Fixed-fee packages and subscriptions can make an accounting practice’s billings look regular, while hourly work can appear easier to reconcile to effort. Neither description proves revenue quality or sustainable margin. A buyer needs to establish what each client was promised, what the team actually delivers, when invoices and cash arise, and how much unrecovered work sits behind the reported fees.

Treat the billing model as an operating system, not a label. Trace representative clients from engagement terms through workflow, time and cost records, invoices, credits, receipts and renewal or cancellation. The acquisition implication is the difference between contracted price and the resources required to keep the promise after the seller leaves.

Why the three models behave differently

Each model allocates uncertainty differently.

  • Fixed-fee packages give the client a stated price for defined work. The practice bears more risk if scope is vague, client records arrive late, complexity increases or extra requests are absorbed without a variation.
  • Subscriptions usually combine periodic payment with continuing access or a recurring service bundle. Regular direct debits may improve cash predictability, but payment frequency does not establish contract duration, client retention, earned revenue or profitability.
  • Hourly billing charges recorded time at agreed rates. It can expose changes in effort, but value still depends on complete time recording, achievable recovery rates, disciplined write-offs and clients accepting the bills.

A mixed practice may use all three for the same client: a monthly compliance package, separately quoted advisory projects and hourly out-of-scope work. Analyse at client and service-line level rather than assigning one model to the whole firm.

Start with the engagement, not the invoice

APES 305 requires members in public practice to document and communicate engagement terms and provides guidance for recurring engagements (APESB). The Tax Practitioners Board likewise recommends a written agreement before tax agent or BAS services begin and says engagement letters help avoid uncertainty over fees and scope; it recommends regularly reviewing recurring arrangements, preferably annually (TPB).

For a sample across billing models, compare the signed or accepted terms with the current service catalogue and actual delivery. Check:

  • the client entities covered and services included, excluded or capped;
  • start date, term, renewal, cancellation and notice requirements;
  • billing frequency, indexation, price-review and payment-failure terms;
  • responsibility for bookkeeping quality, records and response times;
  • how extra work is approved and priced;
  • whether meetings, calls, software or third-party costs are included; and
  • the latest evidence that recurring terms were reconfirmed or updated.

An old engagement letter paired with a new monthly debit is a warning to investigate, not proof that the subscription is enforceable or that its scope reflects current delivery.

Rebuild the economics client by client

Request at least 24 months of billing and delivery data where available, covering a full cycle of annual compliance work. Reconcile the client ledger to bank receipts and financial statements, then join it to workflow and time data. Useful fields include package price, invoices, credits, bad debts, direct-debit failures, WIP movements, recorded hours by grade, write-offs, software costs and outsourced delivery costs.

For fixed fees, calculate realised revenue per recorded hour and contribution after directly attributable delivery cost. Review overruns by service, preparer and month. A package can produce stable invoices while silently consuming senior review time.

For subscriptions, separate amounts billed, cash collected and revenue recognised under the seller’s applicable accounting policies. For entities applying AASB 15, revenue is recognised when or as promised goods or services are transferred, and the standard distinguishes receivables, contract assets and contract liabilities (AASB). Ask the buyer’s accountant to assess the applicable reporting framework and test any deferred or unearned revenue at completion. Cash received in advance may accompany work still owed.

For hourly work, reconcile timesheets to WIP, invoices and collections. Calculate recorded-to-billed and billed-to-collected conversion by client and staff grade. Investigate missing time, blanket write-offs, stale WIP, rate overrides and invoices delayed until a job ends. High nominal rates do not compensate for low utilisation or poor recovery.

Test price and contract exposure

If the practice serves consumers, ACCC guidance says businesses must communicate clear, accurate prices and display the minimum total cost as a single figure, including taxes and unavoidable or pre-selected fees (ACCC price displays). For business clients, different GST display rules may apply. Review websites, proposals and payment pages alongside the engagement documents rather than assuming the contract alone shows what clients were told.

The Australian Consumer Law protects consumers and qualifying small businesses from unfair terms in standard-form contracts. The ACCC says the expanded small-business thresholds applying to new or varied standard-form contracts from 9 November 2023 cover a business with fewer than 100 employees or annual turnover below $10 million. Terms permitting one-sided price changes, termination or penalties may raise concerns, and only a court can finally decide whether a term is unfair (ACCC contracts guidance).

Have a lawyer review material subscription and package terms, particularly automatic renewal, unilateral price changes, exit charges and cancellation mechanics. A buyer should not capitalise expected future fees without understanding whether the client can leave, whether terms were properly disclosed, and what service remains due.

For each material client cohort, test the chain:

  1. Contract: Is the current scope, price, term and change mechanism documented and accepted?
  2. Delivery: What work is actually performed, by whom, and how variable is the effort?
  3. Billing: Do invoices follow the terms, and are credits, write-offs and fee overrides visible?
  4. Cash: When is money collected, how often do payments fail, and what remains in debtors?
  5. Margin and obligation: After labour and direct costs, what is retained—and what work is still owed?

Hypothetical example: a practice calls $720,000 of annual billings “subscription revenue”. Detailed testing shows $120,000 is prepaid annual work, $90,000 relates to cancellable month-to-month bookkeeping with frequent volume spikes, and $60,000 includes advisory calls that are not time-recorded. The headline remains $720,000, but the buyer now has separate questions about completion obligations, retention, capacity and hidden effort. The proper response is evidence-based adjustment, not applying one recurring-revenue assumption to the total.

Questions for the seller and advisers

  • Which packages have not been repriced despite material changes in client activity or complexity?
  • What proportion of “subscription” clients can cancel monthly, and what is the actual cancellation history by cohort?
  • Which services are routinely performed but absent from engagement scope or time records?
  • How are annual jobs, prepaid amounts, contract liabilities and cut-off treated at completion?
  • What happens when a client exceeds a transaction, meeting or support allowance?
  • Which partners or managers approve write-offs, variations and difficult fee conversations?
  • Will the buyer inherit billing permissions and direct-debit arrangements, or must clients authorise new ones?

Specialist accounting advice is needed for revenue recognition, cut-off, WIP and completion accounts. Legal advice is needed on engagement transfer, consumer-law exposure, recurring terms and transaction drafting. Tax, valuation and finance advisers should separately test how normalisations, working capital and purchase-price assumptions reflect the evidence.

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.