Lucinda Kitchin of M & Brokers, A.P.M.A, offers some pointers to ensure you get the best price when selling your practice
Times are tough and times are a-changing, which might cause you to think about your own future. If you are thinking of selling your practice at any point in the future, you ought to start planning now.
The following steps are worth considering:
Consider your charge-out rates
Make sure they are competitive! Charge-out rates that are too low are likely to reduce interest in your practice as and when you go to the market. If you are undercharging and the new owners have to put prices up considerably, they will lose business. You, in turn, may then suffer losses under the clawback facility, depending on what was agreed.
Spread your risk
Try to ensure your client spread is not concentrated in any one industry because this could put potential buyers off during an economic downturn. For example, in a recession, many buyers would be wary of getting involved in a practice that has a large client spread in the construction industry or in light of Covid-19 in hospitality. On the other hand, blocks of fees with a particular specialism (such as healthcare fees or property investment clients) which are run profitably and, even better, which are portable, can be very attractive to the right buyer and are more likely to attract a premium.
Bear age in mind
Make sure that you do not have a client base that is ageing overall. A buyer will see little value in a business made up of clients who are going to retire within a couple of years unless those clients have successors identified and in place. A steady stream of new clients over a period of time who remain loyal to the practice will be most attractive.
Assemble a quality team
Consider the quality of any new staff you take on. Some practices seek to make acquisitions because their principal interest is in securing the services of good staff, which they may be finding hard to do in certain geographic locations which have a limited labour resource. The quality of your staff will be an important consideration for any new owner.
Keep an efficient, agile workforce
Look at your internal structure and ensure there is no ‘dead wood’. When practices were busy, they took on more staff, but as practices have become less busy and more cost-conscious, excess staff can be a real problem for buyers who do not wish to have to make redundancies. Remember that the new owner will have to take on any staff that have been with the vending firm for two years or more under the rules of TUPE. Similarly, the vendor may not let staff go simply in order to make the sale more attractive. A payroll cost of a third of turnover is usually considered to be about right.
If you employ staff, remember that when you come to sell your practice the staff could present a potential risk to the practice goodwill in the eyes of the new owner (they might run off with the client list). You could mitigate the perceived level of risk by ensuring the staff are bound by suitable letters of confidentiality and restrictive covenants before starting the selling process.
Stay on top of admin
Ensure your own house is in order: put your files away; make sure your timesheets are up-to-date and add up; sort out your potential bad debts; reduce your WIP. Being organised and up to date can only reflect well on your practice when you come to sell it, not to mention making life easier for you and your team. Time-recording systems may seem like an unnecessary evil, but at the due diligence stage, they can be a good indicator of how efficiently your practice is run and how much profit could be available to the new owner.
Prioritise internal compliance
Ensure your systems are fully compliant, whether for anti-money laundering, GDPR or anything else.
Think about your location
If you practice from a relatively rural area‚ think about relocating to a larger conurbation because this will help to make you more attractive as a prospect for acquisition.
Integrate innovative technology
Consider your software package. Well-known software is likely to present less of a challenge to the new owner than obscure or bespoke software when the time comes to integrate systems, thus enhancing the appeal of your practice.
What does your bottom line look like? It may surprise you to learn that for a well-run practice with the right structures in place, profits of up to 50% are achievable!
Communicate change effectively
Consider how you will approach the sale of your practice when the time comes. Bear in mind that you only get one bite at the cherry when it comes to selling your life’s work – this is one transaction that deserves to be done properly and by experts. A number of practitioners have found that doing deals on a DIY-basis does not always turn out to be cost-effective and does not guarantee success. Once you have muddied the waters you risk de-valuing your practice and could leave yourself exposed.
Instead, it is a worthwhile investment to pay experts to do the job properly for you, hand-holding throughout the process while allowing you to benefit from their experience, to retain control and to make the right decisions based on clear-cut options.
Do your homework
Before committing yourself, do your research! It is worth taking some time to look into your options by speaking to a reputable M&A broker and by carrying out independent research yourself. Even if that means simply logging onto a few relevant forums to find out how others fared or reading through A.P.M.A.’s four decades of experience online.
You will find there are vast differences between the offerings available to you. When we meet our sellers, for example, we advise them of the minimum selling price which we will achieve for them and the maximum timeframe within which we will achieve that, plus we work on a no success – no fee basis! All of these factors mean that you can make your plans for the future with confidence and then get on with running your practice while the hard work is done for you.