This depends on various factors such as your personal situation and general outlook. You (and your partners) may decide that you’ve taken the practice as far as you can and it’s time for fresh ideas and energy to drive it forward. As for timing, a sale will take 2 to 6 months. The self-assessment tax season is generally quiet; otherwise there is always good demand for well run accountancy firms. By acting early and planning ahead with an experienced broker like Hornblower at your side you minimise the risks of a rushed decision to sell.
The general norm is to base the valuation of an accountancy firm on a multiple of its GRF (Gross recurring fees). One off work, say consultancy, will not count towards GRF unless it can be evidenced that there is a strong chance of repeat business. Typically, as the value of an accountancy firm revolves around expected future fee income it is the multiple of sustainable GRF that forms the central focus for negotiation.
The market trend has been for accountancy firms and fees to be sold between 0.9 – 1.5 times the annual recurring fees. A quickfire sale with little or no handover period, will as you can imagine fetch a reduced multiplier. An attractive client base and experienced team will attract a higher multiple. There are several factors taken into account and a full valuation report can help you understand the principals involved. Hornblower produces detailed valuations which can prepare you for a sale or highlight areas to develop in order to achieve a higher multiple.
Evidence of strong client relationships, low churn rate and internal structures that will remain intact once the vendor has moved on always help drive the price upwards. If the firm specialises in profitable areas, has affiliate partnerships fuelling leads or a healthy referral system these too make a difference. How efficient a firm is maintained and prepared for change (for example: MTD, GDPR) will always attract premium buyers. It is a sellers’ market. Demand outstrips supply. The difference between a firm that sells for 1× GRF and one that can achieve 1.5× GRF is often down to small details and preparation. We work closely with you to help you realise the full value of your business.
This is a clause/term in the Sale Agreement that provides the buyer with a certain level of protection should clients leave during the handover period. As payment for the sale tends to be staggered, clawback is normally in operation during this handover period and if triggered affords protection at an agreed ratio proportionate to the value of fees lost. The vendor would expect to have a right of discovery and be allowed a reasonable period that has been mutually agreed to try and rescue the situation. Clawback is, one of the more intricate, complex and sensitive aspects of a sale. Hornblower will assist both parties throughout providing guidance to ensure that any clawback clause is fair and reasonable.
The buyer would be expected to undertake commercial, legal and financial due diligence on the seller. This is usually carried out once Heads of Terms have been agreed and will include a review of the client, sub-contractor and employee contracts, articles of associatioin and ownership, as well as a review of the your systems, processes and client work carried out in recent years. The due diligence process is a critical process. If issues that should have been identified at an earlier stage unravel themselves this can cause delay or worse, cause the deal to fall through. So it is important for the information that will be required for due diligence is prepared in advance.
This is often dictated by the size of fees or practice being purchased and how quickly the vendor wants to exit. The general market trend has been for buyers to make 3 tranche payments. On completion; on the first anniversary and finally on the second anniversary. Strong demand fuelled by cash buyers can push up competition and strengthen your position to negotiate more favourable payment terms.
We will undertake a no obligation, no cost consultation in the first instance. This helps us understand your aims and objectives allowing us to advise the best course of action. Hornblower also has several pre-sale strategies and growth ideas which we can share with you in order to help you achieve a premium offer. Once we have instructions to act for you, our experienced team will prepare a thorough and detailed Information Memorandum. We will discuss and agree our marketing strategy with you, keeping in mind the need for utmost discretion throughout the process.
The competition for accountancy fees is fierce. Hornblower runs a proactive search campaign for buyers to find “off market” opportunities. For a monthly fee over an agreed period we will conduct a bespoke search. All leads, enquiries and follow ups are handled by us. We will keep you closely informed of the progress and all viable opportunities we uncover. The identify of your practice can also be kept anonymous. By contacting accountancy firms which are not openly on the market, we can minimise the competition and maximise the chance of concluding a successful deal.
If your accountancy firm is run as a limited company, it will normally be advantageous from a tax perspective to sell the shares of the company. Many buyers will seek to acquire the assets and goodwill of your company in order to avoid taking on any unknown or undeclared liabilities; however, these risks can be addressed in the warranties section of the Sale and Purchase Agreement, and most buyers will understand the tax implications, and the resulting reduction in the net value of their offer, should they insist on an asset and goodwill purchase. If your firm is a traditional partnership or Limited Liability Partnership, then you will need to sell the assets and goodwill.
We operate on a fixed % fee of the sale consideration. We agree at the outset what that will be. Who foots the broker fees will be dependent on whether we have been instructed for a sale by the vendor, in which case the seller pays. Or if we are undertaking a buyer search programme in which case the buyer pays.
From preparing the sale and approaching the market to managing the negotiations and keeping the transaction moving, Hornblower will commit a significant amount of time and resources to the process. We would agree a 12-month exclusivity with the vendor. Full terms and conditions including NDA’s will be provided.