The level of turnover means less than the amount of the recurring income therein.
The GRF or recurring income means less than the quality of the clients and the staff that keep it recurring.
The quality of the clients and staff though? Well the quality means less than the true depth of the connection they actually feel towards the firm.
Why? Because nothing is as common as under-used genius, or that good prospect who did not buy anything.
None of these distinctions, or others, can be defined easily in a due diligence or valuation check list.
Remember, it is never the profit in the eggs she lays, but how healthy and connected the goose is.
“Tribes are about faith – about belief in an idea and in a community” – Seth Godin
An excellent follow up! Looking forward to the next Law..
Dear Stephen
I do enjoy your blogs which are quite thought-provoking, thanks.
I am particularly interested in your niche as it seems that, as a firm, we are more and more involved in looking at aspects of goodwill for other professional practices. There may therefore be an opportunity to work with you.
May I ask your opinion on one aspect that has recently arisen? Two accounting firms, both sole practitioners, merged their practices and incorporated. They then fell out and de-merged but leaving behind a company with debts going into a creditors voluntary liquidation. There is a need to value the goodwill of the two practices now formed out of the company on the de-merger so that the insolvency practitioner for the company can recover funds to settle with the creditors. The usual GRF approach of 1:1 has been considered but with a discount factor to be applied to recognise the need to have acted quickly on the de-merger to prevent clients going elsewhere, especially with the Tax Return deadline fast approaching at the time of the split.
My question to you please is “is a discount factor appropriate under the above circumstances, why and, if so, what sort of discount figure seems appropriate?”
I hope you don’t mind my asking and hope you feel you can offer a response.
Kind regards
Paul