Before buying a bookkeeping practice, check three things: how long clients have stayed, how many hours each client really takes, and what state each client's books are in. Together they tell you whether the revenue will survive the handover and whether the fees cover the work. Check them before you agree a price or a handover date.
What should you check first when buying a bookkeeping practice?
When buying a bookkeeping practice, check client retention first, workload per client second and the condition of the books third. Retention tells you whether the revenue is likely to stay. Workload tells you what the revenue costs to earn. The books tell you how much unpaid cleanup is hidden in the client list.
Everything else in a purchase, including the price, the payment terms and the handover plan, depends on these three answers. A practice with loyal clients, fair fees and clean books is worth pursuing even if the seller is disorganized in other ways. A practice with high churn, underpriced clients or books full of unreconciled months is a cleanup project with a client list attached.
A due diligence checklist
The table below is an example checklist. Adapt the items to the size of the practice and get advice from a lawyer and an accountant on the contract itself.
| Item to request | What to look for | Example red flag |
|---|---|---|
| Client list with start dates | How long each client has stayed | Half the clients joined in the last year |
| Billing history, two to three years | Fees per client over time, lost clients | Several large clients left after fee rises |
| Time records or estimates per client | Hours behind each fee | No time records and no estimate |
| Engagement letters | Services promised, notice periods | Letters missing or years out of date |
| Sample of client books | Reconciled months, open items | Accounts unreconciled for months |
| Written procedures | How the monthly work is done | Nothing written, seller does it from memory |
| Software and access list | Who holds logins and in whose name | Client logins held in the seller's personal email |
| Client concentration | Share of revenue from the top clients | One client brings a third of the revenue |
Client retention records in a practice purchase
Client retention records show how many clients stayed with the practice year after year, and they are the best evidence a buyer has that clients will stay after the sale. Ask for the client list with each client's start date and, for clients who left, the end date and the reason if the seller knows it.
From those records, work out a few simple figures:
- Average client tenure. How many years the typical client has been with the practice.
- Clients lost each year. Count them for each of the last two or three years, along with the fees they paid.
- New clients each year. A practice that loses many clients and replaces them is busier than its revenue suggests, because onboarding is slow, unbilled work.
Then ask why clients left. Clients who sold their business or closed it are a normal loss. Clients who left over price, missed deadlines or errors tell you something about the service you are buying.
A long relationship with the seller can cut both ways. A client who has worked with the same person for ten years may be loyal to the practice, or loyal to that one person. Ask the seller which clients deal with them directly and which deal with staff, and expect the first group to need more care during the handover.
Workload per client behind the practice's revenue
Workload per client is the number of hours each client takes in a typical month, and it tells a buyer what each fee actually pays for. A practice's total revenue can look healthy while a handful of clients consume most of the hours at fees set years ago.
If the seller tracks time, ask for a year of time records by client. If they do not, ask them to estimate hours for each client and compare the estimate with something countable, such as the number of bank and card accounts and the monthly transaction volume. The guide to time tracking for bookkeepers on fixed fees explains how to turn hours into an effective hourly rate per client.
A worked rate check
Here is an example for three fictional clients. The figures are illustrative.
| Client (example) | Monthly fee | Hours per month | Effective rate |
|---|---|---|---|
| Maple Physio | 600 | 5 | 120 per hour |
| Ridge Auto Repair | 450 | 9 | 50 per hour |
| Willow Florist | 300 | 2 | 150 per hour |
Ridge Auto Repair is the client to look at closely. Either the fee needs to rise after the handover, or the work needs to get faster, or the client is not worth the hours. A buyer who knows this before signing can plan for it. A buyer who finds out in month three has already paid for it.
Also check how the work is done. Typing statement lines by hand inflates hours in a way that tools can fix. Collection habits matter as well: if the seller spends days chasing statements each month, the guide on how to collect bank statements from clients shows ways to shorten that.
Sampling the state of each client's books before buying
Sampling the books means opening a few client files before buying and checking whether they are reconciled and current. You will rarely be allowed to review every client before signing, but a sample of the largest clients and a few random ones shows how much cleanup work comes with the practice.
The seller and the clients will have confidentiality concerns, so agree how the review is done. Often the seller shows the files on screen or provides summaries rather than giving you access. Expect to sign a confidentiality agreement before you see any client file.
For each sampled client, check:
- Reconciliations. Is every bank and card account reconciled to the latest statement?
- Uncategorized lines. How many transactions sit in a suspense or "ask my accountant" account?
- Open items. Are there old uncleared checks or deposits in transit from months ago?
- Last close date. When was the client's most recent month actually closed?
- Year end. Were the CPA's adjustments from the last year end posted?
If several sampled clients are months behind, assume the unsampled ones are similar. Price the cleanup hours into the deal, or agree that the seller brings the books current before the handover.
How do payment terms protect a practice buyer?
Payment terms protect a buyer by tying part of the price to the clients who actually stay. Instead of paying everything at closing, the buyer pays part up front and the rest over a period after the sale, adjusted for the revenue that is retained. A lawyer should draft the terms, but the idea is simple.
The reason for this kind of arrangement is that the main asset, the client relationships, can walk away. It also gives the seller a reason to help with the handover, since their final payment depends on clients staying.
Points to settle in the terms, with your adviser:
- How retained revenue is measured, and over what period.
- What happens if a client leaves for reasons unrelated to the sale, such as closing their business.
- What the seller will do during the transition: introductions, a set number of weeks of support, answering questions.
- Whether the seller agrees not to compete for the same clients.
Keep a clear record of each client's fee at the sale date. It is the baseline every later payment is measured against.
Handover steps after buying the practice
The handover after buying a practice should be planned client by client, with the seller introducing you before anything changes. Clients care most about continuity: the same deadlines, the same quality, and someone who answers their questions. Change as little as possible in the first few months.
An example handover sequence:
- Joint letter. The seller and buyer write to each client together, explaining the change and introducing the new contact.
- Introductions. For the largest and longest-standing clients, a call or meeting with both of you.
- Access. Move logins, shared folders and software access into the buying firm's name, client by client.
- First close together. Run the first month for each client with the seller available for questions.
- Written procedures. Capture each client's quirks while the seller still remembers them.
Your public presence matters during this stage too. Clients will look up the new firm, so make sure your site answers their first questions. The guide to bookkeeping website must haves for a new practice lists what to put there.
Software choices can wait. Moving every acquired client to your preferred tools in the first month adds risk at the moment clients are most likely to leave. Once the relationships are steady, move clients across in batches. When you do, AutoBankConvert can take each client's monthly statements in one batch, sort them into separate client workspaces and send uncertain lines to a review queue, which helps when you suddenly have many new sets of books to learn.
Buying a practice whose work runs on the seller's memory
The biggest warning sign when buying a practice is a seller who does the work from memory, with no written procedures, no client notes and no record of why accounts are coded the way they are. When the seller leaves, that knowledge leaves with them, and every client's first month becomes a reconstruction.
Ask the seller to walk you through one client's month, end to end. If the answers are "I just know" or "it depends," ask what it depends on and whether any of it is written down. The guide to bookkeeping firm SOPs and which to write first gives a sense of what a documented practice looks like.
This does not have to end the deal. It changes the price, the support period and the plan. You might ask for a longer paid transition, during which the seller writes the client notes with you. You might lower the price to reflect the documentation work.
Walk away when the missing records combine with the other warning signs: high client loss, low effective rates and books that are months behind. Any one of those can be fixed. All of them together mean you are buying the work of rebuilding a practice, and the price should reflect that or the deal should not happen. If you go ahead and want a steadier way to process the acquired clients' statements, AutoBankConvert is taking firms in small groups.