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Is the time right for digi-preneurial accountants to sell?

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With firms looking beyond the current economic climate, is now the right time (and price) for digital firm founders to cash in and sell up? Keith Underwood, MD of Foulger Underwood, examines intriguing times in the accounting firm M&A market.

17th Jul 2023
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A sizeable number of digitally-focused accountancy practices have emerged in recent years. These businesses are run by entrepreneurial owners looking to build value and then sell. But despite their fresh approach, they are not immune to growing pains.

Many of them are in the 25–35-year-old age bracket – and their timelines focus on the next few years, rather than the next couple of decades. The availability of cloud-based technology has meant they’ve been able to ‘press and launch’ — without the hassle of acquiring office space, servers or admin staff.

By definition, these are greenfield start-ups with no baggage of the traditional established practice.

These firms have a digital-first culture, and their clients are also comfortable with digital. In other words, there is a good flow of automated transactional information from client to practice, and back.

New model army

These vanguards share some traits, but they’re not necessarily all positive ones:

  • These ‘digi-preneurial’ accountants are usually more willing to change and adapt their firm’s processes and technology than their generational counterparts.
  • However, the firms they have set up are usually undertaken without external funding, which provides limitations on scaling (despite the tech). Those with funding are under pressure to grow more quickly.
  • The owners don’t necessarily see themselves as fitting into another practice, so if they look to sell up then they wouldn’t expect to continue in the new organisation other than for handover.

The digital honeymoon’s over?

A fundamental tension that these new firms face is process vs. service. Digitisation of themselves and their clients means they can run efficiently, but very capable people are still required to both analyse and communicate insight back to the client base – easier said than done.

Even if scaling on a single platform generates a good margin, there may be resistance to valuing internally developed intellectual property on a sale - the buyer may have their own platform and the deal becomes a portfolio sale.

Ultimately, if they want to maximise the value of their firm, the digi-preneurial accountant must answer some difficult questions:

  • Is the practice large enough to go into a 'big' firm (where the current funding is)?
  • Can they avoid the temptation to take on ‘traditional’ clients that don’t fit the processing model?
  • Can they continue funding the cost of platform development?
  • Are they willing to invest in resourcing high-growth plans?
  • Are they making a good profit or still in 'start-up' mode?
  • Are their clients truly ‘valuable’ to a larger firm?

Tech vs ‘the practice’

We are seeing practices seeking to develop proprietary tech in-house based on their own expertise and market knowledge, then ‘split’ the software away from the accounting practice and licence it out to other accountants. Meanwhile, the service and in-house accounting portfolio form a different business, serviced more traditionally.

Will we see these digi-preneurs ‘penned in’ by lower-than-anticipated market values, and look to sell during stronger economic conditions? Will they flip from tech investment to people investment? Can they entice more private equity into the profession?

With firms looking beyond this time of stagflation, it’s a fascinating period in the market.

Replies (2)

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Stepurhan
By stepurhan
17th Jul 2023 13:52

How is the sale of a "digipreneurial" practice different from the sale of any other practice? Is "entrepreneurial owners looking to build value and then sell" really a fresh approach, or is it just what countless others have done in the past, with technology simply a factor in that?

If anything, with MTD allegedly still going ahead, now might be the worst time to sell up. A proven ability to handle whatever form MTD eventually takes would surely be a boost to value for those willing to wait for its implementation. It is those that don't want to deal with it in any form that are looking at getting out now.

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Replying to stepurhan:
By ireallyshouldknowthisbut
17th Jul 2023 20:04

stepurhan wrote:

How is the sale of a "digipreneurial" practice different from the sale of any other parctice?.


Heh the article written is clearly trying to drum up a bit of business for his industry. I love these tech churn outfits as the output I have seen has been abysmal. So easy to compete by just knowing the basic on how to prep accounts and look for what is not there rather than rely on what the system spits out. Fine for a big business with professional bookkeepers and proper controls, hopeless for john the builder who struggled with maths at school now somehow expected to enter all the transactions. Be like the bookkeeper skimming a wall. Looks easy, but isn't.
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