Acquisition of Accountancy fees

There is a potential to acquire some accountancy fees from my previous employer to enable a build up for starting my own practice later this year.

I was wondering if anyone has any experience in buying any fees and if so, at what rate should they be bought i.e. is it based purely on the previous years fee? In addition what clauses should I have in the event that I acquire fees but then the client leaves before any work is completed etc?

Any advice would be appreciated.

Many thanks

Comments
alan.kennedy.smithkennedy's picture

Acquiring fees

alan.kennedy.sm... | | Permalink

The usual rate is about £1 for each £1 of Grf but we have seen rates that vary widely from that.  It depends how desperate the firm is to sell and how keen you are to buy.  Usually there is a clawback for any fees lost when a sale is made.  For example typical sort of clawback is 100% if the client leaves before you start work,  two thirds  if they leave within a year and one third if they leave within two years.  You would also expect the selling firm to provide a list of clients and GRF and if the client leaves because of a fee increase then no clawback applies.  However because you have worked on the clients before it may be the employers is resistant to paying for fees.  Before you buy the fees ask why do you want them (the clients may come across anyway especially if you do not have an anti-competition clause in your previous contract of employment.)  Also you should look at the cost of acquiring fees against other methods eg Google, Adwords, telesales, and networking.  These all use up your time but will be cheaper.  Whether they are better value for money depends on how good you are at selling.  The other factor to bear in mind is if you buy a block of fees that gives you a referral base to build on.  Referrals are by far the best way of acquiring clients.

 

jeremykitchin's picture

Acquisition of Accountancy fees

jeremykitchin | | Permalink

 

The going rate across the country is in the band of 0.9 to 1.2 times the annual recurring 'turnover'.  (I use the term turnover rather than GRF as there is no accepted definition for this mnemonic GRF).  The average level of fee income over, say, the past 3 years from special work may be added to the recurring fee income (repeat work for the same clients) to arrive at the recurring t/o, which may be sold.

As the leading accountancy practice broker, with 39 years experience, we usually advise Vendors to sell the projected fee income, rather than the previous years fees, after all the Purchaser is buying the opportunity to bill the clients.  We also advise Vendors to sell the aggregate sum of the projected fees so there is an automatic trade-off for clients lost with retained clients which expand.

The clause you refer to is called a claw back clause and is amply expanded upon on our website: www.apma.co.uk.  Go to the Articles page and read the feature article entitled What is claw back?

Incidentally, there are a number of useful documents to purchase on our website including a draft Sale/Purchase Agreement running to some 30 pages.

I hope that helps

Regards

Jeremy Kitchin

jeremykitchin@apma.co.uk

 

 

 

 

 

Jason Dormer's picture

Acquiring Fees    1 thanks

Jason Dormer | | Permalink

Having had experience of buying a block of fees I would say:

Advantages

Increased client base and billing

Increased referrals

opportunity to cross sell to more

No set up time and initial handholding that new businesses require

 

Disadvantages

Usually a clause not to raise fees so undercharged clients can be acquired and you wont be able to bill accordingly.

Some clients you will not like and some clients will be very change resistant no matter how much you look after them

You can never do enough due diligence before purchase

You inherit a client base that may have been treated  differently (slow payers, timestealers etc)

Huge time investment into getting to know each client.

Inevitbale loss of some clients (though clawback agreement will cover this)

 

I was lucky in that the seller was a very reasonable person whom I have an excellent relationship with, so any problems were ironed out to our mutual benefit.  This may have been different if the relationship wasn there and the seller wasn't so reasonable.

If I did it again I would sit down face to face with all of the clients and if I didn't like them then I would not have them as part of the agreement.

I would look very closely at the time cost and fee for each client.

I would look at the average time to pay for each client.

I would not make the purchase unless I had a minimum of two months to personally invest in the client base on aquisition.

Jason Dormer

Seahorse (UK) Ltd - For Accountants and Bookkeepers

 

 

 

Acquiring fees

mpwaccontancy | | Permalink

I never lost more than 5% of the fees based in the claw back agreement for any of my 3 sets of fees that i purchased.
I would say that it's easier to purcahse than it is to grow. With the current arrangement it's built for buyers in the fact that there is a deferred payment at 12 months and also the claw back agreement. If clients leave then you won't have to pay for them but do get a good lawyer to look at the sale and purchase agreement before you sign.

I prefer well established larger clients rather than smaller new companies who have only been with the seller for a short period of time. The reasons for this are obvious.
If you are looking to purchase fees you can approach practices directly of through your local network. Alternatively use a broker. They provide a similiar service to each other for similiar costs but some are better at getting results than others. The last ones i used were Morgan Cox who very good and i would use them again. What ever you decide to do, good luck. I would agree with Jasons post which sums up the advantages and disadvantages of acquisions concisely.

MPW

Holding company

Dragon | | Permalink

My client wishes to form a holding companyCan he transfer the shares in his trading company into the holding company and avoid CGT AND STAMP DUTY.

 

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