Buying an accountancy practice is an opportunity to grow and develop your firm, to boost profits and revitalise your team. It can open up new markets and enhance your brand.
But if it goes wrong, it can also have profound and long lasting consequences on your time, your finances, your stress levels and your relationships.
We’ve listened to the experiences of accountants who have been there, done that and learned painful lessons in the process. Here’s what to do and what not do.
Do your due diligence
Chris Viles is a practitioner in Leeds and already had one acquisition under his belt which went, in his words ‘swimmingly’. So he was confident that he knew what he was doing when it came to the next one.
“So the second acquisition came along in October 2018. And that just changed my life and not necessarily for the better,” Chris says. “It increased the number of clients that we have from 170 to over 500. And that was overnight. In hindsight, that was far too much, especially with the team that I’ve got around me. And it’s been dragging us back ever since.”
“I didn’t do anywhere near enough due diligence. The practice that I acquired took me back to my trainee days back in the mid 90s, in terms of how manual and inefficient things were. I still scratch my head at wondering how a sole practitioner managed as many clients as he did. I did a back of an envelope calculation, I looked at historic billings. But the things that I hadn’t done in anywhere near enough detail was look at the seasonality and look at when those billings arose and look at where the pinch points were, and how the practice was run.”
“I’d taken the vendor at face value and thought that he ran a – not a top notch practice in terms of all the software and things and all the efficiencies, but I didn’t expect it to be as manual as it was. And when I say manual, you know, £3 – £4 million turnover clients, he prepared the accounts and their tax returns on sheets of extended analysis paper, and that was it.”
Before you commit, make sure you know exactly what you are getting – details of the client base, the type of work involved and profitability; the systems, software and operational details; full information on existing team members including qualifications, salaries and roles.
Don’t be led by your emotions
Chris admits that he got carried away when he bought the second practice. “I allowed emotion to run the process. And by that, I mean, certainly I’d been buoyed by how easily the first one had gone. I started my practice fairly late in life so I was thinking, I’m drinking in the last chance saloon, I want to grow it fast. And once the genie was out of the bottle and I started envisaging what my life could be like with a larger practice, that was it.”
Keep coming back to what you want from the acquisition – does it fit your realistic target? Can you cope with the demands of additional clients and team? Can you access the financial and logistical resources you will need to make it viable?
Do challenge the existing client culture
Your new clients’ understanding of the accountant/client relationship may be very different to yours – and this can cause friction. If the previous accountant allowed their clients to bring in information late, it’s important to change this immediately.
Practitioner Phil Ellerby made this mistake when he acquired a new practice in Doncaster in addition to his Leeds office.
“I think one of the things I regret most not doing was going in and almost dictating how this is going to be, this is how we work, and this is what we do,” he says. “It’s not up for negotiation, it’s not up for manoeuvre. This is how we’ll do it, and we’ll work with you to deliver it. And we do it this way because we know best. We’re the professionals, this is what works in our business and this is what works in a finance function. So I think it’s having that confidence. And I certainly would do it very differently now. One of the mistakes we made was being a little bit too soft with clients and we’ve become very firm with clients now”
Chris Viles agrees. “The culture that exists within your client base is a culture that evolves over time, based on how they’ve been treated. Or to put it another way, what they’ve been allowed to get away with. And that I have found is the biggest obstacle to making changes within the business.”
Being clear about how things will work from the very start will save you a lot of pain and stress.
Do build relationships with your new clients
Your new clients will have no loyalty to your accountancy firm unless you build a relationship with them.
Phil Ellerby found this to his cost.
“When I acquired the practice, I had some good client managers in place, who were going to retain the relationships. I’d just put my systems in and everything would tick on normally, because that’s the way the practice was run by the exiting practitioner. He’d got nothing to do with the clients. And I think that was a mistake as well, having distance from the clients because you’ve got no relationship, no rapport with them. So when it comes to crunch time, they’ve got no loyalty.”
“We had a client manager leave at Christmas, and she’d been lining up clients to take with her since June. So when she walked out the door another £60,000 – £70,000 walked out the door, because I had no rapport with those clients whatsoever. If I did it again, I would spend time with every single one of those clients, and it would be a rollout plan. And I would communicate that plan with them.”
Don’t let the team control the employee/employer relationship
Integrating new team members with your existing team can be tricky but it’s essential if you want your acquisition to work. As with your new clients, your new team may be used to a very different way of working.
Phil Ellerby again: “One of the other regrets I had was letting the team dictate the culture. And we especially have had two issues. One was with the first acquisition we did, they created an ‘us’ and ‘them’ divide, which I really detested. The other thing was, again, pandering to the flexibilities that the previous practitioner had given, that didn’t suit our way of working. Because what that did for us is, it caused internal issues within our existing team. We kind of pandered a little bit to the new team members, because we wanted them to like us, we wanted them to stay.”
Be clear on how you run your practice and your expectations of the team right from the start.
Do check any clawback agreements
Both Chris and Phil believe that clawback agreements are useful to protect both your interests and those of the vendor. But do check them thoroughly and don’t feel you have to agree to everything.
Phil, in hindsight, felt that the clawback arrangement around the team was something he should have challenged. “If we dismissed a client manager, or one of the key employees and a client left off the back of it, we had to pay. So again, we then had to try and really mollycoddle those client managers. So they could more or less come and do what they wanted and they sensed that.”
Buying another accountancy practice requires perseverance, patience and a lot of planning and research. There is also undoubtedly a significant amount of stress. But despite all the pitfalls and pain, both Chris and Phil say they would do it again. And this time, they’ll know better.
Chris Viles and Phil Ellerby discussed their experiences on a recent Accountants Helping Accountants webinar for AVN. The recording is available to watch on the AVN Know How Hub – more details here.