This article was originally posted on the 27th July 2018.
When accountancy and similar professional business come to the sale market they are always popular. Their popularity stems from the rare number of sales seen. Many are sold to existing partners within the practice, so they don’t come to the open market.
This wasn’t an option for a mother and daughter accountancy team in Cheshire.
Northwest Accountancy Services (NAS) wasn’t huge but it had a strong and loyal client base. Typical customers were sole traders, partnership or companies employing just a handful of people. This meant regular bookkeeping work, producing accounts and filing returns, but rarely anything more complicated. The client base simply didn’t warrant it.
The business had ticked along at this level under Denise’s guiding hand. She embedded herself within this sector of the local business community and was never short of clients. When Victoria qualified and joined the business it allowed for a larger client base.
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The decision to sell
Deciding to sell my business is never straight forward, especially in a family business. The older generations don’t want to let the younger generations down or give them responsibilities they are not ready to take. The younger generations fear the older generations may feel unwanted or swept aside. For one reason or another, it is hard to align everyone at the same time.
Victoria Bowyer, Northwest Accountancy Services provides our client commentary throughout;
“The decision to sell our Bookkeeping and Accountancy business, jointly owned with my mum, Denise, was one we’d considered on a few occasions previously. This time, it felt right!My mum was ready to retire, I was re-training for my Law Degree and I didn’t want the responsibility of running the company by myself or needing to recruit.
We were both on the same page. Paul & Alex were recommended by a client who had also sold a business with their help.”
Victoria’s decision to pivot her career into law possibly gave Denise the permission to retire without fear of letting her daughter down. There would be no family succession to consider. For once, the timing between them was right.
Expect the unexpected in a business
So the decision was made to sell the business but almost before the sun had set, some health problems were revealed.
“After speaking with Paul and understanding the value of our business and how it would sell, We did then consider waiting for another six months to see how we went.
Unfortunately, at that point, mum was taken ill and although recovered well, it made us reassess where we were, and we were both happy to sell. Neither of us wanted to hold the other back and we wouldn’t have proceeded if there was any doubt.”
It is often the unexpected which focuses the minds of business owners on selling. Denise had Victoria to pick up the slack during her convalescence. Many sole traders don’t have this luxury and client’s suffer as a result. Worst case scenario is that there rapidly becomes no business to sell.
The sale process
The health scare had focussed minds. Allowing Denise to wind down and look after herself became the priority. Victoria needed the flexibility to move into a placement as soon as she graduated law. Both were very connected with their clients and ensuring a buyer had the same customer service values was a priority.
So these three elements became the focus of buyer selection. Once we had this, shortlisting potentials was really easy.
“We worked with Alex and briefed her on the kind of buyer we were looking for. We met with a few buyers and it came down to two parties. Alex helped us to understand the two offers and weigh up the pros and cons of each and conceive potential counter offers.”
The bravery needed to decline offers
As we said at the start, accountancy business don’t come to market very often and are popular when they do. Just because a sector is popular and sales are scarce, doesn’t mean the offers will be the best.
One offer came through fairly quickly. Given the personal circumstances driving the sale, it was a brave decision to decline it. The next month was then torture as we worked through enquiry after enquiry until a second offer came through.
Once we had a second offer, there was something tangible to compare. Something which enabled our clients to decide which was the better offer for them.
The competing offers
The first offer included 50% cash at completion with the rest paid over 12 months. Sounded okay except for a clawback clause. This enabled the buyer to claim back the first 50% paid if a certain number of clients failed to renew their work. This clause was far too one sided.
At the point of sale, the buyers would take ownership of this business. Our client’s would have no ongoing involvement. In a worst case scenario, there would be nothing stopping the buyers from deliberately aggravating the client base to force non-renewal. That’s an easy way to recoup the cash you paid out on completion without doing any work. It also leaves our clients with nothing. A big risk.
The second offer paid much less at completion with the balance then being paid by instalments every 9 months over a 3 year period.
Also not ideal and also no guarantees that the instalments would reach our clients, but at least no clawback.
Just as it is sometimes right not to accept an offer straight away, it is also okay to question, examine, negotiate and counter offer.
For this reason, we focussed in on the 36 month payment term of the 2nd offer. Why 36 months? Any business clients would have renewed or left within the first 12 months cycle. Why did the buyer want a further 2 years of security after that?
The answer was simply cashflow. The buyer was trying to buy the business through regular business cashflow instead of taking on a loan. Rarely does the seller want to act as a bank to support the buyer in purchasing the business they already own.
Negotiations ensued and acceptable terms were reached.
Victoria concludes with
“We sold the business to a local company who runs similarly to the way we did, which is what we wanted for our long standing clients. I’m confident the business is being run the way we’d hoped it would, the buyer also had local clients and was small enough to deliver a personal service and we’ve been involved in the handover process.
My advice to anyone looking to sell their business would be to take your time, be prepared. It’s incredibly rewarding but working with Alex and Paul made us realise we didn’t need to settle for the first offer. Don’t feel pressured to rush into a sale, carefully consider your options and don’t be scared to negotiate!
Now I’m starting a new journey in Law and begin a new job this month! Mum is enjoying having more time and it’s meant being able to do the little things you don’t get chance to do when you’re running a business.“
Our recommendations for every business owner on selling their business are as follows;
- Plan your sale in advance and give yourself time to accommodate the unexpected. You never know when health issues might hit key members of your business, or another critical issue hits. Being prepared makes you better placed to respond.
- Identify what is important to you in a sale. What are the things most important that you won’t compromise on. What are you willing to give way on.
- Identify the qualities your ideal buyer should have. These are usually softer qualities like beliefs, work ethos and approachability.
- Be prepared to counter-offer and negotiate. You can only effectively do this if you identify your needs in the first place. If negotiations aren’t your skill, get someone else to represent you.
- But don’t forget to compromise if you really need to get the deal done. Don’t loose a £1m sale over ownership of a £20k company car. Compromise on the things you can let go of.
These 5 short bullet points get you started. Our ultimate guide to business exit strategy is your next read.