ACCOUNTANCY PRACTICES SALES, PURCHASES & VALUATIONS
What are the key considerations when Selling an Accountancy Practice
Firstly, how do you find a buyer? Most sellers are understandably concerned about confidentiality and do not want the local business community to know that they are considering selling. The fear is that staff may become unsettled and look for other jobs; clients may start to look for other accountants; and competitors may actively target your client base, repeating the rumour that you are about to retire. Many firms can identify a local firm that they believe would be interested and will approach them directly provided they are happy that confidentiality will be maintained. Alternatively, you may choose to employ a practice mergers and acquisition agent to represent you. This allows for the initial exploration to be anonymous and signed confidentiality statements put in place before information is exchanged.
The price that you get on a sale depends on a number of factors. The desirability of the practice, the amount of fees involved, property issues, the pattern of payments sought and the extent of any warranties or claw back all affect the price. Typically, the price for smaller practices (say fees up to £400,000) will be based on a multiple of fees, either gross recurring fees or gross fees. Conversely, the price of larger practices (say fees of £1,000,000 or more) will often be based on a multiple of super-profits. This is the surplus profit after paying a salaried partner to take over the portfolio of the exiting partner. The typical multiple will be three or four times super-profits, although as always, individual deals can vary significantly.
If there were such a thing as a standard deal when selling an Accountancy Practice (say £250,000 fees) then it might look like this:
- Price: £250,000 (i.e. 1 x gross fees), assuming no major problems in the practice. In reality, this number can vary from about 0.8 to 1.2 or even 1.4.
- Payment terms: on completion: 40%; another 30% after 12 months and the remaining 30% after 24 months. The initial payment can go up to 50%, and in exceptional circumstances can even be 100%, though the latter significantly reduces the price. Payment over three years or more can also apply, particularly to internal sales where funding is an issue.
- Claw back: 100% if a client leaves straight after 12 months .Claw back can be applied to individual clients or to the portfolio as a whole. So, if a £10,000 client leaves straight away, £10,000 comes off the purchase price, reducing the second and / or third payments accordingly.
With the difficulty in obtaining finance in the current economy, different approaches are becoming more common. Rather than 33% to 50% cash up front, the payment can sometimes be spread equally over 24 or even 48 months. This is highly attractive to the buyer since the deal is virtually self-financing, and might be acceptable to a seller who has no great need for the cash up front.
Our service offers a range of features that we believe makes us a leading choice when it comes to employing a relevant, dynamic broker to sell your accountancy practice in the UK.