The so-called baby-boomer accountants, born in the immediate aftermath of World War Two, are now reaching (normal) retirement age. For many of them the question of whether they can afford to retire is at the forefront of their thoughts.
Some members of the profession have long been making pension contributions or investments intended to ensure they have a good income in retirement; many others however work on the assumption that their accounting practice (or their share of the firm) will produce the bulk of their retirement income. How realistic is this?
In this context your retirement income will be dependant on your future health and family issues, the future performance of your pensions and investments and the future profitability, success and structure of your accountancy practice.
Some smaller practitioners may hope to sell their practice but with typical practice sales generating little more than once times recurring turnover will the net proceeds be sufficient? Others may plan to scale down their practice, retain a fraction of their client base and work only part-time so as to generate a net income closer to what they require in ‘retirement’.
An alternative solution is to merge the practice with one run by someone younger who is looking to grow and expand; and to seek a recurring consultancy from the new merger partner. The challenge here is to ensure that the numbers add up and make the deal sufficiently attractive to the purchaser. What you think is ‘fair’ is just part of the equation of course.
There are also many firms around today where a small number of partners have retained a disproportionate amount of the goodwill and equity. Junior partners may have been happy with the level of profits they have shared despite any apparent inequities in the ownership of the practice. As the full equity partners come to retire the question arises as to whether they have realistic retirement ambitions. Will the other partners be able to afford to ‘buy them out’? Can the firm access the funding required to repay their capital and over what period will this be achieved? Often a sale to or merger with a third party is again the only realistic outcome. This was one of the drivers behind the sale of many smaller firms to consolidators like Tenon, Numerica and Vantis around ten years ago.
Have you given thought to your retirement? Will you be able to afford to retire?