Buying an Accounting Client Book vs Buying an Accounting Firm

Buying an accounting client book is not the same as buying an entire accounting firm.

A client book acquisition generally focuses on the recurring fees and goodwill associated with a group of client relationships.

Buying an accounting firm usually involves acquiring a broader operating business, which may include employees, systems, premises, equipment, branding and established management processes.

The distinction can materially affect the purchase price, due diligence, transition risk and finance structure.

What Are You Buying With an Accounting Client Book?

An accounting client book, sometimes called a fee parcel, generally consists of the goodwill and expected future revenue associated with a portfolio of clients.

The buyer may acquire:

• recurring accounting, tax and advisory fees;

• client records and work history, subject to legal and privacy requirements;

• work in progress or debtors where included in the agreement;

• the benefit of vendor introductions and transition support; and

• goodwill connected to the client relationships.

The buyer is not purchasing the clients themselves. Clients remain free to choose their accountant, making retention one of the most important risks in the transaction.

Client books are commonly acquired by an existing accounting practice that already has the staff, systems, premises and management capacity needed to service the additional clients.

What Are You Buying With an Accounting Firm?

Buying an accounting firm generally involves acquiring a functioning business rather than only a portfolio of fees.

Depending on the transaction, this may include:

• the firm’s recurring client base;

• employees and management capability;

• systems, software and operating procedures;

• premises, equipment and business infrastructure;

• branding and market presence;

• work in progress and debtors; and

• established relationships with clients and referral partners.

An accounting firm acquisition may be structured as an asset purchase or a purchase of shares in the operating entity. This legal distinction is separate from whether the commercial transaction involves a client book or an entire firm, and buyers should obtain appropriate legal, accounting and tax advice.

How Do Lenders Assess an Accounting Client Book Acquisition?

When financing a client book, lenders will generally consider whether the acquired fees can be successfully integrated into the buyer’s existing practice.

Important considerations may include:

• the proportion of revenue that is recurring;

• historical client retention;

• concentration among major clients;

• the vendor’s involvement in client relationships;

• the proposed handover and introduction process;

• the buyer’s existing practice performance;

• available staff and servicing capacity;

• the expected profitability of the acquired fees; and

• the buyer’s experience with previous acquisitions or integrations.

Because a client book may not include its own operating infrastructure, the lender may assess the combined position of the acquired fees and the buyer’s existing practice.

The buyer must demonstrate not only that the fees are valuable, but also that the existing firm can retain and service the additional clients without disrupting its current business.

How Do Lenders Assess the Purchase of an Accounting Firm?

When an entire accounting firm is acquired, lenders will usually assess the sustainable earnings of the business after settlement.

This may involve reviewing:

• normalised EBITDA or future maintainable earnings;

• recurring revenue and fee quality;

• staff capability and key-person dependence;

• commercial remuneration for working principals;

• client and industry concentration;

• vendor transition arrangements;

• premises and other ongoing commitments;

• integration plans where another practice is involved; and

• the combined debt-servicing position after the acquisition.

A vendor’s reported profit may require adjustment if it does not include a commercial salary for the work performed by the outgoing principal. Additional costs may also arise if the buyer needs to recruit a replacement principal, retain key employees or combine two operating businesses.

Is Buying a Client Book Easier to Finance?

Not necessarily. A client book may have a lower purchase price than an entire firm, but it can carry substantial retention and integration risk. Its value may depend on whether clients remain after the vendor’s departure and whether the buyer has sufficient capacity to service them.

An established accounting firm with stable employees, transferable client relationships and reliable earnings may sometimes present a stronger lending proposition, even if the transaction is larger.

The key issue is not simply whether the buyer is acquiring a client book or a firm. It is whether the acquired revenue and earnings are sustainable, transferable and sufficient to support the proposed debt.

How Can the Purchase Price Address Client-Retention Risk?

Accounting client book transactions often use deferred consideration or retention arrangements.

For example, part of the purchase price may be paid at settlement, with the balance calculated after an agreed period according to the fees retained. This can reduce the amount required at settlement and align the final price more closely with the revenue that successfully transfers to the buyer.

However, lenders will still consider:

• when deferred amounts must be paid;

• whether vendor finance is subordinated;

• how retention adjustments are calculated; and

• whether the business can service both senior debt and future vendor payments.

Which Acquisition Is Right for You?

An accounting client book may suit an established practice with spare capacity and an existing operational platform. Buying an entire accounting firm may suit a buyer seeking a complete business with staff, systems and an established market presence.

Before committing, the buyer should understand:

• exactly what is included in the transaction;

• how dependent the revenue is on the vendor;

• whether the acquired clients can be retained;

• what additional staff and resources will be required; and

• whether the purchase price and funding structure are supported by sustainable earnings.

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Considering Buying an Accounting Practice?

Fairlane Finance helps buyers assess how lenders may view a proposed accounting-practice acquisition and how the funding could be structured before they commit.

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General information only. Seek appropriate legal, accounting and tax advice. Lending criteria vary.