I hear accountants and others, make various statements about accounting practice sales, especially regarding prices for Goodwill. Below are some common statements (misconceptions) and my response.
Misconception Number 1
Young people won’t pay for goodwill to buy into an accounting firm:
Yes they will, I hear stories from many proprietors with new equity owners. Agreed some won’t pay for goodwill, so it is a matter of engaging with those who will take the risk, plus making your firm attractive to new owners.
Misconception Number 2
Regardless, young people don’t want equity positions in accounting firms:
Wrong again, many will. I heard a Managing Partner say, “we have people here who would crawl across razor blades for the opportunity to buy into our firm”. Maybe the firm involved has a great culture and high profit?
Misconception Number 3
But my firm is special and no one will want to buy it because of …:
It would be an unusual firm where no one wanted to buy at least part of it. Maybe they want it without you in the long term? Maybe they want to pay for it over time and then only for those clients who stay, maybe they want only certain clients or types of work, etc.
Misconception Number 4
If I sold, clients wouldn’t stay unless I was here in the long term.
In practice clients do stick, for ages and certainly they will almost always give the new owners an opportunity to do their work. Agreed to help the process, it is critical the new owners quickly meet clients, identify opportunities, respond promptly to queries, etc
Misconception Number 5
If I buy fees or a practice the goodwill price can be $1 in the $1 or more of annual fees.
Yes, this is often used for firms/proprietors with fees of less than say $2 m pa, but it is based on likely renewable gross fees, net of GST of course. Also, the price fluctuates depending on the nature of work, location, completeness of records, smooth handover from proprietor, whether or not the firm has a policy of low fees, etc.
This continues an article published in a last month’s ebulletin. Here are more misconceptions I hear accounting proprietors say about accounting practice sales, especially regarding prices for Goodwill.
Misconception Number 6
Young people want to be equity owners, but won’t work long hours like us:
What do you mean by long hours? Some new partners do work very hard to “buy in”. If you are working long hours, is that what you want for the long term? It may be off-putting for new proprietors who may be more focussed than you on families. I recall years ago a country practitioner saying, “we don’t work Saturdays, but I heard Sydney partners do, we make a good enough profit and have sporting commitments on Saturdays”. New younger partners sometimes do a lot of reading and networking outside normal business hours, in the evenings after children go to sleep.
Misconception Number 7
I don’t think the new owners will look after clients as well as I do:
I recall the late Rob Knights complaining to me about some accountants delivering “champagne service for beer prices”. If you think your service is of value, charge accordingly. New partners paying off big loans to buy in, are not going to want to under-bill. Also, it is an ego thing, maybe you are not as necessary as you think? Amazingly clients do stay when they have to work with a different person. Sometimes a new approach and a younger proprietor, can more successfully work with a client, especially the next generation. They may be more effective in getting clients to make changes.
Next up; Industry Misconceptions 2
