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Selling a practice: The decision and search

19th Feb 2018
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Della Hudson shares the experience of selling her accountancy practice, starting with the difficult decision to sell, and moving on to how to find a buyer.

Had enough?

It’s that time of year when many accountants have just completed yet another stressful tax return season and are wondering if they would be better off getting out of the game completely. I have recently sold my practice and, although the sale itself happened fairly quickly, the decision process took much longer.

Here are a few things to consider if you really are serious about selling up and not just in need of a holiday.

Why sell?

Most people sell because they are ready to retire and need a means to fund that retirement. My own decision was taken for a number of reasons, but mainly because running a practice no longer fitted with my personal requirements.

What are the alternatives?

Once you have established the underlying reasons for selling up it is worth considering whether there are other routes to achieve the same outcome. For example you could:

  • scale back your business to give you more time at busy periods;
  • sack a handful of your most draining clients to give you more time, or to replace them with better quality clients;
  • recruit somebody or outsource work to effectively buy yourself time;
  • sell part of your practice to realise some cash but still retain some work; or
  • take on a business partner to share the load.

What is your practice worth?

Accountancy practices are fairly marketable because they can use similar processes to produce the end product. The price paid for a practice is usually based on a multiplier of GRI (gross recurring income, excluding one-off fees), which is currently a factor of between 0.8 and 1.2 of annual fees.

Looking after your team

If you currently employ staff you may wish to have a deal which ensures that they are looked after. Whilst there are no guarantees for your team, the business would at least set off on the right path without you.

What will you do afterwards?

It is a big jump to go from working full time to being retired. It’s not just a question of what to do with your free time but, for a lot of people, their identity is wrapped up in what they do; it’s part of who they are. If you wish to continue doing anything related to accountancy, you may need to agree this with your buyer, as there will undoubtedly be a non-compete period, or a non-compete area, in your sale contract.

Finding a buyer

You may know a local accountant who is interested in growing through acquisition. This would save any agency fees, but you wouldn’t have the experience of the agent to guide the sale process.

Over the years you have probably received letters and emails from various agents about selling your business or acquiring others locally. It is usually the buyer who pays the agency fee, but you may need to pay a small amount for the agent to market your practice initially. The advantage of this is that you have somebody to shortlist any interested buyers, and to negotiate on your behalf. If either you or your buyer are new to the process then you have somebody to help you through it.

Why you need a good match

A close match is not only better for looking after your clients, but it will also benefit you financially by reducing clawback, where the selling price is based on the value or number of retained clients.

My experience

I ruled out as buyers, large practices, and ones which I didn’t believe had the same client approach as we did. It was also important to me that the buyer would look after my employees, which probably meant taking on our existing premises, unless they were very locally based. As we did lots of business advice it was important that there was somebody within the buyer’s team who could take on this aspect of the work. We had a single audit client so I decided that audit registration was preferable but not essential.

Even if you are stepping out of the business completely there will be a handover period. It is important that you are able to work with the buyer to smooth the takeover and maximise client retention, which is in both of your interests.

Della joined the AccountingWEB editorial team on this week’s No accounting for taste podcast. Find out more how she prepared her exit for sale and also her thoughts on the week’s latest stories, including Oxfam, MTD and sweary accountants. 

Replies (5)

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By BryanS1958
20th Feb 2018 14:14

I find it incredible that accountancy practices are only valued at 0.8-1.2 x GRF. Generally practices should be very profitable and clients tend to stay for long periods, so any buyer can recoup the cost of the fees within a couple of years. We seem to undervalue ourselves as usual. Some loss making 'sexy' tech type businesses with little prospect of success go for ridiculous amounts in comparison.

Thanks (4)
By Ken Howard
20th Feb 2018 15:28

I'm not really sure 1xGRF really is too low. If you deduct "real" staff wages, or the notional cost of the sole practitioners's time, you end up with a relatively small "profit", so you're back to the multiple of pre tax profit, which on 1xGRF could be a more realistic 3/4/5 years.

There aren't too many businesses which are valued based on turnover - most are based on pre tax profits etc.

Thanks (3)
By Tosie
20th Feb 2018 15:53

I think it is a great pity that the opportunities section was removed from this site. It gave people a chance to buy and sell at little cost and was useful for exchange of smaller practices or blocks of fees. This article is useful but there are so many other considerations. How will payments be made i.e 33% initial. What happens when clients do not like buyer. Run over p.i. WIP just to mention a few points.

Thanks (1)
By Tom 7000
21st Feb 2018 07:58

How about this:
Seller said My turnover is £750k.
I make 100k a year, but I own the building and you will have to pay me 30k a year rent. So real profit £70k. Seller works 9 hour days. cost of a new manager £45k+NI... So maybe it will make 25k a year as a stand along business...

How much do you want said I ... 1.1x turnover = £820k...

Why, I asked... because tahts what they sell for...

How about 3x profits = 75k

Guess what happened!

Thanks (0)
By Tosie
21st Feb 2018 08:35

I would hope to make more than 100K on a turnover of £750k. but this raises an important point: Is bigger better ?
I am sure that many S.P.'s are making a £100k on fees of £150K.

Thanks (3)