How offers can differ

It never fails to surprise me how many different ways there are to put in an offer. Why is it that accountants enjoy being so creative with numbers and can come up with a myriad of ways in which to offer for an accountancy practice?

We organise meeting days for our vendors. Our aim is for the seller to have a number of buyers that they can meet and talk to, to find out who they would like to sell their practice to. I often attend these meeting days and I can witness the seller telling the buyer what they want in the way of an income multiple and a payment schedule. I can guarantee that I will receive different offers from each of the buyers in attendance despite them all being given the same information from the seller.

What a poor offer looks like.
We once had an offer that said – “We will offer once times fees.” Now I don’t know how you would feel if you were the vendor receiving this offer but in my opinion six words does not constitute an offer. Needless to say, I went back to the buyer and asked them to elaborate and I was sent the following – “We will offer once time fees payable in tranches.” The vendor decided not to accept this offer.

What a good offer looks like

Purchase price:
1.10 times GRF of £100,000 = £110,000.

What is being purchased:
Goodwill (100,000 x 1.10) £110,000.

What is excluded:
All book debts, cash and bank balances.
All liabilities.

Terms of payment:
50% on completion (£50,000 on 31st July 2017).
25% 13 months after completion (£25,000 on 31st August 2018).
25% 25 months from completion (£25,000 on 31st August 2019).
Subject to adjustment with regard to clawback.
Vendor to stay on to help with a handover.

Other factors:
Clawback 100% in first 12 months.
Clawback reduced to 50% in second 12 months.

Premises:
Premises at (address of practice) to be kept on until the lease expires in 12 months (1st June 2018) at a rent of £1,200 pcm.
Appropriate arrangements to be madehttps://draperhinks.com/wp-admin/upload.php for diverting all phone messages and postal services.

Staffing arrangements:
The three part time staff will continue to work under the same terms and conditions and be offered the chance to increase their hours to a maximum of 40 hours pw.

Practice name will stay the same until 1st June 2018 and then it will be fully integrated into (buyer’s name).

Working arrangements:
Mr XXX (from buyer’s office) will cover the duties of the vendor post sale.
Mrs XXX (from buyer’s office) will be the practice manager for both offices post completion.

Timing:
Completion date is proposed for 30th September 2017 and the following progress date are proposed:

1 Acceptance of offer by vendor – 23rd May 2017

2 Exchange of correspondence by vendor and Buyer agreeing terms of the offer – 30th June 2017

3 Instruct solicitors to prepare contracts based on terms agreed – 3rd July 2017

4 Confirmation of agreed contracts by both Solicitors – 28th July 2017

5 Signing of contracts by both parties – 31st July 2017

6 Completion and payment of first tranche – 1st October 2017

We did have an offer that ran into 10 pages but that included a summary of the market place, a history of the purchasing firm, a CV of each of the four directors before the actual offer was stated.

If you want to talk to a broker that deals exclusively with accountants in practice about your own situation in more detail and in confidence then email me at n.draper@draperhinks.co.uk. Let me know how we may be able to help.