How to Finance the Purchase of an Accounting Practice in Australia
- Josh Foo
- Jun 4
- 4 min read
Updated: 2 days ago
Buying an accounting practice is different from buying many other small businesses.
An accounting firm may have relatively few hard assets, yet still have significant value because of its recurring client fees, established relationships, staff capability and future earnings.
For this reason, lenders may assess an accounting-practice acquisition differently from a conventional business purchase. Depending on the transaction, funding may be supported by the cash flow and goodwill of the practice, property security, the buyer’s contribution, vendor finance, or a combination of these.
What Do Lenders Look At When Financing the Purchase of an Accounting Practice?
Lenders generally focus on whether the acquired practice can generate sustainable cash flow after settlement.
Key areas commonly assessed include:
recurring fee revenue
normalised or maintainable earnings
client concentration and retention
experience of the buyer
dependence on the outgoing principal
staff and management depth
purchase price and valuation
buyer contribution
available security
proposed vendor transition
For accounting practices, recurring revenue can be particularly important because established clients often return each year for tax, compliance, accounting and advisory services.
However, revenue alone is not enough. Lenders will also want to understand how much profit remains after allowing for the real cost of operating the practice.
How Much Can You Borrow to Buy an Accounting Practice?
There is no single percentage that applies to every accounting-practice acquisition.
Some lenders may assess the transaction using the purchase price and the buyer’s contribution. Specialist professional-practice lenders may place greater emphasis on recurring revenue, normalised EBITDA and the overall value of the practice.
Normalised EBITDA attempts to determine the sustainable earnings of the business after adjusting for items such as owner remuneration, unusual expenses and one-off income.
For example, a practice may report strong accounting profits, but if the outgoing principal performs substantial client work without a market salary being reflected in the accounts, the lender may adjust the earnings downward.
Can You Buy an Accounting Practice Without Property Security?
Potentially.
Because accounting practices can have predictable recurring fees and valuable goodwill, some lenders may consider acquisition funding without relying primarily on residential or commercial property security.
This does not necessarily mean the loan is completely unsecured. A lender may still require personal guarantees, a General Security Agreement over the business, or other forms of security.
Where property is available, another option is a blended structure. Part of the funding may be supported by the practice’s cash flow and goodwill, while property provides additional support for the overall facility.
How Is an Accounting Practice Valued?
The seller’s asking price is not necessarily the same as the value a lender will place on the practice.
Smaller accounting practices and fee parcels have traditionally been valued using a multiple of maintainable fees. As practices become larger, greater emphasis is often placed on future maintainable earnings and profitability. CPA Australia notes that practices above approximately $1 million in annual fees are more likely to be valued using a capitalisation of maintainable earnings approach rather than a simple fee multiple.
The quality of revenue also matters. Client concentration, recurring fees, dependence on a particular principal and the sustainability of earnings can all influence value.
What If the Bank Values the Practice Below the Purchase Price?
A lender may be willing to finance the business but still conclude that the vendor’s asking price is too high.
If there is a valuation shortfall, possible solutions may include:
increasing the buyer’s contribution
using available property equity
renegotiating the purchase price
introducing vendor finance or deferred consideration
structuring part of the price around future client retention
Acquisition agreements can include retention or clawback arrangements where part of the purchase price depends on maintaining the acquired fee base.
Buying an Accounting Practice as an Existing Firm
An accountant who already operates an established practice may present a different lending proposition from a first-time practice owner.
A lender may consider:
the existing practice’s revenue and profitability
the combined cash flow after acquisition
management capability
previous acquisition experience
integration plans
whether the acquired practice will retain its existing staff and location
This can be particularly relevant where the acquisition is intended to expand an existing accounting group.
Preparing for Finance
Before approaching lenders, buyers should ideally have access to:
recent financial statements
current year-to-date financials
an Information Memorandum
Heads of Agreement or proposed transaction terms
details of recurring revenue
proposed vendor transition arrangements
Detailed due diligence should also examine client quality, staff, technical work, liabilities and the sustainability of the fee base. CPA Australia highlights the importance of thorough due diligence and a structured transition when buying an accounting practice.
Speak With an Accounting Practice Finance Broker
The appropriate funding structure depends on the practice being acquired, the buyer’s existing business, the purchase price, maintainable earnings, available security and the proposed transaction structure.
Fairlane Finance helps accountants explore funding options for accounting-practice acquisitions, including cash-flow lending, goodwill-based finance, property-supported structures and blended acquisition finance.
If you are considering buying an accounting practice, speak with us before committing to a funding structure so we can assess how lenders may view the transaction.
Considering buying an accounting practice?
Speak with Fairlane Finance to explore how lenders may assess the purchase price, recurring revenue, normalised earnings and available security — and what funding structures may be available.
