Understanding the levers that affect your practice’s value are crucial in maximising your consideration upon its sale, explains Keith Underwood.
A practitioner can have founded and spent many years running their firm. But longevity doesn’t guarantee you the best earnout. Value is driven by multiple factors and, as such, values can vary greatly.
However, planning forward can help you increase your revenue multiple (or EBITDA) and provide you with a price for your firm that secures your future. See our other article on how to begin that process.
Timing – This is, in many ways, the most fundamental aspect of gaining the best value for your practice. It is about optimising the best point of exit for yourself (and other partners), optimising changes to your practice, and gauging a good time to be on the market. And, the longer you have to make a plan and put things in place to improve the value of your practice, the better. Conversely, the less time your have to plan an exit strategy then your ability to improve your practice’s value will be greatly impaired.
Clients – A crucial driver of value will be contained within your client base. Potential buyers will look for both the current value and potential value of clients; including information on the sectors in which they operate and how they interact with your practice.
Record-keeping – Following on from providing details of your client base, good record-keeping more broadly will impact a sale. This will include information around WIP/lock-up, data about your client base and assurance of robust compliance processes.
Digitalisation – In turn, the digitalisation of both your practice and clients will be a key driver in value. A digitally ‘attuned’ clientele will be attractive to a buyer because of the improved likelihood of integration with their practice; and the direction of travel of HMRC i.e. MTD.
Profitability – while practice valuations have traditionally focused on multiples of revenues/fee income, the introduction of private equity buyers into the market has seen EBITDA used as a key reference point. And, in truth, your firm’s ability to turn a profit is the acid test. An unprofitable or low profit firm becomes one in which fees are sold, rather than a business.
Your people – If you have good people working for you; in particular, ones that could be a good fit for a buyer, then that will make your practice more attractive. If they don’t fit the models of potential buyers, then the effect is opposite.
Your plans – A sale doesn’t mean disappearing into the sunset. Far from it – potential buyers often want the seller/s to support in the transition process, particularly where an earnout is in place. This may also suit those who want to move their practice on but still work for a while longer.
The market – Ultimately, selling a practice is about putting yourself in the shoes of potential buyers. Therefore, taking some time to understand the market conditions will undoubtedly help you better position your practice for a sale.
Keith Underwood FCA is founder and MD of Foulger Underwood.
Keith and the Foulger Underwood team would like to help you achieve the best result from your practice’s sale. Get in touch by clicking here.
