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Ducks in a row | AccountingWEB | Clock ticking on exit strategy plans
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Clock ticking on exit strategy plans

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Accountancy firms that stumble along and don't get their ducks in a row run the risk of 'leaving in a box' as their exit strategy, an M&A expert has warned.

10th Jun 2024
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“There's so much more you could do if you just have a plan.”

There was a genuine uncertainty in the voice of Evans Jones - M&A process and integration director at Azets - when discussing business leaders who don’t have an exit strategy in place.

“The reality is, everyone is going to exit every business,” he said. “Some build up their practice and say they’re never going to give it up but one day, they do because they end up leaving in a box.

“Even if you don't have any plan to exit your business, we’re all mortal so one day we’re exiting whether we like it or not.”

It’s a to-the-point truth, which is why he’s so keen to stress the importance of having your ducks in a row.

A big waste

Evans calls it a “shame” that there are people who “spent all this time and effort, and blood, sweat, tears and love, building their business”, only to not get something out of it.

“There are some who, when they started their business, were already thinking about building it into something scalable and that can run without them,” he said. “They want to build it into something which, in many years, they could just sell to somebody else.

“They could get some money and either go sit on the beach, set up something new or spend time with their kids or grandchildren.

“Then there are others who build something up and maybe they just hand it on to their son or their daughter or to a family member. You've also got that traditional partnership structure where the new partners coming in end up slowly buying out the old equity partners.”

However, the worry lies with those who “never really think about getting out”.

“They decide that they don't have to work anymore and actually, they just run it down and think ‘well I'm not going to take on any new clients - I'll just wind it down’.

“It feels like a lost opportunity when you've got something which is good enough for you to be able to make a living out of just to run it into the ground. For me personally, it feels like a big waste.”

Stumbling along

Evans noted that some accountancy practices “just stumble along, doing alright and taking things as they come, making sure that works for them”.

“If they actually had a plan though, if they spent some time thinking about what they want out of this, what they want out of life and how it can give you something back for all the time and effort that you've invested in it - that feels like a sensible thing to do."

He believes that being an accountant “is a service” - “you're there to make other people's lives better, make them more efficient, make them more money and give them some good retirement plans.

“If you haven't thought things through as to how your business would carry on without you, you’re kind of leaving your clients in the lurch.

“If you did have the thought of ‘how would my business continue without me?’ then it’s not that much further to think there's a point in time where you’re planning that the business is going to work without you and you could exit.

“The clients who know you and trust you are still going to carry on getting a great service and be looked after but as a business owner, you could step back and either retain that business but have it running without you and you've just got that passive income, or you could sell it on to someone else and have a big lump of cash.

“There's so much more you could do if you just have a plan.”

Preparing for the unknown

Evans recognises that there’s plenty you can’t account for, especially given the uncertainty of recent years.

“How can you prepare for global unrest? You can't. How can you plan for there being a pandemic? You can't.

“Could I have the foresight that on Tuesday, I get run over by a bus, break both my legs and am out of work for eight months? Also no, but you can build your practice into running efficiently and not being dependent on you as a business owner needing to be there - you can systemise your business.”

He added that if you’re going to “build the next generation of leaders” within a business, you “should be making yourself feel redundant”.

“If you're taken out due to unforeseen circumstances, the business is still going to run, the people you've employed will still have jobs and the clients you serve will still get a great service.

“It also means when things do come along - like when we had the pandemic, or if you had to relocate or lose a key member of your team - if you've built some resiliency and if you make sure that your business isn't dependent on one person, especially yourself, you’ll weather the storm.”

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By FactChecker
10th Jun 2024 20:25

Evans noted that some accountancy practices “just stumble along, doing alright and taking things as they come, making sure that works for them”.
“It feels like a lost opportunity when you've got something which is good enough for you to be able to make a living out of just to run it into the ground. For me personally, it feels like a big waste.”

That's very presumptive of Evans ... for many people (at the smaller end of businesses) one of the big plus-sides of what he somewhat sneeringly refers to as 'stumbling along' is a quite deliberate way of running their business. Has he never heard of work/life balance?

The second half of my working life (which was predominantly spent creating, and slowly growing organically, a business with no borrowings) gave me a multitude of pleasures - of which a decent income was a nice-to-have but not primary driver.
So after 30 years I was happy to start 'relinquishing the reins' as just another exercise in learning (how to support growth rather than lead it) - and was very surprised when an offer came out of the blue that, unlike most 'asset-stripping' types, I could live with. But I would have been just as happy to complete my original assumption of 'just walking away' (once I'd assured myself that the company would stay upright with the 'training wheels' removed)!

I'd already had from the company what I wanted (a challenging but wonderful environment that year-in and year-out employed loads of people / delivered to satisfied clients / and ensured that my family's bills were paid). Why sacrifice any of that for an uncertain future benefit that wasn't even an objective when setting up?

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Replying to FactChecker:
All Paul Accountants in Leeds
By paulinleeds
11th Jun 2024 16:14

I cannot agree more. It's called phased retirement, slowing down etc.

You will always naturally lose clients, but you can choose not to replace them. You are not throwing away your business that you have spent year's building up, you are preparing, and planning may I say, for your own retirement and future.

The last thing that you therefore want to do is be working your socks off before retirement just to make more money for when you sell it. Actually, some work and some play will make a great day....... work / life balance as you say.

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7om
By Tom 7000
11th Jun 2024 08:15

In capacity - Well If you are in a pickle and cant get to work, and the team cant help call up your best mate the accountant or the bigger firm along the road and something can be sorted.

At the end, same deal, but if you use a broker then theres fees, just go direct?

Personally, 6 months time Number 1 son will be an RI and I am sorted. Anyone else train the little one to step in mom/dads shoes?

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Replying to Tom 7000:
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By mumpin
11th Jun 2024 08:54

Religious Instructor?
Is there money in that?

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Replying to mumpin:
7om
By Tom 7000
11th Jun 2024 09:04

Registered Individual... its what the people who sign Audit reports are called in Jargon... although, sometimes you wonder if some people sign them and pray they are right ...lol

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By Springfield
11th Jun 2024 09:52

“They decide that they don't have to work anymore and actually, they just run it down and think ‘well I'm not going to take on any new clients - I'll just wind it down’.

There's an implied, if not actually criticism in this description so I'm going to bite as this is pretty much what I did, as a conscious choice. In the late 1990's, using my redundancy payment from a bank, I set up my own accountancy business. I was fortunate that my existing accounting knowledge, computer literacy and the introduction in those early years of some decent tax return, accounts production and payroll software meant that i could operate much more efficiently than my local high street competitors and it didn't take long to have several local clients paying me than enough to earn a decent living.

However, I never saw it as a saleable business. I was meeting decent people, helping them and getting paid enough for a reasonable standard of living without over-extending myself. After the first couple of years most of my work came from personal recommendation and I turned down several potential clients who I suspected had needs beyond my skill base or would be more trouble than they were worth.

Anyway, once I got to 60 I decided to slowly wind down. Over the next three or four years I helped my clients find suitable replacement accountants and liaised with those firms to make sure they had all the handover details they needed. It was a great day when I finally waved goodbye to the last remaining client.

I never saw my clients as assets to be sold. I tried to provide a good service and they paid me well in return. Looking back I'm very happy at how my second profession worked out, not least because redundancy after 20+ years in my mid-forties was quite a scary prospect.

So, sell your businesses by all means, but don't mock those of us who take the scenic route.

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By Self-Employed and Happy
11th Jun 2024 09:58

I know someone that just stumbles along, they seem quite happy.

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By raybackler
11th Jun 2024 10:50

I am in the process of doing exactly what FactChecker and Springfield have done. About six years ago, I began the process by not taking on new clients. I did, however, take on new work for existing clients. You can't give half a service. I then commenced to work with my largest clients to transition to new accountants. Sometimes this involved finding a further new accountant, when the transition failed. After that I waited until clients retired, took a job or emigrated. I have now got less than half of my largest number of clients and about a third of my peak turnover.

The alternative of selling, would be subject to claw back and work stopping immediately. I'm afraid I don't want to stop, just wind down slowly, without the potential stress of any buyer [***] up some of my outgoing clients. The way I am doing it, I continue to keep occupied and have a reduced income, but keep my clients happy, who mean a lot to me. No secrets, they all know my plan and are willing to work with it.

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By Paul Crowley
11th Jun 2024 11:20

Horses for courses
An exit strategy is to work for a couple more years and take the profit rather than the sale.

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By Marlinman
11th Jun 2024 12:22

I'm just slowly winding down as clients die or retire. When you've been doing someone's accounts for over 20 years it's a piece of cake. I can do everything online from anywhere in the world and a bit of extra income to supplement my pensions is useful. When it's no longer economically viable I'll help the few that are left to find new accountants.

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