In the third article in the series, Lucinda Kitchin examines the key questions vendors typically ask as they consider the sale of their goodwill
How can I increase the value of my goodwill in advance of the sale?
It is difficult to increase the value of your goodwill owing to the fact that purchasers will not usually pay more than ‘the going rate’.
However, the price normally paid is within a range, so to get nearer the top of that range your fees need to be made more attractive to purchasers.
This can be done in a number of ways, given sufficient time. Goodwill is in greater demand the nearer it is to the centre of a major conurbation, so if you plan to sell in a few years’ time you could think about relocating your practice. If your firm is not within a substantial city and, when you come to sell, you expect your practice to have gross fees in excess of £500,000, you will make it easier to hive down and sell parts of it to different buyers without your clients suffering a major dislocation if you start to create separate cost and profit centres progressively, preferably each with their own staff.
Smaller blocks of fees will command a greater level of interest than a big practice being sold as a going concern. Make sure that it is easy for a purchaser to determine the level of profitability of each job by ensuring you have budgetary control and a detailed time record system installed and in use. Make sure your practice is not over staffed and that there is not a heavy contingent liability in the office lease.
How does TUPE affect the continued employment of my staff?
The Transfer of Undertakings regulations (Protection of Employment act 2006, revised 2008) (T.U.P.E) governs the employment of staff following the sale of a business. In essence it says that the vendor may not dismiss his staff to make his practice more attractive to a purchaser.
Likewise, a purchaser may not arbitrarily make staff redundant that he has acquired as a result of purchasing a practice.
Further, he is required by the act to provide seamless employment to acquired staff on conditions that are no worse than they were previously on. If he wishes to mount a redundancy programme he must be seen to act fairly.
In the event that he was already in practice on his own account and he acquired a second practice, if he wishes to mount a redundancy programme he must be seen to select those to be made redundant fairly from both his existing staff and those he acquired with the practice. He may not prefer his own employees over those that came with the purchased practice. If in doubt, professional advice should always be taken from a qualified solicitor.
Does the vendor or purchaser need to use the services of a solicitor?
Those making smaller, uncomplicated sales frequently feel it unnecessary to engage the services of a solicitor. While APMA cannot recommend this course of action, some 95% of all practices we broker choose not to use one. The logic to this choice is that, where a straightforward sale is concerned, the only likely disagreement will concern one or two clients that appear to the new owner to fall outside the scope of the clawback clause in the sale agreement. The value of the fees being disputed is rarely more than a couple of thousand pounds for which no one is likely to litigate (which can often take up to 18 months).
How can disputes be resolved without resorting to litigation?
Where APMA has brokered the sale, the vendor and purchaser will often nominate APMA as the appointed third party ‘expert’ in the sale agreement. Since we will have hand-held during the selling process APMA will be aware of the spirit of the agreement and can look beyond the written word.
Either party may trigger APMA’s involvement in the resolution of the dispute. This is normally considered part of our after-sales service, for which a fee is not normally charged.