What Your Firm’s Characteristics Highlight About Your Succession Options
There are multiple options when it comes to planning for succession in professional firms. However, the evolution of firms may dictate which of these are more probable over the longer term. Just some of these key characteristic include firm size, location, number of partners, services offered, desired value/price, clientele and the like.
Each of these requires consideration as part of your succession planning.
Firm size – when discussing the sweet spot for practice sales, most people generally express a desire to purchase a practice or fee base somewhere between $300K – $1 Mill, perhaps $1.5 Mill. These types of practices can easily be sold (pending their other characteristics, every day of the year). However, it’s once firms start growing beyond these types of fee levels that the number of prospective purchasers begin to decline. Just think, how many prospective purchasers could actually acquire a $6 Mill, $8 Mill, $10 Mill size practice and for cash? So, as your firm grows, please be mindful that the larger you become, perhaps less realistic becomes the succession option of an outright on-market sale and the greater the need to plan for your succession internally.
Location – Along similar lines as firm size, location can also be instrumental on the number of prospective purchasers available to make an acquisition in the open marketplace. Regional centres are likely to have far fewer parties interested or capable in buying out a colleague, which highlights the increased need to plan well in advance and build those internal succession options.
Number of partners – Obviously, if you are a sole practitioner, your options to sell out to someone internally may be far more limited than a multi-partner firm that is also likely to have a greater number of senior personnel who may also be interested in equity. Therefore, irrespective of the number of partners that your firm has, it’s imperative to test the internal succession theory early. But for sole practitioners, such an option may be far less of a successful choice.
Services – If your firm offers unique or specialist services, such as insolvency or audit, this may limit the number of available external succession options, instead generating the need to sell equity to other equity holders or senior personnel therein.
Value/Price – Depending on the size of the practice, a practitioner looking to get out of their firm, may actually achieve a higher sale price through an on-market sale than through an internal sale of equity. Review this well before selecting your succession option.
Clientele – Does your firm specialise in a particular field or industry? Does it service clients of a particular size? Do you have predominately larger clients? How will the firm fair with the looming standard business reporting and accountants’ exception? Do you have clients from a particular cultural background? These are all factors that need to be considered when determining the likely transferability and attractiveness of the client base as well as the ideal timing.
So, as your firm continues to grow, flourish and evolve, I would encourage all practitioners to periodically review how these factors, as well as others, may drive and impact upon their future succession options. After all, every practitioner should ideally have multiple options when it comes time to succeed out of their practice.