With a significant proportion of practice owners now coming up to retirement age, do you think the industry as a whole is well enough prepared? Do you think practices have sufficient succession plans in place?
It is clear that most practices, particularly sole practitioners, do not have sufficient plans in place to execute a structured succession plan for themselves and their clients.
This has occurred for many reasons; one such example is there has been a trend away from traditional succession of the practice such as passing on to their children. Younger budding accountants are also looking to work in many different practices here and abroad for experience and adventure preferring the opportunities in the CBD large firms than a small suburban practice.
Additionally, a number of the key staff member are often female within a practice who typically have been able to forge a family friendly career and while extremely skilled and valued team members, being the business owner has not been a professional goal, preferring to remain as non-equity Partner or Senior Accountant to enjoy the benefits or more freedom of working hours and family time.
The value of firms and rising personal debt levels has also created a barrier to entry for a young Accountant looking to buying into a firm. Younger accountants are not comfortable taking on the borrowing required or risk associated with business ownership. The staff members prefer wage growth over equity position.
At times some practitioners have regretted not offering equity early enough to quality staff members only to see them “go out on their own” or purchased equity in a larger firm and the practitioners has no longer been able to find a similar calibre of staff member to offer an equity position.
Many practices do not have procedures in place for succession. This is particularly concerning as many owners are relying on the sale of their practice for retirement funding. Most Sole Principals are not just unaware of the succession plan but have ignored ensuring the relative systems are in place in the event of unexpected events.
In terms of buying and selling practices, is there much activity in the market right now?
There has been increased buyer and seller activity in the last 12 months - this has come off the back of some extremely low turnover.
There is a significant amount of buyers in the market up to 20 buyers for every seller in key demographic areas and for practices with preferred client compositions.
The market for practices has performed extremely well over the last 12 months. Metropolitan practices, especially CBD, inner-city/inner suburb vicinities are still
in the highest demand.
Further distance from the larger metropolitan areas normally leads to a dilution in dollars per fees, however, with the strong demand for practices throughout
Australia, outer suburbs and regional practices were able to entice respectable prices, with a record price being offered on a country practice.
The demand is strong, with a consistent flow of financial services professionals (financial planning practices) registering for the opportunity to purchase practices to cross sell their services and expand their own offering to include accounting
The market for the sale of accounting practices has seen very little price volatility in the last 12 months. Generally in the last 3 years transactions has been in short supply with strong buyer demand. Metropolitan practices, especially CBD, and inner suburb vicinities in all Capital cities in are still currently experiencing particularly high demand.
Practice values can vary unless the buyer and seller are equality motivated and positioned for change in ownership. Should the seller be looking to move the business ownership in an expedite process it would have an impact on price. Prices can also vary dependant on practice size, geographical locale, client profile, revenue mix, profitability and the measured buyer’s demand in the area.
Prices can also be effected dependant on the Principals ability to transfer relationships to any would be purchaser. If for any event the principal was not able to transfer the relationship then this would increase the risk of purchase as well as have a significant impact on the valuation.
For an owner of a firm who wants to sell, what’s the very first thing they need to do to get the business ready for sale?
Make sure they can provide good business information including breakdowns of their business fees. This would include, providing a full client list that has revenue details of clients and fees and services provided.
Ensure their own financial Accounts are up to date and they can demonstrate the “real underlying profitability” of the firm and the add backs that would be appropriate to the new owner.
Have a clear understanding of what they are selling including the ownership structure and asset list details, lease details and existing agreements and contracts with suppliers and referral partners.
What are the types of metrics those buying a practice are likely to look for?
Buyers are typically looking for higher value compliance work.
This would be company, trust and SMSF returns. Buyers are looking for a good spread of age demographics. There is a preference for Business service ordinated practices that are charging at market rate. Practices that have been under or overcharging clients impacts the price as potential retention of clients could be impacted. High levels of client and staff retention and high performance levels with ATO lodgements can be a big plus to the practice value.