Goodwill model 'losing its appeal'

BOQ Specialist's Ryan Painter told AccountantsDaily the lender has noticed a marked reduction nationally in firms using the goodwill model. 

“The smaller firms are still on the traditional goodwill model and it lends itself to up to 8 or 9 partners; thereafter, it becomes very difficult,” he said.

“Traditionally, it has been the cornerstone for value transfer in the accounting profession. However, I think as average fees have gone up and the appetite for unsecured lending has diminished, it's becoming harder and harder to fund.”

Many of the larger firms have done away with the goodwill model already and Mr Painter said he expects more to follow suit.

“Typically, we find mid-tier partners managing around $1.5 million worth of fees and at that point your equity is kind of capped, you’re not going to double that every five or six years, and that’s why I think the good will model is losing its appeal,” Mr Painter said.

“You’ve got to put so much aside without really getting an equity return and the income return which you are generating off that could just as easily be generated with a working capital contribution of $300,000 paid to the practice."