Selling a business is a bit like selling a house – to get the best value and get a quick sale, you have to make it look nice on both the inside and outside to maximise your chances of success, says Rachel Bridge in the Telegraph, here. Among the list of things to do, she suggests that you plan carefully and don’t spend the money before you have a done deal. The value of your business is directly affected by early preparation. Whatever value you place on your firm, it’s only worth what someone else is prepared to pay for it and it may take a time to find the right purchaser who has the money and vision to make a success of the acquisition.
So, if you’re thinking of selling your accountancy or law practice it helps to know what a purchaser may be looking for. Here are my thoughts on the matter. They are not listed in a particular order – some issues will be more important on some transactions than others. The most important point to remember is to get good professional advice from the outset.
And, by the way, each of the numbered points, or at least most of them, probably deserve a separate article over the coming weeks.
These aren’t necessarily all the points to address when selling a firm. Any that I’ve forgotten, will be included in future articles.
1. Are your clients the sort of clients that a purchaser wants to deal with?
Are the clients you have generally good ones or, at the other extreme, are they all a load of trouble and bad payers? You may need to cull some of your clients. Get rid of the rubbish and focus on building up clients in a niche area.
2. Are the clients that you have, long-standing clients or are they fairly new to the firm?
A purchaser will feel a bit nervous if there’s a big churn of clients and the ones that you currently have are quite different to the ones that you had a year ago. A savvy purchaser will want to know where the clients came from. Best of all, in my view, are clients who were recommended to consult with you by an existing, satisfied client of the firm.
3. Do your clients pay you promptly or are you always in dispute with them?
What you’ll need to look at are areas such as the engagement letter process you have in place (what’s that I hear you say, you don’t have engagement letters?). Also, the frequency the clients pay you – for example, once every two years is not good enough. Do you tell your clients what your fees are going to be before you do the work and do you bill them when you say you’re going to bill them, not ages afterwards?
4. What are your staff and partners like?
Are they the sort of people that if they do the job well, the outcome is pretty ordinary? Do you have a big turnover of staff? Are they well trained? Do you spend money on training?
5. What are your fee charges like?
Are the fees you charge sufficient for you to earn a reasonable profit? A purchaser will want to know how you have arrived at your charges – whether it’s on an hourly basis, every 6 minutes or whatever.
6. What sort of branding does your firm have?
Is the image your firm portrays of a tired old fashioned dreary type of firm? Just what sort of reputation does your firm have?
7. What sort of connections does your firm have?
Do you have relationships with your local solicitors and banks? Who refers business to you?
8. How do you get new clients?
What do you do in the way of marketing? Do you spend money on marketing and advertising? What is the ROI of your marketing?
9. How many times have you been sued?
A purchaser will want to look at your professional indemnity insurance record and the claims made against the firm.
10. Why should anybody come to your firm when there are plenty of other firms on the high street?
Do you have any specialisations? Are there any niche positions you own in the market place?
11. What’s the status of your office premises?
Do you have a lease or do you own the building? Is the rent affordable? Is there room to expand? Will the purchaser transfer the firm’s activities to their own premises? And if so, what’s going to happen to your existing offices? If you own the freehold of the premises, are you going to sell it to the purchaser?
12. What’s the status of your technology?
Are your computers up to date? Is your software compatible with that of a purchaser? If not, it might be a problem. Do you have a strong online presence?
13. What about archiving
Do you have separate premises and are they secure?
14. Do you have any debts?
Have you had a history of debt with banks, loan providers, suppliers etc? How will debts be dealt with on a sale?
15. Goodwill, Debtors and Work in Progress
Now, these are key items and they will feature high up on the list of assets you are selling to a purchaser.
Let’s start with goodwill. This is an emotive subject. The firm who are selling have spent many years building the reputation of the firm and gathering new clients along the way – that must be valuable they say. The purchaser is more concerned with how long the clients are going to stay with the firm – there’s no such thing as a “long term contract” with clients and they can leave the firm at the drop of a hat, or a bill from the new owners that’s more than they paid in the past.
For accountants, because of the recurring nature of much of the work, it used to be the case that goodwill could be sold for 150% of the annual recurring fees of clients but not anymore. For lawyers it’s different. Most law firms work on a transactional basis and so goodwill is an even more difficult asset to value. And, whatever is agreed, it’s likely to be paid out over a number of years so no lump sum to take to your desert island retirement villa.
Debtors aren’t usually a problem. If the list you hand to the purchaser has only debtors that are not disputed and proper provision has been made for irrecoverable items, there won’t be an issue over value. However, in my experience, most purchasers won’t pay for debtors – it’s more likely that they will agree to collect the money for the old firm and hand it over when collected.
Work in progress is always an issue. If there’s unbilled time or value on the client ledger, the question arises as to why it hasn’t already been billed. Has the unbilled time relate to work that has been agreed with the client (what does the engagement letter say)? At best, a vendor can expect to get paid only when the client pays the firm. There may have to be a discount that is conceded to a purchaser.
If you’re hoping that the purchaser will pay a big cheque at completion and you can walk away to your retirement villa in the sun, you may be disappointed. Most purchasers will want to spread the risk and pay by installments.
Most firms have external funding (from banks etc) in addition to financing from partners or LLP members. More on this is a later article.
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Where can you get help?
Here are five firms that I know well and which can really help on these matters. In future articles, I’ll be speaking to them about some of the numbered points I’ve listed to hear what they have to say.
DMH Stallard LLP
DMH Stallard LLP solicitors have a significant corporate team operating out of London and the South East. They are recognised as one of the leading law firms in the region across all the key practice areas and are described as standing out from other law firms for “high quality advice and a strong reputation.” Having been involved in a number of mergers themselves as they have grown the firm over the years, they are well equipped to provide practical and commercial advice to professional firms on a range of M&A transactions. The main contact partners are Jonathan Grant and Abigail Owen.
Address: Gainsborough House, Pegler Way, Crawley, RH11 7FZ, England (And at: London, Guildford, Farnham, Crawley, Brighton) Tel: 01293 605000 Web: www.dmhstallard.com Email: email@example.com
Andrew Jenner FCA and Phil Shohet FCA of KATO Consultancy are respected and experienced specialists in practice management and M&A. They know all about the issues involved in buying and selling a professional firm. They will not act for any firm where they feel that they cannot add value to the business. They always confront issues in the most appropriately sensitive way, and their reputation is founded on finding the right solutions to practice issues and implementing them in a way that plays to partners’ strengths and improves the value of the business.
Address: Bank Chambers, 203 Goring Road, Worthing. BN12 4PA Tel: 07768 684724
Goldsmiths Practice Services
Another respected and experienced specialist is Ron Goldsmith who runs Goldsmiths Practice Services LLP – one of the UK’s leaders in accountancy practice sales and support including the merger and acquisition of accountancy practices both for sole practitioners and multi partner firms. Apart from this work, they also provide further assistance to help purchasers with acquisition financing on an unsecured basis. The financing schemes are also available for clients to help them with their commercial finance requirements. They also have a joint venture with Accountancy Age on www.accountancyage.com/practicebroker where you will find the latest opportunities for buyers and sellers.
Address: Siena Court, Broadway, Maidenhead, Berkshire SL6 1NJ Tel: 01628 627637 Email: firstname.lastname@example.org
Mark Lee FCA CTA (Fellow) works with professionals to help them to STAND OUT in a positive way. This is equally important whether you are to remain in practice or you want to secure a better price when you sell up. In this case you need to ensure that your practice STANDS OUT effectively. An accountant by profession, Mark chose to move away from the provision of professional advice in 2006. He has built a portfolio career that includes acting as a professional speaker, mentor, facilitator, author, blogger and debunker. The better prepared you are and the higher the profile and reputation of your practice with clients and with staff alike the more a purchaser is likely to be more attracted to your practice when it is offered for sale.
Tel: 0845 003 8780 Email: email@example.com Web: www.bookmarklee.co.uk
Stanley Davis Practice Support Services
Specialising in the accountancy and legal practice fields, the company will arrange: mergers, acquisitions, disposals, succession, exit strategies whether retirement or otherwise, partner or partner designate executive searches, practice development and organisation, restructuring and general business advice. The first consultation is always free of charge and without obligation. Eric Golding FCA is managing director of this company within the Stanley Davis Group and works with firms of Solicitors and Accountants, drawing on his experience as a Chartered Accountant in practice for more than 20 years.
Address: 41 Chalton Street, London, NW1 1JD Tel: 020 7554 2222 Email: firstname.lastname@example.org Web: www.stanleydavis.co.uk/practicesupportdirectors.asp