What a typical offer looks like vs what a complicated offer looks like

When putting in an offer there are rules of thumb. Nothing is set in stone but having worked in this field for over 20 years, I have some experience of what is to be expected.

If the vendor is selling fees of under £100,000 then I would expect the buyer to put in an offer where there are two payments.  One to be paid on completion of the deal and the other to be paid at the end of 12 months.  The second payment is subject to the retention of the clients.  So, with fees in the region of £100k or below, the payment term is most likely to be 12 months.  Please remember this can vary. 

It is very important when accepting an offer that both parties agree how the second payment will be paid.  There is a lot of trust on the part of the vendor that the buyer will look after the clients.  Once the practice has been sold all control the vendor has had to date is no longer there.  Most vendors find letting go of the client base is very hard to do.  Often the client relationships have developed over many years and possibly even cascaded down generations.  The buyer needs to be aware that the vendor will take time to get used to this new way of doing things.  This is why a handover is so important.  Not only does it help with retention, but it allows the vendor the time to let go.

So, going back to the offer where £100,000 is being sold,  I would expect it to look something like:-

  • 1x fees paid:- 50% on completion and 50% after 12 months subject to retention. 

Yes, you can expand on this with more detail about staff, premises, clawback provision etc.  But this is the basic way to put in an offer.  Vendors like to be able to understand an offer easily.  Remember it does not just come down to the multiple paid there are many other factors to be taken into consideration. 

Earlier this year we were selling a practice with fees just over £100,000 and we had a buyer very keen to put in an offer and buy the fees.  It was not a simple and straightforward offer. 

This is what we put forward to the vendor:-

If retained turnover is £100k plus then 1x turnover

If retained turnover is £90k but less than £100k then 0.8 x turnover

If retained turnover is £80k but less than £90k then 0.625 x turnover

If retained turnover is £70k but less than £80k then 0.45 x turnover

The minimum we would pay to the vendor is £20k and on this basis we are prepared to pay as follows immediate payment on signing of contract £20k.

In principle we are looking for a 2 year payback period

3 months top up to 50% of retained turnover on the above basis.

12 months and 18 months 25% of retained turnover.

This was an overly complicated offer that was difficult to understand.  The multiple was not set at the outset, so the vendor would not know what multiple was being paid until the end of the payment term, which was to be 2 years.  There are many things wrong with this offer.   Needless to say, the vendor rejected the offer.  Please remember if you are a buyer and unsure how to put in an offer then speak to us, we can help. 

In the end the vendor accepted the following offer:-

  • 55% paid on completion, 45% paid at the end of 12 months, multiple of 1 x fees, second payment subject to retention. 

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.ukLet me see how I can be of assistance. 

I look forward to talking to you.