CPA accounting practices prove a hot ticket
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- Public practice
This article was current at the time of publication.
Having an accountancy practice that is registered with CPA Australia is a great selling point in the New Zealand market.
“Predominantly what we are finding is that buyers are distinguishing between what’s regulated and what’s not,” says Riki Sila, director of premier brokering agency Accounting Practices Limited.
“Being a regulated accounting practice can make a difference of 20 to 25 per cent to the sales price.”
According to Sila, the industry guideline for the sales price is currently NZ0.80c to NZ$1 for every $1 of fees depending on whether a firm is suburban or city based.
“The maximum I have seen a firm sell for is NZ$1.10 and that is one with multinational affiliations.”
Even for well-established firms, however, it can be a difficult time to sell, says Sila.
“The New Zealand economy is a slow burn, and many smaller firms are struggling with their debtors, which has an onflow effect. Banks are also tightening up on their lending policies, switching from looking at equity to serviceability.”
However, having strong relationships with high quality clients increases appeal to clients, Sila confirms. “So, too, does guaranteed revenue, even if it is bread and butter tax compliance.”
Optimising value
As digital accounting and AI take over the lion’s share of tax compliance work, an accountancy firm that offers advisory services in addition to compliance can increase attraction to a buyer.
“If you can demonstrate a very strong list of clients with high margin work who are reliant on an adviser to help them understand what’s behind the numbers, for example, you can demand a better price,” says Andrew Dickeson FCPA, chairman of Baker Tilly Staples Rodway, one of NZ’s largest business advisory and accounting firms.
“It’s about demonstrating value and about ‘sticky’ clients who do not want to leave the firm.”
Another example of practices that maximise price are those that have an industry specialisation, for example medical practices, retail, or trades, says David Smith, owner of Sydney-based accountancy consultancy Smithink.
“The buyer may be able to develop a whole range of services to offer those industries.”
Developing a client specialisation takes time, however.
“The day you open your doors should be the day you think about selling it. You need planning through the whole life of the business about what you need to do to optimise value.
“At a minimum, you need to have three to five years to do this properly.”
Dickeson says aligning with a buyer who has the same accountancy interests as yourself can be good practice. Of course, if your staff are transitioning to the new business, they may have the expertise the owner needs in a particular industry field.
The impact of digital
Businesses that offer primarily bookkeeping services are less and less valuable because of the automating of these processes, says Dickeson.
“If you are a bookkeeper, you are really becoming a dinosaur, with artificial intelligence another nail in the coffin.”
Sila agrees that digital advances are shaking up the accountancy market, including at the sales end of the equation.
“Older practitioners do a lot of work on Excel, but cloud-based systems are what Millennials and younger generation accountancy staff are using now. It’s so much easier to connect with clients and it provides operational efficiencies.”
However, a digital upgrade is not something that should be attempted immediately before sale because of the risk of heavy disruption to the business.
Says Smith: “Quite often a team may be [aged] in their 60s and struggle with change.”
At the other end of the equation, if staff are moving with the business a critical element for the buyer may be the team’s ability to transition to new technologies.
This reinforces the need to consider how saleable the business is, including what processes are in place, throughout the life of the firm, says Stephen Jones FCPA, an adviser with Succession Plus.
“Accountants need to begin with the end in mind, particularly one that includes what’s going to happen if there is an unforeseen event. Having a plan not only makes an accountancy business easier to sell, but easier to run.”
Other key selling points
Older practitioners who are reluctant to give clients direct contact to staff who are potentially part of the sale may be doing themselves a disservice in the end, says Sila.
“Clients follow the service they’ve received,” he says.
Smith adds that a practitioner who is thinking of selling and has already transitioned most of the work to trusted staff, who will move with the new owner, makes a business more attractive.
Regardless of this, he recommends an owner agreeing to stay on as part of the handover for a period of at least three to six months to help ensure business as usual.
Beyond a diverse and stable client list, a brand that is broader than merely compliance and transitional support, what else makes a practice attractive to the market?
Operational efficiency, or how long it takes after work is completed to get paid, is another factor.
Offering the premises as part of the sale may also help minimise attrition, says Sila.
With concern around ESG [environmental, social and governance] issues growing, “green” initiatives such as running a paperless office, storing all records digitally, or allowing people to reduce transport emissions by working from home, can also be attractive to younger buyers, says Dickeson.
He adds that vendors should consider whether they can go slightly further than just selling their firm to another CPA member.
“We are hearing stories about big corporate private equity firms buying CPA practices.”
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