Are you considering starting your journey as a tax agent or aiming to expand your accountancy practice swiftly? Banks are keen on accountants, offering exceptional deals on accounting practice commercial loans to support your business. The key lies in choosing the right commercial lender to fund your business goals. Wondering about borrowing limits? Here’s a breakdown: 

How Much Can I Borrow? 

• Freehold: Up to 70% of the purchase price (standard commercial property) or up to 100% with a guarantor. 
• Leasehold: Up to 60% of actual gross fee income or projected income. 
• With wealth management arm: Up to 2.5x financial planning renewal income multiple. 

Loan Terms: 

• Principal and interest: 10 years (fully paid off). 
• Interest-only: 3 years (to be fully paid off). 

Eligibility Criteria: 

• At least three years of professional experience. 
• Submission of a practice business plan with profit forecasting may be required. 

Acquiring a Loan for Accounting Practice: A Step-by-Step Guide 

Qualifications and Documentation: 

• A minimum of three years’ experience as a principal in a similar-sized accountancy. 
• Demonstration of financial evidence of net worth aligned with experience. 
• Evidence sourced from individual tax returns and regular credits in bank statements. 
• Partnership purchases may involve a floating charge and a Deed of Accession. 
• Companies may require a fixed and floating charge and a director’s guarantee. 

Valuation Criteria: 

• Interest coverage ratio (ICR) should be over 1.75 times EBITDA. 
• Net profit margin before partners’ salaries: More than 25%. 
• WIP days: Less than 70 days. 
• Debtor days outstanding: Less than 70 days. 
• Total WIP and debtor days (cash lock-up): Less than 125 days. 
• Debt Service Coverage Ratio (DSCR): 1.2:1. 
• Client concentration: No more than 10% of revenue. 
• Average fees per partner: More than $500,000. 
• Profit per partner: $140,000. 

Additional Considerations: 

• Stability of the practice, especially a successful track record over the past 10 years. 
• Client makeup, distinguishing between “mum and dad” clients and high net worth or corporate clients. 
• Assessment of a financial planning arm if attached. 

Navigating the Purchase of an Accounting Practice 

When it comes to businesses, accounting practices tend to weather economic downturns well. Acquiring a practice offers immediate cash flow from an existing client list and referrals, along with the expertise of seasoned practitioners. Here’s a guide to help you make an informed decision: 

Key Considerations in a Practice: 

• Look beyond gross fee revenue and enlist a specialized business broker’s help. 
• Examine the character and reputation of the vendors. 
• Evaluate client composition for diversity and revenue potential. 
• Consider your skills and ability to service high net worth clients. 
• Confirm the status of Work In Progress (WIP) clients. 

Practice Software and Systems: 

• Evaluate the effectiveness of existing software and systems. 
• Negotiate lease agreements carefully, avoiding long commitments. 

Legal Considerations: 

• Obtain a public practice certificate to run a practice as a principal. 
• Be aware that licenses related to tax agents and investment advisors are not transferrable. 

Ensuring Smooth Ownership Transition: 

• Implement a transition phase for easy client management. 
• Consider a transition period of 6-12 months for a better understanding. 
• Negotiate with senior administration staff for medium-term retention. 
• Include a client retention and restraint-of-trade clause in agreements. 

Making Informed Choices in Buying an Accounting Practice 

In the realm of business, accounting practices often demonstrate resilience during economic downturns, maintaining steady gross fees and profits. Acquiring an established practice allows you to tap into experienced practitioners, administrative staff, and immediate cash flow. Here’s what you should look for: 

Key Considerations: 

• Assess the reputation of the principals and existing customer satisfaction. 
• Examine goodwill and brand name value, considering any debts or legal claims. 
• Evaluate the client profile for diversity and revenue potential. 
• Consider your own skills and ability to manage the client mix. 

Business Operations: 

• Verify existing contractual obligations with WIP clients. 
• Scrutinize practice software, systems, and checks for effectiveness. 

Lease Agreement Negotiations: 

• Negotiate lease agreements carefully, avoiding long commitments. 
• Include terms for vendor repairs and restoration before purchase completion. 

Legal Requirements: 

• Ensure compliance with legal requirements, such as a public practice certificate. 
• Be aware that licenses related to tax agents and investment advisors are not transferrable. 

Ownership Transition Planning: 

• Implement a transition phase for a smooth client management handover. 
• Consider a transition period of 6-12 months to understand the business dynamics. 
• Negotiate with senior administration staff for medium-term retention. 
• Include a client retention and restraint-of-trade clause in agreements.