When you set up a business, you have a plan as to how you’re going to set it up and how you’re going to make it work. But you need a plan for what you’re going to do at the end – whether that’s close it down, sell it, or get somebody else to run it for you. An accountancy practice is pretty much the same as any other business. The challenge is that many smaller practice owners are so busy working in the practice that they don’t work on the practice and haven’t thought about what they’re going to do with their business at the end. 

Some practice owners simply get to the end and then try to sell it to somebody else and generally they’re going to get somewhere between 0.5 and 1.5 times their turnover as a multiplier. This type of multiplier used to be the typical way to value a practice in the past, especially when the most likely buyers were other accountancy practices. That’s changing now – many practices are approached by “consolidators” of accountancy practices and these are often funded by investment funds and venture capitalists. They think quite differently to that approach of 1 x turnover – they think more along the lines of how they would buy any other business and that’s generally a multiplier of the profits (EBITDA) that are earned. That multiplier can be anywhere from 4 times to 12 times the profits. 

Consolidators aim is to buy numerous practices at one multiplier, consolidate them together, build them up into something that looks more attractive, and then sell to someone else at a higher multiplier. 

For example, ensuring that a regular and predictable cash surplus is coming in every month via a subscription model makes a practice much more attractive to an investor than a practice that cannot predict its cash as it bills in arrears, offers credit and has less control over when the cash actually comes in.

It all needs planning so if you’re ever going to get there, you need to think in advance about when you might sell, who you might sell to, what your accountancy practice should look like, and get all those pieces in place down to the very basics. For example, do you have working papers that anybody else would be able to follow, do you have letters of engagement for every client that are up to date covering all of the services you provide, do you have all your AML in place, does everybody pay you by direct debit and so on. There are many things you can do to make your practice look a more attractive proposition – but it needs planning. 

With my own practice, I looked at my exit strategy and considered my options. Firstly – rather selfishly – I looked at where I was going to make most money from. Would it be from selling to another accountancy practice, or a consolidator, or even an investment fund like a family office or venture capitalists – after all, I’d designed my business to look attractive to them. The downside to that was that it would perhaps result in less interesting career opportunities for my employees. They might join a bigger firm if I did sell leaving them with more opportunities, or their career progression opportunities might not be as good. 

This model, whilst not giving me a cash sum now, aims to increase the value of the business and ultimately increase what I might get out of it by introducing new partners and fresh ideas - who also share in that future growth and value. I continue to own the majority of the business, but our new partners are building their ownership in the business through future growth. Our plan is to create a bigger, better business together.

So this decision came about after initially looking at what I could get for the practice some five years ago, spotting what was attractive and not attractive to a potential buyer, and then spending the last five years making improvements to the business to make the business look more attractive to consolidators and other buyers. Now when I looked at the business again, with the improvements we have made, I felt that the better business decision was to remain as an investor in the business rather than sell up so I decided if I kept owning part of it and had the right people building it with me, we could all do really well. So the aim now is to build the practice further, increasing its capital value to ultimately make it more attractive to potential buyers, current Partners and future senior employees so that ultimately we might all end up better off – either selling in the fullness of time to one of these consolidators when the price is high enough, or all we end up better because we’re all doing very well out of the business. 

We have new partners coming into the practice in November. They will earn a salary and a percentage of future profits, and build their own share of ownership (equity) in future growth. They’ll build up some ownership over the next four years. As we start to grow going forwards, we all get a proportion of that growth and they build their equity out of that. In four years’ time, they could well own 7-10% of the business depending on how much it has grown by. It’s a little like employee ownership scheme  – but it’s actually a very simple calculation.

Part of the agreement is also that my working week will go down to 3 days as soon as the new partners come in, and then the plan is to gradually reduce that down to eventually no time in the office, but I’d still own a proportion of the practice until it’s bought by them or sold to somebody else. It’s probably a seven to eight year plan with many stages in between.

Any exit route you decide to take could work, but all of them need planning. I could never have done this if we hadn’t planned for it years in advance of actually trying to do it.