Recurring fees are not simply last year’s invoices with a label attached. For an accounting-practice buyer, strong recurrence means that identifiable clients repeatedly purchase defined services, pay on a supportable cadence and can be served again by the team and systems that will remain after completion.

Test the claim client by client and period by period. Separate genuinely periodic work from repeat-but-discretionary projects, one-off assignments, catch-up jobs and amounts that were billed but not collected. Then connect the retained revenue to the engagement scope and the workload required to earn it.

Define recurrence before measuring it

Use categories that describe evidence, not optimism:

  • Contracted or subscription-like fees: a current engagement establishes ongoing services, pricing or a billing cadence, subject to its termination and variation terms.
  • Periodic compliance work: the same or similar service has been delivered on an identifiable cycle, such as annual accounts or regular BAS work, even if the client can leave before the next cycle.
  • Repeated advisory or project work: the client has returned, but each assignment depends on a new need, instruction or scope.
  • One-off and exceptional work: implementation, restructuring, transaction support, remediation, catch-up lodgements or another non-repeating assignment.
  • Uncertain revenue: the classification, client status, scope, collection or next delivery requirement cannot yet be supported.

Do not treat “annual” as “guaranteed”. APES 305 describes recurring engagements by features including unchanged terms, the same or similar services, identifiable start and completion dates, and regular periodic performance; it also requires members in public practice to document and communicate engagement terms. Its current guidance says engagement documents should address scope, responsibilities, the basis for calculating fees and agreed billing schedules (APESB). Those records help classify the fee, but a recurring engagement still depends on continued client acceptance and service delivery.

Build one reconciled client-fee ledger

Request an anonymised client-level export covering enough periods to expose annual cycles and changes. Give each client group a stable anonymous identifier and include:

  • legal entities served and responsible relationship owner;
  • service lines and current engagement date;
  • invoice date, description, amount, credit note and write-off;
  • payment date, outstanding balance and days to collect;
  • work-in-progress, recorded hours or another available effort measure;
  • last completed deliverable, next expected deliverable and due period;
  • billing model, billing frequency, last price change and known cancellation; and
  • staff team, seller involvement and material outsourcing.

Reconcile invoice totals to the general ledger, management accounts, GST records and bank receipts. Australian Government buyer guidance says financial due diligence should independently check three to five years of information, including tax returns, BAS, receivables, payables, profit and loss, cash flow and sales records (business.gov.au). A client schedule that does not bridge to those records remains a management assertion.

Start with de-identified data. The OAIC says a vendor should consider whether personal information can be de-identified and should avoid providing customer names and identifiers during due diligence; prospective purchasers should generally avoid collecting personal information where possible (OAIC). Lawyers should settle the access protocol before identifiable client records are disclosed.

Measure retention by cohort, not one headline percentage

Create cohorts based on the clients active at the start of each comparable period. For each cohort, show opening recurring fees, fees retained from the same clients, price movements, scope expansions, scope reductions, lost clients and one-off work. Keep acquisitions and newly won clients separate so growth does not hide attrition.

Run the analysis in both client counts and dollars. A practice might retain many small clients while losing a few material relationships, or retain the same nominal fees only because price increases offset service losses. Segment further by service line, client tenure, fee band, relationship partner, industry, entity group and office where the data permits. No universal retention threshold proves quality; the pattern, causes and transferability matter.

Inspect movements at client-group level. Combining related entities can prevent a restructure from looking like a lost client and a new win. Conversely, combining unrelated engagements may conceal churn. Document the grouping rule and apply it consistently.

Test billing and collection cadence

Revenue can look smooth because invoices are regular, even when services are not complete or cash is slow. Compare, for every material cohort:

  1. when work is scheduled and performed;
  2. when it is billed;
  3. when revenue is recognised in the seller’s accounts;
  4. when cash is received; and
  5. what remains in debtors, work in progress, credit notes or write-offs.

Review monthly and quarterly patterns. Identify annual fees pulled forward, delayed billings, catch-up invoices, prepaid work that creates a future obligation, and recurring direct debits that include services not yet delivered. The TPB’s engagement guidance says the fee basis, billing frequency and payment timeframe are matters that engagement letters can address (TPB). Compare those terms with actual invoices and collections rather than assuming the system setting reflects client agreement.

Connect fees to forward workload

The next period’s revenue is only attractive if the buyer can deliver the promised work at a sustainable cost. Map retained fees to scheduled jobs, statutory or client deadlines, expected hours, skill level, review time and software or outsourcing dependencies. Note work historically absorbed by the selling partner, unpaid overtime, unbilled extras and chronic scope creep.

Prepare a forward workload calendar covering at least one complete service cycle. Stress-test seller departure, a weaker retention case, delayed client records and peak lodgement months. If fixed fees have stayed flat while hours, complexity or senior review have risen, apparent recurrence may carry deteriorating margins. That belongs in the earnings and capacity analysis, not merely the revenue schedule.

Use a five-part evidence test

Score each material fee cohort on:

  1. Engagement: Is the client, service, term, fee basis and billing schedule documented and current?
  2. Repetition: Has substantially the same scope been completed across comparable periods?
  3. Collection: Do invoices convert to cash without persistent ageing, credits or write-offs?
  4. Retention: What happened to the same opening clients, excluding acquisitions and new wins?
  5. Delivery: Can the post-completion team perform the next cycle at the assumed cost and timing?

Classify gaps separately from adverse evidence. A missing engagement, an unreconciled export and a client known to be leaving are different issues and should not receive the same treatment. Material gaps may require further diligence, a revised forecast, transaction protections or a decision to pause. Acquisition, legal, accounting, tax and valuation advisers should determine the implications for price and terms.

Frequently asked questions

Are monthly direct debits automatically recurring revenue?

No. They show a collection mechanism. Verify the underlying engagement, services still owed, cancellation terms, arrears, credits and whether the monthly amount covers recurring scope or a finite project.

Should one-off work be excluded completely?

Not necessarily. Repeat project demand may have economic value, but it should be analysed separately from periodic services. Use its own history, pipeline evidence, delivery cost and downside case rather than presenting it as committed recurring fees.

What period should a buyer analyse?

Use enough history to observe full service cycles, cohort movement, billing changes and unusual years, then refresh the analysis close to signing or completion. The appropriate period depends on the practice’s services and available records.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.