Baby-boomer business owners are ramping up their plans to exit full-time work. It’s this group that is looking for help in meeting the trials that lie ahead. In a challenging business environment, business owners are relying more and more on the sale of their business, to retire or invest in a new business venture. Many partners feel that they cannot afford to retire or cannot sell their business.
Bstar’s 2015 Accountants Research Report confirmed that accounting firm partners approaching succession and retirement are now ready to take action about the future performance and value of their firm. However 69 per cent of accountants don’t have a formal succession plan in place, according to the 2015 report which also identified a low degree of relationship and advice or product trust with generational successors.
The report also revealed that planning for sale, business valuations, succession planning and implementation, estate planning and sounding board or mentoring services will continue to grow in demand from clients with needs related to management and ownership succession.
Due diligence, business education and management courses and CFO analysis roles will be in high demand from future owners of SMEs, as will wealth management services as business owners continually assess whether they will have enough to retire.
When a 65-year-old professional wants to retire from practice, they must establish how they propose to sell their equity in the firm to the next person. Younger people are now considering whether they actually want to become a partner in these accounting firms.
Uncomfortable conversations
More accounting firms appear to be thinking about transactions and wanting to understand the valuation of their firm. It can be a topic that a lot of partners don’t talk about. Maybe two partners want to continue and two want to exit. An issue like this can spark all sorts of discussion that people aren’t used to having. Perception of conflict and the competing market dynamic are leading people to increasingly think about the transaction. While these may be uncomfortable conversations, they are essential to the future and longevity of the firm, and when proactively addressed can ultimately map out a clearer future for everyone.
When a portion of your wealth is tied up in your accounting firm, your options are not hugely diverse. Traditionally, you can either sell your equity to existing partners or new partners coming through the ranks, or from outside, or sell the entire firm. But increasingly other non-traditional options are becoming available from firms like Prime, who take a long-term partnered approach.
In each of these instances, you must ask, do those parties that could buy my equity, want to? Are they financially able to?
For most accounting firm partners, funding their retirement means selling their equity in the firm. But up to 65 per cent of accountants believe the proceeds from the sale of their firm or firm interest won’t be enough to fund their next business venture or desired retirement.
Equity Valuations and Supply Dynamics
Whether it’s the financial impact of the GFC, more difficult business conditions, low investment returns and generally lower retirement savings, or the increasing cost of living, economic issues have all impacted business owners’ and partners’ plans to retire. Although completely understandable, this scenario is creating an interesting supply dynamic, which when coupled with margin compression for less proactive future orientated firms, could see a long-term impact for equity valuations.
Accountants have traditionally been in one of the strongest positions to provide additional advice services and assistance. They already own and maintain the primary client relationship in many instances, so it makes complete sense to extend their offering further in areas of high demand from clients like wealth management. Accountants are facing increased competition, and understand that if they do not grasp the opportunity now, other providers will get there first and change the relationship dynamic.
Increasing the service offering can boost the value of an accounting firm and attract future investors and buyers.
Accountants must proactively focus on succession planning as a strategic imperative and priority. This includes understanding how an equity investor such as Prime can tailor solutions to assist accountants to manage this process.
