Accounting Succession - Asking the Right Questions

Business Brokering Friday 8th of February 2019

When I bring up the topic of succession with accountants there is a common theme: "I want to improve my work/life balance and maybe take some equity off the table, but I don’t want to retire yet."

Business succession is a big and complex issue, and asking one question tends to prompt a lot of new ones, most commonly:

  • I’d like to take some money off the table. What are my options for exiting my equity?
  • How long will I be required for after I sell my practice? How involved am I going to be in client transition?
  • I like what I do, and I don’t want to just stop doing it. Is there an option beyond just selling up and moving on?

It’s good to consider these questions at the start of the process, rather than being surprised by them later down the track.

First and foremost, you should be aware that you do have more options than just a simple sale (if there even is such a thing.)

Furthermore, within each option there is a lot of flexibility when it comes to precise terms and arrangements between buyer and vendor – ultimate the success of your succession depends on how well these terms match your needs.

Here are some basic options as a starting point:

Option 1. Sale of Business

This is the most commonly chosen option, but still offers a lot of flexibility. You should consider whether you would prefer a long or short transition, considering both your needs and those of your clients.

Even when a 100% sale is on the table you can still determine the timing of your exit. For example, in a recent sale of an accounting practice the vendor wanted to sell then stay on and work for another 5 years - initially working 3 days per week with a view to scaling back after a few years. We find that some buyers are accepting of this type of arrangement and others are not - so, we broadened the buyer search for the specific vendor requirements and secured a successful outcome. It’s now more than a year since the transaction and both parties couldn’t be happier.

The moral here is that it’s up to the buyer to accept or reject particular terms, and that this is an important part of the negotiation phase. What works for one buyer might not work for another… and some buyers might see vendor involvement as an advantage, and some as a detriment. Still others might relent in exchange for a more favourable price. And it never hurts to get expert advice right from the beginning.

Option 2. Merger

Merging with another firm is often a more suitable option for a practice owner who is not seeking immediate retirement, but who might come to us seeking to improve pre-retirement income and business value.

Mergers are inherently complex and unique because they require a wholesale adjustment of business structure – but the structural change can unlock benefits beyond what can be achieved with a simple sale.

Done well, a merger can deliver the income benefits plus provide more favourable conditions for an eventual equity buyout... but only if the fit is right – really right.

Option 3. Appointing an equity partner

High-quality and funded candidates for equity partnership can be hard to find, especially on the highly competitive open market. They do exist though, and we have facilitated a number of successful exits using this method.

The key to a successful equity partner appointment is to start early – be prepared to employ a person for a qualifying period well in advance of any equity exchange.

For practitioners approaching retirement scaling back by appointing an equity partner is a valid option – it can reinvigorate a practice prior to your exit and provide terrific benefits if the match is right.

Weigh your options – get some advice

It’s good to know that you have options, but which option is best for you? Realistically, your answer will be as unique as your business.

Please feel free to give us a call so that we can help you weigh your options – we can facilitate business sales, mergers, equity partner placements and more.

Mark Witt CA

Mark is the Head of Brokering at Business Exchange with over 20 years experience and 400+ completed transactions


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