“I doubt I’ll sell my practice when I retire”
A smaller practitioner shared this view with me recently. He is 60 and his current turnover is around £120k. He said to assume his net profits are around £80k pa.
My friend had noted that were he to sell his practice he would be lucky to secure a capital sum of much more than £120k (being around once times his recurring fees).
After paying 18% CGT, at current rates, he would be left with, at most, around £100k (and this might only be received over a 12-24 month period). If invested the annual income from this figure would be a very small amount as compared with his current £80k annual income. Of course one hopes he would also receive pension income too. However my friend had an alternative plan:
He reckons that it would make more sense to simply allow the practice to run down. As long as he feels comfortable and competent to continue servicing clients why bother trying to sell his practice? If he ends up with a practice that’s only one quarter its present size his net income would be around £25k. To achieve the same figure from investments would require him to have £1m in the bank. There’s no way he could sell his practice for anything approaching such a figure.
I was wondering how common is such a view and approach or are there other options for my friend to consider.
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Might have missed something but why not sell £95K of fees and keep working for the £25K that is left until unable to do so. As long as the £95K is not rubbish then I would be sure someone would buy it.
Have to admit that seems very logical Simon.
I think my friend though is anticipating the gradual loss of clients who no longer require his services – either they are willing to use HMRC online filing themselves, their business goes bust, they retire or they sell out.
It’s not that he wants to lose the fees. More that he sees an inevitable shrinkage of the practice over the next ten years. As such he has concluded that there’s no point planning to sell, simply to keep the remaining clients as long as poss and making do with what’s left after ten years.