As we are approaching the festive season, we are coming across more Practitioners/Partners looking to sell or at least wanting to start an exit strategy, which should have been in place many years ago.
It is at about this time (during the holiday break), where some practitioners self-reflect and evaluate the business and/or career. They have the extra time to weigh up continuing on with the business, or at least entertaining options of a post company director/partner life style. The impending financial date soon after the New Year, no doubt often tips the scale in the direction of a succession plan
Unfortunately, it is very common where Practitioners have left this decision too late. They have tried to sell where they’re struggling to maintain a steady and consistent fee base. In a classic example, it would be gross fees over the last five years, have been falling or have been increasing at a rate less than inflation.
We have had a scenario where an ageing practitioner is trying to sell a fee base that is on a decline!
The practice is still on our database after many months! That comes down to two things: the degree of the modernization of the Practice and a declining trend of ageing clients!
If, as we have said, many practitioners think they cannot afford to retire then you need to reassess your priorities.
Our co-founder has enjoyed the time spent playing golf and enjoying the simple pleasures with loved ones - his only regret? Not selling any sooner!
How much are you willing to SELL?
The most commonly used method we have fond is still cents per dollar of Gross Fees, as the yardstick for Goodwill. In our opinion this method still has much to commend it.
At present the range for Goodwill does depend heavily on the quality of your client base and the potential to leverage!
Again this range depends on a multitude of factors. How willing the buyer and seller are, what the IM discloses as the trend in Gross Fees, the physical look of the office and the list goes on.
Some younger practitioners are attempting to use traditional valuation techniques which we applaud BUT it does comeback (as always) to how willing each party is to enter into a sale/purchase transaction.
All other assets are often priced at Market Value. We always suggest an independent valuer should be used. However WIP is often a sticking point. The best solution is to value recoverable WIP at 50cents per dollar as a starting point! Thus it recovers cost to the seller and gives some profit to the purchaser.
Thinking of SELLING? Needing to understand the Process? Needing advice on the Buying, Merging and Succession Planning?
Talk to the experts who understand the Accounting Practices market in NZ!