block of fees for sale

jilt

I have been approached by someone selling a block of fees. Does anyone have any experience of buying fees? For instance if the annual fees total 30k what sort of price would you expect to pay? After all there's no guarantee how many clients would actually use your services if you went ahead.

Main question is how can you tell if its a scam of some sort?

Monsoon

I don't have any experience but know a little. I would go through a broker aas even though it will cost more, you have a bit of security.

Typically you pay about 1 x Gross Recurring Fees so look to spend 30k or thereabouts depending on the quality of the clients etc. You usually pay a third up front, a third after. 1 year and the last 3 rd a year later, with clawback (I.e. You pay less) in respect of clients who leave after you take them on.

Thats all I know! Do a search on AccountingWeb, I am sure there have been articles and discussions on it and you will learn lots more about it!

RAS

Agree with the points made by Monsoon. I had the opportunity to purchase a £50k block of fees several years ago from a lady accountant who went to Greece to live. In the end I got cold feet and it was sold to another lady. She seems to have done quite well since from the client base purchased.

I think that you have to be sure that the client base that you are purchasing fits in well with your own strong areas of knowledge for it to work long term.

Also, I would imagine that raising the finance could be very difficult in the current climate. Let us know how things go with it.

jilt

Thanks guys. When I get back from holiday I'll look into it and let you know what happens

jilt

Just thought I'd fill you in with this. Am now back from holiday and have had a call from the guy selling the block of fees. The annual turnover is around £65k and he wants £45k upfront with no clawback!!!! And he wants his fulltime employee taking on!

He's says he is in negotiation with someone but its not going that well, am not surprised or am I being a little naive here?

Woooof

What's the expected salary of the full time employee?

Monsoon

Jill, that sounds a bit much. A lot a bit much!

0.69 x turnover is a low multiplier which is good and presumably reflects the salary of the employee. I would be careful with taking on an employee if you don't want one though. Also consider, I don't know if you work from homwe or not but if you do, do you want an employee either at your house or working unsipervised from their home. What is the emplyoees role? Accountant? Bookkeeper? Admin?

I dont think the no clawback full price up front is realistic though.

Lets say the salary is £20k including employers NI as you need to look at total cost.

I would be looking to pay £45k total (1 x GRF less the salaried employee) in 2 halves, first half up front, second half after a year WITH clawback provision. I wouldn't touch a block of fees without a clawback.

HTH

A skilled employee can be a huge bonus, but it's not a decision to take lightly.

What are the clients like; are they your target client? Or are they likely to leave as you aren't their target accountant but he is? Are they low value high stress, reasonable, or nice and profitable?

jilt

Well yes I thought that was a high price and wouldn't enter into such a deal with no clawback. Yes they are mostly my target clients but there's no guarantee how many would stay so with no clawback I think the price is too high.

I work from a rented office but still would not want to take on the employee, if only 25% of the clients came then I'd be faced with making the employee redundant or at least reducing their hours. If I ever did take someone on under those circumstances I wouldn't want to take them on as continuous employment either. And foolishly I forgot to ask what the employee's salary was.

It's good to know how these deals work though in case any others should come up. Good luck to him but I doubt very much he'll get the deal he's after. As they're in my area I may pick up some who decide to flee the nest should he manage to sell.

Thanks for you comments.

jilt

Well surprise surprise had another call to see if I may be interested, presume his negotiations have fallen through!

Said no wouldn't be interested with no clawback and hey presto a clawback can now be discussed.

Monsoon

Ah, the art of negotiation!

How much salary is the employee on?

jilt

This is the odd bit, I'm sure he said he's been paying her to the NI threshold but he's looking for a salary of £13k for her which he thinks isn't enough and would hope it would increase after a 3 month period.

If I'm honest I wasn't giving him my full attention and may have heard him wrong. I left it with him, said I'd have to see what sort of clients they were etc before any serious talking could take place. I'm still showing him some interest as things are pretty grim here at work and I really could do with increasing my client base and getting out of here.

Monsoon

So presumably she's fairly junior? Full time?

I guess the higher the salary, the lower the payment he wants for the block of fees, but then you're possibly stuck with an employee. You've got an office - honestly, becoming an employer was the best thing I ever did, it's really helped my business grow. It might be worth having a sit down and planning various scenarios; if the employee is full time they can man the office for you when you're at the other job until you leave, which makes the practice look a bit bigger and busier than it is etc... Tricky one, good luck! x

jilt

She's full time yes and apparently he only works 3 days a work. She does bookkeeping, vat, and inputs info into excel for accounts and he does the rest.

I hadn't thought about someone manning the office while I'm not there, that is a valid point. I'm not sure how Steve would feel about being there with her when I'm not (we share the office between our businesses) and whether there is sufficient room to fit in another desk. If I'm honest I'd rather pay someone to do some bookkkeeping at home if I couldn't cope with the work than employ someone but maybe it's time to think again. Like I say I really need to make a go of this, especially at my age!! lol

Monsoon

Jill, she sounds perfect. Seriously.

Say you charge out bookkeeping at £20 ph and your employee is on, say, £6 per hour. As long as they pretty much do all the work you are in profit without doing much work. You are creating a business, not a job. You can go on holiday and the business is still earning you money. What's not to like?! Ok there are various employment red tapes, but touch wood I've had no problems and as long as you're sensible it should be fine.

Yes, you will be paying our your money to someone else - but you will be freeing up your time. I think many start-up MIPs get to a critical mass where they are working loads of hours and really need help but don't want to give up the money to take someone on - this may be a gift - you will be taking on more income and some help too. Of course there's the purchase price too, but the more I think about it, the more I like about the idea of purchasing a block of fees with an employee in place to assist with the sudden increase of workload.

Just make sure the sale contract gives you the right to get rid of the employee if she doesn't work out for whatever reason, without any comeback on you from the vendor, subject to usual employment rights etc.