Della Hudson started her own firm, Hudson Accounting, from her kitchen table, grew it then sold it. She now supports other accountants in doing the same. If you’re thinking of selling up, take a look at Della’s guide to arranging and managing the sale of your business.

Making the decision to sell

Although Della’s sale went through quickly in the end she says making the decision to sell was a much longer process. Here are 5 things she recommends considering before you make the leap.

1. Ask yourself why you want to sell. Are you just going through a particularly challenging time and need a holiday or does running a business no longer fit with what you want from life? Or it could be that you need to sell to fund your retirement.
2. Consider the alternatives. Are there other options that could help you achieve the same outcome. For instance, could you scale back your business to give you more time a busy periods, outsource some of the work or take on a business partner to share the load?
3. Work out what your practice is worth. Accountancy practices are fairly marketable because they can use similar processes to produce the end product. The price paid for a practice is usually based on a multiplier of GRI (gross recurring income, excluding one-off fees), which is currently a factor of between 0.8 and 1.2 of annual fees.
4. Consider your team. If you employ staff you may wish to have a deal that ensures they are well looked after.
5. Work out what you will do afterwards. If you wish to continue doing anything related to accountancy, you may need to agree this with your buyer, as there will undoubtedly be a non-compete period, or a non-compete area, in your sale contract.

Finding a buyer

If you know a local accountant who is interested in growing through acquisition you may be able to take that route and avoid agency fees, but the advantage of using an agent is that you have somebody to shortlist any interested buyers, and to negotiate on your behalf.

Della believes that finding a close match is best for both you and your clients, including areas of specialism, and it will also benefit you financially by reducing clawback, where the selling price is based on the value or number of retained clients.

Getting your practice ready for sale

Like any business you will achieve a higher price if all the systems are thoroughly documented, all essential paperwork in place, and you can demonstrate that the business will run independently of you. It also helps to smarten up your offices to create a good first impression, even if this is only your home office.

As part of the buying process, and after signing a non-disclosure agreement (NDA), your buyer will want to see the following:

• A detailed list of clients showing recurring fee (excluding any on-off work), work done, age profile of principals, industry and trading format. You will not show client names until the sale is agreed.
• A list of staff showing job role, salary/benefits and hours.
• If you have premises they will need to know the size, rent and remaining contract.
• A sample of your working papers.
• Details of what software you use for which tasks.
• Three years of your own business accounts and, perhaps, management accounts.

You may also wish to tell your staff that the business is for sale at this point, but there’s no requirement to do so. Della says she felt more comfortable being open with her staff from the outset.

Negotiating a deal

Della says, “The broker provided me with a shortlist of six possible buyers and I spoke to the two firms that I thought were a good fit. Competition always drives the price up but after meeting with both firms it was clear that one would work out better than the other.”

There are several things to consider as part of negotiations:

• Price as a multiplier of GRI
  This is touched on above but if you can demonstrate that your business can run independently of you you may be able to use a higher factor. The percentage of GRI will also be affected by the nature of your clients including their age profile.
• Payment period
  It is normal for acquisitions to be paid for over a period of one or two years, but if you want payment up front you may need to take a drop in price.
• Clawback
  If clients do not stay with the new buyer then there is usually a provision to clawback the payment on these fees. Unless the sale contract says otherwise any lost fees can be offset by increases on other clients’ fees. The clawback may be 100% of the lost GRI in the first 12 months or there may be a further 50% clawback for 12-24 months.
• Non-compete
  There will be a period during which you cannot act against the interests of the business by offering an alternative accountancy service to your former clients, either directly, or while working for somebody else.
• Assets or shares?
  Another important factor is whether you will sell the assets of the business or the shares of your company or partnership. There are tax and liability issues to consider for both.
• Insurance
  You will be required to pay run-off insurance for a period of time after the sale (six years for ICAEW members). You can expect to pay the normal fee for the first 12 months insurance and less for future years, assuming no claims are made in that period.

Della says, “There will be some negotiation over other details on the contract and I would recommend using a good solicitor as the sums involved will be quite large.”

Arranging the handover

Once you’ve agreed a deal you’ll need to first tell your team and explain how the sale will affect them. Once the staff are fully informed of the situation and bought in they will be able to help you reassure your clients about the changes ahead.

When it comes to telling your clients work through your client list and identify which key clients need to be told personally. Arrange an introduction to the new owner with these key clients face to face (or via face calls if not possible due to Covid-19). Della says, “Your clients will be watching how you and the new owner interact with each other, so it helps if you’re selling to someone you like and respect.

Agree an introductory letter and email for the remaining clients, including details of any significant changes in service, team or office location that will affect them.

On the day of the sale you should handover all client and business records to the buyer. Don’t forget to make arrangements for any archived records. The vital thing to happen on the day is to transfer insurances to the right entity. You may also wish to have a press release embargoed for the day of sale and watch the news coverage to make sure it’s factually correct.

There will be a handover period as a condition of the sale. This is commonly two months during which the vendor must be available to make introductions and answer any queries on previous work. Remember that the smoother the transition, the higher the client retention and the more you will receive as the sales price.

Then that’s it and it’s time for your new adventures!

This article is based on a series of blog posts Della Hudson produced for accountingweb.co.uk. Find out more about Della at hudsonbusiness.co.uk