Deposits When Buying an Accounting Practice: What Should You Ask Before Paying?
Updated: 2 days ago
GUEST AUTHOR | Blackhall & Co
Today’s guest post is by Blackhall & Co. Blackhall & Co helps buyers find businesses worth owning. Opinions expressed by guest authors are their own and do not necessarily reflect the views of Fairlane Finance.
A deposit is not just an amount of money. The buyer should understand why it is being paid, who holds it and what is intended to happen if the acquisition does not proceed.
Before paying a deposit buying an accounting practice, the buyer should make sure the payment arrangement is clearly documented and reviewed in the context of the offer or HOA.
Stage 4 is the right point to ask these questions because the buyer is beginning to commit money as well as time.
Deposit buying an accounting practice: the short answer
Understand the purpose and amount of the deposit.
Know who will hold the money and under what arrangement.
Understand when the money is intended to be released, refunded or applied to the purchase price.
Check what happens if finance, due diligence or another condition is not satisfied.
Have the buyer's lawyer review the actual deposit terms before payment.
Start with the purpose of the payment
A deposit may be intended to show commitment, support an exclusivity arrangement, form part of the purchase price or serve another agreed commercial purpose.
The buyer should not infer the purpose simply from the word deposit.
Ask who holds the money
The arrangement may involve a solicitor's trust account, agent or another agreed holder. The buyer's lawyer should explain the proposed holding arrangement and the consequences of payment.
Refundability should not be assumed
Whether the deposit is refundable depends on the actual terms and circumstances. The buyer should understand what is intended to happen if finance is not obtained, due diligence is unsatisfactory or the transaction otherwise stops.
The deposit terms should match the conditions
If the offer or HOA includes finance or due-diligence conditions, the deposit arrangement should be understood alongside those conditions rather than as a separate issue.
Questions to ask before paying
How much is being paid?
What is the payment for?
Who will hold the funds?
When can the funds be released or returned?
What happens if finance or due diligence is not satisfied?
Has the buyer's lawyer reviewed the arrangement?
Frequently asked questions
Is a deposit always required?
No. Sale processes differ. Whether a deposit is requested and on what terms is a commercial and legal matter for the particular transaction.
Is the deposit always refundable?
No general assumption should be made. The buyer should understand the documented terms before transferring money.
Does paying a deposit mean the practice is exclusive to me?
Not necessarily. Exclusivity is a separate issue and should be confirmed explicitly rather than inferred from the payment.
Illustrative Stage 4 scenario
A buyer is asked to pay $20,000 when signing a HOA. The buyer initially assumes it will be automatically refunded if finance is not approved.
Before paying, the buyer asks their lawyer to explain the actual deposit and finance-condition wording rather than relying on that assumption. This example is illustrative only.
Which adviser covers which issue?
A commercial lawyer should advise on the deposit terms, holding arrangement and legal consequences.
The finance broker should know if the deposit affects the buyer's available contribution or liquidity.
What should you look at next?
A deposit can be requested with or without exclusivity. The next Stage 4 question is what exclusivity actually means for the buyer.
Conclusion
The buyer should never treat a deposit as a routine administrative step. Stage 4 is the point to understand the payment arrangement before money changes hands.
Sources and further reading
Contributor disclaimer: This article is contributed by Blackhall & Co and published on the Fairlane Finance website. The views, opinions and conclusions expressed are those of the contributor alone, not statements of Fairlane Finance’s position. Publication does not constitute Fairlane Finance’s endorsement of the contributor’s views, services or any proposed acquisition.
The material is general information only. It is not financial, credit, investment, legal, tax, accounting, compliance or valuation advice, and does not take account of your objectives, financial position or circumstances. Do not rely on it as a substitute for independent investigation and advice from appropriately qualified professionals. You are responsible for assessing its accuracy, currency and suitability. Any reliance on it or action taken is at your own risk. To the maximum extent permitted by law, Fairlane Finance disclaims liability for loss or damage arising from reliance on this contributor content. Nothing in this disclaimer excludes or limits rights or liabilities that cannot lawfully be excluded or limited.
