Stop juggling and start outsourcing
It can be tempting when the pressure is off to delay setting up an outsourcing relationship. However, you want to get this in place and working well before you hit a peak time!
Many accountants and business owners find themselves stressed and overwhelmed simply because they are wearing too many hats and trying to do too much on their own.
As a result they start to consider outsourcing to take some of the pressure off and ease their headache.
However, when the work dies down slightly, they think they can manage and go back to juggling 10 different things at once; and so the stress starts up again.
Just one too many things to do to outsource?
There are so many people out there who are considering outsourcing. But, for one reason or another, never quite get around to it.
Here are some of the common reasons why people delay outsourcing:
- They have a hard time asking for help.
- They have a certain way of doing things.
- They don’t want to pay for things when they can do it themselves.
- They don’t want a reduced quality in work (this isn’t always the case).
- They don’t know who they can outsource to and how to get started.
- They don’t like change.
- They’ve had a bad experience in the past with outsourcing.
There’s no shame in hanging up a few of those hats and accepting you simply can’t do everything yourself. After all no one is really superman or wonder woman (we can only wish). As long as you insist on doing everything yourself, you will never have enough time to do it all, and more importantly quality is likely to suffer as a result.
As the saying goes, you should work on the business rather than in the business. Focus on the things only you can do as a business owner, and delegate all the other tasks to help free up your time and switch your focus to things that will generate income for your business. When was the last time you spent real quality time with your family and friends?
By choosing to selectively outsource you might find yourself leaving the office at a reasonable hour and minimising the amount of work you have to do on the weekends. Sounds good right?
Accountants ... embrace the fourth industrial revolution
Technology has been affecting the finance function and the accountancy sector for a while now; take the recent introduction of cloud accountancy, for example.
Cloud accountancy has allowed the same functions (and more) to be achieved at a significantly reduced cost compared to previous infrastructure which required heavy implementation and support.
Although this technology has become widely accepted, as other technology evolves within finance, there are still concerns. These could stem from a lack of understanding or lack of information, but it is actually more likely to come from the fear that technology is going to replace finance jobs.
In some circumstances, these concerns are justified. After all, with fewer requirements for accountants to carry out manual processes, the role of the accountant and the expectations businesses have about what they need to provide, is changing.
Therefore, process-based data entry or consolidation style roles, will (not might) be reduced! But this is not to say that the human workforce is to be completely replaced by ‘machines’ it’s to say that technological advancements are not to be underestimated. Sitting back and hoping for the best, is what will cost jobs.
But there is a solution. If accountants can be responsive, flexible, and agile, then technology is there to be utilised with the accountants and not instead of. Introduced and utilised correctly, technology can be used to the accountants’ advantage and will create endless opportunities for those who can recognise the potential.
The opportunities I’m referring to are around how the role of the accountant, both in practice and in business, will evolve. There is an opportunity to move away from ‘traditional’ routine and repetitive tasks, where finance and accountants work in silos from the rest of the business, conducting slow and manual processes; as per the previous narrow scope and definition of the role.
Technology will help by giving accountants the opportunity to move into a more advisory, and analytical role, engaging with their clients and business to realise their business ambitions.
Some ways technology will enable this are by:
- Removing focus from data entry – the focus around data can now be its content, the analysis of this and therefore, the data’s true value. Prioritise on outcomes as opposed to process.
- Providing real-time information – the ability to interact with your client or business as and when things are happening is invaluable. You can be pro-active instead of reactive.
- Linking in non-financial data – the possibility of quantifying other elements within a business to relate back to business strategy gives a better, more comprehensive understanding.
- Accessing pick ‘n’ mix solutions – API’s (application programming interfaces), will allow accountants to pick and choose what solutions are most suitable, based on the exact requirements and ambitions of a business and what they would like to achieve.
Ultimately, the fourth industrial revolution needs to be embraced by those within accountancy, and the available technology needs to be accepted and utilised. Ultimately, business owners and decision makers are aware it exists, and if their accountant isn’t making suggestions about what they should use, or providing them with solutions, then they will find another who will.
Accountants must embrace the changes and use the technological tools available at their disposal. Technology is not a threat. Technology is going to revolutionise the finance function and encourage businesses to expect more; so, isn’t it time to offer more to your clients and business stakeholders?
Technology will help, and not hinder, the progression and success of the accountant in practice and in business. But accountants must be ready to step forward and not be left behind.
Wellness for accountants: Beware the masks
It took most of my life to realise that I was hiding behind a mask.
Not just one – but many – one for every situation – at home, at work, with friends, with family, at networking & social events.
You see, the reason why is that I was so afraid of showing my true self, of saying what I wanted to say – in every circumstance. I tried to be what everyone wanted to see in me – not who I truly was.
If you don’t think this affects you – ask yourself if you have ever said ‘yes’ to something you wanted to say ‘no’ too. Thought so!
This was compounded by a lifetime managing OCD (Obsessive Compulsive Disorder), GAD (Generalised Anxiety Disorder) and Anxiety.
Being a highly successful, highly functioning but highly anxious business person got me so far – until I had a breakdown. Outside of a Premier Inn! Classy guy eh, I choose my breakdowns well! J
It’s funny – when you feel you have nothing to lose – you will try anything.
I chose Public Speaking. I spoke to a trusted network of people that I belonged to.
It was cheap therapy (literally – I couldn’t afford therapy at the time!).
Showing our true selves
Those fears we have about showing our true selves – of not being liked, being judged or hated – dispelled as everyone I spoke to either offered help, love or resonated with what I was saying.
Fast forward to today – my biggest adversity in life has forged my most exciting future.
I am a Professional (ie it’s my job!) Inspirational Speaker – speaking Worldwide on my own experiences of Anxiety and sharing my insights, tools, tips & techniques.
I Speak for the top Banks, Global Law Firms, International Conferences, Events & Expos & Boardrooms all over the world.
It’s nuts. Truly.
But to me – those years of struggling – have now been made worthwhile – and I get to help tens of thousands of people along the way.
The truth is liberating – now take that mask off…
Why smartphones hold the key to a better tax season for accountants
Research by psychologists shows that smartphones have become more important to our daily lives than neighbours, colleagues. flatmates and teachers.
Only family, friends and pets rank higher according to survey of 1,156 men and women aged from 15 to 83 by Nottingham Trent university and the University of Wurzburg in Germany.
Smartphones have become psychologically relevant entities accompanying their users throughout the day, always ready for tasks such as communicating with friends and family.
To the owner, the smartphone is not mere technical equipment but rather a digital companion and because the medium seems to communicate with its owner, the research suggests that we unconsciously react in a way as if it was a human being.
Fundamental human needs
Smartphones have long ceased to be mere technical equipment, becoming closely related to the fulfilment of fundamental human needs.
They have taken on the role of digital companion and, in many cases, have become the replacement for a range of psychological processes typically confined to human relationships.
In our ancestors’ world, social interactions and the processing of information were essential for survival and it was humans who were sending these social cues. Now, today’s electronic devices send similar signals by talking to us and this suggests that man is adopting technology in order to survive in the modern age.
Imagine an average day: Our phone wakes us in the morning and, before having our first coffee, it provides us with messages or emails. While having breakfast it is our access to the world’s news.
Furthermore, our phone then helps us to get through classes or meetings, reminds us of appointments, helps us navigate our way through foreign places, and so forth.
For all questions big and small, our phone will help us. Moreover, and perhaps most importantly, our phone is our connection to our loved ones. Although our partner, family or friends are often close by, our phone somehow brings them closer to us.
Because of our phone we can talk to them, send them messages, texts, pictures and videos. As a result we know what they are doing throughout the day and it feels like we are part of each other’s life.
This digital companion is already providing a vital connection to friends and family yet its potential use in the business environment remains surprisingly untapped.
For accountants, the smartphone represents a way of alerting clients to relevant information that may affect them and they provide a ready alternative to email to ensure messages get directly to the recipient.
Push notifications are messages that can be sent to the firm’s App users quickly, easily and in a way that grabs their attention. They pop up on the home screen of your mobile device and have a 93 percent open rate, which occurs, typically, within minutes of delivery.
Far more effective than email
By comparison, an email will generate a 4 per cent open rate, if you are lucky. With 24 per cent of those surveyed in this new research admitting to using their phones for more than three and a half hours a day, advisers appear to be missing a trick.
They now have the perfect opportunity to get straight to the home screen of their clients’ digital companions and what better time to start than in the run up to the Self Assessment deadline in January?
Instead of battling on with unanswered emails that are frequently ignored or end up in the ‘trash’ folder, this method of messaging the client within the accountant’s App guarantees to appear on the home screen and to demand attention.
Using these psychologically relevant entities to engage with clients, especially during the tax season, represents the way forward for accountants looking for a more manageable approach to January. What else is capable of getting the attention of 65 percent of owners under 35 within five minutes of waking up?
AccountsIQ keeps spot in Fast 50 rankings
AccountsIQ, the Cloud based financial management software company, ranked 21 in the 2018 Deloitte Technology Fast 50, a the 50 fastest growing technology companies in Ireland.
Rankings are based on average percentage revenue growth over four years and AccountsIQ have now ranked in the Fast 50 for the fourth consecutive year.
AccountsIQ’s CEO, Tony Connolly, credits the company’s growth to continual focus on product innovation. “We are thrilled that AccountsIQ have ranked for the fourth year running, as one of the fastest growing technology companies in Ireland.
"This tops off a fantastic year for AccountsIQ having recently been awarded the UK's Enterprise Accounting Software of the Year 2018. We have added a lot of new customers, and we are on course to achieve 45 per cent revenue growth in 2018.”
Tony says: “AccountsIQ have a strong commitment to product innovation and also to listening to our customers, getting their collaboration and feedback in making AccountsIQ the great product it is. There has been huge uptake of cloud solutions in the last few years and we are very thankful so many companies are seeing the advantage of cloud and adopting our platform.”
Connolly continues, “We are in such good company in the Fast 50, with dynamic growing companies like Spearline Labs, SilverCloud Health and XSellco who took the top spot this year, all using AccountsIQ. These high-growth tech companies are great examples of the sort of clients adopting AccountsIQ, who need the functionality, sophistication and scalability to handle the rapid growth they are experiencing. AccountsIQ has always enjoyed a unique position in the technology sector as being a great fit for fast-growing businesses, particularly as they expand internationally."
“We plan to capitalise on the trend towards cloud solutions and have significant growth plans for 2019. We are investing in expanding our team in all areas. We feel passionately that delighting customers helps underpin growth and therefore customer success is a key focus of this investment. Our recent accolade of being awarded the UK's Enterprise Accounting Software of the Year 2018, beating big brands like Sage, SAP and Exact, was mainly due to user voting, so customer satisfaction is core to our values and will continue to be a central theme as we grow”.
Details of the final Technology Fast 50 ranking list are available to download here.
Beware the big changes ahead for payslips
Big changes are happening to payslips in 2019 - are you ready for them?
It’s time to look ahead at what 2019 has in store for us. Personally, I’m excited for new episodes of Homes Under The Hammer, the Royal Baby and maybe a weekend away in Scarborough. But amid all this excitement there is another huge event looming on the horizon that is going to change the face of payroll for ever. *cue dramatic music*
Yes folks, from April 2019 if you have paid employees then your world is about to be flipped upside down, never to be the same again. OK that was a bit dramatic (I think it was the music) - but this is a big deal. Basically under the new system employers will have to deliver itemised payslips to every worker on their payroll, not just those classified as “employees”. This means all workers, including zero hour and casual workers, must be issued with written, printed or electronic payslips. YUP! You heard right, AND the employer must either:
- itemise the figures for different types of work worked and for different rates of pay
or
- show the combined number of hours worked for which payment is being made.
I can imagine half of you are white as a sheet at this point. Jeepers, it feels like this year couldn’t get any wooooorse! (*turns off music* - sorry, last time). At first glance, yes, this payroll change can seem daunting. It could be a huge undertaking for a large proportion of businesses if you use HMRC’s Basic PAYE tools or if your payroll does not offer a payslip facility. But if you act ASAP you can ensure that you’re ready by the deadline. No, put your pyjamas back on Greg, I didn’t mean like, right now. It’s more about ensuring that there is a smooth transition. How do you do this? Well you’ve come to the right place!
First of all, make sure you have a meeting with your HR team (even if this just consists of Laura who brings her pet Yorkie to work and gives really good hugs). As long as your employees have the right information regarding these changes and that whoever is responsible for the payroll process knows how to implement them then you’re halfway there. But most importantly, your payroll processes should be revised so that this new information will appear as it should on the payslip itself. This includes:
- earnings before and after any deductions
- the amount of any deductions that might change per pay period such as NI contributions
- an explanation of any fixed amount deductions
- and finally - everyone’s favourite part - the net wages to be paid.
I can imagine the half of you that didn’t turn white as a sheet earlier have now caught up. But don’t worry your pretty little heads - as long as you're using a dedicated payroll software you can rest easy. Payroll software such as BrightPay will have already prepared for these changes and have built in functionality to process these amendments according to each individual payslip.
Guys, I know it seems like a huge pain but at the end of the day this is a huge victory for employees who will be able to understand their pay better and also dispute missed payments with greater ease.
Liberté, égalité, employeé.
The end of HMRC’s basic PAYE tool?
Picture the scene: Your teacher tells you that from now on, at the end of every class, you have to do a really hard maths equation. In fact, you have to do a maths equation for every student in the class. If you don’t do these correctly then she’s going to take your pocket money and tell your parents. To help you do the equations she hands you a pencil. Not even a calculator – a pencil.
Welcome to HMRC Basic PAYE Tools (BPT) and auto-enrolment. If you hadn’t guessed, BPT is the pencil.
If you are an employer then you know about auto-enrolment and your employer obligations. Automatic enrolment has been rolled out over the past couple of years and now the setup process is over for employers. Nothing left to do. We can all go home.. HA! Yeah right! *Cue demonic laugh from the Pension Regulator*.
As an employer you must continue to make payments that are due into the scheme every time you run payroll.
Naturally, employers across the country are still fretting about this. Why? Because The Pension Regulator monitors the contributions that are paid by employers into workplace pensions and they can tell if incorrect payments are being made (or not being made at all) into your staff’s auto-enrolment scheme and they will take action if you fail to comply. It is a continuous obligation that needs to be carried out all the time.
Let’s talk about BPT for a second. It’s essentially a spreadsheet template that you type information into. Sure, you could use it to calculate contributions and the contributions rates for 2018 and onwards. You could also watch paint dry. Both would be equally as long and tedious.
The Pension Regulator do offer a very in-depth set of instructions on their website on how to use this spreadsheet. The problem is, the margin for human error is huge. (Even the Pension Regulator themselves advise employers to use payroll software for their auto-enrolment duties).
This, coupled with the fact that these contributions are constantly being monitored and that you will be fined if there are any problems is enough to make a grown man cry (we all saw you in the storeroom, Craig). You have to be really clever to get all these calculations right every time. But you know what else is clever? Getting a payroll software that basically automates this automatic enrolment process for you. Luckily the clever clogs at BrightPay are here to help.
BrightPay is not just the calculator (yes we’re still using this analogy) it’s a supercomputer, first in its class. It will automatically import your HMRC Basic PAYE Tools data and handle ALL the administrative auto enrolment tasks at no extra cost. It also includes the NEST API, The People’s Pension API, Smart Pension API and the Aviva API which means that the upload of auto-enrolment data is automated. Yes, AUTOMATED.
Another major advantage of BrightPay is that it generates payslips that clearly state pension contributions.
BrightPay basically does all the work for you every time you run payroll. Think of all the things you could do with those saved hours – you could read a book, take up a hobby or do what I do in my spare time and watch 12 consecutive episodes of Judge Judy whileeating pizza. The world is your oyster! Live your best life!
To make things even better BrightPay is just £229 + VAT for a bureau licence with unlimited employers AND employees (Support is included in this price – no you are not dreaming). To top it all off, BrightPay won the Payroll Software of the year award at this year’s Accounting Excellence Awards. For more information head to HERE.
Clients and payroll ... the worst game of tennis you’ve ever seen!
By Aoibheann Byrne
In my last blog post, I talked about BrightPay’s new Bureau Feature - Client Payroll Entry - and how much of a game-changer it is. But BrightPay are spoiling you rotten and trying to impress your parents because they not only have one, but two, new bureau, time savings and super awesome features. This second feature goes hand in hand with the Client Payroll Entry feature and is called Payroll Approval. No no, it’s not a BrightPay team member standing over your payroll books and saying “yes, very good”. It’s a way of ensuring the payroll information is 100 per cent accurate before the payroll is finalised. How?
Like payroll entry, the current system for getting payroll information from clients and approving payroll with the client is clunky and clumsy. After the bureau has done all the work they finalise the payroll and send a copy to the client for approval, essentially doing it blind as this is all based on the assumption that all the information provided in order to achieve the final result is correct. HA! So naive! There are almost always mistakes and these mistakes are only picked up by the client once they are sent the finalised payroll for approval.
So now the client has noticed that they forgot to tell you that Ricardo moved back home to Brazil last month and that actually, Tracy has her baby already so they tell you what changes need to be made either by email or over the phone but actually, Pierce was off sick for two days last week because he drank the gone off milk in the staff room fridge but the manager forgot to record it so they ring you again and so on and so on. It’s like the worst game of tennis you’ve ever seen; just back and forth and back and forth until everyone dies.
Even worse is if the client doesn’t pick up on a mistake and approves the payroll you’ve finalised and then only notices the week after and then they’re all up in your grill about it, pointing the finger. You’re pretty sure it’s their fault, because you’re an accountant and therefore perfect and immortal, but how do you prove it? Are you going to go through the years of email exchanges just to prove a point? (I mean, I would. But I am petty and have a lot of time of my hands). The answer is no, you couldn't be bothered. So you grit your teeth and correct the mistakes and go back and forth and back and forth and hope that North Korea finally let off a nuke and put you out of your misery.
Please welcome to the stage the new feature from BrightPay Connect - the Payroll Approval Facility! This feature allows payroll bureau users to securely send a payroll summary before the payroll is finalised. The onus is then on the client (yes the CLIENT) to review and authorise the payroll details through their online employer dashboard. Like payroll entry, this is all done through the BrightPay Connect portal which will eliminate the need for manual correction and endless emails. NOT ONLY THAT but the client is now accountable for ensuring the payroll information is 100 per cent correct before being finalised. Just because you’re an accountant, it doesn’t make you accountable (zing).
Oh and have I mentioned audit trails? Yaaaas girls and boys, audit trails of all payroll requests that have been approved by the client. It includes each step taken by your client and and includes payroll filed, approved and submitted, outstanding requests and files waiting to be approved, completed and even files ready to be downloaded to an employee file. So next time Brenda accuses you of making a mistake you can politely direct her to the audit trail section and then sass on out of there leaving her to eat your dust.
Regardless of accountability though, having clients conduct data checks and approval themselves will result in increased accuracy, reduced need to make edits after payroll has been finalised, resulting in time saved, greater productivity, improved client/bureau relationships and world peace.
Check out BrightPay.
My journey to a streamlined accounting process
Back in 2003 when I first started out in an accountancy practice, things were pretty much done how they’d always been. Sure, we now had digital systems, but a reliance on paper was still prevalent. And, what drove me crazy in my first role, was that data from two systems couldn’t be passed electronically. It had to be printed out and re-entered.
Other parts of the process also started to grate as I took on more responsibility and was trusted to prepare statutory accounts for clients who had used well-known software to prepare their records.
For instance, the fact that producing a trial balance report and entering it into the account production stage was a print out and data entry affair, even though the products were from the same software provider. Such a waste of time!
Yet to surface
After qualifying, I moved into a business where I could finally look at how to streamline our processes. But, bank feeds had still yet to surface yet so I wasn’t where I wanted to be in creating smoother, simpler accounting processes.
Then came 2011, which saw the days of cloud software providers. I was back working in a practice, and our company went for a hybrid of using QuickBooks Online and Xero.
One provider
When the time came for me to start my own outsourcing business in 2015, I decided to focus solely on accounting software and to work with one provider.
For this I chose Xero because you can use it to integrate client’s core bookkeeping accounts with a huge range of different software to help with reporting, forecasting, time tracking, bills.
While systems continue to innovate and while data entry still exists (albeit in a much less significant capacity) – the difference between what can be achieved in smaller timescales now to when I first started is almost hard to compare.
How to create a winning exit strategy
In business, nothing quite beats that warm inner feeling that business owners experience when everything is going swimmingly and the money continues to roll in as expected, day in day out, week in week out and month in month out ... with no surprises upon approving and signing off the year end accounts.
They confidently, and perhaps smugly, review another successful year of trading and look forward to a repeat performance in the subsequent year.
From your aspect it’s a satisfied client and a “nice” bill paid promptly.
Ongoing upgrades
Many SME owners have already made the majority of their investment into their business some years previously and with the exception of ongoing upgrades and maintenance of buildings and plant there are few, if any, demands for a substantial cash injection over and above anything that can be met comfortably out of retained profits.
Sometimes the business owner reflects upon the current value of a lifetime's work, usually in their own mind or perhaps because they have received an unsolicited approach in the post from a business transfer agent seeking to drum up business.
The thought of selling up is usually a fleeting one which is soon brushed aside by the notion of losing a steady and reliable income.
Entrepreneurs
There are typically two sorts of entrepreneurs and where they are on the scale will likely determine their approach to selling.
First, there is the serial entrepreneur who may be starting-up or buying and reselling businesses every few years, typically after turning around a problem company or consolidating.
Secondly, comprising the majority of successful businesses, are those founded or built up by an individual over a period of decades and are the main focus of their owners’ lives. Within this category are people with two divergent needs.
Most common is the business owner who will be selling with a view to retiring, there being no "next deal" nor any participation in the labour force or wealth creation, but there is also the one who has enjoyed their time at the helm but is too young to retire and fancies doing something less demanding, what we now refer to as a lifestyle business.
Crux of the problem
Here's the crux of the problem that is responsible for so much lost sleep.
When is it time to hit the big red button and bale out, whatever one’s ongoing income requirements?
Let me be clear on one point here. I am not discussing a case of "calling the top of the market", where there is a frenzy of consolidation taking place at eye watering multiples. Such scenarios are often quite simply almost always "no brainers".
The heart of this discussion is through the lens of making sure the business owner has not left it too late to extract maximum value out of their business.
But what is meant by too late?
Let's start from the aforementioned premise that we are dealing an SME built up and developed over 25 years by its owners without any outsiders in the boardroom. It is turning over £3m per annum and yielding a net profit before tax of £0.7m with a balance sheet worth a net figure of £2.35m.
Very nice indeed but as with everything else nowadays the world is changing quickly and the old certainties have never been less certain in a shorter timeframe. Like their competitors this business has to run hard just to stay still and survive, let alone find ways to innovate and adapt in order to continue thriving.
So what is this business actually worth on the open market?
Balance sheet
Assuming a healthy exit multiple of 4.5x it would fetch a very handsome £3.15m for its owners which is in excess of the balance sheet.
But that would mean an instant end to the income of £0.7m per annum so our business owner will be sucking hard on his or her teeth and reckoning that it's probably worth waiting another 2 or 3 years THEN banking the £3.15m.
After all, what sort of return will £3.15m generate? A pedestrian 1.5 per cent on deposit or a heart-stopping racy but riskier 10 per cent if reinvested in another venture. Either way a far cry from the current 29.8 per cent return on capital employed being enjoyed.
Surely a fair assessment?
However, how certain is the business owner that the coming years will see profits maintained in the face of external headwinds? Brexit, Political earthquake at Westminster, Tariff Wars, Sector disrupter.
I am sure you can think of more scenarios to keep you awake at night. Not forgetting that our business owner is in their early 60s and not quite got the same drive and energy as in former years to keep thing running at full pelt, let alone grow earnings.
Okay, so perhaps these doomsday scenarios won't happen.
But in a few short years he or she will be heading for 70 and health tends to worsen with age, not improve as it would with a good Scotch.
Industry circles
So let's take a compromise view and hang on for 2 more years then and see how things look, while making tentative enquiries to business brokers and keeping a closer ear to the ground in industry circles.
Let's say in the intervening two years the steady rise in profits splutters, even just slightly and profits come in at £0.68m and £0.595m respectively . Nothing major has occurred on the macro economic front, just the loss of a couple of good contracts and the failure to replace them.
Well, the owner's lifestyle certainly won't have felt the dips but prospective buyers will certainly have taken notice.
We get to market 24 months later and the offers are coming in for what is a fundamentally sound business but the multiples offered are dropping to 3.75x 3 years average earnings - £2.47m . Not too bad because we've had the benefit of the two years' worth of earnings in the interim.
Fair enough, so let's tweak our scenario. The storm clouds have gathered on the economic front as well and profits come in the next year at £0.425m. Oh dear.
Trend of profitablity
Now the trend of profitability is heading south in an established pattern and best offer is coming is at 3x the average of the past 3 years net earnings - £1.7m. OK, so our resilient business owner looks back and sees that he or she has still come away with more overall - £3.4m instead of £3.15m.
Now let's chuck in a wildcard. The owner’s health has suffered as a result of the stress of falling profits and market uncertainty.
As the deal stretches out and it becomes clearer that the seller is getting much keener to "do the deal and be done with" , the due diligence will throw up all sorts of "issues".
And eventually our seller will be taking a multiple of 2.5x net profits, which, by the time it comes round to signing the contract have, fallen yet again to £0.295m and the average profit over three years has now dipped to £0.438m .
The proceeds from the sale are now £1.095 . The total over three years is now £2.665m against £3.15m but what if there is no buyer?
Remember – buyers face the same storm clouds and may have battened down their own hatches.
Far fetched
Far fetched? Not in my experience but why not ask your clients what they think?
Nobody knows what the future holds and often if pays to keep going but eventually there comes a point where that no longer holds true.
So, the take home here is to understand that just when you don't need it to happen, events can and do move against businesses to create the perfect storm. Many buyers out there specialise on sniffing out such opportunities and pouncing just at the right time. Our SME owner may no longer be “in the money” and possibly no longer “in the game”.
So perhaps when it comes to "calling the top of the market" sellers need to look much closer to home. That’s where sound advice from a trusted outsider, such as an accountant comes into its own.
Planning the exit for a business is always going to be more of an art than a science, with a hefty dose of good fortune but it pays to have the conversation with clients sooner rather than later, even if simply to get it on the radar for a future conversation, because you don’t want to be “too late”.
The table below uses the figures in this article and the yellow background is where the seller will reinvest at 10 per cent, the red being proceeds put on deposit at 1.5 per cent.
| Multiple | Proceeds | Income | Income | Income | Total | |||
| Sale time: | Of sale | Year 1 | Year 2 | Year 3 | ||||
| Now | 4.5 | 3.15 | 0.047 | 0.048 | 0.049 | 3.294 | ||
| 0.315 | 0.347 | 0.381 | 4.193 | |||||
| End Year 2 | 3.75 | 2.468 | 0.680 | 0.595 | 0.056 | 3.799 | ||
| 0.680 | 0.595 | 0.374 | 4.117 | |||||
| End Year 3 | a) | 3 | 1.7 | 0.680 | 0.595 | 0.425 | 3.400 | |
| b) | 2.5 | 1.095 | 0.680 | 0.595 | 0.295 | 2.665 | ||