Accountants – 7 pitfalls to avoid when buying Gross Recurring Fees

For my latest blog, I’m grateful to my colleague, Spencer Laymond for reference to his Report for Accountants “7 pitfalls to avoid when buying Gross Recurring Fees”.  This is just an extract from the much longer and more detailed Report which is available direct from Spencer on 0208 363 4444  or by email


Buying a block of gross recurring accountancy fees can be an exciting and stressful time. Exciting – because with the right deal, the additional fees can be an effective mechanism to your grow your business. But stressful – because even with the right deal, if the structure is wrong, or if certain pre-purchase checks are not made, the acquisition can have disastrous consequences.   Even with that fantastic potential (“red ribbon”) acquisition,  one has to be very careful.  According to Dr William G. Hill  the “red ribbon rule” says that if a deal sounds too good to be true, then it is too good to be true! Particular care must be taken to avoid the potential pitfalls.

What are these pitfalls?

There are many potential pitfalls that could arise and for convenience we have placed them into the following 7 categories:

Pitfall 1 – The seller does not own the goodwill.     The issue is that goodwill and turnover are not interdependent. Looking at the measure of what a business takes from an analysis of the profit and loss account, whilst a relevant indicator, it is only an indicator. Importantly, turnover is not conclusive evidence that the goodwill generating the turnover is actually owned by a person selling.

Pitfall 2 – Past performance does not equal future performance.     Rather than considering any specific reasons why future performance may not equal past performance, we look at the two main ways to protect against this pitfall.  First through pre-purchase due diligence, and second with a price adjuster clause in the purchase agreement.

Pitfall 3 – Relying on seller warranties rather than a price adjuster clause.    Suing for breach of warranty should be considered a remedy of the last resort. It involves a legal process which may have inherent uncertainties in terms of costs, outcome and time involved. Accordingly we recommend, when buying a business priced on the actual performance (an earn out), both a price adjuster clause and suite of warranties should be incorporated.

Pitfall 4 – Acts of God.     What are we trying to get at here? Well, in general terms, any major event that, irrespective of probability, if it arose would create a material issue for the buyer.

Pitfall 5 – Misunderstanding the implication of the Transfer of Undertakings (Protection of   Employees) Regulations 2006.      Where an accountant is buying a block of gross recurring fees, the risks of TUPE cannot be ignored.   We highlight that the transfer of staff is automatic and it is statutory i.e. the buyer and seller cannot as between themselves merely agree which members of staff transfer.

Pitfall 6 – Buying the shares in a limited liability company.     The main issue, and the reason for this pitfall, is that when acquiring shares in a company, a buyer will acquire the company with all of its historic, current, prospective and contingent liabilities.

Pitfall 7 – Not accounting for integration of systems, cultures and office space.     The extent of the issue is likely to be determined in part through the due diligence process, but in part, for a number of reasons, there may be a number of factors where it is impossible to fully account for.  The answer may fall into the overall price / price mechanism you are prepared to agree on.

Concluding thoughts and next steps

We can offer a number of services to assist with the process of spotting or dealing with a red ribbon acquisition, that is too good to be true – from legal due diligence to drafting and negotiating the purchase agreement – it’s then down to you to implement the plan to win over client relationships.”

Spencer Laymond       0208 363 4444

Partner, Curwens LLP       


“There’s no-one quite like Grandma…..”

….so sang the St.Wilfred’s School Choir in 1980.  Those children themselves may now be grandparents…. and grandparents can often be forgotten in their children’s relationship breakdown – the idea of not seeing their grandchildren is devastating, but many grandparents have successfully negotiated, either in or out of Court for the right to see them.  I’m grateful to my colleague at Curwens Solicitors, Family Law expert, Vijaya Sumputh for her comments on this :

What can grandparents do?

If you’re a grandparent and face losing contact with your grandchildren, you should:

  • approach the parents – explain that no matter what the problems are between them, you, as a grandparent, will not take sides because you only want to keep contact with your grandchildren – everyone will benefit.
  • consider Mediation – an independent mediator will help to reach an agreement with the parents.
  • try to diffuse the tension of the situation and explain why you feel contact is so important for your grandchildren.
  • if all this fails, it is possible to make an application to the Court.

Grandparents need permission from the Court to make an application but who doesn’t ?

Only a small number of people  :

    1. A parent
    2. Any party with whom the child has lived for at least 3 years;
    3. Any person with the consent of an individual named in the Child Arrangements Order as having residence of the child;
    4. The Local Authority, if the child is in care;
    5. Any person with consent of someone who has parental responsibility. Family Courts do recognize and will promote the invaluable role that grandparents have to play in their grandchildren’s life.  If an Order is made, the Court’s powers to enforce such orders have recently been increased in such a way that makes it extremely difficult for parents to ignore them. It is therefore a very powerful way to ensure that grandparents can maintain a meaningful and fulfilling relationship with their grandchildren.

If you think what I have described fits your circumstances, give my colleague, Vijaya Sumputh, a call for an initial, no obligation chat on 0208 363 4444 or email her on

“Money, money, money – must be funny – in a rich man’s world…….”

We’ve all heard of pre-nups for the rich and famous but those of us who live more “ordinary” lives also should think about finances when going into a relationship and, sadly, if things start to go wrong – don’t let “heart rule head”.  I’m grateful to my colleague, Vijaya Sumputh, a Family Law expert at Curwens Solicitors, for her thoughts on this :


Beginning a new relationship can often feel like entering uncharted waters. All you want to do is to live happily ever after with your new partner, but people often don’t consider what happens if the relationship ends.  A split can have a devastating emotional impact and financial uncertainty adds significant stress to an already difficult time.   A recent study suggests that as many as 2 million Britons are in debt because their ex-partner continued to spend after they’d separated – a “dirty separation trick” by a bitter “Ex”.

Married Couples

Here, the Court has the power under the Matrimonial Causes Act 1973 to split the debt between the two parties based on their financial needs and the Court may award more to the paying party including spousal maintenance to cover the repayments.

Unmarried Couples

There is no such protection for unmarried, cohabiting couples. In long term relationships, many couples set up joint bank accounts (even if marriage is not their immediate plan) to cover mortgage/rent and bills. This normally ends once the relationship comes to an end, because living with someone does not create a legal relationship.   So, if a couple has a joint debt and then splits up, both can end up being liable for the debt and one may be stuck with it if the other party doesn’t pay.  Unmarried couples must think about what happens to their investments if they split up – if the family home is to be sold, how will the proceeds be split ?


You can protect yourself by getting your solicitor to draft a “Cohabitation” or  “Living Together” agreement (also known as a deed) which sets out who pays what and what would happen to the assets if the relationship comes to an end, with a Declaration of Trust as to the ownership of the house.  You can also consider using Mediation or negotiation to resolve issues.

It may seem pessimistic to think about a relationship ending when you’re just starting out together, but on the other hand, a break up can be devastating emotionally, so a living together agreement helps with the practical issues, to reach a quick settlement.

If you think what I have described fits your circumstances, do give Vijaya a call for a no obligation chat on 0208 363 4444 or e-mail us at

New Year – New Business ?


You know starting up your own business could be quite a challenge but the idea of working for yourself is really exciting, so what do you do ? Fired up with enthusiasm, a lot of people just plunge straight in either on their own or with a couple of chums, just to see how it goes, without really thinking it through but, trust me, that’s not always the best idea.  It’s often said that business and pleasure don’t mix so if you are going into business with a friend, it’s even more important to get the legal paperwork sorted out at the beginning to protect everyone involved if things get a little bit tricky along the way.

Certainly if you are getting external funding from someone like your local friendly Bank Manager, you will have to produce not only your business plan but also details of how you are actually going to run your business. Ask yourself whether you are going to be doing this on your own as a sole trader or in partnership with one or two others or even setting up a limited company. There are legal / tax pros and cons to all of these, so it’s a good time to deal with this right at the beginning, as part of your start up “to do list”. Your accountant will give you tax advice on all these angles and your solicitor will advise on which will be best for you in the early stages as well as also drawing up the various documents you will need.

The stats on new businesses survival are not very encouraging but we think that getting these basics right gives you the best chance of your business not just surviving, but thriving and making a decent profit for you.

We certainly advise our clients to draw up agreements to define who does what and who gets what. This is the best starting point for a new business. Shareholder’s Agreements and also Director’s Service Agreements are very important as a first point of reference if relationships start to get a little bit shaky further down the line.

You may need to deal with Landlords regarding Commercial Leases and without proper legal advice you might be signing up to something far beyond what you had intended. You may be employing staff and so you will need to deal with their contracts. You may decide to take on a franchise, which again needs careful consideration and good legal advice.

At Curwens, we are always happy to have an initial chat with you on the telephone so if you have any questions, just give me a ring on 0208 363 4444.

Norma Morris   @normslaw