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  spencer.laymond@curwens.co.uk

“Introduction

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               

www.curwens.co.uk

9 Reasons to make a Will

Radio 2 recently reported on research that found the majority of adults do not have a valid will in place. Given the relatively low cost of having one professionally prepared, there is no excuse and it can avoid a potential mess being left behind for your loved ones to clear up.

And if you still need convincing – read on……

 1.   You get to choose who benefits from your estate

  •  without a will, the intestacy rules apply and there is no provision for unmarried partners
  • if a couple die together and have no children, there is a presumption that the younger survived the elder, so everything goes to the younger’s relatives

 2.   It ensures your wishes are binding

  •  the executors dealing with your will are required to comply with certain rules

3.   You make sure the funeral arrangements you want are clear

  •  it is still important to make your next of kin aware of your wishes as the funeral may take place before your will is even found

 4.   Allows you to have a voice about your children

  •  you can appoint legal guardians
  • if you want someone to care for your children who would not usually be considered their next of kin then you can explain your reasons

5.   It can safeguard your business

  •  you ideally need to consider in advance tax points such as IHT (Inheritance Tax) relief
  • decide who to leave as the majority shareholder – although this would also need to be in accordance with any shareholders agreement

6.   It enables you to leave gifts to charity

  •  many charities rely heavily on bequests in wills
  • these gifts are free of IHT

7.   It enables you to make minor/specific bequests

  •  the intestacy rules simply split your estate into percentages
  • you may prefer to make individual gifts of personal items eg jewellery

 8.   It allows you to choose your own executors

  •  you can save money with less professional involvement if you appoint friends or relatives
  • you can avoid overburdening your next of kin (at a time when they will be very emotional) as there is a presumption they will deal with the estate if there is no will

9.   It enables you to take advantage of some tax planning

  •  getting professional advice on a will includes reviewing your IHT position and how it will get paid

 If you would like to make a will, please contact our James Blakemore on 01992 631461 or email him at james.blakemore@curwens.co.uk

Curwens LLP is your local firm of solicitors offering most areas of legal advice – based in Royston, Hoddesdon and Enfield.

 

Landlord and Tenant Headaches

This month, I’m grateful to my colleague, Amanda Thurston, who wrote an article recently on this difficult topic.

 

“Landlord and Tenant law is a notoriously tricky area. It’s all too easy to get into difficulty. Whether you’re a Landlord dealing with a commercial lease or residential tenancies, the chances are that before too long you will come up against a “difficult” tenant.

Of course, if you are the tenant trying to negotiate fair terms for a new tenancy or lease you may well argue you are having to deal with a “difficult” landlord !

In our commercially minded world, Landlords and Tenants have to negotiate hard on many issues within a Tenancy or Lease including :-

  • break clauses,
  • service charges,
  • late payment of rent,
  • obligations for repairs

It’s very important for anyone in this position to get the right kind of legal and commercial advice – particularly in respect of dilapidations (in commercial premises), where an experienced surveyor can even be instructed to carry out a valuation to help negotiate a fair settlement.

Arguably, there is extra pressure on residential Landlords as, whether you have just one buy-to-let property or a large portfolio, you need to ensure you have completely up to date advice on all matters regarding how to enforce your Tenancy Agreement. The process of evicting a non-paying tenant is even more of a minefield. It’s so easy to make a simple mistake when dealing with a residential tenant and if your Court application fails, it can leave you out of pocket for outstanding rent and the Court costs.  Even worse, you could still be stuck with the non-paying tenant and have to start the eviction process all over again.

For the unwary, there are far too many traps to fall into. Our advice is – take good legal advice!  At Curwens’ Hoddesdon office, we have a new commercial property solicitor who has recently joined us – Jolyon Bland – he can be contacted at Jolyon.Bland@curwens.co.uk”

http://www.curwens.co.uk

 

 

Still not networking ?

Curwens LLP Logo HIGH QUALITY smaller                                                                                                             NEM new profile pic March 2013

It does surprise me just how often I go to open networking events, such as those at the North London Chamber of Commerce and find that I’m the only solicitor in the room.

That’s fine for me, because I make plenty of business connections which  develop into business relationships – and that takes time, as we know – but what about the thousands of other businesses who are struggling to make connections ?  I do wonder how others are getting to meet fellow business people in their local communities.

I’ve noticed that the networking meetings list is growing, particularly in North London and Hertfordshire, with a whole range of events (often in pubs!) which gives us the opportunity of meeting informally and testing out the potential for another conversation at another time.  Those of us who are in the Chambers of Commerce, BNI, Athena or similar much more focussed networking groups know the value of follow-up after that first introduction – whether just over a cup of coffee or a longer one-to-one meeting.

People will do business with people they get to know, like and trust and who are willing to help them, so I’m always encouraging our younger solicitors to develop that approach with people they meet.

Don’t be afraid of rejection. They do say “you have to kiss a lot of frogs before you find your handsome Prince“. So if you don’t hit gold first time round, keep trying and keep the mind-set to ask about the other person first. You never know who you’ll be able to help and who in turn will help you improve your own business connections.

My suggestion to anyone who is looking for more business but is not yet attending networking events is to take a deep breath, grab a pile of your business cards and get out there (with a smile, a firm handshake and an open mind) to widen your network…..and don’t forget to follow-up / follow-up / follow-up!  I’m not an expert, but if you’re still thinking about trying networking and want to talk it over, just give me a ring – 0208 363 4444.  I’m happy to help !

What is “BYOD”? You need to know…..

BYOD = “Bring your own device” No – I didn’t know it meant either until recently, when we realised that a lot more of our employees were having to log in remotely to keep in contact with us, so this is becoming very important for employers.

What is “bring your own device” (BYOD)?

Many employees now own personal mobile devices (such as tablets, smartphones, laptops or notebook computers) that can be used for business purposes. Businesses are receiving an increasing number of requests to allow employees to use these devices at work and, of course, this creates risks as well as benefits.  If this is a situation which affects your business, we would strongly advise discussing this with your employee.

Benefits

BYOD can bring a number of benefits to businesses, including:

  • Increased flexibility and efficiency in working practices.
  • Improved employee morale and job satisfaction.
  • A reduction in business costs as employees invest in their own devices.

Risks

Personal mobile devices are owned, maintained and supported by the user, rather than the business. This means that a business will have significantly less control over the device than it would normally have over a traditional corporately owned and provided device.

Securing data stored on the device is vital and a business should

  • require the use of a strong password to secure the device and use encryption to store data on the device securely.
  • be aware that a business is responsible for protecting company data stored on personal mobile devices.
  • consider implementing security measures to prevent unauthorised or unlawful access to the business’s systems or company data, for example, ensuring that access to the device is locked or data automatically deleted if an incorrect password is inputted too many times.

There is also risk of exposure to damage to the business’s:

  • IT resources and communications systems.
  • Confidential and proprietary information.
  • Corporate reputation.

Mobile Device Management

The business should ensure that its employees understand what type of data can be stored on a personal device and which cannot. Mobile Device Management software allows a business to remotely manage and configure many aspects of personal mobile devices – typical features include:

  • Automatically locking the device after a period of inactivity.
  • Executing a remote wipe of the device (make sure employees are aware that devices can be automatically or remotely deleted and in which circumstances).
  • Preventing the installation of unapproved apps.

Monitoring use of the device

If a business wants to monitor employees’ use of personal mobile devices, it must:

  • make its reasons for monitoring clear; and
  • explain the benefits the business expects will be delivered by monitoring (for example, preventing misuse of the device).
  • ensure that monitoring technology remains proportionate and not excessive, especially during periods of personal use (for example, evenings and weekends).

Loss or theft of the device

  • The biggest cause of data loss is still the physical loss of a personal mobile device (for example, through theft or by being left on public transport).
  • Loss or theft of the device could lead to unauthorised or unlawful access to the business’s systems or company data. The business must ensure a process is in place for quickly and effectively revoking access to a device in the event that it is reported lost or stolen.
  • Businesses should consider registering devices with a remote locate and wipe facility to maintain confidentiality of the data in the event of a loss or theft.

Transferring data

BYOD arrangements generally involve the transfer of data between the personal mobile device and the business’ systems. This process can present risks, especially where it involves a large volume of sensitive information. Transferring the data via an encrypted channel offers the maximum protection.

Employees should avoid public cloud-based sharing which has not been fully assessed. Businesses should consider providing guidance to employees on how to assess the security of Wi-Fi networks (such as those in hotels or cafes) and think about how it will manage data held on an employee’s personal mobile device should the employee leave the business.

 

For more information, contact me on 0208 363 4444

http://www.curwens.co.uk

 

Bribery Act 2010

We outline here the offences introduced by the Bribery Act 2010, the penalties for committing them and practical steps you can take to avoid breaching the legislation.

What is bribery?

Transparency International (a non-governmental anti-corruption organisation) defines bribery as “the offering, promising, giving, accepting or soliciting of an advantage as an inducement for an action which is illegal or a breach of trust.”

What are the offences under the Bribery Act 2010?

Bribing another person

A person is guilty of this offence if they offer, promise or give a financial advantage or other advantage to another person:

o        to bring about improper performance of a relevant function or an activity; or

o        to reward a person for the improper performance of a relevant function or an activity.

The types of function or activity that can be improperly performed include:

o        all functions of a public nature;

o        all activities connected with a business;

o        any activity performed in the course of a person’s employment; and

o        any activity performed by or on behalf of a body of persons.

There must be an expectation that the functions are carried out in good faith or impartially, or the person performing them must be in a position of trust. It may not matter whether the person offered the bribe is the same person that actually performs or performed the function or activity concerned. The advantage can be offered, promised or given by the person themselves or by a third party.

Being bribed

The recipient or potential recipient of the bribe is guilty of this offence if they request, agree to receive, or accept a financial or other advantage to perform a relevant function or activity improperly.  It doesn’t matter whether it’s the recipient, or someone else through whom the recipient acts, who requests, agrees to receive or accepts the advantage. In addition, the advantage can be for the benefit of the recipient or another person.

Bribing a foreign public official

A person is guilty of this offence if they intend to influence an official in their capacity as a foreign public official. The offence does not cover accepting bribes, only offering, promising or giving bribes. It does not matter whether the offer, promise or gift is made directly to the official or by a third party.

Failing to prevent bribery

A commercial organisation is guilty of this offence if a person associated with it bribes another person, with the intention of obtaining or retaining business or a business advantage for the commercial organisation. The offence can be committed in the UK or overseas.  A business can avoid conviction if it can demonstrate that it had adequate procedures in place designed to prevent bribery.

What are the penalties for committing an offence?

The offences of bribing another person, being bribed and bribing a foreign public official are punishable on indictment either by an unlimited fine, imprisonment of up to ten years or both. Both a company and its directors could be subject to criminal penalties. The offence of failure to prevent bribery is punishable on indictment by an unlimited fine.  Businesses convicted of corruption could find themselves permanently debarred from tendering for public sector contracts.  A business may also be damaged by adverse publicity if it is prosecuted for an offence.

Practical steps to help avoid liability under the Bribery Act 2010

Top level commitment

All senior managers and directors must understand that they could be personally liable under the Bribery Act 2010 for offences committed by the business. It is important that senior management leads the anti-bribery culture of a business, especially if the business wants to take advantage of the “adequate procedures” defence to the offence of failing to prevent bribery.

Risk assessment

Consider all the potential risks the business may be exposed to. For example, certain industry sectors (such as construction, energy, oil and gas, defence and aerospace, mining and financial services) and countries are associated with a greater risk of bribery.

Think about the types of transactions the business engages in, who the transactions are with and how the transaction is conducted. High-risk transactions include:

o        procurement and supply chain management;

o        involvement with regulatory relationships (for example, licences or permits); and

o        charitable and political contributions.

Review how the business entertains potential customers, especially those from government agencies, state-owned enterprises or charitable organisations. Routine or inexpensive corporate hospitality is unlikely to be a problem, but clear guidelines should be put in place.  If the business operates in foreign jurisdictions, always check local laws.

Implementing and communicating an anti-corruption code of conduct

Implement a code of conduct setting out clear, practical and accessible policies and procedures that apply to the entire business. Make sure the code is communicated effectively to all parts of the organisation.

Carry out background checks when dealing with third parties

A business will be liable if a person associated with it commits an offence on its behalf. Businesses should therefore review all their relationships with any partners, suppliers and customers. For example, if an agent or distributor uses a bribe to win a contract for a business, that business could be liable. Ensure that background checks are carried out on any agents or distributors before they are engaged by the business.

Policies and procedures

Review any existing policies and procedures and decide whether they need to be updated. If the business does not have any policies or procedures in place, consider preparing them as a matter of urgency.

Effective implementation and monitoring

Consider introducing a compulsory training programme for all staff. If only a few employees operate in a high-risk area, consider targeting the training at those employees.  Ensure anti-corruption policies and procedures are continually monitored for compliance and effectiveness, both internally and externally.

www.curwens.co.uk

 

 

“I know my rights!” …but do you really ?

The Consumer Rights Act 2015

After years of confusion for Consumers and Businesses alike about their specific rights in respect of faulty goods and services, the new Consumer Rights Act 2015 has come into force trying to clear up all the confusion. The Act provides enhanced rights for Consumers and better clarity for businesses as to their obligations. Some of the changes include:

* Consumers are now entitled to insist on a full refund if they return faulty goods within 30 days of purchase and more importantly Businesses can no longer make reductions from refunds where a Consumer is entitled to a refund within 6 months of purchase.

* Where Pre-contract information is given by a supplier in relation to the goods or a service, the goods or service must be fit for the purpose described by the Consumer.

* The Act sets out new rights for online digital content purchases such as music and game downloads, allowing refunds where purchased content is faulty.

The Act replaces the former Sale of Goods Act 1979; the Supply of Goods and Services Act 1982 and the Unfair Terms in Consumer Contract Regulations, so it is vital that businesses familiarise themselves with the new legislation and ensure that they are compliant.

Curwens can help. We can advise you on the effects of this law. For further information contact Patricia Wollington on 0208 363 4444 or email patricia.wollington@curwens.co.uk or visit our website http://www.curwens.co.uk.