block of a retiring accountants fees.
It smacks of something for nothing ! .
Presumably you would only have to keep the new clients for a year and depending how little a multiple you paid you would be in profit.
I purchased a block of fees from a retiring accountant 5 years ago with no write off, no clawback, and most of the money upfront. I consider it to have been a very profitable transaction and have no regrets.
Reading all the comments above it looks to me that when I come to retire in the not so near future I would be wise to just close the practice down and dis engage the clients, thus foregoing the painful procedure of dealing with another accountant whose sole intention is to pay as little as possible.
Market forces
Looking to pay as little as possible is just the other side of the same coin which has the seller, presumably, looking to receive as much as possible. It comes down to negotiation and from the buyer's perspective the client profile is important.Reading all the comments above it looks to me that when I come to retire in the not so near future I would be wise to just close the practice down and dis engage the clients, thus foregoing the painful procedure of dealing with another accountant whose sole intention is to pay as little as possible.
Naturally, if there is only one seller and two buyers simple economics would suggest that a higher price will be obtained.
Common sense
It always makes me smile when I read accountants talking about how little they would expect to pay for a block of a retiring accountants fees.
It smacks of something for nothing ! .
Presumably you would only have to keep the new clients for a year and depending how little a multiple you paid you would be in profit.
I purchased a block of fees from a retiring accountant 5 years ago with no write off, no clawback, and most of the money upfront. I consider it to have been a very profitable transaction and have no regrets.
Reading all the comments above it looks to me that when I come to retire in the not so near future I would be wise to just close the practice down and dis engage the clients, thus foregoing the painful procedure of dealing with another accountant whose sole intention is to pay as little as possible.
It would be rather stupid of anyone to not try to get the block of fees for as little as possible surely?
Although, I read the OP as simply wanting to get an idea on what is a sensible valuation.
When I started my practice, I purchased a block of fees from my previous employer. They were mostly clients that had been purchased by that practice from the practice I previously worked in where the proprietor had died. I didn't have a practicing certificate at the time of the death and couldn't therefore take over the practice.
The deal that I struck was to pay 50% of recurring fee income for a two year period. That way, I was only paying for clients that I retained and if the fees increased, the practice I purchased the fees from would also benefit in obtaining a higher sales price. I guaranteed to pay a minimum amount and paid monthly up to the point where there would be a small balancing adjustment in either direction.
That deal seemed pretty fair for both parties and I would consider a similar deal again in the future.
Gaining Clients
I am a Financial Advisor and started my own company with no clients.
Yes I know a financial advisor is not an accountant however I started with nothing.
Have your tried going to networking groups? I go to a lot and do well from them. Financial Advisors and Accountants do really well at these. You need to get your name out their try going to events such as women in business and any event where there will be a lot of companies so that people get to know you. You could try working with a Financial Advisor who is local to you. I worked with an accountant once who wrote each month to new businesses opening in the area and he gained a few clients from this. Its not easy however its better than spending £5k on something that may not be as good as you would have liked. If you would like to discuss this further please go on my website for my details on how to contact me www.traceymatherwm.co.uk
Suggest read this article...
https://www.accountingweb.co.uk/article/how-get-broker-process-right/544815
>>> its not just about using a broker when looking to purchase fees but gives advice overall as to what you should be looking for and details due diligence and 'claw back'.