Despite the downturn in the economy, one industry that appears to be bucking the trend is the accounting industry, witnessed by the level of activity in the acquisition of accounting practices. Here, our guest author John O’Connor discusses the topic.
We are all familiar with the demographic profile of the Accounting Profession in Australia. A large number of us are considering sale of our businesses now or at some stage over the next five years. We have one eye on retirement and the other warily assessing the impact of several significant changes in the Accounting Landscape, such as Cloud based Accounting technology and ASIC’s SMSF licensing requirements.
Small to medium practices are sometimes criticised for lacking foresight in their succession planning. This is an unfair criticism as one to two partner firms often lack resources to attract and retain young professionals who would ultimately evolve to partnership potential. In general young people are less inclined these days to consider themselves long-term partnership potential. In addition timing of a young person’s progression through the firm seldom coincides with the principal’s retirement plans and the young person’s lack of financial resources can lead to a discounted selling price often including a high level of vendor finance.
With reference to my own experience in buying several Accounting and Financial Planning practices and the ultimate successful sale of my entire business I would like to summarise my tips for the successful sale of your accounting practice:
- Prepare your data. The Information Memorandum is a very important document. It is often the first impression of your practice that the buyer receives. It sets the tone for the transaction so it must be concise and professionally presented. It should contain the following information
- Why is the principal selling?
- Details of the premises – location, lease term, size etc.
- What services are offered by the practice
- Client analysis
- last 3 years gross fees split by service area e.g. Tax, Accounting, Audit etc.
- Segment clients into fee sized value bands and then total number of clients and average fee per client.
- Financial analysis – provide last three years P&L, current Balance Sheet and a list of Plant and Equipment and Software.
- Human Resources – provide an organisation chart and a list of all staff detailing years of experience and qualifications.
- If you are to find the buyer who meets the optimal combination of price, fit with clients and staff and professionalism it is imperative that you achieve maximum confidential exposure to potential buyers. This is often where a professional Business Broker can add value as they will have access to a range of pre-qualified buyers and can achieve robust confidential promotion of your practice without your clients or staff being aware.
- When negotiating with a potential buyer, press hard on contingencies. It is common for a claw-back or client retention provision to be built in and a small retention provision is a signal of the vendor’s confidence in his or her practice. However remember that the purchaser will have most impact on the clients once you are gone and the level of their service will predominantly influence the client’s decision to stay or go – why should your sale price be unduly impacted in light of this?
- Avoid vendor finance if at all possible. It complicates post sale relationships. Vendor Finance is seldom financially necessary these days as several finance providers will fund 100% of practice purchase price if the buyer is suitably qualified and professionally regarded. This leads to another point of researching your buyer to ensure he or she is financially able to complete the transaction.
The likely buyer of your practice will come from one of the following interest groups;
- Other practitioners who are wishing to increase scale of operation. At present I am receiving requests almost weekly from accounting firms wanting to “bolt-on” parcels of fees. These buyers know what they are doing, have the resources and could be a good match for your clients and staff.
- New entrants to the market – often young professionals who are leaving the larger firms. This can be a good alternative for a practitioner who has a few years to retirement. The new entrant can progressively buy in on a phase-in and phase-out basis,
- The third major group has evolved more recently. Cashed up Financial Planning (FP) Practitioners who are looking for profit growth teamed with access to potential new FP clients. Some of these groups are very professional and can afford to pay a premium for the right practice. As the FP and Accounting professions become more closely aligned I believe these mergers will become more common.
A combination of concise documentation of your practices attributes, teamed with a comprehensive but confidential marketing programme will ensure successful sale of your small or mid sized accounting practice. A successful sale will see price optimised, terms agreed that are generous to the vendor and a buyer who is a good match for ongoing stewardship of your clients and staff.
John O’Connor is a Fellow of the Institute of Chartered Accountants in Australia and New Zealand as well as a Certified Financial Planner and Licensed Business Broker. John is Newcastle based and a member of LINK Business an International Business Brokerage company with a network of over 50 Licensed Brokers in Australia. John can be contacted on 0434 514 016.