AVN’s advice on mistakes to avoid
When the time comes to exit your practice, are you confident you’ll be able to do it in the way you want? And with all the funds you need to move on to your next step?
Far too many practice owners discover too late that their business isn’t worth what they thought or, even worse, that it’s just not attractive to potential buyers. In fact, around 80% of businesses that go to market fail to sell. While this figure covers all types of business, not just accountancy practices, it’s indicative of how many owners simply don’t prepare their business properly before they try to sell.
I’ve spoken to many practice owners who want to move on but find they can’t. In many cases, they’ve made some or all of these common mistakes, each of which significantly reduces the attractiveness and value of their practice.
Mistake 1 – too much reliance on the owner
If the clients, team and operations are all heavily reliant on the owner, what happens when he/she departs? Is there a business there at all? Potential buyers may see it not so much as purchasing a business as taking a job.
Mistake 2 – lack of systems
Without proper systems in place, a new owner would need to invest a lot of time, effort and likely money into bringing it up to speed.
Mistake 3 – team inefficiencies
If the team isn’t able to operate independently, it will be difficult to transition to a new owner.
Mistake 4 – ageing client base
Baby boomer business owners are retiring in droves. If the client list is predominantly of this age group, they are likely to be departing soon.
Mistake number 5 – outdated working practices
If the owner hasn’t invested in developing their practice over the years, potential buyers may see it as a dinosaur.
On that subject, Nicola Draper of broker Draper Hinks tells of a practice they were engaged to sell earlier this year:
‘The seller did not have a paperless office. They had a series of filing cabinets and one of the members of staff actually had emails printed. When they wanted to reply to an email, they dictated their reply. When they came to us with the instruction for us to sell that practice, they sent a handwritten questionnaire completed with a cheque attached to it. My role with this case was to explain to the vendor that a buyer would expect to turn the practice paperless and for somebody to be printing off all emails and dictating all replies is not reasonable, and that that would have to change.’
How attractive would that practice be to a potential buyer? That may be an extreme case, but it demonstrates the way that many practices operate. They continue doing things the way they’ve always done them, without thinking about the implications for the future.
Getting your business ready to sell can be a lengthy process. Many owners underestimate how long it will take to actually exit the practice, with buyers often wanting them to remain on board for two or three years, or even longer.
So, as with planting a tree, if the best time to do it was 20 years ago, the second-best time is now. Then when you’re ready to sell, you’ll be in the best possible position.
I’ve created a free guide to exiting an accountancy practice, which covers the mistakes above plus tips on how to avoid them and a real-life example of a practice owner who got this right. Download Preparing For A Graceful Exit.
Shane Lukas – AVN for Accountants