Timing in life is everything. When should I sell my practice?
Timing is about being at the right place, at the right time and with the right mind set, to identify opportunity when it presents and run with it. The same applies to maximizing the value of your accounting practice when the universe hints that now might be the right time to sell.
Let me share my observations of a recently completed locum assignment, located in metropolitan Sydney. It’s a story about missed opportunity and an example of Murphy’s Law, where “anything that can go wrong will go wrong”.
That Firm was established in the early 1990s. Initially staff numbered 6 people, reducing to 5 people when one staff member left on maternal leave, 2 long terms staff and the remainder relatively new starters. Its annual fees were $600,000 with a large client base requiring principally “I" tax returns with a smatter of trusts, partnerships, companies, and superannuation funds. Software used included MYOB for the Practice Accounting and otherwise, a range Handi-software. At its peak, some 3-4 years ago, its annual gross revenue was around $900,000.
So far, nothing unusual in this operating format and structure.
Now for the “curlies”.
The deceased practitioner was a controlling person [nothing wrong with that] who had no succession plan, no mechanism for preserving institutional memory and thereby goodwill.
He maintained his MYOB accounting on a cash basis meaning there was no history of billings by client. He had, over time, alienated key staff and suppliers, intentionally choose not to use HandiSoft’s time and billings module for professional staff hence had no control of efficiency of productive staff. Not all key staff had employment contracts resulting in a dispute with long standing staff member as to whether he/she was a contractor or in fact an employee. At the same time, he had just renewed his premises lease for 3 years. PPSR liabilities were not reflected in the Practice balance sheet. The Practice’s IT management was located abroad, while its IT server was located at his office i.e., not cloud based. His client list comprised individual person (s) and entity(ies) and there were no client family groupings for reporting purposes. At the same time, staff felt “unloved” and in need of direction by the Executors as to their futures; and a practice broker who could not get timely information needed to create a data room for prospective buyers. But on the positive side, there was a key and capable person who kept the Practice on track notwithstanding all the “white noise” around her.
I take it by now, you have a feel for the environment that I stepped into in late October 2020.
So now back to the key question, when should I sell and stand back.
Clearly, if you have a clear line of secure succession and you are paid out on a fair and equitable basis, then this may not apply to you.
On the other hand, if any of this background resonates with you or your Practice, stop and think, what’s best for me and my family? Please feel free to be in touch and let me walk you through your options.
Accountancy-Locums was successful in settling staff and through them, clients, and the Executors. We promptly built and fully populated a data room addressing all the standard, and some not so standard, questions required by the Buyer, responded to queries, and meet with Buyers, negotiated assignment of the premises lease, initially with the estranged leasing agent and then the landlord’s lawyers; respectfully negotiated with disgruntled staff; achieved release of 2 x PPSRs and worked closely with the Executors and Practice Broker over a wide variety of matters to facilitate the sale and then its settlement.
So yes, the Accounting Practice was sold at the end of 2020.
Instead of an anticipated 100c or similar per $ revenue outcome with the bulk paid on settlement and an Earn Out at a high cent in $ rate, the Practice sold for a nominal initial deposit and a higher cent in the $ earnout. Key staff were not inclined to stay and were not required to do so under the sale contract. The key person left immediately after settlement of the sale. Despite Document Manager filing for client matters, the firm specific institutional memory was lost and the likelihood of a large Earnout payout, highly unlikely.
At its peak, the Practice would have been worth, $750,000 to $900,000. It sold for a fraction of that amount. A clear example of an opportunity missed.
If you’re not getting younger and you don’t have a viable succession plan, please either email me at email@example.com or call us on 0411-880021 and let’s meet, obligation free, to discuss alternate ways forward to create the environment to maximize the value of your accounting practice.
5th March 2021