I can understand why having your clients pay on a monthly basis would be attractive when running an accountancy practice. It helps with cash flow and, in theory, there are no bad debts. That all makes good sense.
But you have to understand that when it comes to selling an accountancy practice, this can cause a problem to the buyer. Where in the accounting cycle is the client at the point of completion of the sale? It is easy to gloss over this and not realise how important this is.
On the date of completion, has the client paid in advance for work not yet done? If this is the case, the vendor will end up owing the buyer money post completion. On the date of completion, has the client paid in arrears for work that has been done? If this is the case, then the buyer owes the vendor for the work that has been done and not yet paid for. You, the vendor, have to have full and complete records of where each of your clients lie in the annual cycle of monthly payments and work done. Ideally this information will be available prior to you putting your practice on the market.
The situation is further muddied if you do regular work for the client, i.e. monthly management accounts, weekly or monthly payroll, one off jobs etc, etc. It can be a minefield. In fact, we have had deals that have floundered on this point alone, where the buyer and the seller just could not agree how to proceed and the practice was withdrawn from sale.
Buyers who have bought many times before may take the attitude that it is swings and roundabouts and it will all even out in the end. So, in some cases they will be ahead of the game with some clients and behind the game with others.
On the other hand, a new buyer will potentially want to look at every single client to get a feel for what fees have been paid for what work done. Where a buyer looks at every single client, this can take a long time, obviously dependent on the number of clients that are being sold. The seller has to be patient and work to the time scale of the buyer. One vendor asked me “How long does Due Diligence take?” My answer was “Until the buyer is satisfied.” Each buyer is different, and each seller is different so due diligence will take as long as it takes.
So, if you are looking to sell all of your practice or a tranche of fees and you are paid monthly by your clients, do not ignore this. It is important to put the work into getting your information completely up to date. By putting in the work at the front end of the process your sale will go through much more smoothly.
If you want to discuss the possibility of selling your accountancy fees, then please get in touch. Remember everything we discuss is confidential. It is the buyer that pays our brokerage fee. You can contact me, Nicola Draper, on 01788 816440 or email me at firstname.lastname@example.org