What Adjustments Can Affect the Settlement Amount When Buying an Accounting Practice?
Updated: Oct 24
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.
The amount needed at settlement can differ from the headline purchase price because deposits, agreed adjustments and payments held over change what must be paid on the day.
Your settlement amount when buying an accounting practice deserves a fresh calculation, even after the purchase price feels settled. For an Australian buyer, the final statement connects the contract with current balances, agreed credits and the money actually available to complete.
A few individually modest adjustments can become a meaningful cash difference.
Ask your solicitor and accountant to explain each item, its evidence and its direction before you authorise payment. The goal is a figure you understand, rather than a last-minute total you simply accept.
The settlement amount when buying an accounting practice: the short answer
Start with the contractual price and credit the deposit only as the contract provides.
Check the agreed treatment of debtors, work in progress and prepaid client fees.
Review rent, outgoings, employee entitlements and outstanding expenses against the relevant cut-off.
Separate retained or deferred consideration from amounts payable immediately.
Reconcile the final statement with net loan proceeds, available buyer cash and separately payable costs.
Why does the contract matter more than a standard checklist?
There is no universal adjustment formula for accounting-practice purchases.
Business.gov.au’s buying guidance explains that the written contract outlines the final cost and accepted payment method. Your solicitor should identify the clauses governing the calculation, while your accountant can help test the supporting financial schedules.
The answer also depends on whether you are acquiring a practice or a fee book and whether the transaction involves assets or shares. An item might be included in the price, purchased separately, left with the vendor or dealt with through a completion mechanism.
A checklist cannot override that agreement.
Keep three figures distinct: the total agreed consideration, the payment due at completion and your total cash requirement. The third can include professional fees, financing costs or operating cash that never appear as an adjustment paid to the vendor.
How should deposits, debtors and unfinished work be treated?
A deposit already paid may reduce the balance payable, but confirm the amount, holder and contractual treatment. Show it once in the reconciliation.
Money sitting with a stakeholder is not automatically available for you to use elsewhere, and a receipt alone does not explain how it will be applied at completion.
For debtors, identify which invoices are included and who receives collections after settlement. An aged balance is not the same as certain cash. The guide to debtors and WIP in a practice purchase explores the questions behind those numbers.
Check disputes, credit notes and collections since the schedule was prepared before relying on it.
Work in progress means unfinished or unbilled work, but its contractual definition and valuation need attention. Ask whether the calculation uses recorded time, recoverable value or another agreed basis, and whether any amount is already included in the headline price.
Otherwise, the same work can enter the calculation twice.
Prepaid client fees bring a different issue: the vendor may have received money for services the buyer must finish. Confirm the remaining work, responsibility for delivery and any agreed credit or transfer of funds.
Monthly billing does not, by itself, prove that all work has been earned or completed.
What happens to rent, outgoings and staff entitlements?
Premises costs may need apportionment where the contract provides for it. Check the rent period, outgoings already paid, unpaid invoices and the agreed cut-off date. The guide to taking over a commercial lease also helps separate lease-transfer requirements from the payment calculation.
Do not assume a lease security deposit automatically becomes a purchase-price credit.
Staff entitlements require legal analysis as well as arithmetic. The Fair Work Ombudsman’s transfer guidance explains that service must be recognised for many entitlements, with specific rules and exceptions for others. Ask your advisers which obligations continue, which require payment and how the contract allocates the economic cost between buyer and vendor.
A negotiated credit between the parties does not itself settle an employee’s legal entitlement.
Reconcile current leave records and payroll information to the agreed schedule, including the relevant treatment of long service leave. The staff structure reviewed during due diligence provides context, but settlement needs current figures for the affected people.
Which expenses, deferred amounts and tax issues need their own line?
Outstanding supplier bills, subscriptions and other expenses need the same discipline: who owes them, who benefits from the relevant period and what does the contract require? Do not simply net every unpaid invoice against the price.
Separate a vendor liability from an agreed buyer reimbursement and from a cost you incur independently.
Retained or deferred consideration can reduce the immediate payment while leaving a future obligation. Record the amount, holder, release conditions and payment dates separately. Our explanation of vendor finance and deferred consideration helps distinguish those arrangements.
A retention is not automatically a permanent discount or cash available for operating expenses.
GST and any applicable duty need transaction-specific advice. The ATO’s going-concern ruling sets conditions for a GST-free supply, including requirements beyond calling the sale a going concern. You should ask your accountant and solicitor to confirm the applicable treatment and contract wording before finalising funds, because neither GST-free treatment nor a particular duty outcome should be assumed.
An illustrative reconciliation
Assume a contract price of $800,000, a $40,000 deposit credited at completion and $80,000 deferred consideration. Suppose the parties agree on $25,000 for acquired WIP, a $10,000 credit for prepaid unfinished services and a $5,000 reimbursement for prepaid rent. These are illustrative contractual assumptions, not standard adjustment rules.
The immediate vendor payment is $700,000: $800,000 minus $40,000 minus $80,000, plus $25,000 minus $10,000 plus $5,000. If confirmed net loan proceeds are $600,000, the remaining contribution towards that payment is $100,000.
Separately payable costs and operating cash would be additional, and the deferred $80,000 would remain a future obligation.
What should you verify before approving payment?
Ask for a dated settlement statement with the contract reference and supporting schedule for each adjustment. Reconcile the expected acquisition funding to confirmed net proceeds after relevant deductions, rather than the approved facility limit. Confirm buyer cash is available where required and preserve a separately identified operating buffer.
Use a final review to ask: Has the deposit been counted once? Are the balances current? Is anything still disputed or provisional? Are later obligations recorded?
If an amount changes, send the revised statement to the solicitor and finance team so the funding position can be checked again.
Verify payment instructions independently as well as checking the arithmetic. The Australian Signals Directorate recommends checking large transfers or changed payment details through a known, verified phone number.
A correctly calculated amount can still be sent to the wrong account if an email has been compromised.
Frequently asked questions
Does the agreed purchase price include WIP?
It depends on the contract. Ask whether WIP is included, excluded or valued separately, and confirm the calculation avoids paying for the same work twice.
Will my deposit always reduce the settlement payment?
Check its contractual application, amount and holder with your solicitor. The statement should show the agreed credit clearly rather than assume every earlier payment has identical treatment.
Are all employee leave balances deducted from the price?
No automatic deduction should be assumed. Legal obligations and the negotiated allocation between buyer and vendor need separate review, supported by current payroll records.
Can a retained amount fund my first months of trading?
Do not assume it is available. The holding arrangement and release conditions govern access, while any future payment obligation still needs funding in your budget.
What if the final statement exceeds available funds?
Tell your solicitor and finance team promptly. Check the calculation and available net funds, then seek advice about the shortfall and contractual position before authorising completion.
Know the amount and the reason behind it
The final statement should leave you able to explain what is payable now, what has been credited and what remains due later. Matching that calculation with verified net funding and available cash gives the final payment a sound basis.
