Business Sales - Acquisition and Sale of Fee Blocks and Practices
In brief, we are finding in the market:
- Overall low volume/supply.
- High demand, especially for fee blocks to bulk up existing practices.
- Quality has been at average to lower end of market.
- Prices asked are overvalued relative to quality and profitability in our experience.
- Split Market - Practice sales and Fee Block sales have different characteristics and should have different pricing.
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Fee Block Sales
- Sale of a list of clients.
- Typically fee paid is retention based unless on death/health event of vendor.
- Purely buying a future income stream potential.
- No business goodwill or other assets.
- Tend to be smaller blocks of excess fees, or on the retirement of an ageing practitioner.
- Usually low-quality fees:
- Ageing clients
- Little opportunity to add value
- Tend to be simple accounts and returns
- Sought after as a bite-sized and easy to add onto an existing fee base or practice, and often enough to start out a new practitioner needing more fees to get started
- Tend to suit younger generations who don't like partnerships and structures.
- Note non-deductible for both cost of purchase and of any WIP purchased
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Practice Sales
- Can be profit, cost or equal profit-sharing practice. Need to understand how it works.
- Buy into an existing structure, overheads and facilities
- Turn-key
- A very good option for someone starting out as a practitioner as provides mentoring and support
- Need to determine:
- Quality of other partners
- Future partners for succession
- Compatibility personally, professionally and for marketing/image
- Cultural fit is critical to success
- Buying business goodwill, name and systems, not just a list of customers
- Due diligence needs to be extensive:
- Insurance
- Debtor collection
- WIP/write-offs
- Practice review
- Further factors to focus due diligence on:
- Nature and split of services
- Age of Clients
- Track record regarding ‘churn’ of clients
- How are Practice Sales and Purchases transacted?
- How does this differ from the Equity Value of Practices?
- What is happening in the market place for ‘retention sums’ and payment of consideration structures?
- Much harder to find buyers
- An internal succession of staff or other partners is the norm
- Often better alternative is to merge whole practice into/with another
- Many practitioners do not have a high enough fee base to be able to generate decent profits, even if efficiently run
- Quality of practice, systems and profits often a problem
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Sale Staging
You need to stage the sale to get a better price
- Takes 6-12 months of hard work
- Tidy up WIP
- Write off old
- Improve billing frequency so WIP reduces
- Aggressively collect debtors
- Payment plans for troubled clients
- Change to part up front, balance on delivery
- Credit card payment
- Look hard at whether you are charging enough
- Tidy up staff
- Get rid of underperformers
- Outsourcing
- Decent employment contracts
- Review overheads
- Upgrade IT systems and software
- Tidy up the office
- Understand your competitive advantage
- Website and marketing profile
- What does an acquirer look for?
- Does the acquirer have the capability to absorb the acquiree?
- What about the respective ‘cultures’?
- ‘Relationships’ are key.