I hear accountants and others, make various statements about accounting practice sales, especially regarding prices for Goodwill. Below are some common statements (misconceptions) and my response.
Misconception Number 1
Young people won’t pay for goodwill to buy into an accounting firm:
Yes they will, I hear stories from many proprietors with new equity owners. Agreed some won’t pay for goodwill, so it is a matter of engaging with those who will take the risk, plus making your firm attractive to new owners.
Misconception Number 2
Regardless, young people don’t want equity positions in accounting firms:
Wrong again, many will. I heard a Managing Partner say, “we have people here who would crawl across razor blades for the opportunity to buy into our firm”. Maybe the firm involved has a great culture and high profit?
Misconception Number 3
But my firm is special and no one will want to buy it because of …:
It would be an unusual firm where no one wanted to buy at least part of it. Maybe they want it without you in the long term? Maybe they want to pay for it over time and then only for those clients who stay, maybe they want only certain clients or types of work, etc.
Misconception Number 4
If I sold, clients wouldn’t stay unless I was here in the long term.
In practice clients do stick, for ages and certainly they will almost always give the new owners an opportunity to do their work. Agreed to help the process, it is critical the new owners quickly meet clients, identify opportunities, respond promptly to queries, etc
Misconception Number 5
If I buy fees or a practice the goodwill price can be $1 in the $1 or more of annual fees.
Yes, this is often used for firms/proprietors with fees of less than say $2 m pa, but it is based on likely renewable gross fees, net of GST of course. Also, the price fluctuates depending on the nature of work, location, completeness of records, smooth handover from proprietor, whether or not the firm has a policy of low fees, etc.
More misconceptions in next month’s ebulletin.
- 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
