Finding a model that fits you and your practice

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The publishing of an article with John Hannah of SBP Accountants and Business Advisors in the Scottish Financial News has raised an interesting issue.

John laid out his succession priorities for the future of his independent accountancy firm, and his particular views on PE and future ownership. This article is in line with many of our current assignments advising practices on succession and independent ownership models.

Over the last six months we have advised on a number of MBO succession assignments and John’s article has reminded me of our work here in supporting independent practices and the services we are able to offer: supporting their drive to remain independent; retention of their entrepreneurial flair; and indeed even adding a philanthropic element to the succession debate.

There’s no doubt that firms have struggled to manage their succession. Finding the next set of owners from within a practice has proven difficult in recent times. Funding the buy-out of goodwill is a complicated process, and it seems the pipeline/pool of internal purchasers is not as deep as, say, five years ago. A move from goodwill to the custodian model sees ownership passed on without a payout – the idea being that the owners have taken their value from the firm during their tenure holding equity. But this is not easy to square when owners have had to historically purchase their equity interest.

We’ve seen a number of new practices pop up in recent times, where there is a more entrepreneurial approach to creating value over a five-to-ten-year period, but with the explicit aim of selling at a specific point in the firm’s lifecycle.

Understanding your motivation

The motivation of these founders and the partners in independent practices is a confidence in leading and developing a business for the benefit of all stakeholders.

Apart from loss of strategic input to the future direction of a practice going the consolidation route, there is also a loyalty factor, and a small number of accounting practices have or are considering employee ownership structures. The driver here is to give some future reward and security to the existing stakeholders/employees within the firm. It could also be a legacy issue, in that the retiring partner wishes to see a certain ethos or style carried through to the next ownership team.

The critical issue, of course, is whether the employees, management, and ongoing team have the leadership and ability to invest in the business to sustain growth and profitability.

Certainly, independent practices can thrive – and many do. The ownership models they adopt can range from the autocratic to the all-inclusive, but their success will be determined through their motivation, investment, and participation of the whole team, joined with a servicing level which clients see as an attractive and differentiated offering compared to the competitors.

Keith Underwood is MD of Foulger Underwood

Please get in touch if you’d like to discuss the future of you and your practice.