Are you a Partner in a professional services firm looking to retire over the next 5 years?
Do you expect to receive a certain value for your share of the firm’s goodwill?
If the answer to both of these questions is yes, do you have a plan that is acceptable to both your Partners and your proposed successor?
The age of many professional practice owners is between 50 – 57. Accordingly, over the next 5 years numerous practitioners will be looking to sell a part or all their equity in the firm. Of course, if the firm does not recognise the payment for goodwill on exit, this presents less of a problem than those that do recognise and expect payment for goodwill.
Goodwill
For those expecting a payment for their share of the firm goodwill, there are many questions that will need to be answered as part of any succession plan, including,
- Who will purchase my share of the firm’s goodwill? The remaining Partners? A nominated successor? A third party?
- Is more than one Partner looking to leave the firm at the same time?
- Does your firm have experienced professionals with the aptitude and risk appetite to acquire your share of the practice? With ever increasing home loans and rising interest rates, will younger professionals want to acquire your share of the firm at a price acceptable to you?
- Are your Partners already nominating their internal successor without discussion and agreement with the broader partnership?
- Is the possible sale of the firm to a larger firm satisfactory to all Partners? Is an acceptable sale price achievable? Will you be required to work in the acquiring firm post sale?
- Is the valuation methodology in your partnership or shareholder agreement still appropriate and acceptable to all? Do you have a partnership or shareholder agreement?
- Are key clients of the exiting Partner approaching retirement also? Will this affect the sale price of the goodwill?
- Are the post- sale restraints in the partnership or shareholder agreement still appropriate?
Many firms have difficulty in discussing and progressing sensitive succession issues. However, to not address these issues may cause unnecessary tension between Partners and /or potential successors.
Contact us
Our firm has extensive experience in professional practice succession matters. Please contact Munro Noon Business Advisers today for your obligation free appointment.