How to Finance the Purchase of an Accounting Practice in Australia
Updated: Sep 30
Finance for the purchase of an accounting practice is usually assessed on the quality of recurring revenue, sustainable earnings and the buyer's capacity to retain and service the client base.
Accounting practices often hold limited tangible assets relative to their purchase price. Much of the value may sit in goodwill, recurring client relationships, staff capability and expected future earnings. That means the funding assessment can look different from a property-backed transaction.
The purchase of an accounting practice can require a different funding approach from buying a business with substantial tangible assets.
There is no single finance structure or borrowing percentage that applies to every practice. The buyer, target practice, purchase agreement, available security and transition plan all influence what may be considered.
Purchase of an accounting practice: the short answer
Lenders may assess recurring fees, client concentration, retention, normalised earnings, buyer experience and vendor dependence.
Funding may involve cash-flow lending, property-supported lending, vendor finance or a blended structure.
The buyer's contribution should be considered alongside acquisition costs and working-capital reserves.
A valuation shortfall may need to be met through additional equity, other security, a changed price or deferred consideration.
Finance assessment does not replace accounting, legal, tax or commercial due diligence.
Why is an accounting practice acquisition financed differently?
A lender cannot rely only on desks, computers or other physical assets to recover the loan. The assessment may therefore place substantial weight on the durability of the practice's cash flow and the buyer's ability to preserve it after settlement.
Recurring fees can be attractive from a credit perspective when they are diversified, well documented and supported by stable service relationships. They can also be vulnerable when revenue depends heavily on one principal, a small number of clients, unusually low pricing or work that may not transfer.
What information may a lender examine?
Several years of financial statements and tax information where available
Current year-to-date management accounts
A schedule of recurring fees by client and service line
Client concentration, retention and loss history
Normalised earnings and the basis for proposed adjustments
Details of staff, the vendor's role and transition arrangements
The buyer's experience, personal financial position and contribution
The proposed purchase agreement, valuation and funding structure
What funding structures may be considered?
Cash-flow or goodwill-supported lending
Where the practice has verifiable recurring revenue and sustainable earnings, a lender may consider finance supported primarily by business cash flow. Terms, guarantees, security and covenants still depend on the lender and transaction.
Property-supported lending
Available property security may support part of a structure or change pricing and term options. It does not remove the need to test whether the acquired practice can sustainably service the debt.
Vendor finance or deferred consideration
A seller may agree to receive part of the price later. This can reduce settlement funding but creates an additional obligation that should be modelled with senior debt, tax, drawings and working-capital needs.
Blended finance
Some transactions combine buyer equity, cash-flow lending, property support and deferred payments. The components should work together rather than simply maximise available debt.
How do valuation and sustainable earnings affect finance?
The agreed purchase price and the lender's assessed value may differ. A fee multiple can inform negotiations, but lenders may also examine maintainable earnings after commercial owner remuneration, staffing, occupancy, software and other ongoing costs.
If the lender supports less than the buyer expects, possible responses may include increasing the contribution, using other acceptable security, negotiating the price, changing the structure or introducing properly documented deferred consideration. None is automatically suitable.
What should the buyer budget beyond the purchase price?
Legal, accounting, valuation and due-diligence costs
Working capital and an operating cash reserve
Staffing, recruitment and retention costs
Software migration, licences and systems integration
Premises, fit-out or equipment costs where relevant
Tax obligations and professional advice
Any deferred payment or retention adjustment
Questions to address before a finance application
What recurring revenue has been verified and how concentrated is it?
What adjustments support the proposed normalised earnings?
How will clients and key staff be transitioned?
What cash contribution and liquidity remain after settlement?
What security, guarantees and repayment term are proposed?
Can the combined business service all commitments under a downside scenario?
Further Fairlane reading
Frequently asked questions
Can an accounting practice be financed without property security?
It may be possible in some circumstances, particularly where recurring revenue and sustainable earnings are strong. Requirements vary by lender, buyer and transaction.
How much contribution will a buyer need?
There is no universal percentage. The answer may depend on valuation, cash flow, security, buyer experience, practice quality, loan terms and retained liquidity.
Will a lender accept the vendor's asking price?
Not automatically. A lender may consider an independent valuation or its own assessment of recurring revenue, sustainable earnings and transaction risk.
What does a finance broker do?
A broker can help assemble information, compare possible lender structures and explain finance conditions. The broker does not decide whether the practice is a suitable investment.
Conclusion
A financeable accounting practice acquisition needs more than an agreed price. The lender assessment, buyer contribution, transition plan, working-capital position and due diligence should form one coherent transaction plan.
Considering Buying an Accounting Practice?
Discuss how the acquisition and its funding could be presented to lenders.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
