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Becoming Succession Ready: Your Price Model

Updated: Nov 10, 2021

“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, prospective successors will be viewed as a positive aspect. Conversely, if your hourly rates are on the low side, then it is likely that future 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. Lower hourly rates will likely flow through to lower profits. This will likely impact the price someone is prepared to pay for your business. In addition, a prospective successor may probably 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, you are better placed to address client concerns than a new successor/owner.

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

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 an absolute negative issue that will present itself shortly.

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. With technology, they can do client work in less time; therefore, their rates are going up in effect. Assuming you are competitively priced, why would you hand over your profitability improvement due to 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 severe 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 slight 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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