RunningYourPractice
Cashing out
Selling your practice is a major decision, one that is full of emotion for owner-managers and practical challenges, reports Calum Fuller
Carl Reader / Image: Richard Gleed
For most owners, their firms are their babies. They set them up, took them to market, gained and nurtured their clients, and grew their operations. Doing so is usually a matter of great pride and provides greater earning potential and a sense of autonomy over work/life balance and the variety of work you do.
In that context, the idea of selling your practice will likely feel like a wrench. There are a wide range of reasons to sell, though, from realising the value you have built up and moving on to new projects to taking a break or deeper personal reasons.
Whatever your reasoning, you need to be prepared.
Making the decision
When considering whether to sell, you first need to know why you would do so. This is mainly because it informs many major factors in the process that will follow: how you prepare for sale, what you look for in buyers, the pace of the transaction and your level of subsequent involvement.
Entrepreneur Carl Reader is joint chairman and founder of multi-award-winning practice d&t. He says knowing what you do next should be foremost in your mind.
“If you look at a number of the high-profile exiting practitioners over the last couple of years, most of them are still within the practice world,” he says. “Whether they are working as consultants or similar, it’s actually quite rare to see a practitioner leave for life-changing money and leave the industry entirely.”
Reader notes that traditionally owners sell close to retirement age to fund themselves in later life, but he has noticed a trend of owners selling younger and moving into similar roles. As he puts it: “Continuing their work life but having banked their pension.”
Money was not the primary motivation of Peter Fry FMAAT when he sold his firm, Emjay Associates, four years ago. In fact, he wasn’t even looking to sell.
“I was approached by a third party,” he explains. “After suffering from Covid exhaustion, I thought it might be something worth investigating [to provide a better work/life balance].”
As it transpired, shortly after the eventual transaction took place, Fry’s wife was diagnosed with a serious illness. Thankfully she has since recovered, but he’s extremely grateful he did not have to continue running his firm alongside supporting her.
“If I’m going to do something, it’s going to be done 100% and I would have pushed myself,” he says. “I believe it would have been to the detriment of my health.”
The key point is knowing your own practice warts and all – the good things about it as well as the bad – and being realistic on that front.
Peter Fry FMAAT
Finding the right buyer
A close second to understanding your motivation to sell is finding the right purchaser. These two things are often closely linked, but major factors include aligned values, the level of service your clients will receive and the experience your staff can expect, if you have any.
These were very much in Fry’s mind when he was selling his firm.
“It’s more about value and the way the clients are being treated,” he explains. “I wanted to know these companies wanted to buy my client base because I wanted to see if they could provide what I felt the clients need. At that stage, I hadn’t even started talking to them about my staff, but obviously they were important to me and I wanted to make sure they were looked after.”
Those things are important to the buyers, too, says Keith Underwood, managing director of accountancy advisory firm Foulger Underwood.
“Broadly speaking, from the staff point of view, nobody wants to take over a business where everyone is leaving because you get no continuity at all and the fallout rate of clients is going to be fairly likely to be fairly high,” he says. “That continuity, depending upon the staff you have, is important. The purchaser usually likes to see the staff who have had contact with the clients retained for the period of clawback and the future. Any decent acquirer is going to provide and spend time talking to those staff and making sure they are happy that their future careers are going to be better.”
Preparing to sell
In an ideal scenario, your practice should be optimised for sale. This is true of any business and it’s very possible you may have helped clients do this in the past. As in their cases, this means making sure it is not overly reliant on you as a founder-owner.
“If there is overreliance on the practitioner, in some respects it’s great if there’s a bit of continuity and the buyer knows they are getting a really loyal client base, and the metrics will show the business is doing well,” says Reader. “However, the moment that practitioner leaves, there can be client drop-off and wise buyers will notice this and put clawbacks into the deal and structure it over a period of years. That will put the risk onto you and dramatically affect the end payment you get.”
It’s also vital to ensure the firm is what Reader describes as “truly profitable”. That is, the firm should generate a true layer of profit over and above that which you might take to fund drawdowns, dividends and other forms of remuneration.
“The key point is knowing your own practice warts and all – the good things about it as well as the bad – and being realistic on that front,” says Underwood. “The other aspect we always talk about is to look at yourself as a purchaser and what they are going to think about your business once they get under the bonnet? Start reviewing not only the financials, but also the methods of servicing clients, depending on whether you are retiring immediately or not.”
Carl Reader / Image: Richard Gleed
Handover
The handover period can take a variety of forms and can prove sensitive for a range of reasons, including what the buyer wants from the process and the vendor’s interests and emotions about the transaction.
Typically, arrangements are put in place for handovers that can last as long as two years. However, as Reader notes, it is often wrapped up quicker than that.
“A typical accounting sale deal is paid in three tranches – a third on completion, a third after a year and third after two years – and the practitioner is kept on for any period between six months to those two years,” he explains. “While that might seem like it’s great for both sides, there’s the underlying tension of the change that’s coming in.”
Underwood agrees and highlights transparency early on as a way to defuse that tension.
“If someone wants a consultancy for two or three years, let’s say that upfront, because that will eliminate some of the buyers,” he says. “Some of the buyers just want you to come on board and, as part of the deal, give them three months of your time non-remunerated and, after that, you’re on call for a year, in case something goes wrong with one of the key clients. Others are quite happy to offer consultancy ongoing at a reasonable rate where you do chargeable work. But in that first instance, you don’t do chargeable work. You’re usually doing meet, greet and handover to the prospective partner who is going to handle that client.”
Reader adds: “Generally, the true value of an accounting firm isn’t in what’s being bought, it’s in the opportunities, the ability to merge into a bigger group and to cross-sell services. While you have both buyer and seller involved, you have a real challenge because there are warranties and clawbacks and the seller won’t want any changes to happen which could affect what they receive later on.”
Due to his personal circumstances, Fry left the handover process after four months, having planned to be in place for the standard two years. However, he was fastidious about ensuring the process went as smoothly as possible.
“Everybody was going to be treated equally,” he says. “or the customers would suffer; the staff would suffer. So I wanted to be fair on all parties.”
Finding your market
Once you have made the basic arrangements for your firm, it’s time to think about who your clients will be and how you will find them.
Preparing your business plan
Working out how you’ll set up your practice and operate is central to your prospects of success.
Pitch perfect
Having put in place the basic structure of your business, it’s time to put yourself out there and begin communicating with your target clientele.
Managing early growth
Early decisions set the tone for your firm’s growth potential and capacity, but the process doesn’t have to feel daunting.
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Carl Reader / Image: Richard Gleed
