Updated
Professional-services acquisition financing depends on the cash flow and customer relationships that will remain after the ownership change. Jaken Finance Group arranges conventional bank and SBA reviews for eligible businesses through a bank relationship. Qualified bank-arranged requests can reach $12 million, subject to the particular program, transaction and borrower.
Accounting and tax firms, law firms, insurance agencies and property-management companies need different operating evidence. A large customer book or reported earnings number is not a substitute for explaining how contracts, employees, client relationships and required credentials will continue.
Request a professional-services financing review with the industry, location, purchase price, requested amount, buyer experience and transition plan. The bank and SBA financing overview explains the channel and its separate program limits.
Define the business being purchased
An asset purchase, an ownership-interest purchase and a partner buyout can transfer different rights and obligations. Identify the buyer, seller, ownership after closing and the proposed assets, contracts and liabilities. Explain whether the seller keeps any role or ownership.
| Business | Evidence that helps explain continuity |
|---|---|
| Accounting or tax practice | Client retention, recurring engagements, seasonal billings and who performs the work |
| Law firm | Practice mix, matters and collections, professional ownership questions and attorney transition |
| Insurance agency | Commission history, carrier and customer concentration, contracts and producer continuity |
| Property-management company | Management contracts, owners served, fee collections and employee workload |
| Other advisory or professional firm | Recurring and project revenue, client consent requirements, staff and founder dependence |
These are diligence questions, not a representation that contracts or professional permissions transfer automatically. Have the appropriate advisors review the proposed ownership and operating arrangements. The bank must also confirm the eligible business and financing use.
Separate company cash flow from client or property funds
A property’s rents and a management company’s fees are different income streams. The company acquisition should identify the fees actually earned, payroll and service costs, contractual duties and the relationships needed to retain business.
Similarly, money held for clients or others is not free operating cash for acquisition payments. Reconcile company revenue with the appropriate financial records. Discuss any custodial, trust or restricted funds with your accountant and counsel rather than treating account balances as buyer working capital.
An investor buying a building that houses a professional practice has a separate real estate file. If both transactions occur together, show the prices, funding and recurring expenses of each. The owner-occupied commercial guide addresses that property discussion.
Measure recurring revenue and actual retention
Break revenue into recurring engagements, renewals, one-time projects and amounts that depend on the seller personally. Show changes in the customer base over consistent periods. A renewal label is less useful without collections and cancellation or consent terms.
Calculate concentration by customer, referral source, producer or carrier where relevant. Identify what happens if the largest relationship ends. A broad list of small accounts may still depend on one departing employee who manages them all.
For seasonal practices, compare equivalent periods and a full annual cycle. A strong tax-season month should not be annualized into a full year of cash flow. Review outstanding receivables and actual subsequent collections to distinguish earned revenue from cash available for payroll.
Replace the seller’s work before calculating debt coverage
List the seller’s responsibilities in production, supervision, business development, client service and administration. State which tasks the buyer will perform and which require employees or contractors after closing.
Review claimed add-backs with supporting records. A one-time professional bill may warrant discussion. Recurring compensation for work that still needs to be done remains a business cost. Also budget necessary software, insurance, recruiting, training and ongoing reinvestment.
The lender’s accepted cash-flow definition may differ from seller’s discretionary earnings or reported EBITDA. Ask how it treats owner compensation, capital spending, other debt and contingent acquisition payments. Use the same definition when comparing offers.
Worked illustration: a professional-services acquisition
This hypothetical transaction assumes no existing company debt remains after closing. The proposed loan terms and contributions illustrate budgeting only; they are not lender requirements or a financing offer.
| Project uses | Amount |
|---|---|
| Business purchase | $1,800,000 |
| Transaction costs | $75,000 |
| Initial working capital | $125,000 |
| Total uses | $2,000,000 |
Proposed sources are a $1,500,000 bank loan, a $300,000 seller note and $200,000 buyer contribution. The seller note needs lender acceptance. Its presence does not establish compliance with a program’s required borrower equity.
Suppose the seller presents $650,000 of annual cash flow. Deduct an assumed $120,000 to replace operating responsibilities and $30,000 of unsupported adjustments. Cash available for the illustrated debt test is $500,000.
At an assumed 8.5% fixed rate and ten-year monthly amortization, bank debt service is about $223,174 annually. An assumed 8% interest-only seller note adds $24,000. Combined annual debt service is $247,174, giving illustrated coverage of about 2.02×.
If available cash falls to $350,000 after client losses or higher staffing costs, coverage becomes about 1.42×. These ratios do not establish the lender’s threshold. The seller note also retains $300,000 of principal that must be addressed at maturity.
Distinguish seller notes, earnouts and transition agreements
A fixed seller note has stated repayment obligations. An earnout may change payments based on retention or performance. A transition agreement may require the buyer to pay separately for the seller’s continued services. Model the actual agreement rather than treating every seller-related payment as the same expense.
Show the bank each obligation, its timing, security and maturity. Ask which documents it must approve and which payments enter the debt-service calculation. Do not assume that deferring a payment automatically makes it acceptable borrower equity.
If the seller will introduce clients or remain for a defined period, specify duties and compensation. A verbal promise of retention is difficult to evaluate. The financial model should reflect the documented transition plan and its costs.
Conventional bank and SBA comparison
A conventional bank structure follows the bank’s credit requirements. An SBA structure must also satisfy the selected program’s rules. The SBA 7(a) overview identifies eligible ownership changes and its separate maximum loan amount.
Compare proposed proceeds, equity, collateral, guarantees, fees, payments and maturity on the same transaction. A longer amortization can reduce payments while a shorter term creates a balloon. A lower rate with a smaller approved amount may require more buyer cash.
For requests above an SBA program’s limit, ask which conventional structure can be reviewed. The bank-arranged ceiling does not raise an SBA cap. Read the conventional acquisition financing comparison for an example above the 7(a) limit.
Prepare the file without exposing customer records prematurely
Start with aggregated revenue, retention and concentration data. The initial inquiry does not need client names, matter files, patient details, policyholder information or account credentials. Follow the agreed diligence process for confidential information requested later.
Assemble financial statements, returns and interim results requested by the lender, the proposed agreement, buyer resume and proof of available funds. Add the owner-role analysis, payroll, revenue categories, aging and the transition plan. The acquisition financing checklist provides a package order.
For an asset purchase, review allocation and reporting with your advisors. The IRS Form 8594 overview is a primary reference for the reporting form, not a valuation or a recommended purchase-price allocation.
Submit a transaction the bank can evaluate
State the amount requested, what it pays for, what the buyer contributes and how repayment is supported after the seller leaves. Explain any unresolved contract, ownership or professional-credential question. Ask the lender to confirm minimum size, geography, accepted use and closing conditions for the actual program.
Submit the professional-services request or call (833) 264-7776 with the industry and transaction summary. Conventional bank and SBA options are arranged through a bank relationship. Program, industry, use, geography and borrower eligibility are reviewed for each request. SBA program limits apply separately.