Loans to buy an accountancy practice: how to fund the purchase

A loan to buy an accountancy practice is business finance used to fund the purchase of an existing firm, whether that is the whole company, a partner's share or a portfolio of clients. Lenders usually base the decision on the practice's recurring fee income, your experience, and whether the combined business can comfortably meet the repayments.

This guide is for accountants buying their first practice and established firms acquiring another. It covers how the purchase is funded, what lenders and buyers should check in an accountancy firm specifically, and how to prepare. Smart Funding Solutions is a broker: we approach lenders on our panel that understand professional practice acquisitions. For general deal structures, see our acquisition finance guide.

01What an accountancy practice loan can pay for

Practice loans are general business finance arranged around how professional firms earn money. When you are buying a practice, the funds are typically used for:

• the purchase price of the firm or its shares
• buying out a retiring partner or director
• acquiring a block of clients from another firm
• transition costs such as software, staff, premises and professional fees
• working capital to cover the gap before new fees are collected

If you are buying clients rather than a whole firm, our guide to financing a block of fees covers deferred consideration and clawbacks in more detail.

02Types of finance used to buy a practice

Term loans

A term loan gives you a lump sum repaid in fixed instalments over an agreed period. It is the most common way to fund a purchase. Loans can be secured against property or other assets, or unsecured, in which case lenders usually ask for a personal guarantee.

Structured acquisition finance

For larger deals, acquisition finance can combine senior debt with other facilities, and may be structured around the target firm's cash flow as well as your own.

Vendor finance and deferred consideration

Sellers often agree to take part of the price later. This reduces the amount you need to borrow up front and gives the seller a reason to support the client handover.

Working capital facilities

A revolving credit facility or overdraft can sit alongside the main loan to smooth cash flow in the months after completion.

03What lenders look at

• The target practice: fee history, recurring income, client concentration, profitability and the quality of its records
• You as the buyer: qualifications, experience running or managing a practice, and your plans for retaining clients
• Affordability: whether the combined income covers repayments with a sensible margin
• Your contribution: most lenders expect you to put some of your own money into the deal
• Credit history: personal and business credit files, and any existing borrowing
• Security: property, assets or personal guarantees, depending on the lender and the amount

A term loan gives you a lump sum repaid in fixed instalments over an agreed period.

04What to check in an accountancy practice before you buy

Recurring fees are what lenders lend against, so the quality of that income matters more than the headline turnover. Check:

• Gross recurring fees: how much comes from annual compliance work such as accounts, tax returns, payroll and bookkeeping, and how much from one-off projects.
• Client concentration: whether a handful of clients make up a large share of fees.
• Lock-up: how long work in progress and unpaid fees take to turn into cash. Slow billing or collection means you need more working capital after completion.
• Reliance on the seller: whether clients deal mainly with the retiring principal, and how long they will stay to introduce you.
• Engagement letters and compliance records: up-to-date engagement letters and anti-money laundering files make transferring clients smoother. Your professional body's rules on transferring client relationships also apply.
• Staff: key staff and their contracts. If you buy the business and its assets, employees may transfer to you under TUPE.
• Fee levels: whether fees are in line with the work done, or will need to rise, which can affect retention.

£137,500A transaction we arranged£137.5K to fund an accountancy practice acquisition.An established firm had an acquisition agreed. We structured the funding around the transaction and got it completed.

05How to prepare your application

06Common mistakes to avoid

Underestimating how much you need

The purchase price is rarely the only cost. Legal and due diligence fees, software, staff, insurance and a cash buffer for slow-paying clients all add up. Borrowing too little can leave the practice short in its first year.

Skipping the small print

Loan agreements set out repayment dates, interest, arrangement fees, late payment charges and early repayment terms. Read them fully, and take legal advice on any personal guarantee before you sign.

Relying on every client staying

Some clients will leave after a change of ownership. Build a margin into your forecasts so repayments are still affordable if retention is lower than hoped.

07Practice loans for other professions

Lenders that fund accountancy practices often fund other professional practices too, and they apply the same principles: recurring fee or contract income, goodwill sized on maintainable profit, and the buyer's experience. If you are comparing practice loans across professions, these pages cover what changes in each.

• Finance to buy a whole accountancy firm and buying a block of fees
• Law firm acquisition finance
• Dental practice acquisition finance
• Veterinary practice acquisition finance
• Pharmacy acquisition finance
• Partner buy-in loans in any profession
• Practice acquisition finance across every profession

Our acquisition finance guide covers deposits, deferred consideration and what lenders look at on any purchase.

08How a broker helps