Pricing Risk When Buying an Accounting Practice
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.
Pricing Risk When Buying an Accounting Practice is the possibility that the fees being purchased do not support the cost of delivering the promised work under your ownership.
The fee list looks healthy. The clients have been there for years. Yet some engagements may consume far more time than their invoices suggest.
At Stage 5, due diligence looks beneath those comfortable numbers: what has the practice promised, what does delivery cost and how much of your forecast depends on changes clients have yet to accept?
For Australian buyers, business.gov.au’s pricing guidance provides a useful starting point: consider costs, customer value and market conditions together. An acquisition review then needs practice-specific evidence to explain the fees and delivery costs.
The short answer
Compare fees with the actual scope, workload and cost of delivery.
Review discounts, unbilled work, write-offs and informal commitments.
Separate low prices from inefficient processes or changing client needs.
Test any proposed increases for timing, client acceptance and retention risk.
Keep unachieved pricing improvements separate from verified current earnings.
How do you test Pricing Risk When Buying an Accounting Practice?
The useful starting point is a client-and-service review over a consistent period. Major clients, engagements with low fee recovery and fixed-fee packages each reveal something different.
A spread across the client base matters too: the vendor’s best-performing examples may tell a reassuring story while leaving less profitable work out of view.
Agreed service scope and current engagement terms.
Invoices, credit notes, discounts and subsequent collections.
Recorded time, staff mix and review effort.
Additional work performed outside the stated scope.
Last fee review, client response and any promised future pricing.
The client information requested during initial review provides the starting material. Selected engagements then need to reconcile to underlying records, with the vendor’s explanation and supporting evidence beside any exception. This is where a tidy summary becomes a tested account of the work.
Are comparable clients actually receiving comparable work?
Different fees do not automatically establish underpricing. One client may provide clean records and need a straightforward annual return, while another may require bookkeeping corrections, multiple entities, frequent advice and extensive review.
Scope, complexity, record quality and staff involvement give the price its meaning. A group discount may explain lower fees across related entities, while a small annual invoice may sit alongside separately billed advisory work.
Differences in GST treatment or reporting periods can also make comparisons misleading. Like-for-like work is the starting point for a useful comparison.
Legacy discounts bring another layer of history. Perhaps the vendor supported a long-standing client through a difficult period, or agreed a fee in return for work that never arrived. The reason matters, as does the client’s understanding.
An undocumented promise remains an unresolved issue, because a change of ownership does not establish that it can simply be withdrawn.
What do fixed fees and engagement terms cover?
APESB’s APES 305 Terms of Engagement requires members in public practice to document and communicate engagement terms. During due diligence, review the current terms alongside what the practice actually delivers.
Included services, frequency and agreed deliverables.
Treatment of extra work, client delays and unexpected complexity.
How changes in scope and fees are communicated and accepted.
Who approves variations and whether they are consistently billed.
Whether monthly payments relate to ongoing services or work still to be completed.
A fixed fee can work well when scope and delivery are controlled.
The difficulty is the extra task that becomes a standing expectation: another reconciliation, a last-minute payroll query or advice nobody invoices. The engagement terms and actual service need to tell the same story. A solicitor or professional adviser can assess the terms and proposed changes where needed.
Does low recovery reflect pricing or delivery?
Hours and costs help explain a fee, provided the records capture the work. The principal’s late-night review, informal client calls or help with a difficult file may never appear on a timesheet.
That missing effort can make an engagement look more profitable than it would be with a paid replacement doing the same work.
Low recovery may reflect an inadequate fee, rework, poor client records, inefficient systems or a team learning unfamiliar work. The distinction changes the buyer’s response.
Better workflow might address a delivery problem, while persistent scope creep needs a different conversation. An expected benefit becomes credible only when the continuing costs and proposed changes have been explained.
The financial information review connects engagement findings with expenses. Client-level contribution and practice-wide profit remain different measures: rent, management and other overheads still need to be met.
How much does the forecast rely on future increases?
A forecast can quietly turn a pricing opportunity into a certainty. Keeping proposed changes separate from current fees makes that leap visible.
Each increase has affected clients, a reason, a practical billing date and possibly a service change behind it. Although earlier increases and client departures offer evidence, the new owner’s confidence alone does not establish acceptance.
A delayed-increase scenario shows how the acquisition performs if the pricing programme takes longer. A client-loss scenario asks what happens if some relationships reduce or leave. Both need to recognise communication costs, additional service effort and expenses that remain after lost fees.
Timing matters: an increase introduced halfway through a year does not produce a full year’s uplift.
There is also a risk of counting the same improvement twice, once as a better fee return and again as saved delivery costs. Any overlap needs to be understood.
Anticipated benefits belong in a supported improvement plan, separate from the earnings the existing practice can already substantiate.
A hypothetical fee review: the missing six hours
Suppose an annual package produces $2,400 excluding GST and recorded delivery work is 24 hours. That represents $100 of invoiced fees per recorded hour before overheads and other costs. A further six hours of unrecorded vendor review would reduce that figure to $80.
The missing six hours change the conversation. If they recur each year, someone will still need to perform or replace that work.
A higher fee might help, but client acceptance and timing remain separate assumptions. These figures identify questions about delivery and pricing without establishing an appropriate fee or a valuation. This example is hypothetical, and actual scope, costs and outcomes vary.
What should you resolve before proceeding?
Which engagements do not support their continuing delivery costs?
What evidence explains discounts, scope variations and write-offs?
Can the proposed service model maintain quality at the current fees?
Which increases remain unagreed, and what if they are delayed?
Do the findings change earnings, working capital, price negotiations or the decision to proceed?
The normalised EBITDA guide helps explain how findings feed into earnings assumptions. Material changes also need to reach the acquisition finance adviser, with unresolved matters remaining visible in the due-diligence tracker.
Frequently asked questions
Are low fees always an acquisition opportunity?
No. A benefit depends on the scope, delivery costs, client expectations and practical ability to change pricing. Some low fees may conceal costs or retention risks that outweigh the opportunity.
Can I assume clients will accept my existing firm’s rates?
No. Your current rates are a reference point, but the acquired clients may receive different services and have different expectations. Test the change and its timing before including it in the forecast.
Is an hourly recovery figure enough to assess pricing?
No. It helps identify questions, but recorded time, staff costs, scope, review effort and overheads also matter. Value-based or fixed-fee work should still support a credible delivery model.
Does loan approval confirm that fee increases are achievable?
No. Credit assessment and buyer due diligence serve different purposes. You remain responsible for testing the operating assumptions and obtaining appropriate advice.
Do the current fees support your operating plan?
The useful outcome is a supported view of current pricing and a separate plan for improvements.
Where the acquisition only works after uncertain increases, that dependency deserves attention before further commitment. The buyer needs to understand the business being purchased today, as well as the one they hope to build.
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.
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