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The great escape: Are you ready to sell your practice?

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Making the decision to take a step away from the world of practice can be difficult. However, if you're set on selling up, Norman Younger offers some useful tips for ensuring you, and your clients, get the best deal. 

6th Mar 2023
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So, you’ve made the decision that you want to, or perhaps need to quit practice and your mind is firmly made up - that leads directly to the question of timing.

When to hit the big red button

During Covid, a number of firms who were ready to sell had little choice but to soldier on. However, many quickly discovered that Covid was financially rewarding, tempting them into postponing their retirement, and simply kicking it into the long grass.

However, if you really want to sell, don’t keep putting it off.  By consistently kicking the can down the road, you’ll discover that, without impetus, your fees are likely to drift, as long-heralded changes in the world of accountancy take hold, eventually reaching a tipping point that can seriously impact value.

The answer to “when” depends on your reason for selling. If it is down to a factor with a defined timescale, such as emigration or ill health, then the process takes on a sense of urgency and the experience will be somewhat different to somebody who is selling at leisure. In one respect this can be easier to do as you simply have to accept that the time is now and the terms and conditions will be less favourable.

Regrettably these things happen, but such is life.

However, although the laws of the market dictate that a distressed seller accepts a lower amount from the buyer, the corollary of that is that the buyer has no comeback, meaning that the seller takes their cash and sails off into the sunset.
Most sales are planned well in advance and the seller has the luxury of deciding how, when and to whom they wish to sell their practice.

The “how” of selling

How to sell is a matter of whether you’re looking to make a swift exit, or to have a phased withdrawal, perhaps working part-time alongside the buyer, taking them in as a new partner and waiting until they have bedded in until leaving, or continuing to run the practice on behalf of the buyer until they are ready to step in.

The longer you stay during the transition period, the greater peace of mind clients have. This reduces the chance of them leaving, which affects the final payment due to the clawback clause that compensates buyers for fees that disappear during a predetermined period after completion. You may also wish to consider merging with another firm, as clients will see this as a sign of growth, minimising the likelihood of an exodus and retaining the value you can extract from the practice.

When to sell will be at a time that fits in with your personal plans. Many accountants like to work part-time after the sale if they are retiring so they don’t go straight into a full day of not working. This is often popular with buyers as it gives them that degree of stability that we’ve previously mentioned. Often sellers agree to stay on full-time but as employees of the buyer, relieving them of the pressures of a practice principle but guaranteeing their income until their pension kicks in.

The more specialised your practice is the longer it may take to market and achieve a suitable sale. Although a significant number of sellers are in their 70s it is probably better to consider retiring earlier than this and instead undertaking consultancy work - a common route these days is as a virtual FD for some of the larger clients. Clients will like this because they have continuity and a senior adviser on call at a fraction of the cost and hassle of employing somebody. For you, two or three clients won’t stretch your diary and you’d be surprised how much money you could earn compared to staying at the helm of your practice.

Some practices will need a significant health check in order to be sellable and this doesn’t happen overnight. If your practice falls into this category it is definitely worthwhile fixing the problems before going to market. Ask many sellers if all is in order and they will nod in the affirmative, but the reality is that they are often blind to issues or seriously underestimate how much of a concern they are to a buyer.

Finally, it’s worth remembering that exploring the market doesn’t mean you have to sell, it simply allows you to make an informed and timely decision.

Replies (9)

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7om
By Tom 7000
07th Mar 2023 10:18

I could never get an acquisition to stack up. I always had it that the NPV of the future earnings stream always exceeded the purchase price or was so close that the risk reward ratio was scary

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Replying to Tom 7000:
Norman Younger
By Norman Younger
08th Mar 2023 12:30

NPV on a practice acquisition is not osmehtign I come across often but cautious accountants is something I certainly do know about

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Replying to Flying Scotsman:
7om
By Tom 7000
08th Mar 2023 12:45

Well you have to ask yourself ... Am I actually going to be making anything out of this or just working for nothing for 3 years....

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Mark Telford Chartered Accountant
By Mark Telford
09th Mar 2023 10:28

I'm not surprised that many sellers are in their 70's (or 60's) as for most small practice owners an early sale just doesn't stack up. Its certainly not a life-changing financial windfall.

Practice with £240k GRF, owner earning £80k

Valued at 1x GRF, sale is only worth 3 years income (4ish if you factor in tax).

I'd rather carry on working a bit longer, reduced hours, enjoying extra free time, while still keeping the brain engaged.

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Replying to Mark Telford:
7om
By Tom 7000
09th Mar 2023 10:41

And theres the dilemma, sellers think its worth 2x £240k Meanwhile buyer pays £80k appoints a manager to run it on £65k plus ni and pension lets say £74k....

So buyer is paying £240k for a business that makes you £6k a year... assuming the clients dont leave...

Got offered one with £600k turnover and £200k profit, with owner owned building and so allowing for rent its £160k profit
then add a manager its £90k
then 10% of clients will leave
We are down to £60k

So 3x profits = 180k
Seller wants £660k

I know the guy who eventually bought it..... He also had to pay a rec con £20k fee to get a manager....oh dear.....

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Replying to Tom 7000:
Norman Younger
By Norman Younger
13th Mar 2023 09:50

Valuations....the old conundrum . It is not the easiest of tasks gettign people to smell the coffee. Buyers tend to be realistic but sellers more often than not have dreams of THEIR practice or business being "different"
Few can pull it off , unless thye have a truly pukka operation with proper management in place

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Replying to Tom 7000:
Norman Younger
By Norman Younger
13th Mar 2023 09:50

Valuations....the old conundrum . It is not the easiest of tasks gettign people to smell the coffee. Buyers tend to be realistic but sellers more often than not have dreams of THEIR practice or business being "different"
Few can pull it off , unless thye have a truly pukka operation with proper management in place

Thanks (0)
Replying to Mark Telford:
Norman Younger
By Norman Younger
13th Mar 2023 09:47

That is indeed the problem but many are just fed up and the profession in in flux vis a vis type of advice and how it is offered. Many at this age are not up for the fight, so to speak and they have a fear of their practice being worth flumpence in 5 or 6 years when they really will want to be out, in spite of the interim earnings
It is not unlike selling any business...just keep on a wee bit longer, another year....and another
You are slaughtering the goose that lays the golden eggs, but for many goose fat is irreristable :)

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Replying to Flying Scotsman:
7om
By Tom 7000
13th Mar 2023 09:53

Indeed, milk the cow or sell it t the butcher?

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