How to Buy an Accountancy Practice
Navigating the world of business finance and taxes can be difficult, which is why accountants flourish as specialist providers who take care of many business’ most important processes
As an accountancy firm, you can truly transform your clients' business operations and support them to grow and succeed. When it comes to your own growth and buying an accountancy practice in particular, however, you may need accountancy finance to support you on your journey.
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Having a successful business relies on having a clear strategy and the right funding approach. Every accountancy firm will have a different vision of success. For many firms, that can take the form of buying another practice to take on their clients and reputation – while for others it means going their own way and starting practices from the ground-up.
If you are interested in buying an accountancy firm, you’re not alone. Recent research has shown that the demand for accountants is increasing as businesses and startups seek out professional services. At the same time, many accountants are now looking to sell their practices so they can retire or focus on other things in their lives.
Acquiring another business is a complex process, but it can be very rewarding as, depending on the deal structure, you will benefit from the existing firm's reputation, client structure and team. In this guide, we'll talk in-depth about how to buy an accountancy practice, including planning the acquisition, funding the right practice and even funding the whole process.
Keep reading to learn more about the buy-out process. Alternatively, if you're already in the process of acquiring another accountancy firm and need support with funding, get in touch with Rangewell's team of independent advisors to start your finance application today.
The core consideration
When you’re planning to buy an accountancy firm, the core question you must ask is whether it’s worth buying an existing firm or simply building a new one from scratch. Acquiring another accountant essentially means gaining access to their client base and brand reputation, but little else. If the selling practice creates difficulty post-sale, you may be left out of pocket. For that reason, you need to understand that any accountancy purchase necessitates certain guarantees around employees and clientele.
The Transfer of Undertakings (Protection of Employment) Regulations, or TUPE, are legal rules that govern how employees must be managed when a business changes hands. If you’re buying an accountancy firm, it’s a law you need to understand before you go any further.
TUPE applies whenever a whole, or part, of a business is sold. It also applies if certain outsourcing or service provision changes occur. In the context of this article, it applies directly to both those who are selling an accountancy firm and you as the buyer.
TUPE aims to transfer an employee’s role to the new business, protecting the contract and agreements they already have in place. An employee can refuse to transfer to a new business, but they will lose legal rights if they do so.
Ultimately, this can all be summarised as a simple concept for a buyer: you need to understand who the employees of the selling business are, their background and any disputes or liabilities they have. You’ll have to be willing to accept their employment as though their contract was written by you. The seller must provide you with written details of existing employees and their rights and liabilities – so don’t make any decisions until you’ve reviewed those.
How to finance an accountancy buyout
Even with a delayed payment scheme such as deferred consideration (more on that below), buyouts present significant cost barriers. For most buyers, an acquisition isn’t something they can fund themselves – it would either consume far too much working capital or would just not be a feasible figure for the business to afford.
That’s where finance providers step in, offering loans and agreements that help you buy the firm under specific terms. While it may at first seem more practical to solicit lenders once you’ve found a practice, it’s actually a good idea to build an understanding of the lending market before you make any decisions – since some lenders and the process of applying for finance will make your overall accountancy purchase more successful.
What do we mean by this? Most evidently, applying for a loan means you have to structure an application that outlines the opportunity. To do this, you’ll need to research the selling firm and make sure it’s a viable purchase that a lender will be willing to invest in.
Many accountancy firms will also expand their existing business plan, or potentially create a new one, to outline the benefits of the acquisition and submit this to a lender.
Some lenders are specialists in the professional services sector. They can therefore help you by providing additional services such as valuations or setting you up with a sector-specific solicitor that specialises in accountancy acquisitions.
Of course, the lending market is enormous and confusing. For most accountants, the first port of call will be their existing business bank. However, bank loans can be restrictive and some will not offer a suitable agreement.
Instead of defaulting to the bank, why not chat to Rangewell? Our team offer a no-obligation consultation that will assess your ambitions and then help guide you to the right lender and the perfect finance agreement for buying an accountancy firm.
We’re finance experts and as brokers, we have a vested interest in helping you succeed. We specialise in accountancy finance too, offering assistance with everything from business loans to invoice finance.
If you’re a first-time buyer, you may struggle to attract the right finance agreement from mainstream lenders. Your inexperience in terms of ownership will make it harder for the lender to offer favourable terms – even if you’re a seasoned veteran of the accountancy field.
Your perceived lack of a track record in ownership is what will count against you, so you need to be aware of this when browsing and negotiating with lenders. A good finance expert brokering the deal on your behalf can help mitigate your lack of experience and create a better application.
Finding the right accountants for sale
Finding a practice to buy may be extremely simple or somewhat difficult, depending on how the situation presents itself. For some accountancy firms, their competitors simply approach them and offer a buy-out. For others, buying a practice requires some deft diplomacy and negotiation. There are websites such as Retiring Accountant that lists accountants for sale, as well as specialist selling agents.
In some instances, you can also seek to buy a competitor’s practice in a more opportunistic way. If they’ve been experiencing a slow decline, you can step in and negotiate a buy-out. This can be a tricky situation and requires some deft negotiation skills, but it may ultimately benefit both parties.
Here at Rangewell, we’re not only finance experts, we also provide a selling agent service to help guide our clients to the right choices. If you’re looking for an accountancy business to acquire, we can help you find the perfect one.
Regardless of how you find the opportunity, you still need to assess the practice and ensure it’s a smart choice. To do that, you’ll need to assess the opportunity against a number of criteria.
Assessing your chosen practice
What do you have to look for when you’re buying the practice? Here’s a handy checklist you can follow to make sure you don’t make a poor decision.
- What are the physical elements of the business-like? What office space does it have?
- What are the practical, business-relevant aspects up for sale? How many clients do they have? What specialisms do they possess? Some accountancy firms may have clients who depend on a specialism you cannot fulfil, making it a bad fit as an acquisition.
- What is their existing staff structure? How many people work there? What qualifications and experience do they have? What relationship with clients do they hold? What contract terms do they have in place?
These questions can all be answered by the seller, so if there’s any hesitancy or challenge at this stage it might be better to walk away. An honest seller in a fair negotiation will disclose all of the above and leave the decision in your hands.
Ultimately, you’re only really acquiring their clientele and their employees – so you need to ensure everyone is happy with the buyout and protections are in place with employees. Not only is this legally obligated by TUPE laws, it’s also critical for ongoing success. If an employee leaves your company following issues after the buy-out, they may take loyal clients with them if you’ve not instituted the right protections.
How do you create these protections? Well, we’re glad you asked…
Creating an agreement
When buying another accountancy practice, it's important to note that it's not as simple as taking ownership of the business. As the buyer, you will need security to protect yourself and your current operation. At this stage, you should work with a professional solicitor who is skilled in business acquisition to draft a watertight legal agreement.
This agreement will often change or fluctuate as you progress through negotiations, but should roughly encompass:
- What is being sold/bought – what values are given to the assets and what are the boundaries of said assets? Are there any existing leases on equipment, office etc?
- What kind of goodwill to fee ratio is being paid? A rough guide is 0.8-1.2 times the fee purchased.
- Staff agreements and confirmations – who will be brought over through TUPE and any other outstanding issues.
- Provisions in case existing clients do not agree to transfer to the buyer. These are called clawback agreements.
- What kind of payment arrangement will be made? Many accountancy buy-outs happen under what is called a ‘deferred consideration’ agreement. This is a payment structure whereby you delay payments until after the sale and once clients etc have moved over. It helps to protect your investment and is worth exploring in almost every instance.
As a final reminder when buying an accountancy practice, you are ultimately just purchasing a list of clients, and possibly some other assets such as property (or at least a lease) and the team. The value of an accountancy practice is often in employee and client relationships, so your financial arrangements must take this into account.
Finance for accountancy firms with Rangewell
Once you’ve done your research and negotiated your deal, you’ll be able to complete your purchase with the funds provided by the lender. Throughout the process, a great lender can add huge value to your business and provide the support you need to make the best purchase possible.
Cut the complexity out of the lending process and get access to a team that’s on your side when you work with accountant finance experts Rangewell. We’re specialists in the professional services sector and have secured multi-million-pound agreements for accountants across the UK. Whether you’re looking to buy a practice you’ve spotted online, want to enquire with our selling agents about opportunities or want to capitalise on a competitor’s poor performance and approach them with an offer, we can help.
Get in touch today to get started.