Practice succession: What selling up means
Most accountants hardly give a second thought to practice succession and exit strategies, says Norman Younger.
After all it is usually a once in a lifetime event that does not have a specified trigger and certainly not a date by which time it must take place. However, if we look more closely at this subject it soon becomes clear that failure to plan is as the saying goes “planning to fail”.
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I often compare practice disposal to writing a will. It’s something that many people put off indefinitely for emotional reasons, until a personal experience or a worried spouse brings it into sharper focus.
Over the coming months I will be bringing this important area of practice under scrutiny and demonstrating to you why no accountant can afford to ignore exit and succession planning , wherever they may be in their practice career. For those practitioners in middle age and beyond one can see a clear reason why they need to get an exit strategy onto their radar, but there are plenty of accountants out there who are only just now thinking about their pensions , for whom a look at practice disposal may still be worthwhile either now or in the near future.
For the seller of any business there is nothing as satisfying or lucrative as being able to dictate the timing and terms of your exit from that business, and an accountancy practice is no different , except for a couple of crucial points:
- You are selling a service business that more often than not is based around a single individual or a couple of partners, rather than physical goods or a customer list whose value is determined by price or build quality
- In spite of demand outstripping supply by a very hefty multiple, prices for practices remain in a narrow valuation band and have done so for many years , meaning that they are unlikely to change any time soon
Therefore the earlier you get the ball rolling the better chance you have of maintaining or enhancing the value of your practice to a buyer. Nothing beats the luxury of having time on your side.
So what does “selling up” actually mean? From an emotional aspect for many it signifies the end of an era and for others it is a relief, but few contemplate what it is that they are actually selling. After all, no accountant can force a client to acquiesce to “be sold”, especially if they have developed a close personal or business tie over many years. What it is that an accountant is selling is in fact the goodwill that they have built up in their practice through hard work and client care over many year or even decades.
In fact, the sale process goes well beyond the goodwill aspect. It encompasses your staff and subcontractors and of course yourself. After all, once the dust settles what are you going to do with yourself and how will you be putting food on the table? They say that selling a house is one of the most stressful events in a person’s life after suffering a bereavement. Selling your practice and nervously waiting through the clawback period is a serious contender for third place.
Even though selling a house is also a one-time event for many, we all seem to know the drill, whether it is the legal aspects, the finances or the logistics, but selling your practice? We are not quite as obsessed over accountancy practices as we are over property in this country. Like any major decision the most important part of it is being able to make an informed decision to optimise the outcome. Knowledge is power.
In the case of practice disposal and succession planning there is a lot to find out, including:
- Options available to you
- Market conditions and valuations
- Preparing the practice – staff and clients
- Timing of deal and payments
- Clawback parameters
- Post sale responsibilities
Hopefully once you have read the forthcoming articles in this series you will be able to look forward with confidence and understand whether it is time for you to take steps for the disposal of your practice, either due to retirement or to take your career in a new direction.
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Norman Younger is a keen blogger and director at accountancy practice sales specialists Maximiti.