If you are an accountant with your own practice, you’ll know that you are building up a considerable asset for your future. Accountancy services are in demand, and an accountancy practice and blocks of fees are sought after and saleable assets.
If you’re considering succession planning within your practice, whether to a family member or member of staff, there’s a lot of planning to undertake to achieve a successful transfer of ownership.
Read our guide to succession planning below:
How long does succession planning in an accounting practice take?
We would advise you to start succession planning as early as possible – no later than 2 years from your target succession date. Depending on the type of strategy you wish to employ, you could be looking at 3-5 years to implement it.
Should I sell my practice to a member of my family or staff?
Accountancy practices are a valuable asset which you may wish to pass on to a selected individual rather than put on the open market. There are many advantages to taking this route, as long as the individual in question is the right person for the role and has sufficient capital and access to finance to facilitate a deal.
Make sure you know and understand the staff or family member you are intending to sell to. That may sound obvious but undertake in-depth detailed 1:1 discussions. Do they have the capabilities and entrepreneurial flair to run a business? Do they have the desire, drive and energy?
Ensure the individual understands the financial commitment they will be taking on. Do they have the personal resources to do the deal? What sources of finance will they be relying on? Own funds v borrowing. A personal stake will be needed in all cases.
How do I identify and incentivise potential members of staff to purchase my practice?
Good members of staff are in high demand in the accountancy profession. What better way to attract and retain key staff than to encourage them to consider taking on the practice when the time is right for you both. Keep channels of communication open with staff and let them know this is an option for them.
Understand your role in the business, and how, over time your reach can be transitioned to your key staff. Ensure they are trained and developed for any future ownership role to address any leadership, skill or knowledge gaps there may be.
If I decide to go down the succession planning route, what commitment should I obtain?
It is important to get a commitment from the “target buyer”- Simple Heads of Terms or an Option Agreement which outlines the high-level terms of the deal. This is not legally binding but will give a framework that both parties can make progress within.
Have a succession plan with clear actions and work towards timelines and an agreed completion date.
Think about handover arrangements ready for completion. The transition must be as smooth as possible for clients and staff.
How would a member of staff or a family member finance the purchase of my accountancy business?
You would both need to talk with prospective lenders at an early stage and take the future purchaser with you as the deal progresses.
Involve your target buyer in succession planning, strategy and financial reporting and control. Financial modelling is critical – if the target buyer is borrowing to fund the deal, can the business support this? If the deal involves a deferred earn-out for the vendor, can the business support this? Financial forecasting is key.
Line up the target buyer’s professional team at an early stage – lender, accountant and lawyer.
Payment terms and claw backs will be dealt with separately within the sale agreement. Pay attention to this and seek independent advice.
What is my accountancy practice worth?
When planning your exit, it is important that you prepare your business for sale to maximise the value, so it reaches its full potential. Many factors may affect the multiple you may receive.
The motives for a Premium Price are:
- Profit
- Quality, loyalty and diversity of the client base
- Potential for future growth
- Cross-selling of services – (Such as financial services)
- Efficient and effective practice management system|
Well-run accountancy practices are in demand and the TaxAssist Accountants brand is proven to add value – the current industry average for accountancy practices is 0.8-1.0 times gross recurring fees, while our franchisees are achieving multiples of up to 1.4 times gross recurring fees.
What should my role be in the practice post-handover?
Depending on the type of succession, you must have in writing a clear ‘contract’ about your ongoing role if applicable. This should include remuneration basis, duration, working hours, holidays, roles and responsibilities for both clients and the business. Agreeing in advance and having this in writing will aide a successful exit strategy.
Here at TaxAssist Accountants, we’ve helped hundreds of people establish and sell their own practices, this includes examples of family succession as well as sales to senior members of staff.
Staff member to Practice owner
Family succession
- Steven Mearns’ story
- David, Ann and Ben Dixon’s story
- The Rahman family’s story
- Barry McGougan and Lisa Foster’s story
