Part 1: Becoming Succession Ready: Your Price Model

Price is what you pay. Value is what you get". Warren Buffett.

If your pricing model is based on hourly rates, in the context of your upcoming practice succession, a couple of questions you might consider are:

  1. Are your rates competitive with your local market?

  2. When was the last time you increased your hourly rates?

As you approach your practice succession, one of the key items you can review is your hourly rates and consider how they compare in your local market. If your rates are on the high side, this will be viewed as a positive aspect by any prospective successor. Conversely, if your hourly rates are on the low side, then it is likely that prospective successors will see this as a negative aspect of buying your business. Of course, your rates must be considered in relative terms to the value you provide to your clients.

If a prospective successor identifies lower hourly rates as an issue, this is likely to have various implications. It is likely that lower hourly rates will flow through to the lower profits. This will likely impact the price someone is prepared to pay for your business. In addition, it is likely that a prospective successor may want to increase your rates. This may then have the flow-through impact of increasing client leakage and ultimately reducing any potential earn-out / deferred payments.

When a new owner is introduced to clients and the key objective is to build relationships this process can prove difficult if fees are increased at the same time.

Not a great first impression!

The simple truth is that you are far better to increase your fees leading into your succession where you have pre-existing relationships and goodwill with clients. If there is any client resistance, clearly you are better placed to address client concerns than a new successor/owner.

This leads us to the next question when was the last time you increased your hourly rates?

Perhaps as a standard policy, you increase your fees annually (perhaps at a minimum by CPI). If this is you, congratulations! If this is not you, then an opportunity awaits you to get ahead of a real negative issue that will present itself in the near future.

If you are not increasing your fees annually, then it is likely that your fees and your profits are going backward. Now some might justify their position with an efficiency argument. That is, with technology, they are able to do client work in less time, therefore, in effect, their rates are going up. Assuming you are competitively priced, why would you hand over your profitability improvement, as a result of your effective business management to your clients – that makes no sense.

If your fees are not competitive in your local market, then this is a serious issue. If you have not increased your fees in recent times, then this is also an issue.

Now is the time to address this issue, to eliminate this future headache by increasing your fees today, across the board for all clients. Not only will you receive a small increase in revenue and profitability (all things being equal), but you will also remove a value detractor for your future successor. You will be rewarded for your efforts through your succession journey.

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