STAGE 3 -
FUNDING PATHWAY
Can the purchase and the practice support a sensible funding structure?
Does there appear to be a realistic route to financing the purchase?
You now have a better understanding of the practice and some of the information behind it.
The next step is to consider how the acquisition might be funded.
At this stage, you are not necessarily applying for a loan or seeking final lender approval.
The objective is to understand whether there appears to be a realistic funding pathway, identify any obvious gaps or constraints and determine what needs to happen before the finance process progresses further.
The question you are trying to answer is:
Does this acquisition appear capable of being financed — and what would be required to progress it?
You may not have every answer yet, but that's okay for now.
The purpose of Stage 3 is to develop a clearer picture of the funding position before the transaction moves too far ahead of the finance process.
1. Understand acquisition finance
Buying an accounting practice is not financed in quite the same way as buying a home.
With a home loan, the lender is generally assessing you as the borrower together with the property being offered as security.
With an accounting-practice acquisition, the lender may also need to understand the business being acquired and the transaction itself.
That can include:
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sustainable earnings;
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recurring revenue;
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client concentration and retention;
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the outgoing owner's role;
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staff structure;
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purchase price;
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your experience;
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your contribution;
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available security; and
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how the practice will operate after settlement.
The lender wants to know:
Can this business continue generating sufficient cash flow under the new ownership structure to support the proposed debt?
That is why acquisition finance usually requires more context than simply providing a purchase price and asking for a loan quote.
SUGGESTED DEEP-DIVE ARTICLE >
How Is Financing an Accounting Practice Different From Getting a Home Loan?
2. Understand what may support the borrowing
There is no single formula that determines how much can be borrowed to acquire an accounting practice.
The amount a lender may support depends on the overall transaction.
For an accounting practice, important considerations can include the quality and sustainability of the practice's earnings, the buyer's financial position and experience, the proposed contribution, available security and the structure of the acquisition.
Two practices with similar revenue can therefore produce quite different lending outcomes. A practice with diverse recurring clients, sustainable earnings, experienced staff and a manageable transition may present differently from one that is highly dependent on the departing owner or a small number of significant clients.
The objective at Stage 3 is not to calculate a guaranteed borrowing amount.
It is to understand what appears to support the funding case and what could make it more difficult.
Suggested deep-dive articles
How to Finance the Purchase of an Accounting Practice in Australia
What Do Lenders Look for When Financing an Accounting Practice?
What Is Normalised EBITDA in an Accounting Practice Acquisition?
3. Consider your contribution
Your contribution is the amount of your own funds or equity being introduced into the transaction.
The amount required can depend on the lender, borrower, practice, security and overall structure.
But also consider what remains available after settlement.
The purchase price may not be the only cash requirement. You may also need to allow for:
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professional fees;
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transaction costs;
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working capital;
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integration costs; and
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unexpected expenditure.
Hence, you might need to consider both:
1. How much can I contribute?
2. How much liquidity should I retain after settlement?
SUGGESTED DEEP-DIVE ARTICLE >
How Much Cash Do You Need to Buy an Accounting Practice?
4. Your experience and existing practice
The lender is not only assessing the practice being purchased.
It may also assess you as the incoming owner.
Relevant factors can include your qualifications, professional experience, management capability and previous ownership or acquisition experience.
If you already operate an accounting practice, the existing business may also form an important part of the assessment.
A lender may want to understand:
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the existing practice's revenue and profitability;
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existing borrowings;
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combined earnings following the acquisition;
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management capacity;
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integration plans; and
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how the two practices will operate together.
An accountant acquiring their first practice may therefore present a different funding proposition from an established firm completing its third acquisition.
Different does not necessarily mean better or worse. It simply means the funding assessment needs to reflect the actual buyer and transaction.
SUGGESTED DEEP-DIVE ARTICLE >
Buying Your First Accounting Practice vs Acquiring Through an Existing Firm: How May Lenders View the Difference?
5. Understand the role of security
Property security can help support some acquisition-finance structures, but it is not necessarily the only option.
Depending on the circumstances, funding may involve:
Cash-flow or goodwill-supported finance
where greater emphasis is placed on the practice's earnings and business quality.
Property-supported finance
where residential or commercial property forms part of the lender's security.
A blended structure
where different facilities or forms of security are combined.
Even without property security, the lender might still want other guarantees (such as a personal guarantee) or security over business assets.
SUGGESTED DEEP-DIVE ARTICLE >
Can You Buy an Accounting Practice Without Property Security?
6. Consider how the price will be paid
Depending on the agreement, the transaction may include:
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Vendor finance — where the vendor effectively finances part of the purchase price.
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Deferred consideration — where part of the agreed price is paid later.
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Retention or clawback arrangements — where part of the consideration may depend on the retention of clients or fees after settlement.
These arrangements can change the amount that needs to be funded at settlement. But they can also create additional obligations later.
For example, reducing the bank funding required on day one does not necessarily make the acquisition more affordable if substantial vendor payments fall due shortly afterwards.
The entire repayment structure therefore needs to be considered rather than looking only at the loan/funding itself.
SUGGESTED DEEP-DIVE ARTICLE >
Vendor Finance and Deferred Consideration When Buying an Accounting Practice
7. Don't expect the exact rate and loan structure immediately
One of the most common early questions is:
“What rate can I get?”
The interest rate and cost of funding matters. But at the beginning of an acquisition, it may be too early to provide a meaningful answer.
Before the appropriate lender and facility can be identified, it may first be necessary to understand:
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what is being purchased;
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the financial performance of the practice;
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purchase price;
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required loan amount;
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buyer contribution;
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available security;
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vendor finance;
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ownership structure; and
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the buyer's circumstances.
Different structures may lead to different lenders, loan terms, security requirements and pricing.
A quick rate quoted before these matters are understood is irresponsible and can create a false sense of precision.
The more useful early question is:
Does there appear to be a realistic funding pathway, and what needs to happen to properly assess it?
The detailed pricing and terms become more meaningful as the funding structure becomes clearer.
SUGGESTED DEEP-DIVE ARTICLE >
Why Can't You Always Get an Exact Rate at the Start of a Business Acquisition?
8. Understand what an initial finance assessment actually means
An early finance discussion can be valuable. But it is important to understand what this means.
An initial review may help identify:
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whether the proposed transaction appears broadly financeable;
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what information is still required;
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potential funding gaps;
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structural issues;
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matters that may concern a lender; and
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whether further finance work appears worthwhile.
It does not mean that a lender has approved the acquisition.
A lender will ultimately conduct its own assessment and may require additional information, valuation work, conditions, documentation and credit approval.
Think of Stage 3 (this stage) as understanding whether there appears to be a credible pathway forward, rather than obtaining certainty on the funding outcome.
STAGE 3
RESOURCES
1. Acquisition Finance Journey >
A visual overview of how acquisition finance progresses from initial discussion to detailed assessment, lender application and settlement.
2. Finance Readiness Checklist >
Use this checklist to identify whether you have the key information needed for a useful acquisition-finance discussion.
3. Side-By-Side Journey >
A visual map of how acquisition finance journey and acquisition journey overlay with one another.
KEEP IN MIND
1. An indication is not approval
Preliminary lender feedback can help shape the deal, but terms and approval depend on full evidence, credit assessment and conditions. it is not lender approval and should not be treated as certainty that funding will be available.
2. Preserve a cash buffer
Allow for transition costs and working capital after settlement, even when the purchase price and loan repayments look affordable.
3. Get the deal structure reviewed
Sale terms, security, guarantees and tax consequences should be reviewed with the appropriate advisers before the buyer makes a binding commitment.
4. Don't let the transaction outrun the finance
Offer, due-diligence, legal and finance timelines can move at different speeds. If external funding is required, consider the finance process before accepting deadlines or removing important protections.
IMPORTANT INFORMATION: This guide is general educational information for accountants considering an accounting-practice acquisition. It is not legal, tax, accounting, valuation, investment or credit advice, a loan offer or an indication of approval. Funding options and lender requirements depend on the buyer, practice, transaction and available evidence. Obtain appropriate professional advice and formal lender approval before making commitments.