Selling your practice: DIY or agent?
Now that you’ve taken the decision to sell your practice you have reached second base, which is how to market your business, explains Norman Younger.
Before proceeding I must apologise for referring to your practice as a business, but although you are a professional you must never forget that what you are selling is a business and as such the whole exercise needs to be viewed in that light.
If you’ve ever sold a house the odds are that you used an estate agent and probably never even considered trying sell it yourself with a sign in the garden stating “House for sale by owner” and displaying your mobile phone number. If so, you would be in good company as very few people sell their house themselves without the assistance of an estate agent in spite of repeated attempts by market disrupters who are continually trying to facilitate such disintermediation. It’s not simply down to tradition and inertia – agents of all sorts are still going strong for good reason.
When it comes to selling a business, in this case an accountancy practice, the owners are faced with the same choice as the householder – to cut out the middle man or to follow the well-trodden path and use an agent.
The advantages of using an intermediary are that you have access to a wider audience of potential purchasers, who have also been vetted to ensure they are not ‘tyre kickers’ or snoopers – yes it does happen in our august profession especially at a local level.
You also have access to advice on the current state of the market, and for many vendors most crucially using an agent substantially enhances their negotiating power. A dispassionate third party is very often the difference between success and failure at delicate points in the discussions and can smooth over potential misunderstandings and disagreements before they become a problem.
An agent will market your practice in a discreet manner as you will not want your clients to be aware of your intentions and at the early stages you will not want your staff to know either, save perhaps for a senior and trusted associate. One of the ways in which marketing is carried out is by altering the vital statistics of your practice to prevent others from working out your identity. Unlike selling your house you cannot plonk a ‘for sale’ sign outside your practice in the same way you would in your front garden.
The agent will charge you a fee for their services and business transfer fees are not cheap but they are certainly worth the money for a job well done, which crucially means getting you the right price and avoiding confrontation post-sale that could very easily end up in court and involve you in months or years of bitter and aggravating dispute to obtain all the money due to you.
Nearly all DIY sales are to people who are known to the vendor personally but that does not mean there is no place for professional assistance from an agent that can assist both parties to achieve an optimal outcome , especially on post-sale matters, where friendship and bonhomie can often flounder when money is involved.
Even ascertaining the true value of your practice can be tricky as there is no publicly available information on prices achieved. As a DIY-er you will not have a wide range of potential buyers at your disposal in order to choose the one to whom your practice may be worth the most or perhaps is more flexible and can offer you terms that you really want, rather than the ones being imposed on you due to lack of choice or inside knowledge of the market.
What starts from a friendship can so easily turn sour especially if it turns out to be a lop-sided deal, favouring one party over the other because of ignorance of the standard contractual parameters and market conditions. I recently spoke to a practitioner who had sourced his own buyer, who he knew personally, and was very happy to have sold to a prestigious firm whom he was confident would not give him any grief and would surely pay the instalments on time. Of course they would – he had sold for around 35% below the market value.
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Some DIY-ers don’t have a specific buyer in mind but will slog it out with letters to local firms and adverts in local newspapers, spending a huge amount of time and possibly money, on the process and will of course probably be revealing their identity even inadvertently.
These types will save a few thousand pounds in agency fees but how much chargeable time has been lost in the process and more crucially, while the partner’s eye is off the ball how much has the firm drifted because of the owner’s distraction, sometimes failing to stop a client leave or often to spend time wooing new ones?
Then there is also the point that if they are unsure of something or come across a problem, calling in an agent to sort it out on a consultancy basis does not come free of charge and can end up taking up even more time as the consultant has to go back to square one to understand the deal and what has gone wrong in order to furnish a solution.
By far the biggest potential problem, which is like an iceberg – mostly lurking unseen – is contracts. Most accountancy practice deals complete without the use of a solicitor but at least an experienced agent can provide a tried and tested template that will be far superior to anything the accountants are likely to draw up themselves.
Ultimately the decision can be viewed through the same lens that somebody completing a tax return will use – should I pay for an accountant and all that he or she represents or am I confident and competent enough to do it myself without being worse off?
Norman Younger is a keen blogger and director at accountancy practice sales specialists Maximiti.