Looking to buy fees?

why pay dollar for dollar when you can pay 5 cents in the dollar?

The demand for accounting fees in metropolitan Melbourne is at a record high. In fact, we currently have more than 180 registered buyers and when a quality practice lists for sale it is like a shark attack.

The most sought after profile is a practice with a fee base of between $400k and $500k located in the inner city region or south-eastern suburbs of Melbourne. We could sell that type of practice 20 times over on the proviso it is a quality parcel of fees. By quality we mean firms that focus on SME’s and self-managed super funds (not I returns). As a guide, a $400k practice would typically have 40 plus SMSFs. Another measure of quality is the gross fees per full time employee (FTE). If you are just doing $100k per full time employee (including administration and support staff) then we hate to tell you but you are not going to appeal to many of the hungry buyers. At $125k per full time employee you start to look appealing but anything over $150k per FTE and you are the quality that buyers will always be drawn to.

There are obviously other benchmarks but elsewhere in this newsletter we have detailed the seven reasons why buyers might shy away from buying your practice. These include an aged client base, fees in decline, falling profitability, poor staff, unrealistic price expectations, failure to adopt technology and the desire to take a parcel of fees home after you ‘sell’.

Basic economics tell us that supply and demand dictate price and currently most quality firms in the Melbourne metropolitan area (under $800k in fees) command a price of ‘dollar for dollar’. Any practice larger than that would generally be valued using a multiple of EBIT after allowing a notional partner salary of around $150k. Given the baby boomer vendors are proving more stubborn than anyone ever expected, what can the impatient buyers do? There are different types of buyers including start ups, young guns leaving larger firms and going out on their own, consolidators and financial planning groups. However, the most common type of buyer is an established firm looking to tuck in another $400k of fees to their existing fee base. They buy fees for a range of different reasons but many of them are addressing their deficiencies including an ageing client base, declining fees and profitability. It’s not a criticism, it’s a fact. Others are buying to build a fee base for a prospective partner and in many cases it is a ‘quick fix’.

Before You Buy

Frankly, before you invest several hundred thousand dollars in someone else’s business maybe you should think about investing in your own business. In some cases, impatient buyers have almost bought a mirror image of their existing fee base and the acquisition has not revived their ageing client base or improved their growth rate.

Many of the buyers are in their mid 50’s so when they depart in 6 or 7 years the age of their client base will be back where they started. In essence, they are masking, not solving the problem. Marketing should never have been off the agenda and every firm needs a ‘rainmaker’. If you’re flat lining and thinking of admitting a new partner, make sure someone in the practice is capable of bringing in new business.

At the start of 2013 we launched the Accountants Accelerator Group that targeted what we described as the new breed of CPA’s – Committed, Pro-active and Ambitious accountants. We hand picked a dozen applicants and rejected a number of others. Our mission was to help them achieve extraordinary growth in 2013 and beyond. Using a combination of offline and online marketing strategies supported by a range of purpose built tools we have achieved some phenomenal results. We built them websites with a marketing edge because we believe the primary purpose of a website is to attract new leads and clients. The websites were tailored to their niche markets and we helped them host client seminars and introduce some new services including business coaching and marketing. They can now offer clients SEO services, video production and a range of other marketing services. Not only does this differentiate them from other firms but they are also getting more referrals than ever before and the clients are generally Gen X and Y.

For an investment of around $10k several members will generate more than $100k of new fees this year. The other members have had mixed results but most of them will generate at least $20k to $30k of new fees (and growing each year). Do your sums but paying 10 cents in the dollar for new fees is a more affordable and sustainable investment. Make no mistake, it’s not for everyone but if you are serious about growing your practice the 2014 intake for the Accountants Accelerator Group is now open.

Other articles in the March 2014 edition of The General Journal: