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Ageing practitioners caught in a financial trap
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Webinar tackles the plight of ageing accountants


On average, the accountancy profession is getting older and practitioners in their 50s, 60s and 70s are caught in a financial trap, argued Mark Lloydbottom in the recent AccountingWEB Live webinar, The trouble with… an ageing profession.

17th Aug 2020
Editor in Chief AccountingWEB
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Official figures from the Office of National Statistics (ONS) point to the shifting demographics within the profession: in 2015-16 32% of profession was most heavily concentrated in their 30s; two years later, the thirtysomethings accounted 27%, while those in their 40s had taken over as the largest group, rising from 23% to 28% between 2016 and 2018. 

Trainee numbers peaked at 172,241 in 2010 and the intake has been anaemic ever since. According to the FRC last year 164,210 trainees in the UK and Ireland embarked on accountancy careers.

But the issues ageing accountants are facing aren’t just demographic. Along with Lloydbottom, ICAS assistant director of practice Jeremy Clarke and compere Richard Sergeant explored the financial and psychological challenges of “baby boomer” accountants.

During the past 20 years practitioners have weathered GDPR, Making Tax Digital and the cloud accounting revolution. “They’re facing more deadlines and more technology in a profession that is driven by things they don’t like,” Lloydbottom said.

The financial trap

The biggest lock keeping older accountants shackled to their desks is lack of capital – and the reluctance or inability of successive generations to meet their valuation expectations.

“I thought my business would provide handsome capital for retirement – but that’s not the case for sole practitioners,” said Lloydbottom.

Jeremy Clarke described the “perfect storm” facing the generation of accountants born after World War II: “People want to move on, but they can’t. They viewed their practice as a pension pot, but are disappointed by falling values. They can’t get enough for their practice to realise that... The further down the career track they get, the less they want to invest – they’re nearer the end [of their career] than the beginning.”

As a result, their firms fall further behind the curve in staffing and technology levels and often go into a downward spiral. “The longer you hang on, the less the value of what you have is, because you’re not reinvesting in the business. It’s a Catch-22,” Clarke warned.

Attitudes and the financial constraints on younger accountants are adding to the pressures. Accountants coming through practices in their 20s and 30s are much less interested in hierarchical structures and more interested in flatter, more collaborative, working structures, Clarke explained. After university, three years’ of accountancy training and working their socks off for several years, they’re expected to come up with a hundred thousand pounds or more for a share of the practice.

“Really?” Clarke responded on their behalf. “Why don’t I just set up on my own and crack on?” The cloud accounting generation has had a visible impact here by reducing the cost of entry to practice dramatically.

“There’s a whole new conversation around brownfield vs greenfield accountancy firm development. Why put money into a dilapidated Victorian house when instead you can build a house to support the lifestyle you want to live?” asked Clarke.

There are no easy ways out of the financial trap. Many practitioners hold onto the hope of being picked up by one of the regular surges of activity from consolidators, but probably only 100-150 practices have been acquired by these players, according to Mark Lloydbottom. That still leaves around 25,000 firms that can’t sell themselves consolidators.

Among the remedies discussed during the 45-minute session were the possibilities of new ways of working and ownership structures that made it possible for retiring partners to “self-fund” the handovers.

Lack of profitability and access to capital was holding back many ownership transitions, the presenters agreed. To overcome this hurdle, the older generation needs to overcome its reluctance to get involved with new technology and more profitable advisory services to make the practice more attractive to potential buyers.

Seeking to resolve the financial trap, Clarke said, “The profession is going to have to look at divorcing ownership and management a lot more. If people can’t afford to take their capital out, the logical conclusion is they have to leave it in for a time after they leave the business.”

In the US, Lloydbottom pointed to the growing trend for profits to be shared between equity owners and non-equity owners. “They’ll respect the 40-year-old’s desire not to put in a [lump sum], but give them a share of the profits,” he said.

Under this arrangement, successors won’t get their equity until there’s enough time to pay the departing partner for it - so the current owners will have to fund the new owners for a time.

With the option to jump to their own “greenfield” practice always in the background for younger accountants, these handovers can be as tricky to navigate for the retiring practitioner as a sale to a third party – potentially leaving them marooned at a firm that won’t fund the lifestyle they anticipated in their later years.

Yet Mark Lloydbottom noted that “probably only 10% of firm owners are entrepreneurial”. Many of the generation of leaders coming through might also have more of a “minder” mindset and not be prepared for the risks and responsibilities of becoming a practice partner or owner.

Tune in to the next edition of Richard Sergeant’s The Problem with… webinar series to find out more about the next question on his agenda, “Why bother making partner?” at 1pm on Tuesday 18 August.

Replies (8)

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By Calculatorboy
18th Aug 2020 01:37

It's not that bad , yes in the past youd get 1.5 x grf. Now maybe 1 x grf. My strategy is concentrate on higher value clients , and take care of them , gradually get rid of smaller, low value, time consuming ones. I considered sale , but I'd only get 1 x grf.

After a few years I'm still earning 75% of my income but freed up 50% of time . It's better than an outright sale. This suits me fine , little stress and much leisure time , so what if in 10 years there are no clients ,and goodwill is zero , I've earned a damn sight more than 1 x grf and had a decent income, well into retirement

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By firtrees
18th Aug 2020 10:16

Any recommendations as to how would a small accountancy practice make contact with these ageing accountants to discuss the future?

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By memyself-eye
18th Aug 2020 14:22

I'm 67 next April and will close down my (admittedly small) business before the next round of SA/MTD/WTF is due.
I'm giving away the few clients I have to a local young chap we've got to know (and trust)
Fortunately I have enough in capital/pensions/premium bonds etc not to be bothered.

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By Justin Bryant
18th Aug 2020 16:45

Hardly surprising. I don't think I've ever read a story about someone paying too little for an accountancy/law firm, although admittedly it would not be a particularly interesting story to report in the 1st place - so that might explain that. That said, I've read plenty saying the opposite.

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By Tom 7000
18th Aug 2020 16:47

If you close it down you have 6 years run off insurance, You have heaps of handover letters to give to the new accountant, you have to get out of the lease and the HP and make the staff redundant.... and on and on

I sometimes wonder why these things go for 1 x turnover, the hidden cost of closure is quite a lot. I would have thought 1 years profits was fairer

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Replying to Tom 7000:
By memyself-eye
18th Aug 2020 17:49

No staff, no HP, no leases, a few handover letters and a computer file of all my clients to pass on.
As for six years insurance - no chance.

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By SteveHa
18th Aug 2020 21:59

I do OK, but then I'm not in practice by myself. I've hit 55, and each time I've moved, I've averaged probably a £5K pay rise in the process. I can live with that. (the last was more, and so raised the average)

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24th Aug 2020 10:53

One of the issues I have seen that the article misses (though it may have dealt with elsewhere) is the client base ageing with the accountant and the clients themselves starting to retire thus reducing the firm value.

Whilst I left practice ,apart from some part time practice, in the 1990s I did keep in touch with my old firm so heard snippets from them over the years, x client retired/sold up etc, and as the two partners aged their firm itself moved to smaller premises etc I suspect as a reflection of these losses and the reduced number of staff they by then had- whilst I am not saying older practitioners cannot land younger clients I suspect it is trickier for them to develop and hold a good rapport with them, this is another reason why taking on younger partners/ fresh blood is likely a good idea.

On the other hand whilst unfortunate things may happen in life an accountant in practice really ought to have saved money throughout their working life (ISAs/Pensions etc) such that retirement , even with a reducing value practice to sell, ought to hold no terrors- I am 60, I took no money for my clients when I gave up last year but instead placed them where I thought they would be comfortable, yet I know that if I say have to retire today I can, we may have fewer holidays in retirement than if I carried on in employment a few more years, the kids might inherit a bit less when we die, but given an accountant is adviser to his /her clients surely he/she practices what he/she preaches and saves for his/her retirement.

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