An accounting practice does not have sufficient capacity merely because its payroll lists enough people. A buyer needs evidence that the team has time for the work, the right competence and registrations, adequate review coverage, and a workable response if a critical person leaves after completion.

The practical test is to map recurring work and deadlines to named preparers, reviewers and authorised supervisors, then remove each key person from that map in turn. If service quality, lodgements or a material client group depend on one individual with no ready substitute, the buyer has identified an operating and compliance exposure—not simply a retention issue.

What the buyer is assessing

Separate four questions that are often blurred together:

  • Capacity: are there enough available hours at the required level during normal months and peak periods?
  • Capability: do staff have the knowledge and experience for the actual client work, not just their job titles?
  • Authority and supervision: are required registrations or licences current, and is work prepared by others properly directed, checked and escalated?
  • Resilience: can the practice continue if the seller, a tax agent, manager, payroll specialist or experienced administrator is absent or departs?

Headcount cannot answer these questions. Two apparently similar accountants may cover different service lines, client groups, software, review levels or registrations. One may also be carrying undocumented management, training and client-contact work that leaves much less delivery capacity than a timesheet suggests.

Evidence to request

Australian Government buyer guidance recommends independently checking a target’s records, operations and legal documents (business.gov.au). For the people system, request evidence that lets you connect roles to work rather than relying on an organisation chart:

  • a de-identified staff list showing role, employment status, contracted hours, remuneration, tenure, ordinary location and notice terms;
  • qualifications, professional memberships, registrations, conditions, expiry dates and continuing education records relevant to each person’s work;
  • responsibility matrices for service lines, client groups, workflow stages, lodgements, quality review, complaints and system administration;
  • at least two complete annual cycles of timesheets, WIP, job budgets, workflow data, overtime, leave, vacancies and contractor use;
  • staff turnover, current recruitment, performance processes, training plans and unresolved capability concerns;
  • employment contracts, applicable awards or agreements, accrued entitlements and proposed transfer arrangements; and
  • succession plans, procedure manuals, delegation records, review sign-offs and access controls for critical systems.

Protect employee privacy during due diligence. Use coded data initially and have lawyers advise on access, disclosure and transaction documents.

Build a capacity and competence map

For each service line, list the recurring deliverables, seasonal deadlines and expected volume. Then map the person who prepares the work, the person who reviews it, the person who can provide the required supervision, and the credible backup for each role.

Convert contracted hours into practical capacity by allowing for annual and personal leave, training, administration, meetings, business development, supervision and expected rework. Reconcile the result with completed jobs and recorded time. Investigate work performed by the seller or senior staff outside the timesheet system and recurring overtime that makes apparent capacity look sustainable.

Compare capacity by level, not only in total. Ten unused junior hours do not replace one hour of scarce tax review. Likewise, preparation may be adequately staffed while manager review forms the real bottleneck. APES 320 identifies resources, engagement performance, information and communication, and monitoring and remediation among the elements of quality management for firms providing non-assurance services (APESB). The buyer should therefore test whether a staffing plan supports the review and control work needed for competent delivery.

Verify credentials and supervision coverage

Do not treat “qualified accountant” as a complete answer. Create a service-authority matrix showing what the practice sells, which registration or licence is relevant, which individuals hold it, any conditions, and who performs and supervises the work.

For tax and BAS work, search the TPB Register for the entity and relevant individuals rather than relying solely on a résumé or membership description. The register includes registered agents and public-record Code breaches and sanctions. Where the practice provides regulated audit or other relevant services, ASIC’s Professional registers search can be used to check registration or licence status, permitted services and conditions, including for registered auditors and approved SMSF auditors.

For a company or partnership tax practice, the TPB says the “sufficient number” requirement is ongoing. There is no fixed formula beyond a minimum of one registered individual: adequacy depends on matters including scale, complexity, qualified and experienced staff, training, technology, risk processes and supervision. It also requires prior informed written consent from nominated supervising practitioners unless qualifying existing documentation covers the arrangement (TPB).

Ask to see the supervision plan in operation. Trace sampled jobs from allocation to review, correction, approval and escalation. Check whether the nominated supervisor has enough time, understands the role, covers the relevant service and can maintain oversight during leave or peak season. Review continuing education records too: the TPB requires relevant CPE for registration renewal and may request evidence during the registration period (TPB).

Stress-test key-person loss

Rank each person across four dimensions: share of client relationships, share of technical review, exclusive registrations or system access, and difficulty or time to replace. Unique knowledge with no documented or trained substitute creates the risk.

Run three practical scenarios:

  1. the person is unavailable for four weeks during a peak deadline period;
  2. the person resigns at completion and serves only the contractual notice period; and
  3. the person remains but reduces discretionary overtime and informal support previously supplied to the seller.

For each scenario, reallocate every affected task, review and client contact. Estimate recruitment lead time, temporary contractor cost, buyer management time, handover effort and delayed work. Identify which obligations or client promises could not be met under the current structure.

Hypothetical example: a twelve-person practice has three experienced preparers but only one registered tax agent who reviews complex tax work, supervises the team and controls the practice-management workflow. Removing that person exposes three different dependencies. Hiring another preparer would not restore the registration coverage, review capacity or system knowledge. The buyer may need a pre-completion retention arrangement, documented transfer of responsibilities, an additional qualified reviewer and a downside case reflecting replacement time and cost.

Test retention and employment assumptions

The buyer should distinguish people it hopes to retain from people it has evidence it can retain. Review notice periods, market remuneration, workload, leave balances, career expectations and whether incentives are conditional on continued service. Speak with employment advisers before promising continuity or changing terms.

The Fair Work Ombudsman explains that a transfer of business can arise where an employee starts with the new employer within three months, performs the same or nearly the same duties, and there is the required connection between employers. The applicable award or registered agreement may also be affected (Fair Work Ombudsman). Recognition of prior service and treatment of annual leave, redundancy, long service leave, unfair dismissal and notice can differ with the circumstances (Fair Work Ombudsman). These are legal and cost matters for transaction and employment advisers, not assumptions to leave in a staffing model.

Translate findings into the acquisition decision

Summarise every material gap with its affected services, evidence, interim control, accountable person, cost and target date. Keep verified current capacity separate from improvements the buyer intends to make after completion.

A credible remedy might include retaining a key employee, extending the seller’s handover, recruiting before completion, cross-training a backup, reducing the client load, changing workflow ownership or making completion conditional on registration and supervision arrangements. If the remedy depends on a person who has not agreed, a registration not yet obtained or recruitment not yet completed, model it as unresolved.

Employment, legal, tax and accounting advisers should review the transfer structure, employee entitlements, registrations, professional obligations and transaction protections. The acquisition decision should reflect the team that can actually deliver on day one—not the team shown in a seller’s organisation chart.

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.