This article continues from two previous articles.
Misconception Number 10
We tried a new partner and it didn’t work, no one will be like us
I heard one partner say “my partner and I have worked well together for 15 years, we tried admitting a new partner, it was a disaster, so we are stuck”. Well no, though it is quite possible a first attempt at succession planning will backfire.
Maybe the person had the wrong characteristics, did not understand or accept what was expected of him or her, or did not negotiate properly on the price? It is possible to try again and with a clear idea of what you want in a new partner and how they will work. Prepare a list of desired characteristics eg Business Management Skills, Positive Mind Set and Social Skills, in addition to Technical Competence, etc. There are many other actions to take to get the best possible new partner.
Misconception Number 11
Purchasers can take over and wreck a practice.
A practitioner said “a mate of mine sold out, the purchaser doubled the fees, clients left and then the purchaser refused to pay the bulk of the purchase price”.
Yes, it can happen. Mostly it doesn’t. It is critical to do a careful review of the intending purchaser. Check references, ask around about his or her character, are there any Court actions in which the person was involved? Compare fees charged for similar work. If possible, try to work together, maybe share space for a while, so you can assess the purchaser’s way of doing business.
Most practice brokers suggest a clause in the agreement saying the purchaser must not increase the fees by more than 10% for the first two years, or similar. Then there must be a penalties clause, so if they do increase fees substantially, the purchase is voided and you can take back your clients, or whatever. Be guided by your solicitor.
Misconception Number 12
I have been told purchasers won’t pay for unbilled WIP
Generally purchasers prefer you to bill the WIP, but if that is not possible, then it can be billed by the purchaser as jobs are finished. When the cash is received, the appropriate amount is remitted to the vendor. This is what occurs with internal sales. Be sure the WIP is clean, there can be disputes about who is responsible for write offs.
In addition to WIP, check other items such as the IT system, it may need to be significantly upgraded. What about likely leave payments due to long serving staff members, including Director/Shareholders?
If you are looking for people who may be interested in buying into your firm, try the practice consultants or brokers, they may be experienced in judging people and helping determine who will fit with you. Also, they will have ideas of ways to make your firm more attractive to purchasers.
- If “Negotiating Price with Clients” Is a Challenge: What are you doing about it? - 16 June 2016
- When Is It Too Late To Sell? - 19 April 2016
- 3 More Misconceptions on Accounting Practice Ownership Changes - 17 March 2016