Hi Guys,
Thinking of selling my part time practice. It has always been a side business on top of my day job in finance.
Currently generates around 25k of revenue leaving around 22k profit before tax.
Ive had a couple of offers but not sure how fair they are.
What do you think is a fair valuation for it?
Thanks guys.
Replies (16)
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Well what you do for the clients, who they are, what "part-time" means in terms of hours, how you run your practice and work with your clients - that'd be a start.
Of course, what Tim may have meant was that he has sufficient information to determine it's not worth anything. I wouldn't go that far but I would expect any serious offers for £25K of fees to be fairly low.
what other information do you want? They are all long standing clients..
I'd agree with others that the small block of fees is probably not that desirable as it relies very much on you as an individual.
How much have you actually been offered?
That's a really old article and I'm seeing better figures now, as it's very much a sellers' market, but prices on completed deals are nowhere near the 3x to 5x multiples that some are bandying about.
Rule of the thumb is 1 x the annual fees for average block of fees.
That will drop if your files are old fashioned with hand written files and you are packing in as you don't fancy MTD, if you clients are old etc.
That will increase if you files are [***] hot, all clients on Xero with good records.
Also most people would want some clawback if clients leave for your level of fees you may just want one payment but will chip the price to say 70% of GRF to build in any drop out.
So what you will get will vary from say 50% of GRF to 2 x GRF depending on where you sit in the scale, but only you know that.
As an alternative to the GRF basis, try deducting a notional wage from your profit. This would be to pay a notional employee/subbie to do the actual work. Then multiply the revised net profit by between 3 - 5, say 4 and compare that to your GRF. This is after all what a potential larger firm purchaser would look at.
I'm afraid it doesn't work like that.
The larger the company, generally speaking, the larger the multiple. In my experience you need to have at least a couple of million in t/o, and lack of dependence on the owner, to command the 3x to 5x kind of multiple. Otherwise you're looking at closer to 1x.
Micro businesses aren't typically purchased by large firms, they are too small to move the dial for a, say, £10m t/o firm. Not worth the hassle. So the hope that a large, well funded firm will pay a lot of money is, simply, wishful thinking.
One more thing: Yes, any "fair" calculation of profit would factor in a cost for the owner's time. However, till the owner has actually put staff in place, and there is a long history of *staff* delivering the sales and profit, no buyer is going to consider the business anything but a one man band that's highly dependent on the owner. And they will price it accordingly.
There is a lot of demand currently for accountancy practices (and related business, like Payroll) but 4x is still extremely ambitious.
I think Vaughn Blake is not referring to multiplying the fees by
3 to 5, he/she is referring to multiplying the adjusted net profits by 3 to 5- a fairly standard approach when valuing a business per Hamilton Baynes/Livens etc and contained within pretty much all the share valuation textbooks I have ever read.
for the tiny block, most buyers would probably want to just do a really simple deal, say £10k upfront and £10k in 6 months on the basis you do a proper handover and you don't have a bunch of "ghost" clients.
Something of this size is not worth messing about with unless its a quick deal without too much hassle.