TL;DR (what’s this ?)
- When a CPA, CA or IPA member buys an accounting practice or buys into a partnership, the lender’s valuation often differs from the vendor’s.
- Specialist lenders typically use one of three methods: a multiple of recurring fees, capitalised maintainable earnings, or comparable transactions.
- Goodwill is the part most major banks fund cautiously, and where specialist lenders who regularly fund accounting practices genuinely add value.
- Partner buy-ins are valued differently to full acquisitions, and qualifying members can often access strong financing on the equity contribution, subject to lender criteria.
Buying into an accounting practice or acquiring one outright comes down to one number: how much is the practice actually worth, and how much of that will a lender fund. The two figures aren’t always the same, and the gap between them is where most practice acquisitions either get done or fall over.
Specialist lenders apply their own valuation lens to accounting practices, which is different from how a vendor’s accountant might value the firm internally. As a finance broker in Melbourne, we work with Certified Practising Accountant (CPA), Chartered Accountant (CA) and Institute of Public Accountants (IPA) members through practice purchases and partner buy-ins, and we read the deal the way the lender’s credit team will read it before any application is lodged.
The Two Things a Lender Is Actually Pricing
Every accounting practice valuation breaks into two underlying components, and lenders treat each one differently. Here are the two pieces:
- Tangible assets. Practice premises (if owned), fit-out, computers, software, work-in-progress and debtors. These are relatively easy to value because they appear on a balance sheet.
- Goodwill. The recurring fee base, client relationships, brand and reputation. This is where the bulk of an accounting practice’s value usually sits, and where lender treatment varies most widely.
Mainstream banks tend to lend confidently against tangible assets and conservatively (or not at all) against goodwill. Specialist lenders who regularly fund accounting practice acquisitions are willing to lend against goodwill at meaningful loan-to-value ratios, which is why the lender choice matters so much.
How Lenders Calculate Goodwill on an Accounting Practice
There’s no single formula, but specialist lenders typically use one of three approaches, often cross-checked against each other. Here are the three methods:
Multiple of recurring fees
The most common method. A multiple is applied to the practice’s recurring fee base, typically in the range of 0.8 to 1.2 times annual recurring fees, depending on the firm’s profile, client retention and fee mix.
Worked example: a Melbourne practice has $1 million in annual recurring fees, 92% client retention over the past five years, no single client representing more than 8% of fees, and a fee mix of 70% compliance and 30% advisory. A specialist lender might apply a 1.1x multiple, valuing goodwill at $1.1 million. Add tangible assets (say $150,000 in fit-out, equipment and debtors) and the practice values at $1.25 million in total. A different practice with the same $1 million in fees but 75% retention and one client at 25% of fees would more likely sit at 0.8x, or $800,000 in goodwill.
Capitalised maintainable earnings
Used more often on larger or multi-partner practices. The firm’s normalised earnings before interest, tax and partner remuneration are capitalised at a multiple (typically three to five times). This approach tends to produce different numbers to the recurring-fees method and is often cross-checked against it.
Comparable transactions
Where data is available, recent sales of similar-sized practices in similar locations form a benchmark. Specialist lenders in this space have visibility of this data because they fund a meaningful share of practice transactions.
All three methods produce a range, not a single number. The actual figure used in the loan application sits somewhere within that range, and the credit team will probe the assumptions behind it before committing.
What Strengthens the Valuation in Lender Eyes
Two practices with the same recurring fee base can value very differently. Lenders look closely at the underlying quality of the fee base, not just the headline number. Here are the factors credit teams weigh when scoring an application:
- Client retention rate over the past three to five years (lenders we work with typically look for 90% or higher retention).
- Average fees per client, with low concentration risk (no single client should represent more than around 10% of total fees).
- Mix of compliance, advisory and self-managed super fund (SMSF) work; recurring compliance work is generally valued higher than one-off advisory.
- Average tenure of the principal accountants and key client-facing staff.
- Quality of practice management software, document systems and workflow processes.
- Trend direction of fees (growing, flat or declining over the past three years).
Lenders also look at the structural quality of the firm: how the trust, company or partnership is organised, how partner remuneration flows through, and how clean the financial reporting is.
A practice that presents three years of clean, consistent financials is materially easier to lend against than one with significant adjustments and add-backs.
How Buy-In Valuations Are Different
Partner buy-ins value differently from full practice acquisitions. When you’re buying a 20% equity stake rather than the whole practice, here are the factors lenders look at:
- The valuation of the firm as a whole, applying the methods above.
- Your specific equity contribution as a percentage of that valuation.
- The partnership agreement’s mechanism for future valuation, distributions and exit (so the lender understands what your stake is actually worth at sale).
- Whether existing partners are guaranteeing the new partner’s borrowing, which often supports stronger LVRs.
In firms with three or more partners, qualifying CPA, CA and IPA members can often access financing for up to 100% of their equity contribution, using the equity itself as security, subject to lender criteria and the strength of the application. That’s a benefit specific to lenders who specialise in accounting practice finance, rather than the major bank branches.
Common Valuation Disputes Between Vendor and Buyer
Most practice purchases involve some valuation negotiation between the outgoing principal and the incoming buyer. Here are the three issues that come up regularly during credit assessment:
Add-backs and normalisation
The vendor wants to add back every owner-related expense (vehicles, salaries above market, discretionary spending) to maximise the headline earnings before interest, tax, depreciation and amortisation (EBITDA). The buyer wants to be conservative on add-backs because the new owner may not actually be able to remove all those costs. Lenders usually take a middle position, and a clear list of legitimate add-backs supported by evidence is what gets through credit assessment.
Forward fee assumptions
Vendors sometimes value the practice on projected future fees rather than recent actuals. Lenders almost always value on trailing 12-month or three-year average fees. Forward projections need supporting evidence (signed engagement letters, new client wins) to carry weight.
Earn-out vs upfront payment
Many practice purchases are structured with a portion paid upfront and a portion paid over two or three years based on client retention. Earn-outs reduce the buyer’s risk but require careful loan structuring so the lender’s repayments and the earn-out payments don’t conflict with the firm’s cash flow.
How a Specialist Broker Helps
A broker who arranges commercial loans for accountants in Melbourne sees how each lender approaches practice valuations day-to-day, including which assumptions get challenged in credit and where the genuine room for negotiation sits. That visibility is hard to replicate by going direct to one bank’s everyday business banker, who may only see one or two practice deals a year.
Practically, that means modelling the valuation the way the lender will, identifying the lenders most likely to fund the deal at the strongest terms, and presenting the application with the supporting analysis credit teams expect to see.
For most accountants buying a practice or buying in, the difference between a deal getting done and falling over often comes down to who the application is presented to and how it’s structured.
Get the Valuation Right Before You Commit
Valuation is one piece of practice acquisition finance. Loan structure, security, partnership agreement clauses and the timing of any earn-out all shape the funding envelope a specialist lender will commit to.
If you’re looking at a practice purchase or partner buy-in, sending the firm’s last two years of financials and the partnership agreement through to a finance broker in Melbourne lets us flag the financing implications upfront. Call Loanworx on 1300 562 696 to talk it through.
This article is general information only and does not constitute financial, legal or tax advice. Please obtain independent advice before committing to a practice purchase or partner buy-in.
Frequently Asked Questions (FAQs)
1. What is an accounting practice typically valued at in Australia?
Specialist lenders typically value Australian accounting practices in a range of 0.8 to 1.2 times annual recurring fees, plus tangible assets such as practice premises, fit-out and debtors. Larger multi-partner firms are sometimes valued using capitalised maintainable earnings at three to five times normalised earnings. The actual figure depends on client retention, fee mix and the trend direction of revenue.
2. Can I borrow 100% of an accounting practice purchase price?
Not typically for an outright practice purchase. Qualifying CPA, CA or IPA members can usually access strong loan-to-value ratios on a freehold practice purchase, and up to 100% of a partner buy-in equity contribution in firms with three or more partners. The exact LVR depends on the lender, the strength of the application, and whether guarantors are available.
3. Do mainstream banks fund goodwill on accounting practice purchases?
Some do, but mainstream banks tend to be cautious about funding goodwill without supporting security. Specialist commercial lenders who focus on accounting practice finance fund goodwill regularly and at higher loan-to-value ratios. This is one of the main reasons accountants benefit from working with a broker who specialises in this type of finance, rather than approaching their everyday business banker first.
4. How long does it typically take to finance an accounting practice purchase?
Straightforward practice premises acquisitions for established firms with clean financials can settle in four to six weeks. Practice acquisitions involving goodwill, partner buy-ins and SMSF structures usually take six to ten weeks because they involve more parties: incoming partner, outgoing partner, vendor, lawyer and any SMSF adviser. We give a realistic timeline upfront and flag anything that could slow it down.
5. What documents will I need to start the application?
For an initial discussion, the firm’s last two years of financials (profit and loss, balance sheet) and a current management report are usually enough. For a formal application, we’ll typically need two years of tax returns and ATO notices of assessment for the firm and any related borrower entities, current Business Activity Statements, the partnership agreement (if applicable), proof of CPA, CA or IPA membership, and a brief summary of the transaction.
6. Can I finance an accounting practice purchase through my SMSF?
An SMSF cannot acquire and run an active accounting practice itself, because that would breach the sole-purpose test. What an SMSF can do is acquire the practice premises and lease them back to the operating entity at arm’s length under a commercial lease. This is a common structure for Melbourne accountants who own their practice premises through their SMSF, and the lending side has its own panel of specialist SMSF commercial lenders.
7. Is goodwill financing available if I have less than three years of principal experience?
Goodwill financing is generally available to accountants with at least three years of relevant principal experience, since lenders want to see a track record of running or contributing to a practice at a senior level. Some specialist lenders may consider applications with less experience where the incoming principal has strong employment history with a recognised firm, a credible business plan, and supporting guarantors. We’ll review your specific situation and confirm which lenders can work with it before any application is lodged.
