We are constantly being asked ‘how much is my/our practice worth?’ Of course, the answer is ‘how much a buyer is prepared to pay’. Yet, this is a cop out answer!
Can you all remember the different ways we were taught to value businesses? Net Assets, Goodwill as a function of so many years profit etc. The list goes on and on.
Our academic colleagues love to devise complicated ways to value businesses - particularly Goodwill. In fact, many of us can probably remember being put through our paces in exams to try and satisfy our lecturer’s seemingly convoluted methods of calculating that intangible.
One of our directors was involved in a Family Court battle years ago and was asked to value a Company on behalf of one of the litigants. An Auckland expert valuer valued the shares for the other party. After a day each on the stand the Judge decided in his written (32 page) judgement that their arguments both had merit and then gave his decision which was within a few hundred dollars of the two valuations average.
Yet, traditionally accountants have used a simple way of expressing a practices worth in cents per dollar of gross fees. This has been used as far back as my memory goes and is still used today.
The reason is simple! It is a convenient, well used and well understood way of valuing goodwill, and at the end of the day approximates fairly closely those other complicated (and therefore arguable) valuation methods.
I believe that we can put all sorts of tests on Gross Fees to increase or decrease the cents per dollar. Is the practitioner old or young? Are the fees compliance or consultancy? Are they charged monthly or annually? The list goes on and on!
But essentially, at the end of the day, it goes back to the test – a willing buyer and a willing seller and where on that matrix does this practice fit?
Our experience in New Zealand would indicate that the current norm is about ( x )cents per $1 of fees. We know from our Australian cousins that there the number is higher – about $1 per $1 or higher.
Yet basically it comes back to how eager you are to buy or how eager you are to sell
The older practice will provide many avenues to immediately increase fees. When I was in practice and gaining lots of new clients, most of those clients had never had an in-depth examination of their affairs. Life Insurance, Wills, and Business Structures – the list goes on. And those new clients loved us to death for that examination! And paid the fee promptly and often referred their friends to us!
The more up to date and proactive practice will still provide avenues of new fees. We found Accountants loved to over complicate things, so a simplification process was welcomed by those clients as well!
So, to answer the question – it ultimately comes back to how willing you are to sell and how willing the purchaser is to buy!
If you have any questions regarding the Buy/Sell/Merge of Accounting Practices, please get in touch with us today! Give us a call in absolute confidence!
Phone: 09 600 2092
Mobile: 022 043 3880