Adviser: As easy as MBO

With succession still a major cause of concern for firms in the independent sector, a new idea for raising the necessary capital to fund partners’ exit routes can only be a good thing.

Although the concept of a management buyout has been common practice in business for many years, it has only recently emerged as a strategy for accountancy practices. Many practitioners have helped their clients with MBOs, but it may never have occurred to them that this could be a way out of their own difficulties.

Perhaps because firms are starting to adopt a much more commercial attitude towards the operation of their businesses, or because of the increasing popularity of alternative structures such as limited liability partnership, firms are broadening their outlook when it comes to planning for the future and are starting to think like their clients.

Rather than go through the tortuous process of a sale or merger, many firms are now looking closer to home for solutions. Associate or salaried partners or senior managers, who currently have no financial stake in the business, may well be ambitious and would be delighted to invest in their own and the firm’s future, if only they were asked.

Some partners may well feel that the more junior members of the team are not up to the task of running the business. Their technical abilities may not be good enough, or they may lack the necessary leadership skills, but most of these things can be learned if the enthusiasm is there.

The beauty of a management buyout is that it can be phased over a number of years – thus allowing the up-and-coming owners enough time to grow into their roles and the retiring partner or partners to make a graceful exit.

Another great advantage to an MBO is that there is no significant upheaval within the practice to alarm the clients. Instead, they continue to receive the same service from the same familiar faces, and when the current crop of partners does retire they will have been well prepared and will be quite happy to continue with the new blood.

We have been involved in a number of these situations in the past 12 months where one partner may be selling his equity to tow or more managers, or a corporate structure/LLP is created where managers are part shareholders with a plan and the means to acquire more of the business at an agreed time or over an agreed period.

A corporate structure does, of course, make the whole process slightly easier and it is worth noting that, although it is only the larger firms converting that generate news, a large number of smaller practices are now considering the benefits of a limited liability partnership.

The face of the profession is changing and, as it does so, the profile of the owners of accountancy practices is also starting to change.

Management buyouts are bringing a new style of business ownership that is set to become more popular as news of the benefits spreads.

Phil Shohet and Andrew Jenner are directors of Kato Consultancy