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Welcome to the Accounting for Innovation podcast, where we explore cutting edge strategies and insights into the world of accounting and finance.
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Presented by Decimal and the Radical CPA, each episode dives deep into industry trends.
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Whether you're a seasoned professional or a budding entrepreneur, join us as we unpack key concepts and share practical tips to drive success.
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Welcome to season two, where we're going to kick off this season talking about M& A.
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Jody, I think this is going to be an exciting conversation, not only the whole season, but as you and I know, acquisitions, P.
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E., M& A is a huge topic.
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So we're going to start with, I think is a fascinating story of you and your firm getting acquired in the process that you ran.
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So looking at it from the seller of a firm perspective, second episode, we'll talk about it more from the decimal perspective.
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Thank you.
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It's a company that's done two acquisitions.
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We'll look at the buyer side, and I think that's going to give us a good, well rounded perspective on M and A in the accounting industry.
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I think one of the hottest topics in all of accounting.
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From the biggest firms to the smallest firms, right now is mergers and acquisitions.
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Whether it's private equity or firms merging to avoid private equity, people want to know what it's like to buy, what it's like to sell their firm.
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And that's why I'm excited today to start with the seller perspective.
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For people that are thinking about selling their firm, We're considering the possibility.
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There's a lot to learn from your story about selling your firm.
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So before we start, give us a little bit of the brief overview and background of your firm and what made you start to think about wanting to get acquired.
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Okay.
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So first I'm going to set the stage in that this is kind of emotional for me, Matt, like, like when people think about selling, like it really is.
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I don't want to say your baby because it's not a baby, but it's your heart.
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Like it's your heart.
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And so when you think about even selling, which I think is totally lost out of most MNA conversations, everyone forgets about the blood, sweat, and tears that someone put into building the firm before it gets merged or acquired.
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So I think that's one unique thing that I want to bring to the conversation that nobody ever talks about is the heart that goes into what it means to sell your firm.
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And how it affects your life.
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So to back up, so I built, I would say the firm of the future in 2010.
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Now it took me many years to get it to where it was, but when everyone talks about this firm of the future, I was like, yeah, I invented it.
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And it sounds kind of like.
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You know, ego driven, but it kind of really was right.
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There were a handful of us at the time who were innovating and iterating through what it meant to have a cloud based firm, to use social media, to get customers, to really focus on a client experience.
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And to start pricing, upfront and without billing by the hour.
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And in 2010, that was unheard of.
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Everyone told me I was not, hence my title, the radical CPA.
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and now everybody's copying it, right?
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Like they, they, so somehow the, the, the tune changed.
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But come 2018.
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Now, mind you too, like I had built it, I had iterated through it, around 2006.
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Seven, I had started, my firm, but I was still working as a contractor in someone else's firm because I hadn't gone all in because I was a little bit nervous of saying, okay, like I, I can trust myself looking back.
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I would say I probably should have jumped all in sooner.
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I also joined my dad's firm, which at the time had like a 50, 000 book of business that was like 1040.
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So it was really like immaterial in the whole scheme of things.
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And when I joined him, he said, go find your own clients.
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So it was truly me who built the book.
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Now I, started using new technologies and I would say like, Round 2010 is when I really started realizing that cloud technology would fundamentally change how my firm would operate.
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And, you know, fast forward by 2015, it had a really solid base.
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We were going like crazy.
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and it was funny too, because this was like in the financial, like even Remember like 2008, 2009 when all the financial stuff was happening.
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Like that was when I was growing the fastest.
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So like I had no, like everyone was saying, oh, like, you know, we're in a recession.
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Really, nobody told me about it.
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So I was like growing the fastest because people were buying what I had to sell, right?
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Like they liked the product market fit that I had determined.
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So anyways, fast forward, by 2015, I had written my first.
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Book and I had started to work more outside of my firm than inside of my firm.
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My partner was really doing all the day to day and I was just kind of like, I was around, but I wasn't really in my firm.
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I had already kind of worked myself out of my firm and by and by 2018, top 100 firms started to court me.
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So they really started calling up and saying, Hey Jody, we wanna build a cast practice.
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We love your, your firm.
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We want you to be part of.
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And when one suitor kind of reached out, I was like, okay, What am I going to do?
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And because of my status in the industry, and because I knew everybody, I called Joel Sinkin, who I love dearly.
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And I said, okay, like they're interested.
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What do I do?
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And he said, okay.
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Right.
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And he said, let's see if there's a way we can, you know, position me for sale.
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Right.
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So basically kind of, it's like calling your realtor for all intents and purposes.
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Oh, a hundred percent.
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I got to get my house in order.
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Right.
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Like now, and they go through and they say, okay, you know, you got to paint this room and so he kind of got me in the mindset of, okay, I need to like, kind of, figure out what that looked like.
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It meant transitioning from an S corp to an LLC.
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and kind of organizing my book so it was ready for sale.
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and kind of doing, I'll say a little bit of housekeeping on the, on the back end.
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And then I started talking to suitors, right?
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So essentially, Managing partners of all these top 100 firms would call and they would have this like half hour interview call where they're basically, I'd say dating, right?
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They're basically interviewing you and you're interviewing them and you're seeing if you can align.
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And the more calls that I had, the more frustrated I got.
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Um, because I knew I would never fit.
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I like, I knew that I would just be eaten by this firm and the beautiful thing that I had built would never go across the firm like that.
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It, I didn't have, I wouldn't have the power inside a big firm like that to actually change, even though that's what the managing partner said.
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They said, Oh, well, you know, we want you to teach us, but I knew like that it probably wouldn't happen.
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And I started actually having a longer conversation with a firm that I won't name.
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and we were.
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talking.
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I flew down to meet them.
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I met a bunch of their partners.
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They were courting me as much as, and they were top 50 at the time.
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Now I think they're like top 25 or top.
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They might even be higher than that.
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and they were courting me just as, as much, right?
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Like we kind of got to that next level and I thought, okay, maybe I can fit in here.
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Like maybe this, this firm is innovative enough that even if my firm isn't completely the same, I Like we, we could live here, right?
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Like we could, we could cohabitate together and, we got all the way to the end and basically they pulled the deal at the end and I thought that I was going to have, like, I, I, not to say I was like a deal is never done until it's done, but I thought that like, this is where we were going to land and what was.
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Interesting for me too, is I had a small team, so I only had two and a half full time equivalents working for me.
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So my partner knew what was happening and my part time person knew what was happening.
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The only person who didn't know what was happening in the firm was the admin.
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So when you think about that, which is kind of funny too, because, when you think about the trust that has to happen, those conversations, a lot of times, nobody knows what's going on until the very end.
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They were involved in it from the very beginning and they knew their lives would fundamentally change.
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So anyways, it's kind of funny because the, the partner pulled the deal and, in the meantime, I had engaged with one of my dear friends, Bill Paroli, who was the past chair of the AICPA to kind of walk me through this because he had done a bunch of M& A with other firms.
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wanted not to be taken advantage of when you're a small firm and you know, my book was around 700, right.
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And you have these top 100 like courting you and you level of expertise in M.
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have a different level.
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L is that you're gonna be t And so I wanted someone o Yeah.
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Gee, I have the past chair of the AICPA who's on my team.
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So never be like the power of the network is amazing, right.
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To have, to have someone like that on your team, but anyway, so that deal got pulled and in the meantime, I was doing a lot of consulting with technology companies, which is kind of where my focus had been and not really on my firm.
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Cause my partner was pretty much running my firm.
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You know, completely by itself.
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And I was not really in it at all.
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Other than I like came to the office every day.
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And then, I started to work with Botkeeper as a consultant and really helping them kind of in the go to market side.
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And I kind of fell in love with the tech world and working in technology and working with CPAs and, because my market of my social media presence, I was like, okay.
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Actually, here's a really good value for me.
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And this is where I can bring something to the table.
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And so, the conversations got deeper with Botkeeper and at that point in time, Botkeeper was still serving, regular businesses as well.
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They weren't only focused on the accountant market, even though, like I knew that that was going to be kind of where they were
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going.
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Yeah.
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And so, Enrico and I, you know, came to the decision, Hey, if you buy my firm, then become part of the leadership team at Backkeeper and we're going to sell to, accounting professionals.
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And for me, it matched my why of being able to bring more tech innovation to firms and kind of, keep.
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Talking about all the stuff that I've talked about for the last year and still talk about, right?
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Like this is still my why is like, how do you bring innovation into the accounting firms?
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And so, so anyway, so we got to that point and we said, okay, now we're going to go through like a sale because we aligned on something, right?
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Like, and I think that's the big thing is like, you really have to align with who you're merging with, who you're buying with.
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If there's no alignment of values, forget it.
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The deal's not going to work.
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The deal's going to fall apart.
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Like, and.
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I think when I hear some of these M& A guys talk, they forget that they're people.
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Like, at the end of the day, accounting firms are made up of people and people have values and wants and needs and not all of them are in it for the best price.
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Some of it is about like anything else.
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Like you want it, like, yes, you want a fair price for your book, but you want to be aligned with the person who you're, you're moving in with because like, hello, like this is where you're going to be long term and you have to make sure your team.
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Can stay there because if your team doesn't stay and they quit on you, well, you only get paid out now.
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Like I won't talk about my deals, but I got paid out a lot quicker than other, other, firms.
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But if your clients don't stay, you, you don't get paid out.
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So it's in your best interest.
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To make sure that your firm fits your team fits and everybody kind of fits from a values perspective first.
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And then the work is the work, right?
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Like, but how do you align there first?
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Well, and I think there are three main themes that I'm taking from your story that I think are really important for people to internalize.
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Number one is find a good advisor.
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And if you don't have one that you trust in your network, same as you did with other firms, interview people to be advisors.
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And find one that you trust and that you like.
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Number two is focus on the people.
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It is an emotional decision and make sure you treat it as such.
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There's also the practical side of the money and all of that stuff, but there is a philosophical alignment that you want to find a place where you and your team will fit.
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Because as you mentioned, there are earnouts that come with it.
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You will be there for a while.
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Your team will be there for a while.
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And you need to make sure it's a place you're comfortable.
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And you and I have both heard stories of people that sold and there was no philosophical alignment.
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And it was an implosion.
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It implodes every time and it hurts everybody.
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But the third thing that I think you mentioned earliest on, and I want to unpack it first is you mentioned I needed to do some cleanup.
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And it's something that I talk a lot about when I talk to people about acquisitions in the space is you should always build your firm as if you're going to sell it.
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The reason being you will establish the right economics so that you will get the best outcome because we've all seen where it's like, Oh, I need to clean up this billing, or I need to do a little bit here.
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I need to tweak this or whatever it is.
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You start to lessen the potential outcome for yourself if you haven't built it in a way that puts it in the position to sell.
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Is that a good kind of summarization of your lessons?
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Yeah,
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I, I, I think that's a really good, a really good summary.
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And I think the cleanup part was, was important, right?
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And you have to, and, and, When they started courting me, I wasn't thinking about selling.
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Like it, it came out of the blue.
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I thought, and the other thing is, is my, again, my partner was my dad.
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So when you think about family business and family financials, like again, like that, that's what you're looking at.
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Right.
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And now you have to clean it up because someone else is, is, is looking at it as well.
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and I, I think that's important to like, that you should get ready for spending money.
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For sale.
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And you should think about the other thing that was very unique to me as all these firms were looking at me is my P and L look very different than their P and L.
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They didn't know how to compare them when I, when the top 100 firms were looking at me.
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Yes, they could look at like the net profitability, but they were like, why are your technology costs so high?
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I'm like, cause I don't have any labor, but why are your
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labor costs so high?
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We're like, wait, wait, wait.
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Like, what do I do?
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Hello?
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Your accountants, let's figure this out.
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But you don't fit into this, like this bowl.
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They're like, Oh my gosh, now what do we do?
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But I do think you're seeing it more and more and.
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I think what you did was atypical at the time, but it's becoming a lot more typical.
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What I find is very ironic, and this is probably what needs to change the fastest, is a lot of accounting firms don't have the same level of detailed Work put into their own financials that they put into their clients financials and pretending that there was an outsider looking in.
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And so I think that's a big part of it then.
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So let's continue to unpack.
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We've, we've unpacked the financials built as if you're going to sell, put financial packages together for your firm that you look at every week or every month, however often that are the same, put together the same diligence as you put together your clients.
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But then.
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Advisory.
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How do people go about and find they don't have the network that you do, that you, they aren't the radical CPA.
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How do they find the right trustworthy advisor?
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So I think the reason my advisor worked for me is I had Joel Sinkin, who was like kind of an M& A guy, right?
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Like, and he was, and you know, there's a few of them out there.
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You can, You can find them online.
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Right.
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But I had another CPA who had been through it and he had merged into a smaller firm.
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And I actually think that's a better advisor because I think there's two pieces to it.
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There's like the M and a guy who's like the deal guy, but then there's the person who has your best interest at heart and.
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I remember the very, and I actually wrote an Accounting Today article on this and we can post it in the links, but I remember the very first conversation I had after I shared my financials and everything with Bill.
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And I said, Bill, what do you think my firm is worth?
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And he said to me, it's priceless because it's yours.
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And that never left me.
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And I think that's the part that you don't always think about, but truly it's priceless because you built it and you have to, and then you have to kind of get to, okay, what does the market say it's worth except, right?
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Oh,
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a hundred percent.
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But I do think in, and as somebody that's done multiple acquisitions and been on the acquirer side, and by the way, what you mentioned about dealing with big firms and being interested in having bought a company from KPMG, that's a whole story we'll tell in the next episode, but, The people is most important thing and your philosophical alignment.
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If you're a person that's staying, how do you really?
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Make sure that the place that you're looking is aligned with your values and the values of your team.
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it never dawned on me that I could write it into a contract to take care of them.
00:17:44.243 --> 00:17:59.253
And like one of the exit clauses, just, and this is something to know about is like, if you leave a lot of times you can't take people, like if you land somewhere and then you want to leave that company, you can't, you can't take your employees with you.
00:17:59.683 --> 00:18:03.827
Like we wrote it into my contract that if I left, my partner could come with me.
00:18:04.409 --> 00:18:05.169
Like, that's brilliant.
00:18:05.528 --> 00:18:09.749
I would have never thought about that in my, in my life.
00:18:09.749 --> 00:18:10.108
Right.
00:18:10.398 --> 00:18:16.159
And I think, and, and so having the attorney who's used to it, right.
00:18:16.219 --> 00:18:34.338
It's so important from an advisory standpoint who can help you like, so, okay, you're aligned on values, but now, okay, how do you contractualize so that those values actually get put in the contract and how do you think through what can put in the, be put in the contract so that.
00:18:34.794 --> 00:18:44.084
At the end of the day, when, when the deal's done, everything's closed and now you're trying to unpack things, you have it at the detail level.
00:18:44.148 --> 00:18:48.199
Should be in the contract as to what's going to stay and what's going to go.
00:18:48.199 --> 00:18:59.989
And, and like, those are the things looking back now, I would say, okay, I would do a much better job getting a lot more specific than I did going in, but you don't know that until you've been through it, right?
00:18:59.989 --> 00:19:01.618
Like, so I would say.
00:19:01.953 --> 00:19:24.493
Get that advisor and think about all the things that are really important to you and make a list of them And then have your attorney work through how you can contractualize those important things, too And and that will be taking care of your people ultimately, too Because that's saying who they're reporting to who they're not reporting Like all of that stuff you can actually put that in a contract that I think most people don't realize can actually be put in A contract
00:19:25.753 --> 00:19:33.913
as a lawyer I can tell you anything can be put in a contract i've even put an ironhead You pig's head, iron dinner belt into one.
00:19:34.284 --> 00:19:36.473
And I was riding around an orange bicycle from one.
00:19:37.334 --> 00:19:39.173
So I've put it a lot into contracts.
00:19:39.173 --> 00:19:42.483
You put a lot in there, but I do think there are two things as we close.
00:19:42.483 --> 00:19:46.054
And as we close out that I think are really important as we talk about M& A.
00:19:46.794 --> 00:19:49.003
Number one is when you negotiate.
00:19:49.528 --> 00:19:51.798
Always do what you say you're going to do, period.
00:19:52.888 --> 00:19:53.298
No matter
00:19:53.298 --> 00:19:53.588
what.
00:19:54.048 --> 00:19:54.989
Following your word.
00:19:54.989 --> 00:19:57.898
I don't care who you're negotiating with and who you're negotiating against.
00:19:58.219 --> 00:19:59.548
Always do what you say you're going to do.
00:19:59.979 --> 00:20:02.999
And, and number two is think about the details.
00:20:03.058 --> 00:20:07.138
And don't sacrifice details and quality for speed.
00:20:07.888 --> 00:20:13.398
A lot of people get deal lock and they go fast when they should have just taken a little extra time.
00:20:13.578 --> 00:20:20.999
So with that, thank you for tuning into the Accounting for Innovation Podcast, brought to you by Decimal and the Radical CPA.
00:20:21.509 --> 00:20:27.179
You can find more insightful episodes of the Accounting for Innovation Podcast wherever you listen to podcasts.
00:20:27.269 --> 00:20:34.989
And please don't forget to pick up Jody's new book, radical Pricing, how to Optimize Profits, delight Clients, and Build a Top Value Firm.
00:20:35.169 --> 00:20:37.328
And Jody and I would both love to connect with you on LinkedIn.
00:20:37.848 --> 00:20:38.298
Thanks again.
00:00:00.644 --> 00:00:08.003
Welcome to the Accounting for Innovation podcast, where we explore cutting edge strategies and insights into the world of accounting and finance.
00:00:08.464 --> 00:00:14.544
Presented by Decimal and the Radical CPA, each episode dives deep into industry trends.
00:00:14.884 --> 00:00:23.164
Whether you're a seasoned professional or a budding entrepreneur, join us as we unpack key concepts and share practical tips to drive success.
00:00:26.158 --> 00:00:30.818
Welcome to season two, where we're going to kick off this season talking about M& A.
00:00:30.818 --> 00:00:37.899
Jody, I think this is going to be an exciting conversation, not only the whole season, but as you and I know, acquisitions, P.
00:00:37.899 --> 00:00:39.569
E., M& A is a huge topic.
00:00:39.889 --> 00:00:47.228
So we're going to start with, I think is a fascinating story of you and your firm getting acquired in the process that you ran.
00:00:47.518 --> 00:00:53.209
So looking at it from the seller of a firm perspective, second episode, we'll talk about it more from the decimal perspective.
00:00:53.209 --> 00:00:53.268
Thank you.
00:00:53.444 --> 00:00:55.143
It's a company that's done two acquisitions.
00:00:55.353 --> 00:01:02.283
We'll look at the buyer side, and I think that's going to give us a good, well rounded perspective on M and A in the accounting industry.
00:01:02.863 --> 00:01:06.144
I think one of the hottest topics in all of accounting.
00:01:06.328 --> 00:01:11.989
From the biggest firms to the smallest firms, right now is mergers and acquisitions.
00:01:12.278 --> 00:01:20.399
Whether it's private equity or firms merging to avoid private equity, people want to know what it's like to buy, what it's like to sell their firm.
00:01:21.049 --> 00:01:24.789
And that's why I'm excited today to start with the seller perspective.
00:01:25.209 --> 00:01:29.224
For people that are thinking about selling their firm, We're considering the possibility.
00:01:29.674 --> 00:01:32.634
There's a lot to learn from your story about selling your firm.
00:01:33.474 --> 00:01:44.944
So before we start, give us a little bit of the brief overview and background of your firm and what made you start to think about wanting to get acquired.
00:01:45.554 --> 00:01:45.884
Okay.
00:01:45.884 --> 00:01:54.823
So first I'm going to set the stage in that this is kind of emotional for me, Matt, like, like when people think about selling, like it really is.
00:01:55.554 --> 00:01:59.453
I don't want to say your baby because it's not a baby, but it's your heart.
00:01:59.703 --> 00:02:01.114
Like it's your heart.
00:02:01.474 --> 00:02:14.693
And so when you think about even selling, which I think is totally lost out of most MNA conversations, everyone forgets about the blood, sweat, and tears that someone put into building the firm before it gets merged or acquired.
00:02:14.704 --> 00:02:23.313
So I think that's one unique thing that I want to bring to the conversation that nobody ever talks about is the heart that goes into what it means to sell your firm.
00:02:23.644 --> 00:02:24.723
And how it affects your life.
00:02:25.403 --> 00:02:31.183
So to back up, so I built, I would say the firm of the future in 2010.
00:02:31.193 --> 00:02:37.614
Now it took me many years to get it to where it was, but when everyone talks about this firm of the future, I was like, yeah, I invented it.
00:02:37.913 --> 00:02:39.623
And it sounds kind of like.
00:02:39.894 --> 00:02:42.723
You know, ego driven, but it kind of really was right.
00:02:42.723 --> 00:02:55.024
There were a handful of us at the time who were innovating and iterating through what it meant to have a cloud based firm, to use social media, to get customers, to really focus on a client experience.
00:02:55.479 --> 00:03:00.318
And to start pricing, upfront and without billing by the hour.
00:03:00.468 --> 00:03:02.239
And in 2010, that was unheard of.
00:03:02.239 --> 00:03:05.538
Everyone told me I was not, hence my title, the radical CPA.
00:03:05.848 --> 00:03:07.554
and now everybody's copying it, right?
00:03:07.558 --> 00:03:10.674
Like they, they, so somehow the, the, the tune changed.
00:03:11.033 --> 00:03:14.183
But come 2018.
00:03:14.334 --> 00:03:18.769
Now, mind you too, like I had built it, I had iterated through it, around 2006.
00:03:19.324 --> 00:03:32.943
Seven, I had started, my firm, but I was still working as a contractor in someone else's firm because I hadn't gone all in because I was a little bit nervous of saying, okay, like I, I can trust myself looking back.
00:03:32.943 --> 00:03:35.604
I would say I probably should have jumped all in sooner.
00:03:35.623 --> 00:03:43.024
I also joined my dad's firm, which at the time had like a 50, 000 book of business that was like 1040.
00:03:43.044 --> 00:03:45.723
So it was really like immaterial in the whole scheme of things.
00:03:46.104 --> 00:03:49.204
And when I joined him, he said, go find your own clients.
00:03:49.213 --> 00:03:51.514
So it was truly me who built the book.
00:03:51.993 --> 00:04:08.123
Now I, started using new technologies and I would say like, Round 2010 is when I really started realizing that cloud technology would fundamentally change how my firm would operate.
00:04:08.463 --> 00:04:12.593
And, you know, fast forward by 2015, it had a really solid base.
00:04:12.614 --> 00:04:13.813
We were going like crazy.
00:04:14.084 --> 00:04:21.293
and it was funny too, because this was like in the financial, like even Remember like 2008, 2009 when all the financial stuff was happening.
00:04:21.444 --> 00:04:23.394
Like that was when I was growing the fastest.
00:04:23.483 --> 00:04:28.374
So like I had no, like everyone was saying, oh, like, you know, we're in a recession.
00:04:28.374 --> 00:04:29.754
Really, nobody told me about it.
00:04:29.759 --> 00:04:33.954
So I was like growing the fastest because people were buying what I had to sell, right?
00:04:33.954 --> 00:04:37.014
Like they liked the product market fit that I had determined.
00:04:37.374 --> 00:04:41.973
So anyways, fast forward, by 2015, I had written my first.
00:04:42.053 --> 00:04:46.163
Book and I had started to work more outside of my firm than inside of my firm.
00:04:46.163 --> 00:04:54.713
My partner was really doing all the day to day and I was just kind of like, I was around, but I wasn't really in my firm.
00:04:54.803 --> 00:05:04.644
I had already kind of worked myself out of my firm and by and by 2018, top 100 firms started to court me.
00:05:04.944 --> 00:05:09.444
So they really started calling up and saying, Hey Jody, we wanna build a cast practice.
00:05:09.444 --> 00:05:10.524
We love your, your firm.
00:05:10.704 --> 00:05:11.559
We want you to be part of.
00:05:13.293 --> 00:05:18.728
And when one suitor kind of reached out, I was like, okay, What am I going to do?
00:05:18.788 --> 00:05:25.348
And because of my status in the industry, and because I knew everybody, I called Joel Sinkin, who I love dearly.
00:05:25.369 --> 00:05:27.649
And I said, okay, like they're interested.
00:05:27.658 --> 00:05:28.338
What do I do?
00:05:28.608 --> 00:05:29.809
And he said, okay.
00:05:30.069 --> 00:05:30.428
Right.
00:05:31.038 --> 00:05:35.829
And he said, let's see if there's a way we can, you know, position me for sale.
00:05:35.869 --> 00:05:36.168
Right.
00:05:36.168 --> 00:05:39.788
So basically kind of, it's like calling your realtor for all intents and purposes.
00:05:39.918 --> 00:05:40.509
Oh, a hundred percent.
00:05:40.509 --> 00:05:41.658
I got to get my house in order.
00:05:41.658 --> 00:05:41.908
Right.
00:05:41.908 --> 00:05:52.093
Like now, and they go through and they say, okay, you know, you got to paint this room and so he kind of got me in the mindset of, okay, I need to like, kind of, figure out what that looked like.
00:05:52.124 --> 00:05:55.533
It meant transitioning from an S corp to an LLC.
00:05:55.884 --> 00:05:59.603
and kind of organizing my book so it was ready for sale.
00:06:00.004 --> 00:06:03.874
and kind of doing, I'll say a little bit of housekeeping on the, on the back end.
00:06:04.153 --> 00:06:07.363
And then I started talking to suitors, right?
00:06:07.363 --> 00:06:18.814
So essentially, Managing partners of all these top 100 firms would call and they would have this like half hour interview call where they're basically, I'd say dating, right?
00:06:18.814 --> 00:06:24.134
They're basically interviewing you and you're interviewing them and you're seeing if you can align.
00:06:24.574 --> 00:06:28.559
And the more calls that I had, the more frustrated I got.
00:06:28.559 --> 00:06:31.374
Um, because I knew I would never fit.
00:06:31.889 --> 00:06:41.019
I like, I knew that I would just be eaten by this firm and the beautiful thing that I had built would never go across the firm like that.
00:06:41.028 --> 00:06:47.428
It, I didn't have, I wouldn't have the power inside a big firm like that to actually change, even though that's what the managing partner said.
00:06:47.428 --> 00:06:53.149
They said, Oh, well, you know, we want you to teach us, but I knew like that it probably wouldn't happen.
00:06:53.798 --> 00:06:59.168
And I started actually having a longer conversation with a firm that I won't name.
00:06:59.619 --> 00:07:00.718
and we were.
00:07:01.108 --> 00:07:01.658
talking.
00:07:01.658 --> 00:07:03.209
I flew down to meet them.
00:07:03.209 --> 00:07:04.468
I met a bunch of their partners.
00:07:04.468 --> 00:07:07.389
They were courting me as much as, and they were top 50 at the time.
00:07:07.389 --> 00:07:09.288
Now I think they're like top 25 or top.
00:07:09.329 --> 00:07:10.639
They might even be higher than that.
00:07:11.119 --> 00:07:13.788
and they were courting me just as, as much, right?
00:07:13.788 --> 00:07:18.329
Like we kind of got to that next level and I thought, okay, maybe I can fit in here.
00:07:18.348 --> 00:07:26.553
Like maybe this, this firm is innovative enough that even if my firm isn't completely the same, I Like we, we could live here, right?
00:07:26.553 --> 00:07:45.894
Like we could, we could cohabitate together and, we got all the way to the end and basically they pulled the deal at the end and I thought that I was going to have, like, I, I, not to say I was like a deal is never done until it's done, but I thought that like, this is where we were going to land and what was.
00:07:46.139 --> 00:07:51.019
Interesting for me too, is I had a small team, so I only had two and a half full time equivalents working for me.
00:07:51.278 --> 00:07:55.499
So my partner knew what was happening and my part time person knew what was happening.
00:07:55.509 --> 00:07:57.949
The only person who didn't know what was happening in the firm was the admin.
00:07:58.298 --> 00:08:09.809
So when you think about that, which is kind of funny too, because, when you think about the trust that has to happen, those conversations, a lot of times, nobody knows what's going on until the very end.
00:08:10.019 --> 00:08:14.199
They were involved in it from the very beginning and they knew their lives would fundamentally change.
00:08:14.468 --> 00:08:34.578
So anyways, it's kind of funny because the, the partner pulled the deal and, in the meantime, I had engaged with one of my dear friends, Bill Paroli, who was the past chair of the AICPA to kind of walk me through this because he had done a bunch of M& A with other firms.
00:08:34.678 --> 00:08:41.119
wanted not to be taken advantage of when you're a small firm and you know, my book was around 700, right.
00:08:41.269 --> 00:08:47.639
And you have these top 100 like courting you and you level of expertise in M.
00:08:48.548 --> 00:08:49.339
have a different level.
00:08:49.339 --> 00:08:58.458
L is that you're gonna be t And so I wanted someone o Yeah.
00:08:58.469 --> 00:09:03.028
Gee, I have the past chair of the AICPA who's on my team.
00:09:03.028 --> 00:09:06.698
So never be like the power of the network is amazing, right.
00:09:06.719 --> 00:09:17.609
To have, to have someone like that on your team, but anyway, so that deal got pulled and in the meantime, I was doing a lot of consulting with technology companies, which is kind of where my focus had been and not really on my firm.
00:09:17.609 --> 00:09:19.619
Cause my partner was pretty much running my firm.
00:09:20.014 --> 00:09:21.504
You know, completely by itself.
00:09:21.504 --> 00:09:23.894
And I was not really in it at all.
00:09:23.953 --> 00:09:25.884
Other than I like came to the office every day.
00:09:27.293 --> 00:09:34.844
And then, I started to work with Botkeeper as a consultant and really helping them kind of in the go to market side.
00:09:34.864 --> 00:09:47.384
And I kind of fell in love with the tech world and working in technology and working with CPAs and, because my market of my social media presence, I was like, okay.
00:09:47.839 --> 00:09:50.078
Actually, here's a really good value for me.
00:09:50.318 --> 00:09:52.788
And this is where I can bring something to the table.
00:09:53.048 --> 00:10:01.418
And so, the conversations got deeper with Botkeeper and at that point in time, Botkeeper was still serving, regular businesses as well.
00:10:01.418 --> 00:10:06.528
They weren't only focused on the accountant market, even though, like I knew that that was going to be kind of where they were
00:10:06.528 --> 00:10:06.859
going.
00:10:07.129 --> 00:10:07.528
Yeah.
00:10:07.788 --> 00:10:20.749
And so, Enrico and I, you know, came to the decision, Hey, if you buy my firm, then become part of the leadership team at Backkeeper and we're going to sell to, accounting professionals.
00:10:20.948 --> 00:10:28.359
And for me, it matched my why of being able to bring more tech innovation to firms and kind of, keep.
00:10:29.408 --> 00:10:33.318
Talking about all the stuff that I've talked about for the last year and still talk about, right?
00:10:33.318 --> 00:10:37.399
Like this is still my why is like, how do you bring innovation into the accounting firms?
00:10:37.458 --> 00:10:46.168
And so, so anyway, so we got to that point and we said, okay, now we're going to go through like a sale because we aligned on something, right?
00:10:46.168 --> 00:10:52.698
Like, and I think that's the big thing is like, you really have to align with who you're merging with, who you're buying with.
00:10:52.788 --> 00:10:55.359
If there's no alignment of values, forget it.
00:10:55.359 --> 00:10:56.298
The deal's not going to work.
00:10:56.298 --> 00:10:57.448
The deal's going to fall apart.
00:10:57.489 --> 00:10:58.719
Like, and.
00:10:59.283 --> 00:11:04.953
I think when I hear some of these M& A guys talk, they forget that they're people.
00:11:05.344 --> 00:11:15.254
Like, at the end of the day, accounting firms are made up of people and people have values and wants and needs and not all of them are in it for the best price.
00:11:15.953 --> 00:11:18.173
Some of it is about like anything else.
00:11:18.173 --> 00:11:32.724
Like you want it, like, yes, you want a fair price for your book, but you want to be aligned with the person who you're, you're moving in with because like, hello, like this is where you're going to be long term and you have to make sure your team.
00:11:33.293 --> 00:11:40.283
Can stay there because if your team doesn't stay and they quit on you, well, you only get paid out now.
00:11:40.833 --> 00:11:45.453
Like I won't talk about my deals, but I got paid out a lot quicker than other, other, firms.
00:11:45.683 --> 00:11:49.043
But if your clients don't stay, you, you don't get paid out.
00:11:49.053 --> 00:11:50.714
So it's in your best interest.
00:11:51.144 --> 00:11:56.823
To make sure that your firm fits your team fits and everybody kind of fits from a values perspective first.
00:11:57.083 --> 00:11:59.073
And then the work is the work, right?
00:11:59.104 --> 00:12:00.864
Like, but how do you align there first?
00:12:01.293 --> 00:12:08.634
Well, and I think there are three main themes that I'm taking from your story that I think are really important for people to internalize.
00:12:09.214 --> 00:12:12.149
Number one is find a good advisor.
00:12:12.149 --> 00:12:19.727
And if you don't have one that you trust in your network, same as you did with other firms, interview people to be advisors.
00:12:20.278 --> 00:12:23.379
And find one that you trust and that you like.
00:12:23.739 --> 00:12:26.778
Number two is focus on the people.
00:12:26.999 --> 00:12:31.339
It is an emotional decision and make sure you treat it as such.
00:12:31.548 --> 00:12:39.229
There's also the practical side of the money and all of that stuff, but there is a philosophical alignment that you want to find a place where you and your team will fit.
00:12:39.639 --> 00:12:41.938
Because as you mentioned, there are earnouts that come with it.
00:12:41.948 --> 00:12:43.359
You will be there for a while.
00:12:43.369 --> 00:12:45.208
Your team will be there for a while.
00:12:45.788 --> 00:12:47.749
And you need to make sure it's a place you're comfortable.
00:12:47.859 --> 00:12:53.158
And you and I have both heard stories of people that sold and there was no philosophical alignment.
00:12:53.408 --> 00:12:54.548
And it was an implosion.
00:12:54.719 --> 00:12:58.288
It implodes every time and it hurts everybody.
00:12:58.899 --> 00:13:07.994
But the third thing that I think you mentioned earliest on, and I want to unpack it first is you mentioned I needed to do some cleanup.
00:13:08.533 --> 00:13:19.124
And it's something that I talk a lot about when I talk to people about acquisitions in the space is you should always build your firm as if you're going to sell it.
00:13:19.854 --> 00:13:30.403
The reason being you will establish the right economics so that you will get the best outcome because we've all seen where it's like, Oh, I need to clean up this billing, or I need to do a little bit here.
00:13:30.413 --> 00:13:33.004
I need to tweak this or whatever it is.
00:13:33.254 --> 00:13:41.994
You start to lessen the potential outcome for yourself if you haven't built it in a way that puts it in the position to sell.
00:13:43.214 --> 00:13:46.994
Is that a good kind of summarization of your lessons?
00:13:46.994 --> 00:13:47.094
Yeah,
00:13:47.553 --> 00:13:50.854
I, I, I think that's a really good, a really good summary.
00:13:50.854 --> 00:13:54.413
And I think the cleanup part was, was important, right?
00:13:54.413 --> 00:14:00.609
And you have to, and, and, When they started courting me, I wasn't thinking about selling.
00:14:00.639 --> 00:14:02.688
Like it, it came out of the blue.
00:14:02.719 --> 00:14:07.019
I thought, and the other thing is, is my, again, my partner was my dad.
00:14:07.038 --> 00:14:13.219
So when you think about family business and family financials, like again, like that, that's what you're looking at.
00:14:13.219 --> 00:14:13.548
Right.
00:14:13.589 --> 00:14:17.469
And now you have to clean it up because someone else is, is, is looking at it as well.
00:14:18.119 --> 00:14:21.783
and I, I think that's important to like, that you should get ready for spending money.
00:14:21.964 --> 00:14:22.464
For sale.
00:14:22.464 --> 00:14:31.984
And you should think about the other thing that was very unique to me as all these firms were looking at me is my P and L look very different than their P and L.
00:14:32.024 --> 00:14:35.943
They didn't know how to compare them when I, when the top 100 firms were looking at me.
00:14:36.264 --> 00:14:41.203
Yes, they could look at like the net profitability, but they were like, why are your technology costs so high?
00:14:41.423 --> 00:14:44.553
I'm like, cause I don't have any labor, but why are your
00:14:44.553 --> 00:14:45.504
labor costs so high?
00:14:47.604 --> 00:14:48.683
We're like, wait, wait, wait.
00:14:48.683 --> 00:14:49.433
Like, what do I do?
00:14:49.494 --> 00:14:49.744
Hello?
00:14:49.744 --> 00:14:53.373
Your accountants, let's figure this out.
00:14:53.854 --> 00:14:58.543
But you don't fit into this, like this bowl.
00:14:58.624 --> 00:15:00.453
They're like, Oh my gosh, now what do we do?
00:15:01.163 --> 00:15:03.183
But I do think you're seeing it more and more and.
00:15:04.374 --> 00:15:09.754
I think what you did was atypical at the time, but it's becoming a lot more typical.
00:15:10.053 --> 00:15:32.884
What I find is very ironic, and this is probably what needs to change the fastest, is a lot of accounting firms don't have the same level of detailed Work put into their own financials that they put into their clients financials and pretending that there was an outsider looking in.
00:15:32.884 --> 00:15:36.183
And so I think that's a big part of it then.
00:15:36.453 --> 00:15:38.144
So let's continue to unpack.
00:15:38.173 --> 00:15:51.504
We've, we've unpacked the financials built as if you're going to sell, put financial packages together for your firm that you look at every week or every month, however often that are the same, put together the same diligence as you put together your clients.
00:15:52.083 --> 00:15:52.614
But then.
00:15:53.163 --> 00:15:53.774
Advisory.
00:15:54.173 --> 00:15:59.864
How do people go about and find they don't have the network that you do, that you, they aren't the radical CPA.
00:16:00.293 --> 00:16:03.854
How do they find the right trustworthy advisor?
00:16:05.094 --> 00:16:12.524
So I think the reason my advisor worked for me is I had Joel Sinkin, who was like kind of an M& A guy, right?
00:16:12.533 --> 00:16:15.394
Like, and he was, and you know, there's a few of them out there.
00:16:15.394 --> 00:16:17.844
You can, You can find them online.
00:16:17.864 --> 00:16:18.193
Right.
00:16:18.644 --> 00:16:23.283
But I had another CPA who had been through it and he had merged into a smaller firm.
00:16:23.293 --> 00:16:27.484
And I actually think that's a better advisor because I think there's two pieces to it.
00:16:27.484 --> 00:16:33.984
There's like the M and a guy who's like the deal guy, but then there's the person who has your best interest at heart and.
00:16:34.344 --> 00:16:45.553
I remember the very, and I actually wrote an Accounting Today article on this and we can post it in the links, but I remember the very first conversation I had after I shared my financials and everything with Bill.
00:16:45.813 --> 00:16:47.844
And I said, Bill, what do you think my firm is worth?
00:16:48.153 --> 00:16:50.894
And he said to me, it's priceless because it's yours.
00:16:51.923 --> 00:16:53.798
And that never left me.
00:16:54.969 --> 00:17:08.199
And I think that's the part that you don't always think about, but truly it's priceless because you built it and you have to, and then you have to kind of get to, okay, what does the market say it's worth except, right?
00:17:08.288 --> 00:17:08.469
Oh,
00:17:08.469 --> 00:17:09.078
a hundred percent.
00:17:09.148 --> 00:17:28.028
But I do think in, and as somebody that's done multiple acquisitions and been on the acquirer side, and by the way, what you mentioned about dealing with big firms and being interested in having bought a company from KPMG, that's a whole story we'll tell in the next episode, but, The people is most important thing and your philosophical alignment.
00:17:28.038 --> 00:17:31.328
If you're a person that's staying, how do you really?
00:17:31.884 --> 00:17:38.324
Make sure that the place that you're looking is aligned with your values and the values of your team.
00:17:39.034 --> 00:17:43.834
it never dawned on me that I could write it into a contract to take care of them.
00:17:44.243 --> 00:17:59.253
And like one of the exit clauses, just, and this is something to know about is like, if you leave a lot of times you can't take people, like if you land somewhere and then you want to leave that company, you can't, you can't take your employees with you.
00:17:59.683 --> 00:18:03.827
Like we wrote it into my contract that if I left, my partner could come with me.
00:18:04.409 --> 00:18:05.169
Like, that's brilliant.
00:18:05.528 --> 00:18:09.749
I would have never thought about that in my, in my life.
00:18:09.749 --> 00:18:10.108
Right.
00:18:10.398 --> 00:18:16.159
And I think, and, and so having the attorney who's used to it, right.
00:18:16.219 --> 00:18:34.338
It's so important from an advisory standpoint who can help you like, so, okay, you're aligned on values, but now, okay, how do you contractualize so that those values actually get put in the contract and how do you think through what can put in the, be put in the contract so that.
00:18:34.794 --> 00:18:44.084
At the end of the day, when, when the deal's done, everything's closed and now you're trying to unpack things, you have it at the detail level.
00:18:44.148 --> 00:18:48.199
Should be in the contract as to what's going to stay and what's going to go.
00:18:48.199 --> 00:18:59.989
And, and like, those are the things looking back now, I would say, okay, I would do a much better job getting a lot more specific than I did going in, but you don't know that until you've been through it, right?
00:18:59.989 --> 00:19:01.618
Like, so I would say.
00:19:01.953 --> 00:19:24.493
Get that advisor and think about all the things that are really important to you and make a list of them And then have your attorney work through how you can contractualize those important things, too And and that will be taking care of your people ultimately, too Because that's saying who they're reporting to who they're not reporting Like all of that stuff you can actually put that in a contract that I think most people don't realize can actually be put in A contract
00:19:25.753 --> 00:19:33.913
as a lawyer I can tell you anything can be put in a contract i've even put an ironhead You pig's head, iron dinner belt into one.
00:19:34.284 --> 00:19:36.473
And I was riding around an orange bicycle from one.
00:19:37.334 --> 00:19:39.173
So I've put it a lot into contracts.
00:19:39.173 --> 00:19:42.483
You put a lot in there, but I do think there are two things as we close.
00:19:42.483 --> 00:19:46.054
And as we close out that I think are really important as we talk about M& A.
00:19:46.794 --> 00:19:49.003
Number one is when you negotiate.
00:19:49.528 --> 00:19:51.798
Always do what you say you're going to do, period.
00:19:52.888 --> 00:19:53.298
No matter
00:19:53.298 --> 00:19:53.588
what.
00:19:54.048 --> 00:19:54.989
Following your word.
00:19:54.989 --> 00:19:57.898
I don't care who you're negotiating with and who you're negotiating against.
00:19:58.219 --> 00:19:59.548
Always do what you say you're going to do.
00:19:59.979 --> 00:20:02.999
And, and number two is think about the details.
00:20:03.058 --> 00:20:07.138
And don't sacrifice details and quality for speed.
00:20:07.888 --> 00:20:13.398
A lot of people get deal lock and they go fast when they should have just taken a little extra time.
00:20:13.578 --> 00:20:20.999
So with that, thank you for tuning into the Accounting for Innovation Podcast, brought to you by Decimal and the Radical CPA.
00:20:21.509 --> 00:20:27.179
You can find more insightful episodes of the Accounting for Innovation Podcast wherever you listen to podcasts.
00:20:27.269 --> 00:20:34.989
And please don't forget to pick up Jody's new book, radical Pricing, how to Optimize Profits, delight Clients, and Build a Top Value Firm.
00:20:35.169 --> 00:20:37.328
And Jody and I would both love to connect with you on LinkedIn.
00:20:37.848 --> 00:20:38.298
Thanks again.
