11 Questions to Ask BEFORE Buying into an Accounting Practice
Whether you’re looking to grow your own practice or take a stake as a partner in the practice where you already work, a few key questions need to be asked, answered and considered.
And, as this list from a U.K. consultant proves, the basic economics of an accounting practice are well nigh universal.
So, whether you’re buying or selling, ask…
What services does any practice offer? In seeking to place a value on the goodwill of an accounting firm it is useful to look not just at its historic and projected performance, but also at its potential. Some key questions to consider are:
- Does it provide more than just a compliance service to its clients?
- Could it supply value added services?
- Could it get involved in the needs of its clients for investment, pensions, life insurance, mortgages, the inheritance tax planning sector, probate, litigation support and management accounting services, and of course, business advice?
- Rather than simply trying to protect its clients against paying too much tax, are they advised on how to make money?
- Is the business profitable?
- Looking inwards, what is the firm’s gross payroll cost? Is it more than one third of the turnover?
- Are the employees remunerated in line with the local competition?
- Do the key fee-earners have suitable restrictive covenants in their contracts of employment?
- Are the premises owned or rented? (If the answer is the latter, is there a heavy contingent liability in the lease?)
- What is the firm’s working capital requirement?
- Is the business managing its debt efficiently? The amount of working capital tied up in debtors is critical to most practices. It has a direct impact on cash flow and the overall level of funding required. Many firms are extremely lax and the level of debt within the average practice is far too high.
And, by the way, the going rate in the U.K. is much the same as in the U.S. — 0.9 to 1.2 times annual revenue (or “turnover” as they say there).
Source: Jeremy Kitchin – APMA
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