Selling - is it as bad as it sounds?

Selling - is it as bad as it sounds?

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I am really not enjoying the pressure of being a small practice (3 staff plus me) any more. I can't afford to retire but could afford to earn less in a year's time, so I am starting to think more and more about selling. Everything I have read on it puts me off. Most articles say you get paid in 3 stages with the third being based on who the income person managed to retain. This puts me off as it means you couldnt really plan what you would do with the money as the amount would be very uncertain and also a long time off being received.

I received a mailshot from someone selling their practice a few months ago and it got me thinking, could I do the same and say I am not interested in this three stage approach and would take slightly less just to get a one off cheque? I also don't want queries forever more as then it will still be stressful.

So in short is any of the above possible or is selling the stressful protracted process that it reads like.

I also thought £1.25 per £1 of turnover was the norm but a selling agent told me £1.

Replies (23)

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By Tim Vane
13th Jul 2015 17:59

From what I have seen (not having sold up myself but having had first-hand chats with friends who have) you'll be lucky indeed to get more than 1:1, and if you want a quick hassle-free sale, probably less than that.

Of the two people I know who sold, one was going back to industry (wanted steady job and more time with a young family) and one moved abroad (fell in love etc). Both had issues and had to wait some time for all the money, but both went straight to other jobs so cash flow not an issue.

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Stepurhan
By stepurhan
13th Jul 2015 18:03

Are you normal?

Assuming a "norm" is unwise. Essentially you need to be able to justify any multiple you want to use.

Whilst looking at it from the other side, this thread I raised should give you some factors to consider.

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By hughjoyce
13th Jul 2015 18:06

Hopefully normal!

Stephurhan - I would say we are pretty average in our fees and we provide the regular services, like anything it will be what someone will pay and what I think it is worth ceasing for but just wanted a rough guide. I met one person who based it on 3 x profit.

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Replying to Hanleymail:
Red Leader
By Red Leader
13th Jul 2015 18:13

clawback?

Anybody have experience of how much gets clawed back from the later instalments?

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By hughjoyce
13th Jul 2015 18:20

It depends on the individual situation

My understanding is if you sell £100,000 worth of clients but after say a year (or whenever the third payment is due) only £80,000 worth remain (the other £20k leaving and finding their own accountant for whatever reason) then you receive £80,000 less whatever you have already had in the first two payments. This is why I am not happy as you could plan to do something then find that there were insufficient funds, and you wouldnt know this until quite far down the line. Happy to be corrected if I have got this wrong.

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Replying to Wanderer:
Red Leader
By Red Leader
13th Jul 2015 18:48

clawback actuals

@hugh: thank you for your reply. Yes I understand that is the case.

I was asking if anyone had direct experience of actual clawback in specific instances.

[EDIT] I recall some horror story of a big-ish firm buying a block of fees and then delberately getting rid of the ones they didn't want, leading to a very high clawback for the 2nd and 3rd thirds.

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Stepurhan
By stepurhan
13th Jul 2015 18:42

Clawback

Sounds about right.

Look at it from the other side. The purchaser paid the price they did on the basis they expected to receive recurring fees of £100,000. If they only received fees of £80,000, then they also have less money than they planned. It's likely to be more of a problem for them though. Unless they had significant cash savings, they are likely to have finance they HAVE to pay regardless, whereas you are presumably talking about optional plans for what you were expecting to receive.

By the way, the question "are you normal" was meant to get you thinking a bit more deeply. If you just want to describe yourself as pretty standard, then you are going to struggle to achieve a multiple higher than 1. Certainly you'll only get what someone is willing to pay, but someone might be willing to pay more if you can convince them your fee bank is worth it.

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Della Hudson FCA
By Della Hudson
15th Jul 2015 12:09

Clawback

You can reduce the clawback figure by selecting your buyer carefully and ensuring a seamless handover from the clients' point of view (yes, those irritating ongoing questions). There is usually an agreed handover schedule eg 1 month of intensive introductions to key clients and a letter to all others and then you on hand for however many months perhaps followed by a period as a consultant for an additional fee. 

Spend time getting your staff onside to maintain those relationships and tie the client loyalty/goodwill to the business rather than to you personally. Spend time documenting your processes and client information so that your knowledge transfers easily to the new owner. This is your opportunity to minimise clawback.

The clawback is usually 100% after year 1 (clients left before buyer had any chance so why should he pay?) or 50% after year 2. Any terms are possible if you are prepared to accept a lower price as the buyer will be taking the risk.

Normal price is 1:1 so work down from there if you want a shorter handover, faster payment or reduced clawback and work up if you have a specialism or are highly automated and more transferrable.

If you're selling in Bristol/North Somerset I may be interested.

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By hughjoyce
15th Jul 2015 12:17

Very informative answer

You are right in that its not possible to put up a for sale sign and get a cheque and sail off into the sunset, so I guess it is weighing up the potential hassle against improved income.

 

I am in the Portsmouth area so too far for you I am afraid.

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By Maslins
15th Jul 2015 12:39

As stepurhan suggests, I think it helps to look at it from the buyer's perspective.

They won't want to handover a huge cheque on day one.  They'll want to do due diligence on the practice (which will likely involve you giving them lots of sensitive information...but of course they should be subject to NDAs/whatever), asking lots of probing questions, assessing the business that they're taking on.  If they agree to buy, a letter goes out and half the clients turn round and say "well we're off then", then you can understand they won't want to pay a lot for those clients.

If you want a more front ended cash payment, expect the multiple to drop accordingly, as your proposition becomes higher risk for the buyer.

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By ShirleyM
15th Jul 2015 12:46

As a potential future seller

I hear too many stories about deferred payments never being made, but the seller has already handed over the practice/fees.

It seems a big gamble to take 1/3rd of the value, with just a promise of future payment. A bank wouldn't loan those amounts without some sort of security.

Clawbacks take care of the buyer, but what security does the seller normally get?

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Replying to jonharris999:
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By Maslins
15th Jul 2015 12:53

Seller gets some cash in advance

ShirleyM wrote:

Clawbacks take care of the buyer, but what security does the seller normally get?

IMHO the up front payment is "security" for the seller.  They get a big wodge of cash before the buyer's got anything useful, other than a signed bit of paper.

To me it seems a bit like deals you get in many places, chunk up front, balance once you're happy you've got what you thought you were buying.

I appreciate reality is final payment will only ever go down based on what was initially agreed...so I guess as seller you need to factor in a rational estimate of leavers, hence clawback, and plan that into future receipts.

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Replying to WhichTyler:
By ShirleyM
15th Jul 2015 13:37

That doesn't work for the seller

Maslins wrote:

ShirleyM wrote:

Clawbacks take care of the buyer, but what security does the seller normally get?

IMHO the up front payment is "security" for the seller.  They get a big wodge of cash before the buyer's got anything useful, other than a signed bit of paper.

To me it seems a bit like deals you get in many places, chunk up front, balance once you're happy you've got what you thought you were buying.

I appreciate reality is final payment will only ever go down based on what was initially agreed...so I guess as seller you need to factor in a rational estimate of leavers, hence clawback, and plan that into future receipts.

They are giving 100% of a practice/fees for only 33% of the value (and future payments may not arrive), so how is that giving them security? 

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Replying to paul.benny:
By cheekychappy
15th Jul 2015 14:21

Buyer

ShirleyM wrote:

Maslins wrote:

ShirleyM wrote:

Clawbacks take care of the buyer, but what security does the seller normally get?

IMHO the up front payment is "security" for the seller.  They get a big wodge of cash before the buyer's got anything useful, other than a signed bit of paper.

To me it seems a bit like deals you get in many places, chunk up front, balance once you're happy you've got what you thought you were buying.

I appreciate reality is final payment will only ever go down based on what was initially agreed...so I guess as seller you need to factor in a rational estimate of leavers, hence clawback, and plan that into future receipts.

They are giving 100% of a practice/fees for only 33% of the value (and future payments may not arrive), so how is that giving them security? 

 

The buyer may receive 100% on paper but reality may be, and often is, different.

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7om
By Tom 7000
15th Jul 2015 12:48

the thing is....

Everythings negotiable....

 

So how about

 

1) I give you 1.2 x turnover but only on the basis that your £120k of audit fees moves with the practice

 

2) Ahhh ho audits...how about I give you 1.0x turnover but only on the turnover that turns up..but what happens if no one turns up? well then we reduce it. As the seller its hard to get your money back ...so.... How about we do it in 4 installments

 

3) I only want two installments not 4 ok Ill give you 0.9 haf on completion half after one year

 

4) I just want a check and sail off into the sunset and have no worries...ok I can do that how about 0.6 of turnover.....thats a bit low..Sure but what if only half the clients turn up and I have over paid...ooohhh...what if 85% turn up and the vendor  should have had more... well you throw your dice and someone wins

 

Having someone nearby or actually sitting in the same office will retain most of the most clients. If the relocation is say 5 miles away expect to ose 10% of clients...which coud be 2% of turnover or 50% depending on fee allocation.

 

If you are near me, give me a nudge GU14LY :)

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Replying to Crouchy:
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By hughjoyce
15th Jul 2015 13:00

Good reply

Tom 7000 wrote:

Everythings negotiable....

 

So how about

 

1) I give you 1.2 x turnover but only on the basis that your £120k of audit fees moves with the practice

 

2) Ahhh ho audits...how about I give you 1.0x turnover but only on the turnover that turns up..but what happens if no one turns up? well then we reduce it. As the seller its hard to get your money back ...so.... How about we do it in 4 installments

 

3) I only want two installments not 4 ok Ill give you 0.9 haf on completion half after one year

 

4) I just want a check and sail off into the sunset and have no worries...ok I can do that how about 0.6 of turnover.....thats a bit low..Sure but what if only half the clients turn up and I have over paid...ooohhh...what if 85% turn up and the vendor  should have had more... well you throw your dice and someone wins

 

Having someone nearby or actually sitting in the same office will retain most of the most clients. If the relocation is say 5 miles away expect to ose 10% of clients...which coud be 2% of turnover or 50% depending on fee allocation.

 

If you are near me, give me a nudge GU14LY :)

 

Slightly too far!

 

Option 4) the best by far!!! I can't think of anything worse than a year on being asked about issues with clients. like being haunted from beyond the grave.

This was my point in the initial post, I do believe that as long as there was something back the other way , like a lower multiple, a deal could be struck where it didnt take forever to be paid and the uncertainty was reduced. I would like to move abroad so really don't want to be contacted very often about this business. 

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Jennifer Adams
By Jennifer Adams
15th Jul 2015 12:53

See my articles on this very subject...

I was looking to purchase recently and my experiences are described in these articles....

https://www.accountingweb.co.uk/article/how-get-broker-process-right/544815

https://www.accountingweb.co.uk/anyanswers/question/buying-practice-0

Also my blog explains what Due Diligence is needed.

https://www.accountingweb.co.uk/blog-post/due-diligence-list-question

When I was in discussions it was 1: 1

6 months on and the norm ratio has not changed much. At the time London area was 1.2; in a city 1.1 but Nicola (broker) told me that it is not unusual to get 0.75. It all depends on the client mix.

Also are the clients local or are they serviceable wherever. Nicola told me that you pay a premium for offices that are by a cross roads for example!

You are not alone in not being able to give up moneywise. The broker I was speaking to said there is a shortage of accounting firms for sale (you just have to look at accweb Opportunities to see that everyone is looking to buy not sell).

Usually what happens is that there is a hand over time which looks as tho this would fit into your plans. You can always keep in the background as a consultant.

I endorse Hudson and Co's comments - and if you are in Dorset or Surrey I would be interested!

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By hughjoyce
15th Jul 2015 12:54

agree with ShirleyM

This is why I am beginning to think I just cannot be bothered to sell. I was already aware of all the above hence I just think its too much hassle. If I was selling a restaurant or a newsagents I wouldnt be subject to so much scrutiny. Would I have money witheld if Mrs Jones started buying her Daily Mail in the Co op?

I would like to plan my retirement with some sort of certainty and dont want to make decisions based on thinking I will have certain amounts of cash coming in in the future that then dont materialise and totally change my plans.

 

I think the best idea is to retain enough clients to give an income of say £30k a year (ones that are no hassle either as people or work) and top that up with a job somewhere. The other clients can drift off and find their own accountant with me then having only to provide the level of handover I would if any client left us now, which is minimal.

My main reason for wanting to semi retire is the hassle factor rather than the work so selling just sounds like an even worse version of what I have now. No thanks. I was hoping my misgivings about it were paranoia but these posts have confirmed what I already thought/knew.

 

 

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By Mick Milne
15th Jul 2015 13:09

your staff?

Are none of your staff interested?

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By hughjoyce
15th Jul 2015 13:16

we are only a small practice

None of them would have anywhere near the funds or the knowledge.

 

I am not looking to go for a couple of years. I have set my next landmark birthday (in 2.5 years) as a goal.

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By User deleted
15th Jul 2015 14:08

Contract wording

A contract gives security - you will receive what you're contractually entitled to.

Get the wording right.

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By Jack the Lad
15th Jul 2015 18:52

Sale of Practice

Having done this myself twice, I endorse previous comments, but add:

1.   Better to stay as a "Consultant" for the period of payback, to ensure retention of clients and therefore full payment of Goodwill.  You will also receive payment for actual services rendered, by agreement.

2.   A multiple of 1 to 1.2 seems normal nowadays, but is often paid one third on day one, one third after 1 year, and the balance (less clawbacks if any) after 2 years. However, as stated above, if you want out completely  and all your money on day 1, then the multiple will be reduced to protect the purchaser.

3.  It depends on the contract -- this is a must and MOST important ! (see 4 below)

4.  I wish I had contacted Jeremy Kitchin of APMA many years earlier, who is very thorough in his preparation (with a great deal of input from the vendor), and marketing, and even has a draft contract which can be used as a base, with input from the vendor;'s solicitor.

5. APMA charge a fee to vendor and purchaser (50/50), but it is worth every penny.

Although I got paid in full, I was not happy with the purchaser for a number of reasons, but cannot fault APMA.

6.   Check all previous threads on practice goodwill sale.

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By davidlchapman
08th Dec 2015 13:07

following

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