Sectors
Buying an accountancy practice, and how lenders look at it
This is the sector we know best. Simon Read has spent years inside accountancy practice sales through Accountants For Sale, which means we have watched these deals from the inside: what buyers pay for, what falls over, and which lenders understand a fee block when they see one.
That last part is the whole point. A generalist lender reads recurring fee income as ordinary turnover and prices it accordingly. A lender who has funded practice purchases before reads the same number as one of the most predictable revenue streams in the SME market. Same practice, two very different answers.
What you are actually buying
You are buying a stream of fees, and the reasons people keep paying them
Almost nothing you are buying is physical. The desks, the servers and the coffee machine are rounding errors. What you are paying for is a set of client relationships that renew, and the reasons those relationships renew.
Break the fee block into its parts before you agree a price, because a lender will:
- Recurring compliance fees. Annual accounts, corporation tax, personal tax returns, payroll, VAT returns, company secretarial. These renew because the deadline comes round again, which is what makes them predictable.
- Advisory and project fees. Higher margin, usually less predictable, and often attached to one person rather than to the firm.
- One-off and disbursement income. Real money, but it is not a reason to pay a multiple.
- Work in progress and debtors. Usually bought separately at or near book value, not as part of the fee multiple. Read the ageing carefully.
The split matters more than the total. Two practices billing the same amount can be worth materially different money, and can be funded on materially different terms, depending on how much of that billing is compliance work under an engagement letter and how much is a favour to an old client that the retiring partner has been doing for twenty years.
What carries value
The things that move the number
Fee quality
Compliance fees under a signed engagement letter carry the most weight. Fees that exist because a partner is owed a favour carry the least, because they leave with the partner.
Client concentration
A practice where the largest client is one per cent of fees is a different asset from one where the top three are a third of them. The second is not unfundable, but it changes the structure.
Partner dependency
The question a lender asks is simple: if the seller left the day after completion, how many fees leave with them? The honest answer determines the retention, the earn-out and sometimes the price.
Average fee per client
Four hundred small clients is a different business from eighty larger ones, even at identical total fees. One is a processing operation that needs systems; the other is a relationship business that needs people.
Staff who stay
In most practice purchases the staff are the delivery mechanism for the fees you just bought. A qualified senior who leaves in month two is a bigger problem than a client who does.
Systems and data
A practice on modern cloud software with a clean client ledger transfers cleanly. One where the fee list lives in a spreadsheet and the partner's head is slower and riskier to integrate.
The lender's view
What lenders look at, and what makes them nervous
What gives a lender comfort
- Recurring compliance fees that can be evidenced client by client, not asserted as a total.
- A long average client tenure. Clients who have been there eleven years rarely leave because the letterhead changed.
- A buyer who already runs a practice and can absorb the work without hiring.
- Real clawback or retention in the deal, so the seller carries some of the attrition risk.
- A seller staying on for a defined handover with the introductions actually scheduled, not promised.
- Restrictive covenants that a solicitor has drafted and that would survive being tested.
What makes a lender nervous
- Fees concentrated in a handful of clients, or in one introducer relationship.
- A retiring partner who wants to be gone at completion.
- A fee list that cannot be reconciled to the accounts.
- Heavy reliance on work that is being automated away, with no advisory income behind it.
- A buyer with no practice experience and no management team, funding the whole thing with debt.
- A price agreed on a multiple of fees with no reference to what is left after paying someone to do the work.
The last one is the one that catches buyers most often. A price can be negotiated on gross recurring fees, which is the market convention, while the debt has to be serviced out of profit. A lender will rebuild the profit figure itself: it takes the practice's earnings, strips out the seller's drawings, puts back a realistic salary for whoever is going to do that work after completion, and services the debt from what is left.
If nobody has done that arithmetic before the price was agreed, it gets done for the first time in credit, which is the worst possible moment to find out.
How the two numbers differA practice with recurring fees of 500,000 might be discussed at a price around one times those fees. The debt, though, is serviced from what is left after the work is actually done: if delivering that fee block costs 350,000 in salaries, premises and software, the figure the lender is lending against is the 150,000, not the 500,000. The multiple sets the price. The margin sets the borrowing.
Deal shapes
The structures that actually get funded
The fee block purchase. The buyer takes the client list and the goodwill, usually not the company. Payment is typically staged over two or three years with a retention or clawback tied to fees that transfer. This is the most common shape for a smaller block and the easiest for a lender to understand, because the thing being bought and the thing being measured are the same thing.
The share purchase. The buyer takes the company, with its history, its contracts, its staff and its liabilities. More due diligence, more warranties, and more reason for the lender to want indemnities in place. Read share purchase versus asset purchase for why lenders care which one you are doing.
The merger with a retirement. A sole practitioner folds their practice into a larger firm and stays for a defined period. Often the cleanest outcome for clients and the hardest to price, because the value depends heavily on how the handover is run.
The bolt-on. An existing practice buys a second one. The strongest position with a lender, because there is a trading history to lend against and the buyer can usually absorb the work. Existing debt in the buying practice is the constraint, not the appetite.
Whichever shape it takes, the money almost never moves in one payment. Deferred consideration and earn-outs are the norm here, and how a lender treats that deferred money changes what you can borrow on day one.
Paperwork
What you will be asked for
Every lender's list differs slightly, but for a practice purchase the core of it is consistent. Having this ready before anyone asks is the single cheapest thing a buyer can do to shorten a deal.
- Three years of full accounts for the target, plus the latest management figures.
- A fee ledger by client, with recurring and non-recurring split out, and at least two years of history so trends are visible.
- Client numbers by fee band, and the top ten clients by fee with their tenure.
- Engagement letters, or an honest statement of which clients do not have one.
- Staff list with roles, salaries, qualifications and length of service.
- Work in progress and debtor ageing.
- Professional indemnity cover, and what run-off arrangement is planned.
- Software licences, the lease, and anything else that has to novate.
- Heads of terms, and the buyer's own accounts if there is an existing practice.
Our document checklist sets out the general version of this in the order a lender tends to ask for it.
Traps
The ones that cost buyers money
Clawback that does not bite. A clawback clause is only worth what it can actually recover. If the entire deferred payment has been made by the time attrition shows up, or the seller has no assets left to claw back from, the clause is decoration. The measurement period has to outlast the risk.
Measuring retention the wrong way. "Ninety per cent of clients retained" and "ninety per cent of fees retained" are different tests, and they diverge exactly when it matters, which is when the biggest clients are the ones that left. Agree the test in writing, by fee value, before completion.
Forgetting the working capital gap. You take on the salaries immediately. The fees arrive on the practice's normal billing cycle. Buyers routinely fund the purchase price properly and then run short in month three because nobody funded the gap between paying staff and collecting fees.
Restrictive covenants nobody drafted properly. A seller who can set up down the road and take the good clients back has effectively sold you the same fees twice.
Professional obligations that do not transfer automatically. Professional clearance, run-off cover for the seller's past work, and the rules of the relevant professional body all need to be dealt with in their own right. A buyer who is not themselves qualified needs to look very carefully at what they can and cannot hold themselves out as offering.
Assuming staff come with the fees. Where staff transfer, employment obligations follow them. Where they do not transfer, you have bought a fee block with nobody to deliver it. Neither is a detail.
None of the above is finance advice, and none of it replaces your solicitor or your own professional judgement. It is a list of what we have seen go wrong.
Why this sector, and why us
We know which lenders read a fee block correctly
What we have is the part that is hard to buy: we know this market, and we know specific people who have funded accountancy practice acquisitions before and would do it again.
So the useful thing we do is short. You tell us what you are buying and how the deal is shaped. We go to the lenders and brokers who understand practice purchases, rather than to whoever is nearest. Then we come back to you and tell you who can fund it and what they will want to see.
If you are still looking for a practice to buy rather than funding one you have found, Accountants For Sale is Simon's other business and is where that conversation belongs.
We introduce buyers who are acquiring through a limited company or a NewCo. If you are buying personally, as a sole trader or as a partnership, we will point you to an authorised firm directly instead.
Tell us what you are buying, and we will go to the people who fund practices
Send us the fee profile and the shape of the deal. We come back to you with the lenders who fund practice purchases, and what they will want to see.