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Owning your own practice - start-up or buy-in?

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6th Apr 2011
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If you’ve dreamed of running your own accountancy practice there are a couple of paths you could go down.

Should you set up from scratch, establish your own ‘brand’ and build a fresh business or should you opt for the ‘ready-made’ route and buy out an existing practice?

Starting your own business is cheaper and may certainly feel more rewarding to some but it is also risky in that you are heading into uncharted territory and challenging yourself not only to be an accountant, but also someone who has the entrepreneurial skills to build a business from the bottom up. Developing your client base can be hard work.

It’s definitely a chance to establish something that is truly yours. You can make all the important decisions without any precedent getting in the way. Want to make it a very modern firm? Paperless office? Homeworkers to cut down on office space? The choice is yours.

But don’t discount the idea of buying out an existing practice and starting on a much larger scale with a skilled workforce and an established client base.

Depending on the business you buy into, this can work extremely well, allowing you to hit the ground running and take advantage of a good reputation (hopefully) and a degree of goodwill in the business community.

But there are things to consider.

Are you ready to manage a larger business? There is a certain expectation when you take over an existing firm and there’s no doubt that it is more difficult to learn ‘on the job’ when both the employees and clients are expecting much more of you as owner.

As an experienced accountant, you’ll have the skills to structure a robust financial plan, with carefully thought-out forecasts for the next three to five years.

Hopefully you’ll also take care to ensure that your plan takes account of some of the ‘what ifs’ and builds in contingencies to allow for those, as well as other aspects such as regulatory issues.

But it’s the cultural issues which could prove to be your biggest stumbling block.

If you’re buying into an existing firm, are the employees ready to work for a new boss? How good are they and can you retain the best people? Will the existing owners be staying on for a while to transfer client trust from themselves to you? Will your agreement constrain them from setting up in competition with you?

Make sure you’ve done a bit of due diligence on the team you are taking over and think about succession. Who will be your top lieutenants after you take over and what do you need to do to win them over? A new broom can be unsettling for some employees.

MBOs rarely fail for purely financial reasons; rather it tends to be people issues and cultural clashes that can bring friction and ultimately business failure to newly-merged or acquired professional practice businesses.

In deciding upon whether to start from scratch or acquire an established firm, there’s no right or wrong answer. However, if you choose the latter, make sure you pay attention to more than just the numbers.


Chris Marston is the head of professional practices at
Lloyds TSB Commercial, which looks after businesses with annual turnover of up to £15m.

Replies (3)

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By justsotax
06th Apr 2011 12:09

Yep its not just about the numbers...

but if you are buying a practice (or its fees) you still need those entrepreneurial skills - its not just reserved for those building businesses from scratch.  Its something every successful business owner requires to not only retain clients but move forward and grow the business. 

Of course the cost of buying a practice (and therefore having to manage that debt) is something that is not really touched upon in great detail in the article....the stakes then become a lot bigger....not only risking the usual threat of not paying the mortgage on your home but also being chased by the bank for unpaid loan repayments (in the worst case).

 

 

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By Steve McQueen
06th Apr 2011 13:03

I would ditto the previous respondent...

I started from scratch, built up £250k and then bought a £150k practice. The acquistion was by far and away the harder of the two processes and caused me the most pain and long term damage. The biggest worry was the debt that had to be taken on to buy the fees and the impact this had - and continues to have - on me, and is too involved to waffle about here. In my view, don't buy a small practice. Sure, buy into an established practice if you already know it (say you are a manager and are offered a partnership) but a small practice is forged in the image of the owner and you will forever be told that "Fred didn't do it like that, he said..."

Steve

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By topcomcons
27th Apr 2011 17:44

Practice in Southampton has been taking over by Son Mr CRAIG MAR

Mr James Leslie Marston former semi retired FCA FCCA ATII and Mr James S Clay FFA operate in practoce inSouthampton. Would be interested in association with other  practicioners for mutal benefit and to ensure continuity.

 

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