Now this may appear to be an obvious question but believe us, a minority of Practitioners need to ask themselves this question. To reiterate, if you want to die still going to work each and every day then don’t ask why!!
Should you just ease back and let the value in your practice dissipate? While trying to carry on and and remain abreast of all the legislative and other changes that occur?
Or should you actively try and disengage so you can enjoy the time that is left to enjoy your grandchildren, travel, play golf and whatever?
The choice is yours!!!!
So how do you plan for succession? 99% of Accountants in Public Practice DO NOT PLAN in a meaningful way for their exit, be it over a period of time or by sale.
This is based on our experience over some 15 years of talking to hundreds of practitioners. Most think that ‘they will know’ when it is time to go. A vast majority cannot afford to retire when we speak to them!
So is it any wonder that we baby boomers are still beavering away when they are well past their use by date?
So to go back to HOW?
Senior Buy Out. Most practitioners, when the heat is put on them, think that their senior man/woman will be only too willing to take over and allow the practitioner an easing out of the practice.
We find that a vast majority of seniors are only too happy to plod along, collect a very generous salary package (which has been increased over the years so it is often well over current salary norms) and not have to work all hours of the day AND carry all the responsibility of running a business.
Very often they are not consulted about the major decisions that the practitioner must make and so feel marginalised by the owner. If asked by an independent third party (such as us) they will confess that they have been looking either actively or passively for an opportunity to buy/acquire a practice without the practitioner being aware!
Even if they are kept in the loop and are eager to become an owner they will not have the cash (or indeed any cash) to make the transaction work.
They will be a hard sell as they will know intimately the good, bad and ugly of the practice. So when the practitioner is expecting 100 cents per $1 of Goodwill they will be offered 50 cents or less.
Next the Practitioner will decide to sell or amalgamate.
They have been to all the seminars and know all the preparation that is needed to put a successful sale together for their clients but for themselves?? You guessed it. We can count on one hand the practices that have contacted us about an orderly exit and have put in the necessary hard yards in putting together an informed, accurate and meaningful Information Memorandum. Most do not know what we are talking about when we ask them for this all important document.
After all the IM is a selling tool without which a successful sale or merger in the vast majority of cases will not happen.
The Practitioner knows what they MUST do but are put off because the task seems too big and anyhow they know deep down that when the document is put together their Practice will not look as good as they have been fooling themselves over the past few years. Fees have been falling, clients disappearing and staff are disillusioned. Lock up has increased alarmingly and the WIP ledger still has work which should have been written off years ago!! Debtors too have old uncollected fees which will never be collected!!
In addition the equipment is antiquated (some Practitioners we come across are still writing up handwritten cashbooks!!!) the furniture old and tired and the clients are mostly old and ready to depart either by selling or by dying. So is there value in this practice? And if there is value, it will sell for considerably less that they have anticipated.
Thus you must start to get yourself organised to sell at least a year in advance of the sale date that you have set yourself. Sound familiar? Of course it does as we remember all those seminars that we have attended!!
Selling yourself to a new client or your practice is the same basic process. Remember the story of the Cucumber Sandwich?? Ask our former director Don Wood if you haven’t heard the story!!
Our view is that most Practitioners cannot afford to retire makes the when a hard question.
If they have thought about it and done something about it (a tiny minority) then they will have come to the conclusion that it is better to sell too early than too late. If Gross Fees over the last five years have been falling or have been increasing at a rate less than inflation, then your practice is in decline.
If it is in decline then your practice will look less attractive to a purchaser than a growing, vibrant practice.
A growing, vibrant practice can of course be owned by an older practitioner but the sad fact is that most businesses are owned by younger men and women and they relate to younger, energised practitioners.
So the combination of falling fees and an older client base is brutal combination when the time comes to sell.
The hard choice is actually easy really. We find that it is often the fear of the unknown that put many practitioners off from facing up to the reality and asking the hard questions.
If, as we have said, many practitioners think they cannot afford to retire then you need to reassess your priorities.
Prepare a realistic budget to find out how much you will really need to have an enjoyable retirement.
Remember that the travel bug wears off for most of us when the thought of another long flight palls and the hassles that go with that.
Also, the simple pleasures in life more than make up for the enjoyment of running a successful practice.
Contact the experts today at Accounting Practices.
We understand and know how Accountants tick!
Riki Sila, MBA
A director of Professional Practices
022 0432 880 or 09 600 2092 and speak to one of our Professionals.