Mark Lee explores the options available to accountants who may be looking at retirement and selling their practice in the next few years.
This article was inspired by two unrelated conversations on the same topic in one week. I have checked and note that the last time I wrote anything on this topic was back in 2011: Will you be able to afford to retire?
Everyone has their own reasons for selling their practice. Among the most common are voluntary or forced retirement, being offered an attractive full-time position or giving up on efforts to grow the practice alone.
It is also clear that some accountants choose not to retire or to sell their practice – ever! They just keep going until the inevitable happens when they are well over retirement age. I have spoken with many ‘mature’ practitioners over the years and others have shared similar views in the ‘Any Answers’ pages on AccountingWEB.
The reasons that so many accountants keep going are quite varied. Some just do not want to stop working. It’s their life. Or they need the continued income. Others tried to sell but either didn’t like the offers they received, the purchasers or the brokers/agents involved. Or maybe they fear the fruits of their labour being broken up or the disappearance of their practice name and branding. And many are perhaps aware that the current ‘sellers’ market’ is probably here to stay – so what’s the rush?
To outsiders the position in our profession seems quite strange. There are plenty of ambitious growing firms keen to buy blocks of fees or to take over smaller practices. And there are plenty of ‘mature’ practitioners who should, in theory, be looking to retire. But potential acquirers often complain that vendors try to negotiate unacceptable deals or are too set in their ways to permit their practice to be taken over. Why is that do you think?
I suggested in my earlier article that one reason for this could be that accountancy practices do not attract high enough sale prices. Too low and the vendor doesn’t consider it a good enough deal to warrant selling. Too high and the purchaser doesn’t feel the investment is worthwhile and would prefer to grow organically.
One innovative approach was recently described to me by Hammad Farooqi who founded iPlan Accounting in 2003. He looks for accountants who plan to retire in a few years time and offers them a three year exit strategy. This is possible, in part, because he has arranged bank funding for a younger partner to acquire the goodwill from the vendor. 50% is paid when the deal is done and the remaining 50% after three years. During that 3 year period the vendor remains a consultant to the practice and works with the new partner to reassure and retain the client base. This also gives the vendor time to come to terms with their retirement and to gain confidence that their practice and clients will be well cared for after they leave. The amount of time the vendor spends in the practice can reduce over time.
I understand that Hammad had success with this approach when taking over Antrobus accountants and is keen to find others who would like to do the same.
I am sure that some AccountingWEB readers will be itching to tell us why this wouldn’t be an attractive deal for them under any circumstances. And brokers/agents will warn of the challenges of having the vendor remain involved (whether voluntarily or compulsorily) for any length of time after, effectively, selling the practice. Especially where the purchaser’s preferred operating model includes outsourcing much of the back office work, as in this case. Why would a vendor want to adapt to new working practices for a three year period pre-retirement?
I would imagine that the idea might appeal where the value of the deal ends up being far more profitable for the vendor than a conventional sale. I also do not know whether the finance available here is available on more attractive terms than from the multitude of finance houses who provide funds for the acquisition of goodwill.
Given the choices there are numerous factors to consider and compare when looking to sell your practice. These would include:
- How will the value of your practice be determined?
- What will be the ‘post-tax’ net proceeds, taking account of both capital gains tax and income tax etc on consultancy payments.
- Over what time period will the sale proceeds be paid and subject to what caveats and clawbacks?
- Tax cashflows vs capital and income receipts – will CGT be paid on the full value of goodwill even though this is to be paid for in instalments?
- The level of income you will receive during any earn-out period.
- Will your consultancy be treated as employment income, self-employed or partnership income?
- How reliable are the necessary income projections?
- How long will you remain the main client contact?
- How well do you get on with your new partner(s)?
- What terms does the agreement contain to address the possibility of your premature death/incapacity or that of your new partner?
- What are the options re the current office facilities?
- How long do you want to continue working in the practice?
- Is it the work or the income that is the main driver for you to continue working?
When the time comes to sell your practice what sort of deal would appeal to you? Have you considered whether anyone would be interested to acquire your practice on such terms?
- Feb 2015 - Practice M&A: The state of the market
- Feb 2015 - Practice M&A: The buyer’s view
- March 2015 – Practice M&A: The seller’s view
Mark Lee is consultant practice editor of AccountingWEB and helps individual accountants who want to be more successful in their practice or career.
About Mark Lee
These days Mark Lee focuses his business actiities on two key activities:
1 - He loves being engaged to speak on stage to audiences of accountants in all size of firms. His latest keynopte talk is: The rise of Robo-Accountants - and how to beat them. He is an accountancy focused speaker, futurist and influencer with a positive reputation for entertaining, engaging and enthusing his audiences.
2 - He loves supporting savvy sole practitioners who want more out of their practice. More clients, more money, more time, more satisfaction - or everything!
An accountant by profession, Mark moved away from the provision of professional advice in 2006. He is now a professional speaker, mentor, author and debunker.
Mark is passionate about helping accountants generally so is a keen blogger and commentator in the accounting and tax press. He has been consultant practice editor of AccountingWEB and has written hudnreds of articles here that have been viewed over a million times.
Check out how he could help you here: www.BookMarkLee.co.uk/savvy
Mark no longer gives tax advice despite being a past Chairman of the Chartered Accountants’ Tax Faculty. He is however Chairman of the Tax Advice Network - the UK's highest ranked lead generation website for tax advisers and accountants. The network also publishes a weekly practical tax update for accountants in general practice and full tax support, on demand too. You can also use it as a lead generation resource for local people seeking tax advice from an accountant.