Why professional services firms need specialist finance
Law firm finance, accountancy practice finance and consultancy funding all start from the same problem. The firm sells time and expertise, pays its people every month and bills weeks or months later. The value of the business is in its client relationships and recurring fee income, neither of which shows up as an asset a high street bank is comfortable lending against.
That is why so many profitable practices run on an overdraft that has not moved in years, with partners quietly lending their own money in to cover tax season. The better route is to fund the firm on its fee book: how predictable the income is, how quickly it converts to cash, and how much profit is left after partners are paid. Lenders who understand that will usually offer far more headroom than a balance-sheet view suggests.
Cash-flow lending when there are no hard assets
Because a practice has little to take a charge over, most professional services lending is cash-flow lending. Lenders size the debt on sustainable earnings, usually measured as EBITDA after a realistic charge for partner or director remuneration, and lend up to 4x that figure, or up to 5x on acquisitions, depending on the quality and predictability of the fees. Pricing starts from 6.5% a year or 2.5% over Bank Rate, over 1 to 10 years. Security is normally a debenture over the firm, with unsecured lending available up to £2m and personal guarantees kept as limited as the deal allows.
The key is normalising the numbers properly. Partnership accounts show profit before partners are paid, so the credit paper has to show what the firm would earn after paying its senior people a market rate. Getting that right is often the difference between a lender seeing a modest business and seeing the strong cash generator it really is.
Funding work in progress and lock-up
Lock-up is work in progress plus debtors, measured in days of fees. A law firm with 150 days of lock-up and £10m of fees has roughly £4m of cash sitting in unbilled time and unpaid bills. Cutting lock-up is the cheapest finance there is, but a growing firm will always have some, and it grows with every hire.
A revolving credit facility sized to lock-up gives the firm a working capital line that moves with billing. Consultancies and engineering practices that invoice corporate or public sector clients monthly or against stages can often use invoice finance instead, advancing up to 90% of eligible invoices as soon as they are raised, with funds within 24 hours of invoicing. Unbilled WIP itself is harder to fund on its own, so the structure usually pairs a billing discipline with a facility that covers the gap.
Disbursement funding for law firms
Personal injury, clinical negligence and commercial litigation firms carry case costs for long periods. A dedicated disbursement facility funds expert reports, court fees and counsel's fees and is repaid as each case settles. Lenders look at success rates, average case duration and the spread of the case book, so good case management data is what unlocks the best terms.
Partners' tax, VAT and professional indemnity funding
Partnerships and LLPs face the same cash calls every year: partners' tax on account in January and July, quarterly VAT and an annual PI premium that can be a meaningful share of fees. Basis period reform has added transition profit tax for many partners, spread over five years, making those January payments heavier than usual.
Short-term tax and premium funding spreads these payments over the following months so the firm is not forced to slow drawings or stretch suppliers. Because the payments are known and recur, lenders see this as low-risk lending and it is often arranged alongside the main facility.
Acquisition finance for buy-and-build firms
Consolidation is reshaping accountancy, financial advice, IT consultancy and parts of the legal market. Buyers acquire practices and client books for a multiple of recurring fees or of profit, often with part of the price deferred and tied to how many clients stay. Lenders will fund the upfront consideration at up to 5x EBITDA where the fees are recurring and the buyer has shown it can integrate and retain clients, in senior, stretch senior or unitranche structures.
For a roll-up or buy-and-build platform, we act as debt adviser on the transaction. We run the debt process end to end: the information memorandum, the lender process, term sheets and negotiation through to completion, with an acquisition line sized for the bolt-ons still to come.
For financial advisers buying client books, lenders focus on ongoing adviser charges, the age and asset profile of clients and how the transfer will be handled under Consumer Duty. For accountancy roll-ups, they look at the proportion of compliance fees and whether the selling partner stays through a handover. In both cases, any change in control of a regulated firm needs regulatory approval, which we build into the timetable.
Remember the lock-up you are not buying
Practice purchases often leave WIP and debtors with the seller. The buyer then has to fund new lock-up from the first day, on top of the purchase price. A credible structure sizes working capital for that, not just the acquisition debt.
Partner succession, MBOs and employee ownership
When founders and senior partners retire, their capital and share of goodwill has to be paid out, and the next generation rarely has the cash to buy them. Senior debt at up to 5x EBITDA, combined with deferred consideration or vendor loan notes to the outgoing partners, lets a management team or the remaining partners take control on a timetable the firm can afford. Employee ownership trusts are increasingly common in professional services and can be funded the same way.
New partners joining an equity partnership can also borrow personally to fund their capital contribution, usually on a loan the firm supports and repaid from future profit share.
What makes a practice deal fundable
None of this needs to be polished before you call us. We turn it into a credit paper that explains how the practice earns, bills and collects, so lenders are judging the real firm rather than the thin balance sheet.
- Monthly management accounts with fees by client and service line
- Aged WIP and debtor reports that tie back to the accounts
- A clear recurring fee figure, with client retention history
- A partnership or shareholder agreement that deals with exits and capital
- A clean regulatory record and a stable PI position