I am looking to purchase a practice in the coming months and I am curious for AWs views regarding the impact of MTD on the valuation - i.e what I should pay!
I have had a range of discussions and read many articles that seem to place valuations from 0.6 to 1.3 of turnover for practices around £200k turnover.
My personal thinking is that MTD is sufficient justification for bidding at the lower end of this range - our profession is so uncertain right now, however I would appreciate any other thoughts on the matter.
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How can MTD be the justification? We don't have much details yet.
I think if you bid them down on that basis, then I think you would get laughed at.
Make an offer at a price you are comfortable with and at a sufficient level that if you are outbid you do not regret not offering more.
This probably comes down to how good a fit this particular practice is re yourself re location/ style/ ambience/ staffing etc and is it likely one with same or better fit will come along soon/ever in right locale.
In effect I would approach with similar mindset to buying say a house, it has a value to me of X and accordingly I am prepared to pay X, if I get it at that fine if not, no regrets.
A practice can be more or less equipped to deal with MTD when it does come along. If they already have a significant proportion of clients on digital bookkeeping systems and working well on them then I would consider that a benefit that would add value, you can't just say "well the profession has a challenge ahead so all practices are now worth less", some will benefit from MTD.
I have been looking at blocks of around £100k and understand the market price is 1 x to 1.3x GRF at that level.
I have not heard of any as low 0.6 although I understand the value drops the higher the fees as less people are able to do the deals once fees hit £750k plus.
The variations in fees will be down to internal systems ie someone who is still using a lot of paper based files is going to need a large time investment to gear up for MTD so would be at lower and someone with all clients on monthly fees and using software at the higher end.
Lots of other variables as well like fee levels and mix of clients. Ultimately its whats it s worth to you as said above, difficult deals to do though as sellers see their practice like a shiny new mercedes, whereas the buyer sees it as a used car and notices every ding.
If you read the articles by the guy from ICPA he expects the fees achieved by those wishing to exit the market before MTD happens are likely to push prices down.
I suppose its a matter of supply and demand. If I dont get a deal soon I am just going to pump some money into marketing as wasted a lot of time on failed deals this year, and don't get me started about agents involved.
goodwills not tax deductible for a corporate acquisition...You have to build that in these days
