Buying a professional practice: finance that understands goodwill

Lenders who actively fund professional practice acquisitions assess goodwill through the lens of recurring fee income rather than tangible assets. They look for three or more years of consistent billing history, a client retention rate above 80 to 85 per cent, and no single client representing more than 15 to 20 per cent of total revenue. A practice that meets those criteria will typically attract an advance of 50 to 70 per cent of the agreed goodwill value. The quality and transferability of the client relationships is the central question, not the value of furniture, computers, or office equipment.

For regulated professional practices, the buyer must be authorised by the relevant regulatory body (SRA, ICAEW, RICS, FCA, or others depending on the sector) before they can practise in their own name or as a named partner. Lenders will want to see that the regulatory transfer or authorisation process is underway and that a realistic timeline has been agreed. If there is a gap between completion and regulatory approval, the deal structure needs to account for it. This is a nuance that general-purpose business loan lenders often miss and that specialist practice acquisition lenders build into their standard process.

Earn-outs and deferred consideration arrangements are common in professional practice acquisitions, particularly where a significant portion of the client relationships are held by the selling partner. A lender will want to understand the structure of the earn-out: how long it runs, what triggers the deferred payments, and how those payments rank alongside the acquisition loan. Some lenders will allow deferred consideration to form part of the equity contribution, reducing the amount that needs to be borrowed. We work through the deal structure with you before approaching lenders so the application reflects the actual transaction accurately.

Most lenders expect the buyer to contribute between 25 and 40 per cent of the acquisition price from their own resources or equity. The definition of equity here can include deferred consideration from the seller (where structured correctly), any assets transferred as part of the deal, and in some cases a personal injection from the buyer's own funds. The lower the buyer's contribution, the more security a lender will typically require. We will tell you what contribution level the most relevant lenders on our panel are looking for before you begin negotiations with the seller.

Professional practice acquisitions typically take four to eight weeks from initial enquiry to funds released, depending on deal complexity, the availability of practice accounts and documentation, and lender processing times. The best outcomes come from engaging us early, ideally before heads of terms are signed, so the finance structure can inform the negotiation rather than having to catch up with it.