It can often take a long time to decide to sell your practice. If you are coming up to the point where you want to retire, then you have probably been thinking about it for a long time and have been mentally preparing yourself for the day you are no longer being driven by deadlines. However, if you suddenly become unwell or have an accident then you will not have had the time to consider your future. So, there are many different motivators that lead to the sale of a practice.
Where we are contacted by a vendor letting us know that the owner has suddenly passed away this will put a completely different light on matters than when we talk to a vendor considering selling sometime within the next 12 – 24 months. The shorter the time frame for selling a practice the more downward pressure is put on the multiple offered.
Some vendors need to be paid a lump sum on completion to pay off debts such as their mortgage prior to retirement, or they may want to maximise their payment into their pension. It is potentially possible to be paid a one-off payment by the buyer, with no clawback, but the multiple will suffer quite significantly. If you want to maximise your return consider an Earn Out with a payment term of around 3 – 4 years. But make sure you sell to a much larger firm that has a much wider range of services. You will be paid on fees received and will often get paid much more than on a tranche payment basis.
Some people think that there is a magic formula for valuing an accountancy practice. It is often assumed to be a multiple of GRF (Gross Recurring Fees). Some buyers may work on the basis of a multiple of turnover. Other buyers will look at a multiple of profitability. So, which one is right? The answer is they all are.
95% or more of the accountancy practices that we sell are below £1m and are sold on the basis of a multiple of GRF. As a vendor you need to understand what your numbers are. If all the work you do is compliance work such as accounts, bookkeeping, VAT, payroll etc, chances are your turnover will be your Gross Recurring Fees. However, the majority of accountants will have some one-off work during the year prior to the sale that will be included in their turnover. Some buyers will only buy on the basis of a multiple of GRF and will ignore the turnover figure, other buyers will work on the basis of paying the vendor from fees received during the payment term irrespective of whether the fees are GRF or one-off fees.
This can make a big difference to what you get paid, so you need to be aware of the basis on which your practice will be valued by the buyer.
If you want to sell an accountancy practice or buy an accountancy practice please get in touch with me, Nicola Draper, on 01788 816440 or email me at n.draper@draperhinks.co.uk. Let me see how I can be of assistance. I look forward to talking to you.