Finance to buy an accountancy practice: structuring a whole-firm purchase

When you buy a firm rather than a block of clients, the price is only one part of the money you need. You also take on:

• People. Staff move with the business. In an asset purchase they transfer to you on their existing terms under the TUPE rules on business transfers, including their accrued holiday and length of service.
• Commitments. The office lease, practice management and tax software licences, and any hire agreements for IT or phones.
• Regulatory status. The firm's registration with its professional body, its anti-money laundering supervision and, if it has audit clients, its audit registration, which depends on who controls the firm.
• Timing risk. Clients see a change of ownership, not a change of accountant, so retention is usually better than with a fee block, but the seller's personal relationships still matter.

If you are buying only the client relationships, our page on block of fees finance covers that simpler deal.

Accountancy firms carry a lot of money in lock-up: time recorded but not billed, and bills issued but not paid. How that is handled on completion is where under-funded acquisitions come unstuck.

In an asset purchase you normally start with no work in progress and no debtors. Salaries for the transferred staff start on day one, but the first fees for their work arrive only once jobs are finished and billed. Complete in October and those staff spend the autumn preparing January self-assessment returns that will not become cash until February or March.

In a share purchase the lock-up comes with the company, but you pay for it in the price. A practice with slow billing is effectively selling you cash it has not collected. Moving clients onto monthly fee plans after completion can release some of that cash, but lenders will not assume it.

A revolving credit facility arranged alongside the acquisition loan is the usual answer. Lenders' treatment of unbilled time and unpaid fees is covered in depth on our fee and WIP funding page.

Illustration: the figures below are invented and rounded to show the mechanics, and are not a quote or offer.

• A two-director firm buys a limited company practice with annual fees of £400,000 through a new holding company.
• The agreed price is £360,000: £200,000 on completion and £160,000 over two years, adjusted if fees fall, and ranking behind the lender.
• The completion payment is met by £60,000 of the buyers' own funds and a £140,000 term loan to the holding company.
• The price assumes a normal level of work in progress and debtors stays in the company. A separate revolving facility covers the January peak.
• The lender asks one question: once a salaried manager is doing the seller's work, is there enough profit left for both the bank and the seller to be paid on time, even if some fees are lost after the sale?

Goodwill lending usually comes with personal guarantees from the buyers, so understand how much you are guaranteeing and for how long: our guide to personal guarantees sets out what to check. Watch for obligations stacking up in the same year: loan repayments, deferred instalments and integration costs can all fall due while clients are still deciding whether to stay.

Borrowing is not the only route. A merger with no cash changing hands, a staged purchase in which you buy part now and the rest later, or a larger share of the price deferred to the seller can all reduce the debt. Some sellers prefer equity-backed buyers, and our comparison of debt and equity funding sets out the difference. If the seller is a partner in your own firm rather than an outside practice, see our page on partner buyout finance instead.