Increasing stress and regulatory burden is leading me to retire or semi retire as a sole practitioner after many years in practice. I run the practice from home with no staff and am happy to continue with some form of part time work. I would use an agent and it seems I could sell all fees or in blocks over a period of time. CGT is not my expertise but I would want to make sure that a sale is not structured in such a way that entrepreneurs relief is not compromised or it gets overly complicated. I am also concerned with maintaining PI cover for as long as possible. I am wondering whether it is usual to hand files over to a purchaser. Any advice or experience of this and suggestions of things to consider would be very welcome.
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Hi
Call Kevin Smith at Vivian Sram. He will talk you through all of your concerns (not connected in anyway to him).
To your credit you have not opted for the anonymous button. Would you be prepared to divulge what part of the country you are in?
What is your purchaser buying? Certainly if they are buying your company shares they are, surely, taking on all your historical records. If you mean a prospective buyer, your openness would include detailed profiles of your client base.
Personally I find it frustrating when I hear that the buyer can choose to stagger the purchase over, say, 3 years for cash flow purposes or to see what clients walk away (when fees are hiked). This gives time for the buyer to cherry pick which can only be to the detriment of the seller.
I would prefer a (discounted) GRF with no clawback clause when the seller has no control over future client relationships.
I am not incorporated for various reasons so would be client list only. I am in an area with links to good size towns and clients are used to prompt personal service. I have thought about reducing number of clients /fees but doesn't look a great option as overheads for prof fees, software as well as red tape burden doesn't reduce proportionately. For the reasons you say a one off transaction sounds good but would happily work through a handover period or longer to ease transition.
I've come to the conclusion that it is not worth trying to sell your practice/block of fees when you finally decide to retire.
After clearing out most of the "dross" over the last three years (circa 35/40K) I am now considering using 31st March (not necessarily this year) as an end date and then "Dear John" all my clients.
March being a date when all tax returns and most accounts are up to date.
Obviously I would try to ensure all my clients had a pain free transfer.
Having had conversations with various agents I was not filled with confidence about receiving an amount for the fees worth all the hoops you are made to jump through.
Purely a personal opinion.
Or speak to Nicola Draper, who we are using, she is very knowledgeable and professional and will give you her opinion on the way forward.
http://draperhinks.com/
I bought a block of fees from an accountant who was retiring. It went fairly well. We came to the agreement on fees and payment terms etc together and it meant we were both happy.
It did involve us trusting each other and fortunately we both kept up our end of the deal as we didn't go through a broker.
I was given the client details and the previous accounts workings files (on excel) and he was in hand of i had questions in the previous accounts.
I'm looking to buy some more fees at the moment but i fear i might have to go the agency route. I want to buy some fees and keep the accountant on for a little while to transition so a bout more structure might be better!
From personal experience I would not accept payment over a term of years. The purchaser could just "cherry pick" the good clients and then refuse to pay balance due. In my situation the purchaser put the business into a limited company, changed the company name, milked it of all profits, failed to pay PAYE of employees and, when the company became insolvent, walked away without completing payments of some £25K for clients taken over.
So beware instalment payments even if you have to accept slightly less for your business.
That sounds a nightmare in so many ways.Just wondering what is a reasonable reduction in sale price if paying in advance.
It doesn't have to be a nightmare. It comes down to your ability to establish a relationship of mutual trust between buyer and vendor.
Tales of cherry picking do happen, of course. However, if the buyer is keen to build up their practice, then they will want to keep all clients rather than cherry pick.
Selling with no clawback may sound attractive but there are two drawbacks. The buyer will perceive that the seller has no interest in ensuring a successful handover. Secondly, the discount is large, so a sale at 1.0x would become more like 0.6x.
My sense is that the most successful sale is when the buyer takes over all the vendor's clients AND the vendor is retained - and paid! - to work in the combined practice for say some time afterwards. Post-sale,the hours worked would be phased to wind down in steps, say every 6 months.
Finally, use a broker. You have probably never been involved in selling fees before so the broker's guidance should be valuable.
If only the broker had been open in the first place and informed me that the purchaser had closed down previously acquired businesses by putting them into limited companies and allowing them to become insolvent before the total purchase price had been paid! All the clients were taken over but payments that were supposed to be made upon transfer were then suddenly, in the week before the acquisition date, changed to a delayed payment schedule spread over a two year period. Having informed all clients that I was retiring it was not practicable to pull out of the sale.
The moral is GET PAID UP FRONT because 60% of something is far better than only 50% of the same figure in monthly instalments.
:-(
That's really sad to hear. What a low life to deliberatly do that to you.
I just cant imagine how people can be so nasty.