Buying a block of fees

Nothing transfers by itself

The central fact of a fee block purchase, and the one that surprises first-time buyers, is that you are not buying anything that moves on its own. A share purchase moves the company and everything inside it in a single step. A fee block purchase moves a list, and every name on that list has to be persuaded, individually, to become your client.

There is no contract that novates automatically. Engagement letters are between the client and the selling firm, and they end with it. Direct debit and standing order mandates are with the seller's bank. Authorisations held with the tax authority are in the seller's name. Every one of those has to be recreated in yours.

That is not an argument against buying a block. It is the most common shape in the market and the easiest for a lender to follow, because the thing being bought and the thing being measured are the same thing. It is an argument for treating the transfer process as the deal rather than as administration after the deal. The parent page on buying an accountancy practice sets out what carries value in the fee block itself. This page is about getting it across.

Testing the schedule before you price it

The fee schedule is the whole asset, and it is usually the least scrutinised document in the transaction. Three tests are worth doing before the price is agreed, not after.

Reconcile it to the accounts. Total the schedule and compare it with the revenue in the last full year and the current management figures. A schedule that totals more than the practice billed is not fraud, usually. It is a list of what clients are notionally worth rather than what they were actually invoiced, and the difference between those two numbers is the write-off rate, which is a real feature of the business you are buying.

Reconcile it to the ledger. Ask for the sales ledger for the last two years and check that the clients on the schedule are the clients who were billed. Names that appear on the schedule and not in the ledger are either dormant or hopeful.

Read the ageing. Debtors and work in progress are normally bought separately at or near book value, and their ageing tells you about collection discipline. A practice that bills promptly and collects in thirty days is a different business from one where half the year's work is still unbilled in month eleven.

Then break the schedule down by how the fee is actually collected. Fees on monthly direct debit are materially stickier than fees invoiced annually after the accounts are signed, because the client has already agreed to a payment pattern and inertia works in your favour. A block that is largely on standing arrangements and one that is largely billed in arrears can carry the same total and behave completely differently in year one.

Two separate things have to happen for each client, and buyers routinely conflate them.

The first is the client's decision. They are being asked to move to a firm they did not choose, and their agreement has to be obtained rather than assumed. In practice that is usually a joint letter from the seller and the buyer, sent on the seller's letterhead, explaining what is happening and introducing the buyer, followed by a new engagement letter from the buying firm. How that letter is written and when it goes out has more effect on retention than almost anything else in the deal.

The second is professional. The relevant professional body's rules on changes of professional appointment, the anti-money-laundering identification that has to be done afresh, and the client's own data being passed between two firms are all matters that have 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, and at who signs the work. None of that is finance, and none of it is something a lender will sort out, but a deal that stalls on it stalls all the same.

Sequencing the announcement

The order of events is a commercial decision with real consequences. Telling clients too early puts the deal at risk if it does not complete. Telling them at completion means the buyer has paid for relationships they have not yet met.

Most well-run transfers land somewhere in the middle: the seller writes first, the buyer follows within days, and the largest clients get a conversation rather than a letter. Book those conversations into the handover, with dates, before completion. A seller who has agreed in principle to make introductions and a seller who has fourteen scheduled meetings in the diary are not the same seller, and a lender can tell the difference.

The compliance calendar decides the year

Timing a practice purchase against the compliance year is worth real money. A block bought shortly before the busiest filing period arrives with its work still to do and its fees still to bill, which means the buyer funds the delivery cost before any income arrives. A block bought just after that period arrives largely billed, with the next cycle a long way off.

Neither is wrong, and both are fundable. What is wrong is not knowing which one you are doing, because the working capital requirement differs substantially between them. See working capital.

Staging the money against the transfer

Very few fee block purchases pay everything at completion, and a lender would usually be uncomfortable if one did. The normal shape is an initial payment, then further instalments over two or three years, with the later payments adjusted for the fees that actually transferred and stayed.

The adjustment mechanism is where the deal lives, and it needs to be specific about four things: the base schedule, agreed and signed at completion; what counts as a client lost; the dates on which the test is run; and how the money moves when the test is failed. Guessing at any of those in the heads of terms produces an argument later. Clawback and fee retention goes through the mechanics in detail, and deferred consideration and earn-outs covers how a lender treats the deferred money.

What else moves, and what does not

A fee block is rarely just a list. Work out early which of these are in the deal and which are not:

Staff. Where the arrangement amounts to a transfer of an undertaking, employment obligations follow the people whether or not anybody intended that, and it is a question for the solicitors rather than an assumption. Where staff do not come, you have bought a fee block with nobody to deliver it.
Work in progress and debtors. Usually purchased separately, at or near book value, and often the largest single cash item at completion after the initial payment.
Software licences and client data. Practice management, tax and accounts production systems, and the client records inside them. Licences do not always assign, and extracting clean data from a system you are not taking over is harder than it sounds.
The premises and the lease. Frequently excluded, which matters if the clients are used to visiting.
The name. Whether you carry on trading under the seller's name for a period is a retention question as much as a branding one.
Run-off cover. Professional indemnity for the seller's past work is the seller's obligation and should be evidenced, not promised.

Why a lender treats this differently from buying a company

A fee block purchase has almost no tangible security in it. There is no company balance sheet, no plant, usually no property, and the asset being bought is a relationship list that could in principle walk. A generalist funder looking for something to take a charge over finds very little and prices accordingly, or declines.

A lender who has funded practice purchases before assesses it differently. They look at the quality of the recurring compliance fees, the strength of the clawback, the length of the seller's handover, whether the buyer can deliver the work without hiring, and whether the debt is being serviced out of a realistic profit figure rather than out of gross fees. Those are the right questions, and asking them is the difference between a decline and an offer on the same block.

Expect the structure to reflect the risk: a term matched to the retention period rather than stretched beyond it, personal security of some kind, and covenants tied to fees retained. See funding a practice purchase for how the money is usually put together, and share purchase versus asset purchase for why the choice of structure changes the lending.

The short version

Buy the schedule you have tested, not the one you were given. Agree the transfer mechanics and the measurement rules before the price. Schedule the introductions rather than trusting them. Fund the gap between paying people and collecting fees, separately from the purchase price.

And take the proposal to somebody who has funded a fee block before. That is what we do. We know this market, Simon Read has spent years inside accountancy practice sales through Accountants For Sale, and we know specific people who have lent against blocks of fees and would do it again. Tell us what you are buying and we come back to you with who can fund it and what they will want to see.

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.