Essential Advice for Accountants: 7 Things You Need to Know BEFORE Buying a Block of Fees
Buying a block of fees or a whole accountancy practice may be one of the quickest ways to grow your firm but it isn’t always the easiest or right decision to make. If you are considering the possibility of boosting your practice in this way, sit back for a moment and consider these 7 essential pieces of advice before you decide to buy.
Buying a block of fees is a big decision
It may be tempting to buy a block of fees from another accountant, especially if you’re finding growing your firm organically to be difficult and frustratingly slow, but it’s important that you know what you’re getting yourself into.
For this reason, it’s essential that you carry out a thorough investigation of exactly what is being sold before you make this big decision.
7 things you need to know BEFORE buying
1. Does buying this block of fees fit with your growth plan?
Take a look at the growth plan for your practice and decide whether buying a block of fees will help you achieve your goals quicker or cheaper than if you decided to grow organically.
When looking at how acquiring another practice is going to help you achieve your growth plan, think about:
- Your firm’s overall cost of sales or overheads – will these reduce?
- Your net profit margin – will this increase by adding on more Client fees?
- Expertise and specialisms – will you be able to bring in more?
- Your current office space – will you get better use out of this?
2. Does the asking price reflect the true value of the block of fees?
Successful buyers work closely with an accountancy broker and legal advisor in the early stages of buying, not only to ask the right questions of the seller and to carry out due diligence but to also review whether the asking price is a sensible one.
Typically, accountancy practices are valued on a 0.8-1.2 multiplier of Gross Recurring Fees (GRF) with modern cloud-based practices being occasionally valued on a 6-10 multiplier of net profit. However, many other factors can affect this valuation including location, the age profile of clients, number of clients paying monthly via direct debit, the average fee per tax return, the reason for the sale etc.
3. What is the general quality and potential of existing clients?
The ability to pick up a good quality client base is one of the most alluring factors when considering buying a block of fees, but you have to be sure that they are in fact of a good quality and whether they have long-term potential so that you know what work would need to be done to create growth. (Find out how to win bigger and better clients).
When looking at the general quality of the clients, consider:
- Number of existing clients
- Age profile
- Wealth demographic
- Number of clients paying monthly via direct debit
- Number of ‘bad payers’ or clients in financial difficulties
- The annual fee and turnover for each client
- The types of clients that make up the biggest proportion of the fees (is it a majority of low-quality, low-fee clients? Or is it a minority of key clients who could potentially take their business elsewhere?)
4. Does the business culture align with your values?
When buying a block of fees, you need to remember that you are buying a group of people too. People who are used to working in a certain way with their accountant or their employer.
Before deciding to buy, evaluate the culture of the accountancy firm that you will be integrating with yours. Does it align with yours and your growth plan?
Working alongside people in a business who have a shared view on what you do and how you do it is invaluable. Not to mention that you will also attract the right type of clients that align with your culture too. (Read how to get your staff to support your growth plans).
5. What is the current level of service?
There needs to be some synergy between the way you work and the way in which the fee block is currently serviced so take a look at how the other accountancy practice actually does business and evaluate the scale, challenges, and cost of an effective integration.
- Are the client records and working files up to date?
- What is the current fee structure?
- How many people does it currently take to service these clients?
- What client management system/software is being used?
- Will you be able to do the work for the same fee?
- Will you need additional staff, systems, office space or budget?
- Will you need to increase Professional Indemnity cover?
- Is there potential to increase productivity or reduce overheads?
6. What deal structure works best for you and your firm?
It’s in the seller’s best interest to secure as much upfront payment as possible for the block of fees but this may not be the best deal structure for you.
The structure of your deal will have important implications for the future success of your firm, so ensure that you and your broker create and negotiate a structure that maximises your return on investment.
The most standard deal structure is a lump sum paid upfront followed by the remaining amount being paid in two later installments or ‘tranches.’
7. Is now the right time to buy a block of fees for your practice?
The last thing you need to know before buying a block of fees is “is this the right decision for your firm right now?”
It’s time for a reality check, so ask yourself:
- Have you got the appetite to gain funding to buy the practice?
- Is your firm or are you financially stable enough to acquire a practice? Can you get financing from a bank if needed?
- Do you have the capacity to integrate the clients and staff into your firm?
- Do you have space in your current office for new staff?
- Do you have the available time, now or in the future, to do the due diligence and progress the sale?
- Who in your team can you give the responsibility of project managing the integration? And will they do a good job with minimal supervision from you?
Once you’ve considered these 7 pieces of essential advice, you can make an educated decision when buying a block of fees that will only contribute to the growth of your practice. Isn’t it worth the time and effort for that kind of peace of mind?