We have had a significant increase in the number of enquiries from accountants looking to sell their accountancy practices before the start of making tax digital in 2018. February is a busy time of year for us because vendors do not want to have to do another January. This leads to a spate of enquiries and us marketing many practices for sale at the start of the year.
However, we started getting busier in January this year, which was unusually early. We have an E:Book on the Home Page of website for anyone looking to sell their accountancy practice or buy an accountancy practice. I have been told it is very informative, which is good, because I wrote it. I have recommended that sellers download it to find out what needs to be considered prior to putting your accountancy practice on the market and what also needs to be covered in due diligence. I have recommended that buyers down load it because of what needs to be put in an offer as well as what needs to be covered in due diligence.
The institutes are forecasting many more accountants will choose to retire before March 2018, sending a flood of clients on to the market. I recently spoke to the National Managing Partner of a top 20 firm and he said he was being offered 10 practices to buy a week – which is unprecedented. He said it is making him much more careful about what he looks at and what he offers on and then ultimately buys. He can be extremely selective with so many more vendors out there.
The forecast is that the multiples will go down. Currently they are in the region of 1 x fees or £1 for £1 of GRF (Gross Recurring Fees). Buyers of accountancy fees will be offering less and less as more and more accountancy practices for sale come on to the market. I can see offers being as low as 0.7x fees for good quality practices. I have yet to find a vendor that does not believe they are selling a good quality practice.
I have been working with Accountants since 2000 and for the first time I think there may be more sellers on the market than buyers. This reverse in the polarity of the market place will mean that some vendors will not be able to find a buyer.
There are some buyers that have set themselves up to take advantage of this anomaly in the market and have lots of money to invest. They are looking at buying fees quickly, with less emphasis on the relationship between the vendor and the clients, offering a fair price and for the work to be outsourced on an industrial scale to get the work in and out as quickly as possible. This year is their market.
Buyers are no longer looking at how computerised the accountancy practice is for sale but are now looking at how computerised are the clients. If a buyer takes on a practice and the clients are still expecting them to deal with a bag of receipts, this will not work with MTD. The buyer then has to re-educate the client, charge more for the extra work being done and no client will want to pay more to a new accountant so we will see much higher attrition rates. Client will leave and they then may have difficulty in finding a buyer that will take them on. The seller will lose money on the deal if client retention is poor. The seller may accuse the buyer but it may not be buyer’s fault.
One buyer that is looking to buy accountancy practices will be charging all new clients a fee for training them on how to use a basic accountancy package if they don’t use one already.
How does this affect Draper Hinks? You may say that we should be grateful to have all these new sellers on the market and buyers that want to sweep them up. Yes I am grateful, but we are having to work much harder to find buyers interested in buying. We put a lot of work into making deals go through. We get paid our brokerage fee by the buyer on completion of the deal and having practices for sale with a reducing number of buyers is not helping us and is certainly not helping the vendors.
If you are thinking of selling your practice I suggest that you should use the services of a broker. They have access to more potential buyers than you will have. They will work hard to find you a suitable purchaser. There is no guarantee that a deal will go through but you are only selling once and you don’t want to find that you put your practice up for sale and have missed the boat because the market it saturated and there is the creep of buyer fatigue.
If you want to sell your accountancy practice, go to market as soon as you can. If you want to buy an accountancy practice, then now is the time to go fishing in the pool. You are more likely to catch what you are looking for than at any time in the past decade.
Have a look at our website for the E:Book. Read it. Email me with your comments at n.draper@draperhinks.co.uk. I would be very interested to hear what you think. If you want to discuss your own situation in more detail you can call me on 01788 816440. Everything we discuss will be confidential. Let me know how we may be able to help.
We have sold over 175 accountancy practices in the last few years so we have some experience and are happy to share that with you. Please don’t leave it too late.