If you’re finding it difficult, or frustratingly slow, to grow your accountancy business organically, you may be considering the possibility of boosting your business with the purchase of a block of fees from another accountant.
Certainly, there are advantages to buying a block of accountancy fees. In addition to instant business growth there’s the potential to extend your client reach, whether geographically, demographically, or for a particular type of service.
However, the quality and profitability of blocks of fees can vary widely. And although, in theory, you’ll have the opportunity to ‘cherry pick’ the clients you want, in practice, you’ll be lucky to find a seller who is willing to be left with a list of poor (and potentially unsaleable) clients on their books.
It’s important, then, that you carry out a thorough investigation (‘due diligence’) of exactly what is being sold. Successful buyers work closely with their legal advisors in the early stages to ask the right questions of the seller and to thoroughly review the business data and documentation.
Here are some points to consider:
How to check the quality of a block of accountancy fees
It goes without saying that you’ll need to do a thorough check of the fees being sold. What is the general quality of the clients? What is their age profile and wealth demographic? Are there any bad payers or clients in financial difficulties? What is the annual fee and turnover for each client? Is the biggest proportion of the fees within the block made up of a minority of key clients (who might take their business elsewhere)?
Investigate level of service provided by seller of fee block
It’s also important that there is some synergy between the way you work and the way in which the fee block is currently serviced – and that you have the necessary manpower, systems and budget to at least equal that level of service.
Are the client records and working files up to date? What is the fee structure – both the level of the fees and the payment terms? How many people does it currently take to service the clients in the fee block? Is there scope for increased productivity or to reduce overheads? Will you be able to do the work for the same fee? Will you need additional staff and/or systems or/or office space? Will you need to increase Professional Indemnity cover? What client management system or software does the seller use?
How to value a of block of accountancy fees
If you’ve found a block of accountancy fees that you’re interested in, you’ll want to know whether the asking price is sensible.
Typically, accountancy fees are valued at a multiple of around 1x Gross Recurring Fees, but a valuation may be more or less depending on a number of factors including location, age profile of clients, average fee per tax return, the reason for the sale and the structure of the deal (see below).
The best advice is to work with a reputable business broker who specialises in accountancy. We work with many reputable specialist brokers so please contact us if you’d like to be put in touch.
Typical deal structure for purchase of block of accountancy fees
The structure of your deal will have important implications for the future success of your business. For that reason, early engagement of a specialist business solicitor with experience of structuring and negotiating accountancy business purchases will ensure that you do everything possible to maximise the return on your investment.
Payment – Clearly, it’s in a seller’s interests to secure as much upfront payment for the block of fees as possible. However, a more usual approach is for the buyer to pay for the fees in tranches, with a lump sum paid upfront and the remaining amount divided and paid in two later instalments, eg, at the end of Year 1 and the end of Year 2.
The percentage of the purchase price to be paid in each instalment will be a matter for negotiation but, in effect, this type of deal structure often means a buyer of a block of accountancy fees is able to finance the acquisition, in part at least, through cash flow generated from the fees.
Clawback – Another important consideration that often works hand-in-hand with a deferred payment schedule is the inclusion of a clawback provision in your contract. Such provisions can vary massively in complexity, and may apply to individual fees or to the aggregate sum of fees sold, but the basic principle is that clawback entitles you to deduct from the outstanding purchase price the amount of any fees you were sold which then don’t materialise within a specified period of time.
As a simple example, the seller may be required to pay 100% claw back if you lose a client straight away, 50% if you get one year’s fees from the client and no clawback if the client leaves after 2 years.
Legal entity – Are you currently acting as a sole trader, a partnership, or a limited company? And how do you intend to run the business once you’ve made your acquisition of fees? As an accountant you will be familiar with these considerations; but a new bolt-on may be the right time to review your current set up.
The decisions you make about how your business is run can have a huge impact on your personal liability if things go wrong as well as your liability to various taxes. It will also impact on the ease with which you are able to raise future finance and make decisions about the future direction of your business. Or, to complete the circle, in how attractive your future business is to an eventual acquirer.
Make a free enquiry
The sooner we become involved in the process of helping you to buy your block of accountancy fees the more likely it is that your sale will be successful, so please contact us today.
Please either call us now on 01392 879414 or complete our Free Online Enquiry and we will soon be in touch.
Our full contact details can be found on our Contact Us page.
We look forward to hearing from you.
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