Practice Succession - what's your plan?
Guest contributor - Greg Hayes of Hayes Knight, SYD
More than 50% of the accounting firms in Australia currently have a principal or partners who are over the age of 50. And there are a reasonable number of firms with multiple partners in their 50’s or 60’s.
This means that there will be an increasing number of firms over the next 5 years who will be dealing with a succession issue and a much greater number who will face succession issues within 10 years.
The current market for accounting firms is an active one. For every firm that you see advertised through a broker there would be ten or more where a transaction is facilitated through formal or informal networks. Some of this activity is simply being driven by the chase for scale in a highly fragmented market, with the balance of activity primarily being succession driven.
Unfortunately, too many firms put succession into the too hard basket and fail to plan for it. The outcome can be missed opportunities, conflict within the practice around differing expectations between retiring and ongoing partners, value lost and a lot of wasted emotional energy.
To overcome these potential problems there are a few basics that every firm, large or small should have in place.
1. Have a plan in place – whether its for retirement, time to do something else, monetising your investment in your practice or some other reason the real question is how will you achieve this, what is your exit mechanism? It may be a sale of the practice, a merger or an internal sale. You need to put some thinking into your exit plan – even if it is some years away. Clearly the closer you are to your exit point the more actively you need to be engaged in preparation. Where possible, active preparation should start at least 3 years in advance of the event. This gives you time to attend to:
Any housekeeping needed for the practice
Showcasing – making the practice as attractive as possible
Being succession ready, with your information pack in place
2. Have a timeline - you need an indicative timetable to work to and the only way to have that is to nominate a likely exit date. With an exit date in mind you can work backwards to see what needs to be done and by when. Once you have an exit date in mind don’t get too hung up on the specific date. You need to be flexible. As an example, if you have set an indicative exit point of say end 2023 then you should be open to the possibility of something occurring one year pre or post your preferred date. We only have to look at recent events with COVID-19 to see that events can come along totally outside of your control and which can derail plans. Apart from that your right buyer may be in the market at a slightly different time. Planning is important but nothing beats right time, right place.
3. Understand value – we all have an idea on what our practice could be worth. We know the common market value models and from time to time we hear about what was paid for other practices. The reality is that value across practices is not consistent. Size, location, profitability, growth and quality of client base all play into your value. Knowing in advance what your practice is worth and equally importantly what you could be doing to enhance that value can pay dividends many times over.
Three simple basics, but armed with them you can answer the questions of what, when and how much. There will be more questions to answer and issues to address, but all of a sudden you have some direction and you are not leaving it all to chance.
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