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How Much Is Your Accountancy Practice Worth?​

How Much Is Your Accountancy Practice Worth?​

Accountancy Practice Worth

Many are the accountants who almost feel personally insulted when they discover that their decades of hard work and excellent client service are worth nothing more than 0.8 – 1.2 times their Gross Recurring Fee.

That’s what accountancy practices are usually valuated at, at the time of sale: 80 per cent to 120 per cent of GRF.

But what about tax enquiries, VAT inspections, PAYE inspections and other occasional services? These are not, technically speaking, recurring fee income services, but they do come up intermittently for clients. If your practice has 500 clients, the chances are high at least a few of them will require this kind of add-on service each year.

There are also other add-on services which many UK accountancy practices offer, such as financial advisory services. This might not be a “recurring fee” in the strictest sense. You might provide the advisory service only occasionally to any clients who look like they might be heading into financial straits.

Some accountancy practices have invested heavily in in-house professionals to up their marketability, thereby improving the practice’s viability. Surely this could factor into the practice’s final valuation?

Maybe it would, but the final estimate would unlikely go over the 120 per cent mark.

Efficient practice? So what?

The fee-based calculation seems to penalise forward-thinking and tech-savvy practices a lot harder.

If you have invested heavily into increasing your accountancy practice’s efficiency over the years, likely you were are able to charge a lower fee than your competitors and still turn a profit. This strategy might’ve been great when you were in the process of actively seeking new clients, but it isn’t so great when the time comes to sell.

That lower recurring fee adds up to a lower valuation at the time of selling.

Accountancy is a tight-margin industry. Turning a profit requires near-genius these days. The volatile environment of ever-changing tax laws, as well as a playing field which grows more competitive each year, means that many accountancy practices must charge those lower fees just to stay in business.

Not great news for the almost-retired accountancy owner, now long in the tooth, who only wants to pack up his shop and retire comfortably in Gibraltar.

It’s a catch-22 situation.

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The dream client base

And then there’s the matter of the client base.

Good businesses are built on solid relationships. If you’ve been in business for more than a decade, it’s likely you know very many of your clients personally.

People buy relationships more than they buy brands.

Will that client base stay with the company after it has been acquired by another? Did you offer service with a “personal touch” over the years?

If the personal touch is gone — you — so is the client. This can lead to a lower valuation.

It’s almost as if selling a practice is counterintuitive. Those very things which were necessary to build the practice in the first place — competitive fees, the personal touch, relationships above branding — are the same things which could lower its eventual valuation.

The dream accountancy team

The same applies to the team you have built over the years.

Will the staff remain under the new management?

If your competitive edge is based on having a team with specialised knowledge of various areas, your client base might also decide to leave if those team members are not there.

At the end of the day, you are selling a client base and nothing more. The action of selling an accountancy practice is cold and calculated.

Possibly the company acquiring your practice is indeed very human and caring, but that still doesn’t change the process itself.

The process itself of selling a practice comes down to profit margins and nothing more.

Alternative options

Business Team

One option would be to hand the practice over to a willing friend or family member who will give you a nominal fee for it but still let you retain a portion of profits as the years roll by.

This is a risky option at best if your practice is already struggling.

Then again, if it is struggling, the price you’ll be offered likely won’t be great. At least with this option, there is still the remote hope that the practice can be salvaged sometime in the future, and that you will eventually get your dues.

The second alternative available is to outsource your accountancy practice’s activities. This is an extensive subject and is not without its risks. We’ve written extensively about outsourcing accounting activities before.

The bottom line

That’s what it comes down to, isn’t it? The bottom line.

And the bottom line when it comes to selling your accountancy practice is that no price could ever match up to your life’s work, or even to the work of a few years.

Perhaps in another industry, yes — a tech startup, maybe, or the latest unicorn.

But not in accounting.

The accountancy business model is made up of fee income. One can get creative when one is in the business, marketing to clients for additional advisory functions or finding ways to increase efficiency.

But when it comes to selling an accountancy practice, it’s difficult not to get the short end of the stick.

Most accountancy owners would settle for something that, at least, doesn’t hurt their pride.

If an accountancy owner really wants to let go of the reins, and make a profit while doing it, they would need to embrace a different strategy entirely.

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