Succession or sell-off options explored

Sydney Harbour
By Chris Sheedy, CA Today

3 February 2016

Corporatisation within the Australian and New Zealand accounting industries is often seen as a threat to smaller businesses. But it also offers great opportunity.

If he had six small to medium accounting businesses that were in good shape and available for sale, Seaview Consulting director Bob Neill said he could sell them 'in a heartbeat', such is the current appetite for growth by acquisition in the accounting and finance industries.

"The profession is going through change at the moment that is really eating away at margins," the business consultant said. "Client fee pressure, the computerisation of compliance-related work, the simplification of the tax office – all of these things are hitting accounting practices at the margins.

"But if those practices don't achieve growth and scale and drive their efficiencies then their margins will continue to decline. With that goes their profitability and with that goes their value."

So smaller and medium accounting practices without the financial strength to gobble up other businesses are in trouble, right? Not quite.

Opportunity knocks

Larger accounting and financial services businesses are on the hunt for acquisition opportunities in a sellers' market. One business broker approached for this story had this to say in response to the interview request: "I don't want to throw a wet blanket over the story but sales in the last year have slowed dramatically. The baby boomers aren't selling and they are going to go down with their ship. The market has been starved of vendors and we have 250 registered buyers and nothing to sell them."

That lack of action by sellers represents enormous opportunity for owners of small to medium accounting businesses, said Bob Neill.

"A lot of professionals are so busy running the business that they don't think about the future. By the time they arrive at retirement they leave themselves no time to plan. The longer your time-frame, the more you're a 'deal maker' both financially and emotionally. But as that time truncates you become a 'deal taker'."

An accounting business is not something that should simply shut its doors once the owner decides to retire. It can, in fact, provide a large financial boost to that owner's retirement fund if a succession plan has been put in place.

One of the major turn-offs for potential buyers is a businesses that is reliant on one person, whether it be around relationships or skills or other expertise. When that person leaves the business, so does all of the value.

The more you can separate the client relationship from an individual to a business then the more sustainable revenue is.

"You need to strip out all of those things that make a business key-person dependant," said Bob Neill. 'This means building systems and processes such as a marketing and service delivery strategies etc. Customers must come in to the business expecting to be serviced by the business, not by an individual."

The good news is that this is not just about grooming a business for a sale. It also offers the immediate benefit of an increase in growth capacity. After all, if everything has to channel back through a key person then a cap is immediately placed on potential growth.

Bob Neill told CA Today: "The more you can separate the client relationship from an individual to a business then the more sustainable revenue is. Therefore the business is more valuable and the more likely it is that someone is going to buy it, because they can see it succeeding regardless of who owns it."

There are two main transition strategies, he said. One is simply selling up and getting out, which usually takes a preparation period of 18 months to three years. The other is a gradual sale to people within the business, and that is usually a five to seven year journey.

"The major challenge for younger people within the business is their capacity to fund the acquisition, so it is often done in stages rather than all at once," he said. 'But neither approach will work unless the right processes have been put in place to separate the owner from the business."

Topics

  • Business
  • Australia

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