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

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Seasonal Checklist for HR

Seasonal Checklist for HR”…..T’is the season to be jolly“, (“falalalala la la la la“) … so we thought employers and HR managers might find this seasonal post useful….

At this time of year, the last thing we want to think about is a legal issue but I thought it might be helpful to share a few thoughts with you if you are an employer and have the Christmas staff celebrations to deal with. I spotted this great seasonal post, courtesy of Daniel Barnett sharing an excellent blogpost by Gemma Reucroft :

10 WAYS FOR HR TO HAVE A HAPPY XMAS

“This is the ultimate advice checklist for how HR should deal with Christmas issues…

1. Employees sometimes do stupid stuff. At Christmas time and otherwise.
2. Just deal with it.
3. Resist the urge to worry too much about vicarious liability, discrimination and constructive dismissal. Although it is probably a good idea not to put any mistletoe up in the office.
4. Resist the urge to write any sort of policy.
5. Resist the urge to put any sort of disclaimer about behaviour in any Christmas party related literature. If someone wants to punch Bob from Accounts on the dance floor after 12 pints of beer then they will do it anyway. See points 1 and 2.
6. Resist the urge to write special rules about absence from work after social events. See point 2.
7. Apply Christmas common sense.
8. Avoid sprouts in an office environment at all times. This is especially important in small or poorly ventilated offices.
9. Never, ever, buy Secret Santa presents from Ann Summers.
10. Enjoy yourself. Put a tree up. Eat some Quality Street. Wear a Christmas jumper.”

Timely advice indeed !

Best wishes to you and yours for a wonderful, peaceful Christmas and a happy and prosperous New Year.

NEM new profile pic March 2013

Norma Morris

 

New Year – New Business ?

BUSINESS START UPS

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     www.curwens.co.uk.

Seasonal Checklist for HR

 At this time of year, the last thing we want to think about is a legal issue but I thought it might be helpful to share a few thoughts with you if you are an employer and have the Christmas staff celebrations to deal with. I spotted this great seasonal post, courtesy of Daniel Barnett sharing an excellent blogpost by Gemma Reucroft :

10 WAYS FOR HR TO HAVE A HAPPY XMAS

“This is the ultimate advice checklist for how HR should deal with Christmas issues…

1. Employees sometimes do stupid stuff. At Christmas time and otherwise.
2. Just deal with it.
3. Resist the urge to worry too much about vicarious liability, discrimination and constructive dismissal. Although it is probably a good idea not to put any mistletoe up in the office.
4. Resist the urge to write any sort of policy.
5. Resist the urge to put any sort of disclaimer about behaviour in any Christmas party related literature. If someone wants to punch Bob from Accounts on the dance floor after 12 pints of beer then they will do it anyway. See points 1 and 2.
6. Resist the urge to write special rules about absence from work after social events. See point 2.
7. Apply Christmas common sense.
8. Avoid sprouts in an office environment at all times. This is especially important in small or poorly ventilated offices.
9. Never, ever, buy Secret Santa presents from Ann Summers.
10. Enjoy yourself. Put a tree up. Eat some Quality Street. Wear a Christmas jumper.”

Timely advice indeed !

Best wishes to you and yours for a wonderful, peaceful Christmas and a happy and prosperous New Year.

NEM new profile pic March 2013