ICAEW Practice Alert - 1/12/07

In one recent case at Syscap, for example, this more flexible approach meant that an accountancy practice valued at £100,000 could be bought out in several stages, including a £39,000 payment on day one, then monthly ‘earn out’ payments to the seller for seven months followed by a final anniversary payment of £36,000 to complete the agreement. The purchasing practice entered into a five-year agreement with Syscap, paying equalised fixed monthly amounts from day one and Syscap built in and handled the retention payments to the vendor in line with the sale agreement.

Finance partner

Unfortunately, just as those involved in practice buy-outs are looking for increased flexibility, banks are finding it less easy to accommodate their needs. Still really only able to offer the most basic loan agreements, banks can struggle to deliver the kind of flexible finance that can make such a difference to a smooth handover. Aside from the constraints imposed by the bank’s lending parameters, it can make sense for firms to look outside their existing banking relationships in search of finance, since any overdrafts, loans or mortgages with that bank may limit their ability to take advantage of the opportunity to expand by buying another firm.

Having a wider range of financial options available makes perfect sense for both sellers and buyers, and choosing the right one should form a key part of the succession planning process, whether based around an internal or external sale. By researching the options, planning well ahead of the target sale date and finding the finance solution that best fits the requirements of all parties, vendors can help make the process far easier and realise the best value for their business. Similarly, purchasers can maximise their buying potential and avoid disappointment by structuring their transaction around an affordable specialist financial solution rather than accepting the often restricted terms presented by High Street Banks.