A seller’s market for accounting practices
Content Summary
- Practice management
- Public practice
This article was current at the time of publication.
There’s good news for accountants who want to sell their public practice and start a new direction in their career or life.
“It’s a sellers’ market and has been for some time,” says Mark Emney, co-founder of DMY, specialists in selling accounting practices and bookkeeping firms.
“In the last two years, we have sold 50 accounting practices, with an average of 72 buyers enquiring about each metro practice and an average of 30 for regional practices, both of which are very positive.
“At the same time, 80 per cent of our sales take fewer than 90 days from listing to a Heads of Agreement with the preferred buyer.”
Agrees David Smith, owner of accountancy consultancy Smithink: “Buyers definitely outnumber sellers; if you have a decent practice you will end up with a queue of buyers.
“To achieve organic growth in your own business is very difficult, with practices growing at around 4 per cent or below inflation. But buying a practice is a way to achieve growth.”
Hence the healthy market for vendors but, that said, “people don’t just buy anything” says Smith.
“If you’re not making much money or have a myriad of other problems you are not going to be very attractive to a buyer base. You may sell, but your business will be heavily discounted.”
But what if you’ve managed your business well and have an attractive proposition to put to the market? According to Emney, the sales price according to an old industry paradigm was based on A$1 for every A$1 of fees.
“But, fortunately for vendors, those days have changed. In metro areas DMY are now seeing an average of A$1.14 and in regional A$1.07,” he says. “There is simply not enough supply of good quality practices. COVID 19 showed that accounting practices are very resilient businesses and most continue to trade well and generate a good profit.”
Optimising value
If you could sum up what vendors are looking for in an accounting business, it would be a solid base of clients, preferably not those of retiring age, who pay on time and seek advice other than compliance only.
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 bread and butter returns is much more attractive to a buyer, says Smith.
“Another example of practices that really maximise price are those that have an industry specialisation, for example medical practices, retail, or trades. The buyer may be able to develop a whole range of services to offer those industries.”
Developing a client specialisation takes time.
“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.”
Agrees 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.”
Key selling points
Beyond a diverse and stable client list, and a brand that is broader than merely compliance, what else makes a practice attractive to the market?
“Of course, there is financial performance and profitability,” says Jones. “But a buyer will also look at the risk associated with achieving the level of profitability. For example, if the old owner leaves, will half the clients go?”
Smith says 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.
Operational efficiency is another powerful selling point, says Daniel Jones, founder of DMY.
“How long does it take for work to be completed and paid?” he says. “Vendors need to ensure that work coming through the door is getting processed and paid for in a timely way.”
While location can be a factor in sales appeal, this is only the case if there is a strong cultural fit with the staff and the client base, adds Jones.
“Software is another area vendors commonly ask us about.
“But you can’t anticipate what software a buyer is going to be using and transformational change in this area in the lead up to a sale can damage profitability by heavily disrupting workflow.
“Ultimately buyers don’t really value software per se, although they want to know what software the practice has been employing and what clients are accustomed to using to interact with the firm.”
Cautions Smith: “If staff are moving with the business, a critical element will be their ability to transition to other technologies. Quite often a team may be [aged] in their 60s and struggle with change.”
He adds that what an accountant is fundamentally offering when he sells a business is established relationships and that is where the real value lies.
Need to know more?
If you are readying your practice for sale or considering buying a practice, check out the full suite of MY FIRM. MY FUTURE. resources. These complimentary modules include topics such as starting and growing a business.
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