Industry Expert Observes the Impact of the Recession on Goodwill Valuation of Accountancy Practices
Leading accountancy practice mergers and acquisitions expert; Jeremy Kitchin of APMA, spoke about the goodwill valuation of accountancy practices in a recession during a lecture in Nottingham recently.
Even in the current climate, it is not all doom and gloom for accountants who want to sell their practices. Many maintain that it is still a sellers market. The expansion of accountancy practices can be accomplished in many different ways, but acquiring a block of fees or an existing practice is probably the most direct route for rapid expansion, Jeremy Kitchin explained.
The most dominant factor that effects the valuation of goodwill is profit. Whilst other aspects such as location, presentation, potential and economic conditions may influence the valuation none will have the same level of influence as profit.
Current economic conditions are trying and a variety of other influences have affected the profitability of accounting practices in recent years. Unfortunately, during times of economic uncertainty, clients become more cost conscious thus placing pressure on fees. The recession also lost many practices a large number of clients who failed, he continued.
Concurrently, costs have risen, both as a result of inflation and increasing professional regulation. Whilst this has put strain on profitability, it has also increased the desirability of acquiring additional fee volume to maximise the use of fixed overheads. Consequently, this has encouraged the acquisition of blocks of fees. However, it has become increasingly difficult to acquire bank finance to purchase larger blocks of fees and this has tended to make the sale of such practices at high multiples of fees more difficult.
When looking to sell an accountancy practice, as when selling a property, vendors must seek to improve their value before approaching the market. When asked what his advice for adding value to an accountancy practice would be, Jeremy Kitchin responded. Plan ahead! Succession planning is important and should be continually addressed. Lots of factors can have an effect on the valuation of an accountancy practice, such as the quality of administrative records and systems, how well trained the staff are, the portability and age of clients. The best way to attain maximum valuation and a smooth transition is to plan ahead and constantly consider how actions will impact on or enhance the value of the practice. (See his four Succession Planning/Exit Route Planning Articles)