Money management: Selling a practice

  • Without accurate financial data, you can’t sell your practice
  • Vendors need to know how many clients the practice has and what their value is
  • They should also be aware of how their fees can be broken down into GRF and one off fees
  • Having motivated staff can also increase your practice’s value

Before you buy or sell a practice or block of fees, you need the financial facts at your fingertips, writes Nicola Draper.

Whether you are buying or selling an accountancy practice, you need to know all the facts, in particular the financial facts. While ethos, staff, assets, premises and location all play their part in a transaction, without the financial information, most sales will flounder.

Accountants are very adept at managing other people’s financial affairs but you would be surprised how often I come across firms that have neglected their own. Money management is crucial to the success of any sale. Without your own figures at your finger tips, there will be no deal. Buyers need to know exactly what they are buying.

I recently came across one practice that wanted to sell and arranged a meeting with a potential purchaser. The sellers, two partners, did not know how many clients they had. They did not know how many audits they did a year. They could not answer the questions on running costs of the business, nor what the staff costs were in the last year or quarter. They didn’t even know what their profitability was. Needless to say, the buyer walked away – amazed.

If you have no idea of these vital facts and figures, you need to organise yourself well ahead of putting your practice up for sale, so you not only have everything in your head but on paper. Once the figures are on paper, it will mean your practice is saleable and will help determine its value now. It can also help identify areas of potential growth, so that it is worth more in future.

If you haven’t already done so, it’s worth creating a spreadsheet of clients –with columns for year, name, company name, contact address, number, email, date you took them on, industry area/business type, whether they’re a business or personal client, type of work done for them (i.e. annual returns, self-assessment, advice, PAYE, VAT etc.), fixed fee if applicable, and amount, or monthly/quarterly/annual fees, VAT, the previous year’s figures, GFR or one-off, date payment due, date payment paid, hours worked by staff, hours worked by you, additional expenses (such as site visits), age and profitability per client.

The age profile of your practice will make a difference to what you can sell it for. If you know that your clients are ageing then do something about getting younger ones in. It can seriously affect what a buyer will offer you. It is normal for buyers to pay for a practice in tranches of money. The second tranche depends upon the retention of clients. If clients leave then the clawback clause comes into play. It has to be agreed how that will work and that depends on understanding the amount of gross recurring fees that the practice has. Therefore, the vendor needs to know how many clients there are in the practice and how the fees are broken down between GRF and one off fees.

If you are thinking of selling a block of fees, you will need to extract the value of each client to determine the value of any fees you sell. It will also help you determine which fees to sell. Software these days can rearrange most spreadsheets into ages, industry areas, profitability etc, so at the click of a button, you can see various permutations to help you decide which fees to sell. You may decide to keep just a few of your most profitable clients, while offering the others for sale. Or you may decide to sell the most profitable and then concentrate on expanding services to the others or getting new clients. However, unless you have the facts in front of you, you cannot make an informed decision.

Know your costs

Like all good businesses, you of course keep a running spread sheet for costs, including yours and other partners’ fees taken, staff costs per person, rent, utilities, stationery, postage, IT, petrol, etc. However, I have come across several that don’t keep any records beyond their own tax return. That is no good for a buyer, who will require up-to-the-minute figures. I cannot stress enough how important it is to a sale to know the latest costs and profitability. Make sure you are up-to-date with invoices, and chase late payers (nicely). Most buyers will charge a handling fee for getting invoices paid for works done pre-sale. Too many accountants decide to sell when the practice is perhaps not as dynamic as it was when it started. They may be nearing retirement and have been running down the business, perhaps not replacing clients as they fall away. This is totally the wrong way to approach a sale and to get the best price. By improving your business at least a year, preferably two, ahead of a sale, you will not only attract more buyers, but also better buyers and achieve a better price.

So, how do you achieve this? Firstly, ensure you know how many clients you have and how much profit they generate. You can then identify which are the clients who are most profitable. Ask them to recommend you and do a mailshot to, or/and phone, others in similar industries/areas. They are not difficult to find, as most will have websites. Even Yellow Pages or a book of associations/industries in the library will have contact numbers. Just phone and ask who to write to or speak to.

If you don’t like selling yourself, work on a basic ‘script’ for someone else in the office to do so on your behalf. Anticipate questions, so your member of staff has all the answers. Rehearse it, but don’t ask them to learn it by heart. You don’t want your person to sound like some dodgy call centres who can’t hold a conversation and who cannot deviate from a script. Another way to get more clients is to ask at the bottom of the invoice you send out – write a note or have something printed. Say you are looking for more clients and that you can offer them a discount on their next fee if they introduce someone that then becomes a client. This way, you’ll increase your turnover and they’ll decrease their costs – it’s a win/win situation.

Motivated staff increase value

A buyer will want to take on a team that is switched on, knows the clients, is hard working and conscientious. This will affect the sale and the speed of the deal being done. Staff are involved in the sale of your practice. You may be retiring, but they are left behind, so it does make a difference if they can impress the buyer with their knowledge of the workings of the practice.

If a practice is drifting along, staff get demotivated which can also have a negative effect on a sale. It can even put buyers off completely. If you have poor quality staff, under TUPE rules, it is not easy to get rid of them and a potential buyer won’t want to carry them.

It can be a good idea to have a short office meeting each week and set goals. You need not say you are thinking of selling in a year or two, (in fact, it’s far better if you don’t) but just that you feel you need new clients, new goals, etc. Ask for ideas (in one practice, one junior member of staff suggested offering a payroll service for nannies, quite outside the practice’s usual area but which has now grown considerably).

Reward staff if they meet targets or show initiative, even it’s just with a box of chocolates or bottle of wine. Offer rewards for introducing clients and give them guidelines on what to say and perhaps areas to cover. These may be local geographical areas, industry areas, or even age groups. Ask them to network, making sure they have business cards and fliers or brochures. Ask them to ring at least a couple of leads per week, and follow up leads with a call. Even the most timid in the office can find the right name to contact and stuff an envelope, so produce tailored marketing letters to prospective target clients. Create a database of prospective clients, into which all staff add details, stating who contacted the prospect, how and when, what was their reaction, when to contact them again. Include if they want a call or visit from a partner, and follow up all leads.

It’s not just staff that need motivating. I recently visited one accountant who was thinking of selling. At the meeting it became clear he was too reliant on existing, ageing clients. I was able to suggest areas where he might look for new clients over the next two years and grow his business to get a better price when he does sell. This motivated him to change the focus, to get new clients in completely different areas to his existing clients. When I told him it meant he could get £1-£1.20 or more for each pound of GRF for a sale, as opposed to 70-80p, it certainly concentrated the mind and he was very thankful for the advice.

Article written by Nicola Draper from Draper Hinks.

To contact Nicola Draper please email her on