Sooner or later, you have to start thinking about succession within your practice. That moment is on the horizon for us albeit, hopefully still a little way away! It’s very easy to think of life without the pressures of running the business – grass is always greener as the song goes but when it comes down to it the thought of not being the boss anymore and everything that you have worked for dissipating then the relief often turns to dread.

The obvious and traditional succession plans tend to go down one of two routes, succession from within or acquisition by another accountant or aggregator. These options always come with complications. Internal succession which was historically a favourite is often hampered by the ability of the next generation to raise capital to exit the outgoing partner. Selling to a third party has its appeal but you are very much putting your future in the hands of an unknown quantity who may have different views on how to run a practice, also for exiting partners the shock of suddenly going from hero to zero can be all too much!

In our experience of acquisitions which are typically sub £1m, one of the first things that comes up - before money, before anything - was ‘what are you going to do with the name’. That seems to be quite an emotional attachment - it's a loss of control, a loss of legacy. Another common issue you get when you're talking to sellers is what will happen to the team. This is also an important part of the equation with us as we approach switching off the calculator for the last time!

It’s fair to say that the concept of a collaborative mutually beneficial work environment has been in my thoughts from day one of starting the business. It all stems from my first experience in the workplace selling vacuum cleaners at John Lewis. This was before I naturally moved into accountancy after having my own gardening business! John Lewis was very much one of the forerunners of this thinking and although not strictly an EOT, conceptually it has many shared values. For instance, partners have a say in the business and share in profits (in those days anyway!). 

With this in mind we have recently been considering the use of EOTs because, for us, it would give a smoother more elegant exit whilst providing our team with the opportunity take the business forward with experienced heads gradually drifting off yet still being available to mentor them. 

Looking at practicalities (outside of governance considerations – see the bottom of this article for more information), for the structure to work effectively the practice needs to be cash generative with suitable working capital put to one side to allow the business to continue to run whilst making the initial and subsequent payments to the exiting partners/owners. It is important to note that with the increase in profile of EOTs there are now some institutions that will lend upfront payments to organisations wishing to start the process. 

At its highest level, the basic structure centres around a Trust acquiring the interest of the target practice for consideration which usually combines an upfront payment and a loan schedule. The minimum stake that can be sold is 51% and there are strict rules around trustees although current directorships prior to the sale can be maintained including any party to the share sale. The immediate benefit is that the consideration to the outgoing partner is at 0%. All employees become beneficiaries of the trust and can earn a bonus of up to £3600 each tax free each year. 

The issues that are at present preventing us from taking the matter further really centre around the usual issues that growth businesses face. We are on a steep growth trajectory which by definition leads to surplus cash being invested in achieving our targets rather than being stored to pay an exiting director. This has forced us to look at other options that promote a joined up to solution that allows our team to have a share in the future. We recently put in a Growth Share Scheme for all of our Senior Management Team who have met our qualifying criteria and are looking at a more general employee share scheme option.

ACCA’s current Global Practising Regulations do not prevent students and members from participating in EOTs, but care should be taken to ensure compliance. In order to accommodate new and emerging ownership models and allow eligible firms to continue to use the 'Chartered Certified Accountants' designation, ACCA has implemented a new framework for the use of practice descriptions. Our Control and Description Requirements factsheet goes into further detail. Please contact ACCA UK’s technical advisory team at advisory@accaglobal.com quoting your membership number for advice on how to ensure that your EOT is compliant.