Managing your escape
Giving up practicing life comes to us all realisation of value becomes the key issue. This can be achieved by outright sale, planned closure or admission of partners.
Value of the firm
“Not as much as you think” will be your accountants answer to the value of your firm because ultimately it is what a buyer will pay. Unless you operate a process driven firm there is unlikely to be any “true” (as opposed to tax based) goodwill and the value will be based on a sum of the realisable value of its assets. This should be evident from the annual accounts – although adjustments will need to be made for contingent WIP, write off of goodwill and reductions for onerous leases, PII claims and potential TUPE liabilities.
Maximising value and identifying the “best fit” is best achieved by a Lead Advisor who will “go to market” under strict confidentiality and a defined process. The small numbers approached will be identified by mutual input and be vetted for e.g. financial strength, cultural and people fit, geography, service offering and service approach. The process establishes the strengths and weaknesses of the firm, a realism over true value, negotiating position and answers to the difficult questions.
There are a whole host of practical issues – although many will be dealt with by an acquiring firm – the most problematic of which will be successor practice/run off cover, lease commitments and TUPE. Psychological preparation must not be underestimated, must be carefully planned and thought out with a clear strategy and plan of what life will be like after the event.
An LLP, sole practitioner or unlimited partnership will sell assets. With a Limited Company there is the choice of selling the shares (usually favoured by the seller) or selling assets out of the company (usually favoured by the buyer). The availability of Entrepreneurs Relief resulting in CGT of only 10% is a key issue and on the sale of assets the seller will wish to allocate as much as possible to goodwill.
Bringing in new partners
An alternative to outright sale is a sale of the firm in a phased way by bringing in new partners. A typical methodology is by some form of lock step.
Tax allowable contributions and tax free growth are compelling arguments to maximise contributions up to the lifetime limit and through the use of carry forward relief. The recent budget has removed concerns about having to buy an annuity. The use of a self-administered arrangement is to be encouraged as is investment in practice premises which are effectively purchased at a discount of up to 45% while rental returns are often in the region of 5% to 7% tax free.