Trends in Auckland's Chartered Accounting Market: Insights for Business Professionals

In this Video blog, Nigel delves into the recent developments in Auckland's chartered accounting market, with a focus on practice sales. Nigel Smith, a seasoned professional with over 35 years of experience, shares valuable insights gained from actively participating in practice sales worth $9m-$10m. If you're a business professional in the accounting field, these trends are worth noting.

Difficulty in Transition:

One prominent trend in the Auckland chartered accounting market is the challenge faced by practitioners contemplating retirement or downsizing. Many struggle to find suitable staff members, internal successors, or external buyers for their practices. This challenge often feels like chasing the end of a rainbow—close but not quite reaching a successful transition.

Retirement and Downsizing:

a. Retirees: Many practitioners retire with a client base yielding $500,000 to $600,000 in fees. They've enjoyed a comfortable income, but some of their client bases may need rejuvenation.

b. Downsizing: Some practitioners are downsizing their practices, selling portions of their fees to maintain a manageable workload. For example, a $1.8 million practice may be reduced to $1 million-$1.2 million in fees, selling $600,000-$800,000 of fees to streamline their operations.

Diverse Buyer Profiles:

Buyers in the Auckland accounting market come in various profiles:

Mature Practices: Existing firms seek to expand their operations by acquiring fee bases of around $500,000.

Investors: A noteworthy trend is the entry of investors into the chartered accounting business. These investors are attracted by the impressive return on investment (ROI) potential, around 25% per year, without accounting for future fee growth. They typically understand service businesses and the accounting industry.

Diversification: Some investors use chartered accounting practices as a foundation for building diversified financial services, including mortgage broking and insurance.

Focus on Larger Practices: Investors are interested in practices with fee blocks exceeding $3 million, emphasizing quality over quantity.

Factors Influencing Fee Prices:

The prices of accounting fees generally hover around $1, with variations based on several factors:

Profitability: Profitable practices command higher prices.

Technology Adoption: Practices utilizing advanced software like Xero or MYOB may be more attractive.

Client Base: The age and health of the client base are considered.

Operational Efficiency: Well-structured systems, remote working capabilities, and online work papers can positively impact valuation.

Debt and WIP: Corporate purchasers scrutinize debts and work in progress (WIP), as high levels can increase the cost of acquiring a practice.

In Conclusion:

In Auckland's chartered accounting market, trends suggest that practitioners are exploring various strategies for transitioning their practices. Buyers come in diverse forms, from mature practices looking to expand to investors seeking attractive ROI opportunities. The price of accounting fees depends on factors like profitability, technology adoption, and operational efficiency. For those considering buying or selling their practice, it's an evolving landscape with opportunities worth exploring.

If you want to learn more or discuss your options, reach out to Nigel Smith and his team at Covisory