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Asset or Share Sale - Understanding the Options

27th Nov 2020
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If you decide to sell your accountancy Practice, then a key decision in the process is whether to make it an asset or share sale.

There are pros and cons to both approaches and this article looks at what you should consider when deciding which is the best option for you.

When deciding on an asset sale (which for the majority of accountancy practices is the sale of the goodwill) the main advantage is that the due diligence process is much more likely to be less intrusive for a seller. But an asset sale comes with some disadvantages, including:

  • No Entrepreneurs Relief and if you are corporate seller then you will be liable for a double tax charge.
  • Your clients will all have to re-engage with the new owner of the business, which can result in a higher attrition rate, which in turn could affect the final sales price.
  • A seller will need to consider any residual lease or property obligations once the practice is sold.
  • Once the practice is sold it isn’t simply a case of walking away. The practice continues to need an active status until all outstanding debts are collected, which will include any deferred payments for the purchase of the practice.
  • Run off professional indemnity insurance cover may be needed, which can be expensive.
  • Depending upon the agreement reached with your buyer there may be a requirement to carry out pre-sale consultations with your employees to ensure TUPE regulations are followed.
  • And once the transaction is completed there is the cost, time and effort involved in winding up a corporate sale.

If you don’t feel that an asset sale is the best option for selling your Practice then an alternative consideration is a share sale. The advantages of this type of sale are:

  • You may be eligible for Entrepreneurs Relief.
  • Everything will be sorted out as part of the sale package and so there should be little to do once the sale is completed.
  • Your buyer will not need to re-engage with the clients and this should hopefully increase the retention rate, which will help with any clawback provision.
  • If your buyer agrees to maintain the Practice Insurance then there should be no need for run off cover.

The disadvantages of a share sale are:

  • The due diligence process will be far more intensive as your buyer seeks to satisfy themselves that all aspects, tax, finance, regulatory, of the Practice are in order.
  • The requirement by the buyer for increased warranty and indemnity clauses within the contracts is likely to be greater which means….
  • The legal process will be more complex and therefore more expensive.
  • Your buyer is likely to require Completion Accounts.

There is no right or wrong answer about how you decide to proceed with the sale of your Practice, but here at practicesales.co.uk we have plenty of experience of dealing with both options. What’s most important is that you find the right buyer, offering the right deal, so that you can move on and enjoy the next chapter of your life.

If you would like to talk to someone about how you can achieve this and what the best option would be for you then please call us on 01823 765085 for free, impartial advice, on what to do next.

Editorial content supplied by Ian Worthington of Consilium 9 Limited.
[email protected]

 

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