Guide
Selling an accountancy practice: the process and the rules
Updated
The commercial negotiation is the visible part. The regulatory obligations around it are what turn a good price into a clean exit.
What you are actually selling
ICAEW's helpsheet is precise about this, and it changes how you should think about the price: "Purchasing fees is not actually buying clients, clients have the right to choose their accountants. What is being bought is a right to an introduction and recommendation, and the chance to sell a service to specific clients including information about the client and the services that they may require" (ICAEW helpsheet). That is why retention, handover and clawback dominate the negotiation.
Client confidentiality and consent
The same helpsheet states that the clients' rights, interests and wishes need to be taken into account, with appropriate measures to safeguard client confidentiality under section 114 of the ICAEW Code of Ethics, that in most respects the clients' consent will need to be obtained, and that members must have regard to the Data Protection Act 2018 and the UK GDPR. It also notes that the authority of the client would usually be required before disclosing client confidential information during due diligence, and that a confidentiality and non-poaching agreement, including a hold-harmless clause, is normally documented before detailed information is disclosed.
What the buyer will want to see
- A detailed client list showing recurring fee excluding one-off work, work done, age profile of principals, industry and trading format. ICAEW's guide notes you would not show client names until the sale is agreed.
- A staff list showing job role, salary and benefits, and hours.
- Premises details: size, rent and remaining contract.
- A sample of your working papers.
- Details of what software you use for which tasks.
- Three years of your own business accounts, and often management accounts.
Your staff
Where the business or part of it transfers to a new employer, employees are usually protected by TUPE: their jobs transfer, their terms and conditions transfer, and continuity of employment is maintained (gov.uk). TUPE applies regardless of the size of the business. A share sale is different, because the employer does not change. Take employment advice on which applies to your structure before you tell anyone.
Run-off insurance, the cost people forget
Professional indemnity insurance is written on a claims-made basis, so a policy has to be live when the claim is made, not when the work was done. ICAEW's PII regulation 2.8 requires that when a firm ceases to be engaged in public practice, the members in practice at the date of cessation ensure compliant cover is in place for at least two years, and thereafter take all reasonable steps to ensure cover is in place for a further four years, six years in total (ICAEW). Price that into the deal: it is a real cost of exiting, and it lands after the fees have gone.
The handover
ICAEW's guide describes a handover period as a condition of sale, "commonly two months during which the vendor must be available to make introductions and answer any queries on previous work", and notes that the smoother the transition, the higher the client retention and the more you receive. Where clawback is measured on retention, the handover is not a courtesy; it is part of the consideration.
Ready to test the market? The form puts your practice in front of brokers and acquiring firms without your clients or staff hearing about it.