Conal Kennedy writes:
For many years we in Practice Consulting have assisted members to buy, sell and merge their practices. During the recession years, and for some time afterwards, there was very little activity, but in recent times we have been receiving more enquiries and helping more practices. A firm with a recurring fee base has a value based primarily on its goodwill. It is usually preferable to arrange succession from within a practice, but in the absence of this, a sole practitioner approaching retirement age might consider realising the value of the firm by selling the goodwill to a growing practice. There are other circumstances where a practitioner may be interested in selling their practice. On the other hand, many practices have informed us of their intent to purchase, if an opportunity arises. In other cases practices may come together by way of acquisition or merger in order to pool resources and leverage the benefits of increased size and more diverse skillsets.
Many mid-sized practices would be interested in offering a senior position or partnership to a dynamic sole practitioner. This possibility might be of interest to a member who has set up on practice relatively recently. The member has found that he or she has the ability to run a business and acquire clients, but the pressures of being entirely alone are just too much.
This profession is a people business and in any deal, the human element is always crucial. More important than top line valuations is the ability to trust your counterparty, to establish open communication and a good working relationship. The value of a practice still tends to be based on a multiple of its fee income and the classic 1:1 ratio of recurring fees to practice value is the starting point of many conversations. That said, buyers and sellers should be aware of the changes and pressures arising in recent years due to market forces. The general skill shortage in the profession means that the staff of the practice may be the most important element in judging the inherent value of the practice. Specific purchasers may be interested in purchasing a niche practice with clients that fit specific criteria.
There is any number of ways to structure the deal. If a capital sum changes hands, then this may be based paid in stages over time. There may be a clawback based on clients who do not transfer. Separate arrangements need to be made to deal with WIP and debtors that are outstanding at the date of transfer. In general every aspect can be varied by either party to suit the circumstances of the deal.
Practice Consulting assists practices to come together. We work in complete confidence. If you are interested discussing any of the matters in this article, please contact Conal Kennedy Tel: 00 353 1 6377396 or Jeremy Twomey Tel: 00 353 1 6373972.
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