Plan ahead if you want to wind down your practice
When the time comes to hang up the accounting apron, what’s the best course of action? Jeremy Clarke talks exit strategies for accountants.
After a tumultuous 2020 and a stressful start to the new year, retirement is more appealing than ever. After fighting with furlough and grappling with government guidelines throughout the pandemic, a large number of accountants are now heading for the exit sign.
When the time comes to call it a day, what’s the best course of action to take with your practice?
“The full process you have to go through to set up for retirement is longer than people think,” ICAS Assistant Director of Practice Jeremy Clarke told AccountingWEB.
Clarke likened selling your practice to selling a house; you expect people to be knocking down your door just for a chance to buy, but in reality the market can be a lot slower than people think.
“The earlier you think about it and start having conversations with people, the better,” advised Clarke.
Depending on the size of your practice, your first port of call could be the people who work for you - is there anyone around you who would be interested in buying the firm and has the appropriate skills and capabilities? And if they don’t, do you have the capacity to train them?
If that’s not the case, start building a network of people who could potentially be interested. Clarke suggested that the prime time to start thinking about this process would be around 10 years prior to retirement - if you’re hoping to retire in your sixties, putting the wheels in motion before then will help ensure you don’t have to keep working longer than you want.
“You don’t have to be laying concrete plans at that point,” Clarke assured, “but it would help to be thinking, how do I want to do this? Who might be interested? Is there something I could do to make it more attractive?”
The answers to these questions will steer you towards one of two options: you’ll either end up with a practice you’re really proud of and don’t actually want to sell, or you’ll have a practice that people are desperate to buy. Either way, it’s a good result.
Ensuring that you have a plan in place will make a difference when you come up against the competition within the market.
Pace of practice
“The pace of change in the last 10 years in the profession has been relentless,” commented Clarke.
The shift to MTD has been a catalyst for many pondering retirement. “Whilst those for VAT were not that drastic, the whole programme which will now progress to quarterly reporting for income tax and corporation tax filled me with dread,” described AccountingWEB member DJKL.
The solo accountant in practice is required to keep up to date if they want to stay on top of the game and ahead of the competition, as well as ensuring they are able to offer the best possible service to their clients.
Whilst within firms there is the possibility of dividing up the workload between employees to learn new skills and acquire topical knowledge, accountants practicing alone may find this more of a challenge, particularly for those who are employed part-time.
“For the part-timer running a practice alongside their employment, evenings, and weekends, this is a much larger percentage of their billable hours spent on non-billable matters,” commented DJKL.
“Had it not been for MTD, I would probably have carried on for one more year,” said lionofludesch. “I took the decision when MTD became mandatory for VAT that I would off-load any clients who needed to upgrade their accounting systems as I didn't want to set something up only for it to need to be changed when the new advisors were appointed.”
Although times will always be changing, the pace at which things are growing is increasing, especially within the events of the past year: “I am grateful I have mainly avoided say furlough schemes etc,” DJKL reflected.
Jeremy’s top tips for selling your practice
Above all else, Clarke advised, don’t rely on your practice as being your pension.
Many practitioners view their firm as their pension pot, but this can become a lottery: “There’s always value in a practice. But it may not have as much value as you need it to have,” Clarke said.
DJKL was also aware of this conundrum. “The secret is knowing how many years one has to finance,” he said. This, of course, is easier said than done.
Ideally, have a pension plan in place that’s separate to your business, while also making sure the value in your business can be part of your pension pot when you need it. Maintaining and enhancing that value as you grow your practice will not only ensure you have enough to support yourself in the accounting afterlife, but it will hugely benefit the quality of your work.
Other exit routes are available. Employee ownership trusts, for example, give business owners a very efficient way to sell the business to the employees.
“It’s a good means of solving a succession problem,” commented Clarke. “The employees won’t necessarily have to come up with the cash themselves - it’ll be self-financing.”
Life after accounting
After a hectic year and a shift in perspective for many, life after accounting will come as a welcome respite for those seeking retirement.
“As I have got older I have more valued my spare time - maybe because there is less of it left,” said DJKL, “so one values the hours and mentally increases the price one wants for that hour.”
For DJKL, the pleasure of being able to choose what you want to do each day, “just by looking out the window and deciding, no timetable, no 9-5,” is the most appealing feature of retirement. He is looking forward to having more free time for hobbies and activities he couldn’t make the space for before, and has put his name on the waiting list of a local allotment in anticipation.
After effectively working since age 16, “a break would be good,” he said.
Join Jeremy Clarke, Richard Sargeant and Mark Lloydbottom in our AccountingWEB Live Webinar to hear more about the issues of retirement within the accounting profession.