| Fully describe the business's activities |
This firm comprises an accounting firm and an auditing partnership. They supply the full spectrum of services to clients. This includes Accounting (including bookkeeping and management accounting where required), Annual Financial Statements, Assurance (Audit, Independent Review and Agreed-Upon Procedures), Company Secretarial, Consulting (client business challenges, taxation structuring and various unstructured projects), Payroll (including COIDA, UIF, PAYE, SDL), Tax compliance (Income Tax, VAT et al), tax planning and structuring, Trust compliance, management and structuring as well as all other client matters that require attention (be they statutory (e.g. CIDB submission) or at client discretion).
The majority of their clients use Xero, which is their preferred software vendor. Quotient itself manages the practice with Xero Practice Manager (XPM). A small number of clients have not wanted to convert and still use Sage Pastel. |
| How long has the business been established? |
The company traces its roots back 20 years |
| How long has the owner had the business? |
Since the start, in 2002, |
2. Present Market
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| How does the business operate daily? |
This is a dynamic business which has fostered an excellent business culture. An open door policy means good communication and approachability throughout. The company is owner-managed and work is actively delegated where possible to relevant departments and team members. Work is delegated to the most effective cost/skill level for client cost management. Management functions include practice management and growth, strategy, quality control, direction setting of the firm, hiring and firing, setting and implementation of policy, new client take-on, setting the training curriculum, team output reviews, amendments thereto, seeking client advantage in all and every situation. Most communication comes in via e-mail. E-mails from SARS/ CIPC/ DoL are received by a dedicated team member who controls all SARS correspondences such as outstanding returns/ SARS communications/ statements etc./ audit notifications/ audit submissions/ CIPC communications/ monthly DoL notification files etc. COIDA liaison and mail traffic is the responsibility of another team member. Clients usually liaise with their allocated key team members or management regarding important matters, but may liaise with more junior team members, who would steer the enquiry/ instruction to management at which point (say), a dividend declaration would be set in motion/ meeting set up etc. |
| How are the clients attracted to the business? |
Word of mouth and client referrals almost exclusively although there is also a website which has generated a number of enquiries. The firm has never actively advertised (in the sense of advertisements on any media), although an element of marketing has taken place whereby a business breakfast was attended, until work commitments took precedence. |
| What Advertising/Marketing is carried out? |
No active advertising or marketing is carried out by choice. This has limited enquiries and client take-on and that was how the business was planned and has run. This means that there is a market, as yet untapped, should advertising be undertaken. |
| Does the business have any contract work? |
No significant contract work per se. is performed as the business is annuity-based – audits are annual, tax returns are annual etc. Client relationships are long-term in nature. Engagement letters are in place with a majority of clients, although there are a number of the more recent clients where these are required, due largely to the Covid disruptions. |
| What competition exists |
Normal competition. The firm has loyal clients that have been with the firm for years. |
| What are the seasonal trends |
The company has a fairly smooth distribution of turnover over the entire year and this is due to the fixed fees being charged. However, once the tax season opens, from August to November there is a peak in turnover and again in January when the Company taxes and provisional taxpayers' taxes are due. |
3. Financial
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| Is the business VAT Registered |
Yes, both entities are registered for VAT.
VAT201 and related VAT reports are available upon request or any other relevant documentation. |
| Are there up to date management accounts? |
Yes, management accounts are available upon request |
| What annual financials are available, income statement and or balance sheets? |
The 2022 year-end accounts are available from Xero and no material adjustments are expected. Oversight is maintained over the internal accounts function and therefore minimal year-end adjustments are expected. They are awaiting their Reviewer to conclude the AFS for 28 February 2022. |
| What percentage of the business is cash/credit? |
All clients are generally on credit due to client billing charged upon a “per hour” basis, albeit there are a handful of clients paying via a Stratcol debit order system which they have in place. |
| What is the age analysis of the debtor’s book? |
A large portion pay upon receipt of the invoice (or soon thereafter) and the balance of clients pay within thirty (30) to sixty (60) days. There are some special cases who are in 90 to 120 days – recovery is mostly assured, albeit there is a group of three clients in the 120 days who were told to leave. Ongoing attempts to recover the funds are taking place and payments are occasionally received. |
| How could the profitability of the business be improved? |
The company has historically never advertised to attract new clientele and has grown almost exclusively by virtue of client referrals (word of mouth). There is scope to offer “value-added” services (i.e. structures, tax consulting) via weekly, and monthly newsletters to existing (internal) and potential clients (external). As has been referred to previously, this provides an opportunity. |
| Is Seller finance available and for what amount? |
Yes, a structured deal will be considered on the following basis:-
- Finding an approved Buyer.
- The seller will expect an upfront cash payment, of 50% of the purchase price, on the Effective Date.
- The Seller will warrant turnover for 12 months, subject to acceptable terms and conditions being established for the owner’s continued involvement in the business.
- The balance is payable in monthly payments over 36 months.
- The terms and conditions regarding the warranty and ongoing involvement will be clearly defined, as well as how the price will be adjusted, either upwards or downwards at the end of the warranty period.
- The seller will continue to bring new clients to the business and will be rewarded accordingly.
To be discussed in detail.
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4. Staffing
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| What is the total staff complement? |
The team complement is sixteen (16). |
| Staff Breakdown |
A breakdown will be provided as part of the Due Diligence process for interested parties.
We have two partners, one is emigrating and the over wants to scale down due to health. |
| Do any receive special perks, bonuses or incentives? |
Bonuses are paid six monthly (August and February) based on performance over the preceding period. These are usually up to a 13th cheque but may exceed in exceptional circumstances. Overtime and under-time can be worked by the entire team (once probation has been passed) and any variances are settled upon departure/ resignation. |
| Are they on contract? |
A breakdown will be provided as part of the Due Diligence process for interested parties. They are all permanent except one on a contract but this will be converted to full-time soon. |
| Do any have management potential? |
Certain managers/ team leaders have management potential at varying levels. Departments have management in place. Further information can be provided as part of the due diligence process. |
| How involved is the Owner in running the business? |
The business is owner-managed and both partners are working full-time for the business |
5. Premises
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| When Does the Current Lease ends? |
April 2023 |
| Is there an option for renewal & what period |
Yes
The lease can be renewed for up to three (3) years. Notice should be provided within six (6) months of lease termination, however, the sellers have an excellent relationship with the Landlord agent (they refer to the firm as the favourite client given their history of prompt payment) and will be flexible within reason. The firm has been a tenant since 2008. |
| What is the annual escalation %? |
Usually around six to eight percent (6% to 8%) |
| What are the Trading Hours? |
8am to 5pm with an hour of lunch. These are however flexible – some of the team arrive at 06h00 and work to 14h00, some at 09h00/ 10h00 and work their eight hours |
| What is the square meterage of the business? |
+- 270 square meters including storerooms. Significant visitor parking is available and 12 parking bays are included in the rental. |
| Is a copy of the lease available? |
Yes |
| Do You require a license? |
Yes appropriate accounting body, SAICA and IRBA in this case. |
6. Assets
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| Is a full asset list on file? |
Yes, Available on request |
| Are any items not included in the sale? |
All operational equipment is included in the sale except a few personal assets of the two partners e.g. personal laptops, heater, printer, shredder et al. Motor vehicles and the trailer are not for sale. |
| What is their overall condition? |
Some of the laptops are fairly elderly, however, most, if not all have been upgraded with extra RAM and SSD drives – and perform much better than new. There are two newish HP office printers (high spec) and most of the desks have their own printers. These are HP 1018/ 1020 and 1022, most of which are circa 15 years old. They are widely acknowledged to be highly reliable workhorses and, being low-tech, have not been replaced for that reason. The rest of the fixed fittings are in good to excellent condition in all but a few cases. |
| Do any require repairing? |
No |
| How have they been valued? |
Computer values are at insurance replacement value and best guess for items such as desks/ cupboards etc. No formal valuations for equipment have been conducted. |
| Which assets are on lease/HP and with whom |
All assets are owned by the company or related party trusts. Assets are all purchased without debt. The business assets are owned by the trust for asset ring-fencing purposes. All of the business assets will be transferred over upon sale. |
| What are their settlement amounts? |
N/A |
| Will the Seller settle or Buyer take over? |
N/A |
| Are copies of agreements available? |
N/A |
| Are they presently insured? |
Yes insured |
7. S.W.O.T. Analysis
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| Strengths |
The firm has a long-standing reputation for excellence.
They have been in operation for almost 20 years and grew from a one-man show to a staff complement of around 25, which they chose to shrink, along with a client reduction strategy to get back to their core strengths and ensure consistent and high-quality outputs.
Quality service offering
They have a well-trained team within a departmental setting
Long-standing clientele – the only reason really that clients leave is because of affordability issues on their part or because they have been asked to. |
| Weaknesses |
Higher-level consulting relies on Partner expertise and/or oversight.
Working from home by some of the team does leave experience gaps in the office. |
| Opportunities |
Mining more opportunities in the existing client base.
Leveraging the brand excellence to attract new clients shifting (due to affordability issues) from “The Big Eight” firms.
The partners have not advertised/ marketed out of choice, hence any marketing/ advertising will add to the client base.
Xero accounting services can be marketed more aggressively as the firm was an early adopter. |
| Threats |
No significant threats, however, given the health issues and other related implications/ impact, it is important to sell the entity to a trustworthy purchaser to continue service to existing clientele and take on new prospective clientele from referrals |
8. Reason For Sale
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| What is the reason for the sale? |
The business sale is due to health issues of the founding partner, coupled with thoughts of emigration by the second partner, which subsequently solidified into an unequivocal desire to emigrate. A new era awaits all and this creates an opportunity for someone to carry the torch. Is that you? |
9. Conclusion
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| Why is this a good business to buy? |
This firm has been trading for nearly 20 years and has a strong reputation for quality service delivery. The continuous stream of word-of-mouth referrals speaks for the company's culture and approach toward its clients. This team effort approach toward the clients has become the DNA of the firm. More details of the excellent relationship they have not only with clients but also with tax specialists and peers speak for the quality of this firm. |