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How can disputes be resolved without resorting to litigation?

Where APMA has brokered the sale, the vendor and purchaser will often nominate in the sale agreement that APMA be appointed the ‘expert’. Since we will have hand-held during the selling process APMA will be aware of the spirit of the agreement and can look beyond the written word. Either party may trigger APMA’s involvement in the resolution of the dispute. This is normally considered part of our after-sales service, for which a fee is not normally charged.

Earn out or capital sum?

There is no need for a vendor to sell his practice via an earn out which is, in effect, a mechanism whereby the firms own profits are used by the purchaser to buy the firm from the vendor. In the case of a capital sum, the tax advantages rest with the vendor and this is the preferred and usual method of acquiring goodwill.

Does the vendor or purchaser need to use the services of a solicitor?

Smaller, uncomplicated sales frequently feel it unnecessary to engage the services of a solicitor. Whilst APMA cannot recommend this course of action, some 95% of all practices which we broker choose not to use a lawyer. The logic to this choice is that, where a straightforward sale is concerned, the only likely disagreement will concern one or two clients which appear to the new owner to fall outside the scope of the clawback clause in the sale agreement. The value of the fees being disputed is rarely more than a couple of thousand pounds and no one is likely to litigate, which can often take up to 18 months, where the sum in dispute is so small.

Can I sell my goodwill and still earn an income stream?

Yes. Fees are in such demand that within reason the vendor can make demands of the market . A broker should ensure that at the outset any respondents to his marketing of your opportunity are aware that it is your wish to retain a small block of clients. Understandably, the successful purchaser will require certain warranties to protect his position included in the sale agreement.

Can I keep a small block of clients and sell the rest?

Yes. As it is a sellers market, within reason, buyers must be prepared to fall in line with the sellers’ demands. Therefore, if the seller can satisfy the purchaser that the clients he is buying will not be taken back by the seller, and that the seller will not represent competition in the future, there is no reason why the seller should not be able to retain a small block of fees. The safeguards which the purchaser will understandably require are normally incorporated in the warranties section in the sale agreement.

How can I be sure my identity wont be discovered?

There are no guarantees! If the profile of your practice is being advertised by direct mail to large numbers of accountants, and if it is also promulgated in the financial press, the subtlety with which your profile is disguised is all that stands between anonymity and disclosure. You rely very much on your practice broker having experience to retain your anonymity until such time as you give permission for your identity to be disclosed on each and every occasion.

How can I be sure that APMA will succeed in selling my fees?

Look at our track record! Over the past 40 years plus we have only failed to sell four practices or blocks of fees within the parameters agreed at the outset with the vendor, two of them over a quarter of a century ago. That means within the agreed price and within the agreed time frame. It is unlikely that anyone can better that! Download our free information sheet – Selling or Merging Summary of our Services.

How Can I Increase The Value Of My Goodwill In Advance Of The Sale?

It is difficult to increase the value of your goodwill (see How Much Is My Practice Worth?) owing to the fact that purchasers will not normally pay more than ‘the going rate’. However, the price normally paid is within a range and to get nearer the top of that range your fees have to be made more attractive to purchasers. This can be done in a number of ways, given sufficient time. Goodwill is in greater demand the nearer it is located to the centre of major conurbations, so if you plan to sell in a few years time, think about relocating your practice. If your firm is not within a substantial city and, when you come to sell, you expect your practice to have gross fees in excess of £0.5M, you will make it easier to hive down and sell parts of it to different buyers, without your clients suffering a major dislocation, if you start progressively to create separate cost and profit centres, preferably each with their own staff. Smaller blocks of fees will command a greater level of interest than a big practice being sold as a going concern. Make sure that it is easy for a purchaser to determine the level of profitability of each job by ensuring you have budgetry control and a detailed time record system installed.and used. Make sure your practice is not over staffed when you come to sell, and that there is not a heavy contingent liability in the office lease (see What are my options with regard to my freehold/leasehold premises?).

How Does TUPE Affect Continued Employment Of My Staff?

The Transfer of Undertakings regulations (Protection of Employment act 2006, revised 2008) (T.U.P.E) govern the employment of staff following the sale of a business. In essence it says that the vendor may not dismiss his staff to make his practice more attractive to a purchaser. Likewise, a purchaser may not arbitrarily make staff redundant which he has acquired as a result of purchasing a practice. Further, he is required by the act to provide seamless employment to acquired staff on conditions which are no worse than they were previously on. If he wishes to mount a redundancy programme he must be seen to act fairly. In the event that he was already in practice on his own account and he acquired a second practice, if he wishes to embark a redundancy programme he must be seen to select those to be made redundant fairly from both his existing staff and those he acquired with the practice. He may not prefer his own employees over those that came with the purchased practice. If in doubt, professional advice should always be taken from a qualified solicitor.

How Long Does It Take To Sell A Practice?

The quickest we have achieved a sale, from authorisation, is 48 hours! However, the vendor had to take a considerable reduction in price to achieve that time frame. More realistically, we have, over the years been retained by the executors of the estate of a principle who has died to dispose of the goodwill quickly, before the clients and staff ‘walk’. In those circumstances, by cutting corners, (!), we can usually get the parties to Heads of Agreement within 3 weeks of authorisation. More realistically however, 4 months is the time to heads of agreement and thereafter it depends very much on how tightly the parties reign their respective solicitors! In the event that the sale period covers the summer months of July and August or the winter months of December and January, the selling time can normally be expected to lengthen.

How Long Is The Normal Period For Clawback & How Does It Work?

Because demand outstrips supply, the vendor is in a strong position to dictate terms to would-be purchasers. It is unwise to agree to a clawback period extending beyond the first year. In the event that a purchaser makes a claim under the clawback clause, the vendor has the right of discovery. He may look at the appropriate client files and if necessary, speak to the client and confirm that the loss is genuine. The agreed shortfall, x the multiple, may be then deducted prior to payment of the next tranche.

How much is my practice worth?

The standard answer to this question, if applied to an industrial or commercial concern, is that a business is worth as much as a willing seller will pay at a given moment in time. However, accountancy practices are not similar in this respect. For smaller practices, that is firms with gross fees of under, say, £350,000, the current profitability is relatively unimportant. As a general statement, accountants have it fixed in their minds that the ‘going rate’ is what they should be paying, not how much the practice is worth in commercial terms. They do not apply the rules of ROI, but will simply pay within the range that represents the current going rate. Currently, the going rate is between 1 and 1.20 x the annual recurring fees and as no one will pay more than that, that is what your practice is worth. By having a number of purchasers all keen to buy, that should normally drive the multiple nearer the top end of that range. In the event that you have a larger practice, profitability is certainly a major factor in determining its value. However, there are many other factors in the valuation equation and this is where specialist advice is required. Download our free Valuing pack or purchase our Practice Valuation thesis for an in depth analysis.

Is My Practice Too Large, Too Small?

Owing to the fact that up to 75% of all accounting firms are either sole practitioners or 2 partners, by far the greatest demand in the market place is for smaller practices and blocks of fees. Small firms rarely have spare management resources or financial resources to acquire bigger blocks of fees. A £50k practice is therefore much sought after whereas, a £500k practice outside the major conurbations may attract substantially less interest. However, there is no such thing as a practice or block of fees being too small – everyone wants additional fees!

Over What Period Can I Expect Payment To Be Made?

If yours is a small practice of under, say, £150k, you may expect payment to be made in 2 tranches, a proportion of the consideration paid on completion and the balance on the first anniversary. In the event that your practice is £300k or more, you may usually expect to be paid in 3 tranches with the upfront payment paid on completion, and the balance typically paid in 2 equal tranches, on the first and second anniversaries.

Should I Sell To A Firm Whose Charge Out Rate Is Much Higher Than Mine?

This must be a commercial decision for you and for you alone. However, if you are concerned that higher charge out rates will be applied to your clients during the warranty period that you provide under the clawback clause, there is a solution. It is a fairly simple matter to have included in the sale agreement a condition that, during the warranty period, the purchaser will not raise the fees to any of your clients for similar work to that previously undertaken by more than say 10%.

What Are My Options With Regard To My Freehold/Leasehold Premises?

The over riding rule is that the more flexible you are able to be when offering your practice for sale to the market, the better the level, and therefore the quality, of the response. In the event that you have leasehold office premises and you cannot easily dispose of them elsewhere, it may be necessary to insist that any would-be purchasers take over the lease. However, this is likely to detract from the interest shown by existing local firms. If there is a heavy contingent liability in the lease, this will undoubtedly impact upon interest from the market place. In the event that you have freehold premises which you no longer require following the sale of the practice, it is not advisable to make their purchase a condition for the acquisition of your practice. It is better if your practice can be marketed with the option that the new owner may enter into a rental agreement with you, or purchase the freehold, or may service the fees from elsewhere. These 3 options will appeal to 3 different sectors of the market.

What Are The Advantages Of My Firm Joining A Consolidator?

There are many. First, you would have access to the necessary funds to enable you to upgrade your systems, particularly your IT system. You and your partners would be able to crystallise your goodwill, being immediately bought out with a mixture of cash and shares and, unless any of you wish to retire, you would be invited to join the management team and earn an income stream. Much greater career opportunities would be available to your staff, right across the group, and substantial value added services would be available to your clients. Joining a Consolidator would take care of any succession problems.

What Happens About My Work In Progress & Debtors?

It is normal procedure for the vendor to collect his own debts and to agree the level of work in progress at the point of completion, for the purchaser to finish off the work in progress and bill it and remit the vendors share on an as collected basis. Any under recovery is normally apportioned.

What Is The Difference Between An Agent & A Broker?

An agent acts for only one of the parties but, while at first sight this may seem desirable from that party’s point of view, unless both parties enter a ‘win, win’ arrangement, there could well be dissention during subsequent negotiations. Thus, the final stages could become protracted which would be likely to drive up the solicitors’ fees. Without both parties being given ‘arms length’ advice on the structure of a workable deal, advice which gives them confidence, disagreements over everything from Heads of Agreement to the reconciliation at the end of the warranty period might well create rancour. And who is going to bring his experience, and above all impartiality, to any disagreement over the merits of a claim under the ‘claw back’ clause? The Broker. He is the meat in the sandwich. He is responsible to BOTH parties. He charges both and has a duty to make the deal work.

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