The Impact Your Staff have on the Value of Your Practice

As we highlighted in our last blog, delegation is a powerful tool in making your practice more efficient and giving you more freedom in your work/life balance.

Staff have a huge impact on the value of your practice in many ways and in this issue we explore the areas & effect they have.

The Practice’s reliance on You

When you think about what will happen to the Practice when you exit, the first thing we consider is how the Practice operates. We’ve met Principals who effectively deal with all client matters & their staff merely follow up with clients for information.  On the other hand, some Principals barely talk to clients, only having to correspond with their key clients. The rest is delegated.

Tell us which firm would be more attractive in a sale? Which one is more attractive for staff to takeover in a succession plan? Exactly. How long would it take to move from the first example to the second one and does the first Practitioner have the willingness to do it?

What would the Buyer say?

When Practices are sold you want to have as little change for clients as possible. The less change that takes place the more likely the clients will stay post-sale. The Buyer & the Seller want the clients to stay for good reason.

If the staff had little to do with the clients & the Principal leaves, what do you think goes through the client’s head? Their new Accountant becomes a stranger & the reluctance to move to a different Accountant is lost.

The greater the risk of client loss, the more likely to have claw-backs in the sales contract & a larger discount will probably be placed on the value of the Practice.

Staff costs are a large factor in the Practice’s value

Most Buyers want to keep the staff of a Seller’s Practice. Why? Less disruption to Clients. Business as Usual. Now while efficiencies can be gained from the merger of two Practices generally this takes time & the Buyer is unsure of the need for all the staff when first merging.

If we look at the cold numbers while most Practitioners would like to sell their Practices for cents in the dollar, a decent size practice will be valued using the Capitalisation of Profit methodology. The fact is that Staff make up the largest cost of most if not all Practices with many around 50% of revenue, staff costs can have a significant impact on the value of the Practice.

Invest in Your Practice

We talk a lot about ‘Investing’ in Your Practice. It’s really important and you want to tick as many boxes in the seller’s checklist as possible. Leaving it to someone else to make the necessary changes comes at a price. Remember the less change for clients the better and technology is one of those changes that is likely to happen post-sale. The client doesn’t want to be faced with a new relationship, a new technology platform, a new fee base etc. So, we recommend that you make the changes now rather than leaving it to someone else by being up-to-date with your charge out rates, having invested in technology & delegated to your staff.

Staff are the Light at the end of the Tunnel

The greatest part of having individuals ready to take over the practice is Exiting on Your Terms. Longer exiting timelines mean less chance of client loss, the chance to move down to a day or two a week, make decisions on investing in the Practice jointly etc. That is good for everyone. Happy days.

Staff have a huge impact on the value of a Practice both in financial & non-financial terms. Delegation, efficiency & a successful succession plan will make your life a lot easier. So, start putting together a plan…don’t delay.

Wanting some advice on what works best for your Practice? Talk to us on 1300 121 013.