Any buyer looking at buying accountancy fees is looking to minimise the risk and maximise the retention. Any perceived risk will have a downward pressure on the amount offered to the seller of the accountancy fees by the buyer. There are many things that a buyer will take into consideration when considering putting in an offer for an accountancy practice. The following is not an exhaustive list but covers the main areas that will be looked at by all buyers.
Factors a buyer will take into account when buying an accountancy practice
- Perceived risk.
- Age of clients.
- Work done.
- Fees charged.
- Where the vendor meets the clients and if a lot of travelling is involved.
- Recovery rates.
- How long the client has been a client.
- PI claims.
- Availability for doing a handover.
- Tranche payments vs one off discounted payment.
- If staff are to be taken on.
- If an office is to be taken on.
A buyer normally pays the seller on the basis of a multiple of fees. The term fees has to be defined. It normally relates to the gross recurring fees and not the turnover. For the past decade the industry average for an income multiple has been in the region of 1 – 1.25 x fees. However in 2016, this multiple has gone down below 1, so the starting point for negotiating a deal would be at or below 1 x fees.
A buyer will consider each of the factors, as listed above, and if any of them individually or collectively are not seen by the buyer as being attractive it will affect the value of the practice. For example, Draper Hinks was involved in the sale of a practice in London where the vendor was aged 70+ and the clients were mostly in their late 60’s or early 70’s. The buyer only offered 0.25 x fees. This was deemed a fair offer by the buyer because of the reduction in the potential longevity of the client base. In another situation the vendor sold their practice on the Friday and on the Monday they were living in Spain. The buyer knew this was going to happen and because there was no handover the price paid was reduced by 35%.
One of the most important of the factors a buyer will take into account is perceived risk. This could cover things such as a new competitor opening an office locally to the practice for sale, a change in legislation affecting the taxation of the proceeds of the sale, the staff that have client contact leaving and setting up in competition, etc. Perceived risk is not shown in the accounts or on paper. It is something that is not always apparent but can make the difference between a sale going through and not.
It is important when you are considering buying accountancy fees or selling an accountancy practice that you speak to a professional that can guide you through what needs to be taken into account. If you want to know more about how to buy or sell an accountancy practice then contact Nicola Draper on 01788 816440 or email her at firstname.lastname@example.org.
Please remember everything discussed will be kept in the strictest of confidence.