In 2024 we sold a practice for a Sole Practitioner. She was looking to retire to start a new career away from the accountancy world and was relying on the proceeds of the sale. She knew that her new venture would need to have some capital behind her before she would start to see a return. Having a cash reserve was an absolute must.
The vendor had a number of offers and accepted one where she was going to be paid 50% on completion and 50% after 12 months subject to the retention of the clients. The deal did not take long to go through and the vendor was thrilled on completion of the deal that she was only going to have to work a short hand over before embarking fully on her change of direction. The buyer had bought before and had a team of people to help with the integration of the clients.
All was going well until six months after the completion of the deal, and the buyer suddenly passed away. There was no warning. The buyer had not been ill beforehand. We got a phone call out of the blue from the vendor’s son, saying his mother had just passed away.
Although the son stepped in, he was not an accountant, and most of the clients left. The first payment to the vendor was guaranteed, so she had received that money. However, the second payment was wiped out as a consequence of the clawback clause and the number of clients that left on hearing that the buyer had died.
The vendor was devastated. Her well thought out plans had to be put aside and she had to get a job to cover her costs and her dream to set up another business had to be put on hold. It was very upsetting for all parties.
This whole scenario could have been avoided. The vendor could have taken out a life policy on the buyer. It is important to understand that the vendor is the policy holder here but the life assured is the buyer. In the event that the buyer dies, the proceeds of the policy is paid direct to the vendor. If you are relying on being paid any subsequent payments post sale, this is something you should put in place.
If you want to find out more about how this can secure all payments post sale then please get in touch with me Nicola Draper at n.draper@draperhinks.co.uk for a no obligation chat.
You can also book a one-to-one appointment with Nicola through Calendly by clicking here https://calendly.com/draper-hinks/q_a.
Everything discussed will be totally confidential.