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Welcome to Beanstalk, M&J's podcast where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience.
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If a corporate transaction is in your future, whether you'll be on the buying side or the selling side, a detailed look at the target company's financials is in your future.
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The sooner we can know what to expect, means the sooner we can get started and the sooner we can set ourselves up for success.
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For today's discussion, I am very excited to be joined by Ryan Kelley, a partner with our consulting practice out of our New Orleans office and the leader of our diligence practice.
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Hi, Ryan.
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Hey, Brandon.
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And Ryan, um, will you just do a favor for our audience and our listeners and just kind of give some background on your role at Mauldin & Jenkins and your professional experience?
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Sure.
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So I'm a partner in the New Orleans office.
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I uh started my career in audit and spent almost 20 years doing audits and then I converted over to consulting after that and um I moved into this diligent space more recently.
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And and and Ryan, you know, I kind of gave the intro, you know, about the the real meat of today's discussion, which is going to be the kind of MA space and diving into considerations like diligence and quality of earnings and all that.
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But before I get too deep, you know, one thing when I think of Ryan, you know, I just think as somebody who can help clients solve complex challenges, right?
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You're the kind of guy where it's like, hey, Ryan, my client has something going a little wrong.
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We're not exactly sure what's wrong, they're not actually sure what's wrong, but like we want to get in this together and really understand their challenges and come up with solutions in a roadmap.
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So you kind of kind of talk me through just how you work with clients.
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Sure.
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Well, thanks.
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First of all, appreciate that you think of me that way.
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Uh yeah, I mean, a lot of what we do is so difficult for your average person to understand.
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And even a finance person a lot of times has challenges with, you know, ultra complex kind of work.
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So yeah, I to um take things that are complicated and try and break them down in a way that it's easy to understand.
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You know, doing some of the litigation work that I do, I'm trying to target my uh my message to an audience that really has no idea.
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What I'm talking about, and and so avoid talking about things that aren't as critical to getting to the answer and focus on like these are the things that are driving this issue.
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Let's focus on that.
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That's right, because you even have experience as like an expert witness or you know, whatever the terminology is.
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Correct me there, but that's right.
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But but really help ensure an entire room of people who are not involved in a particular subject matter can kind of see what's going on and how to come to the right conclusion on things.
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That's right.
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And it's not so different in these diligence spaces because there's two sides.
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And, you know, I'm I'm used to um arguing a point for you know my side, and there will be a person just like me on the opposite side, you know, pushing for their clients' interests as well.
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And and I think that's the important thing too, just for me as a business leader, a business owner, is to know that I have somebody on my side.
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You know, somebody who's gonna take an objective look and apply their objective expertise to the situation at hand, but to really help everybody see what I am trying to say here, right?
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And what I'm trying to accomplish.
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Right.
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And guiding you along the way and with like no judgment of how you did it in the past, and you know, but this is what somebody coming in from the other side is gonna think when they see X, Y, Z.
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So let me help you uncover that now.
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Let's figure out a response.
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And then, you know, when that question inevitably comes, you're prepared.
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So so kind of with that background, that context, and and kind of that methodology and workflow that you kind of navigate, let's just dive a little bit into that kind of world of diligence.
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You know, right now there's a lot of hot M&A activity.
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You know, there's consolidation as various industries, there's a lot of a dry powder out there, there's capital looking for a home and a good investment uh uh to invest into, a good business to invest into, um, as well as just you know some good opportunities to scale, add mass, and you know, kind of continue um expanding and evolving our products and services.
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And with that M&A space comes the world of due diligence, the world of quality of earnings.
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So to start, will you just kind of walk me through, just at the highest level initially, what is diligence?
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If you're a if you're, let's say, a buyer and you're coming into a company and you don't have any idea, you're you weren't, you weren't working for the company, you don't know what their results have been over time, you don't know their cash flow.
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Uh, you would get somebody like us to take a look at the books and say, okay, we see, you know, we see what this says, but is there anything underneath there that we need to check out deeper?
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You know, are there costs in there that I'm gonna be able to avoid when I take this company on?
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Are there costs that are not there because, for example, it's a part of a bigger corporation, right?
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And it's gonna get carved out.
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And I need to think through, okay, they're no longer gonna have the support of the parent company.
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What am I gonna have to add in to supplement that?
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So we're trying to help figure out what the future cash flow is gonna be for a buyer, and that drives the value of the company.
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So, so just to kind of tie it into something, you know, near and dear to my heart as a business leader, you know, professional services.
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So, this is something if I were looking to join forces with another professional services company, even though we're both in the similar business, serving our clients and selling our selling our services, you know, we might have different pricing models, different ways we scope work, different ways we manage teams, different organizational charts of how our leadership works.
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So some of that, it sounds like is just trying to kind of normalize if our businesses were to follow kind of a more similar playbook, what would we, what would we look like together?
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Is that is that a fair representation?
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It is.
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It is.
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And in some cases, it might just be rearranging how uh the books are organized.
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You know, we you and I had a project not long ago where uh one company is considering acquiring another company, but they're the way that they look at the financial statements and run the business, the income statement was more by uh operating kind of activity where the other business was more by department, you know.
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So instead of seeing, you know, just rent expense, rent expense could have been buried in three other departments.
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And so helping them figure out, okay, how do we remat this?
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So I'm used to so I can see your business the way that I'm used to seeing mine.
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And I guess too, just a just a high-level question, what sort of drives this kind of effort?
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You know, at what point in time do we realize, okay, I need to call up Ryan and talk diligence?
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You know, what usually sparks that to a business leader's mind?
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A bank saying you have to do this, that's one.
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Um, but just if there's a person on the other side like me, um, having somebody who knows what that person knows and and to be able to get insider information, I guess, for for what to expect with that.
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So uh let's start with the banks though.
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If a if a bank is gonna be financing the deal, it's it's typical that they would want some kind of diligence done to be comfortable with this, because all they really have is the paper that they're getting that was produced by the company that's selling.
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So they're gonna want to know, you know, how how much can I rely on that?
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Um, but then, you know, if if you are, let's say, a seller and a buyer comes and offers you a price, you know, they're probably it's probably not the best price you could get right off the bat.
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And so what is that price?
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And um, you know, having somebody can help you figure that out.
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And and that makes perfect sense.
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And that oftentimes the first spark might be, okay, I'm looking to buy a company.
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And I need capital to buy that company.
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And I go to my bank and relationships and I say, Hey, can you help provide me some capital to buy this company?
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Like, okay, they're first gonna probably ask the question, well, show me the financials of the company you're trying to buy that we're gonna be, you know, financing through this capital.
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And as you describe, like the bank's not just gonna want to take the target company's word for it in the financials.
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They're gonna want to have a deeper level look into what really is happening at this target company.
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Um, so that makes perfect sense.
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But but exactly as you described as well, that means the buyer has somebody like you on their side, because the bank's probably gonna require it, or whoever the source of capital is.
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But I think a bank is a good example.
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But it probably makes sense for the seller to think of that too, right?
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Right.
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Because, you know, they're just as in a lot of things, you know, if you get a valuation done, um, depending on where you would like that to come out, can influence the estimates that are made, the kind of the decisions that are made about you know what's included, what's not included.
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So having somebody uh counterbalance the the other side helps a lot.
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And Ryan, you kind of bring up the concept of like a valuation.
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What is my business worth?
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You know, what would a buyer pay for my business?
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And that is an area to where, you know, obviously a firm like ours, we do have business valuation services.
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But then we also, as we're talking about today, have due diligence services.
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Can you just kind of tell me about like where those interconnect, how they're a little bit different, and kind of why they are two distinct processes rather than just kind of one particular exact scope of work?
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Sure.
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So we're we're using the same underlying data to come up with our product, let's say, but the evaluation guys are doing the math to figure out what is it worth, looking at comparables, looking at market multiples, those kinds of things.
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I'm more focused on is the data that they're looking at reliable.
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Is it's not an audit, but it's like an audit.
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Uh we're not sampling, but we are combing through transactions to identify things that weren't accounted for correctly or um you know are unique and shouldn't be looked at going forward.
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And in in evaluation, they would do something like that, but they're they're probably gonna rely more on what they have and come up with the value like this is what you gave me, this is what you have, where I'm really digging into what you gave them to say you can rely on that.
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Yeah, that makes perfect sense.
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And and also, you know, oftentimes whenever it comes to how is this deal gonna be structured, what's gonna be kind of the driver of the purchase price?
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Is this like a gross revenues consideration or you know, very often, or you know, a net fees probably more likely, you know, or the the a multiple of EBITDA seems like one of the most common kind of anchors to derive a value from, and then a multiple of that EBITDA figure depending on kind of the health of the enterprise.
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So can you kind of talk me through what that means?
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When I say, okay, for this purchase price, it's gonna be X multiple of EBITDA.
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What am I saying?
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You're basically trying to find the free cash flows and saying, okay, how many years of that am I willing to pay for now in anticipation that I'm gonna get that going forward?
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So, you know, EBITDA is more or less cash in the bank account at the end of the day.
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After the when the year's over, um, you know, depreciation isn't a cash outflow.
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Interest and taxes are, but they can be manipulated depending on how you're financed and how you're structured tax-wise.
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So you're getting to how much cash am I going to get out of this?
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How many years of that cash am I willing to pay for it that a buyer, or I mean sorry, a seller is willing to accept as the purchase price.
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That makes sense.
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And and and that's where probably like this like normalizing EBITDA concept comes from.
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Because as you just described, you know, you start with that good EBITDA number, which is kind of from a traditional accounting perspective, that the best representation of a cash flow, an objective cash flow an enterprise generates, because we're moving the non-cash considerations like depreciation, because the equipment was already bought.
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You know, every time the depreciation hits the PL, it's not an additional cash outflow.
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It's just recognizing over time the expense from that first capital purchase.
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But as you described, like when it comes to taxes, you know, we're a C Corp, they're an S-corp, or maybe we're looking into a partnership, or the corporate structure of the new arrangement might be different than the corporate structure of the prior arrangement.
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Therefore, the tax is going to be different potentially.
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So we want to kind of normalize for that.
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Um, and then also I always find the interest, you know, the interest part of that, you know, interesting as well.
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Because, you know, whether we're, if we're going to be funding this deal through capital from the bank, we're going to be adding interest into the deal.
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And that's not a reflection of the business objectively.
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That's just kind of a part of making this deal happen.
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So we don't want to necessarily, you know, reduce the value of that business because of how I'm purchasing.
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Exactly.
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Because those, those are all variables that the deal can change.
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Yeah.
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And what are some other things that you kind of encounter in terms of, you know, maybe using that ebita as a starting point, but then other things you need to kind of do to try and help a potential buyer know what cash flow they're going to be obtaining from this business and helping a seller understand what they're really selling?
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Yeah, we we try to peel out what what does the owner get out of this company?
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Because there's going to be a new owner, and that owner is not going to be there anymore.
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So if the owner, you know, had whatever what's the owner's salary?
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What is the owner distributing to themselves?
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Are they, do they have a vehicle that they lease with the company to carve all that out so a buyer knows, like, okay, if I step in the shoes of the owner, this is what the company is going to be able to provide to me if I, you know, if I'm them, or just totally strip it out so we can see, you know, this is the cash flow absent, what I may, you know, compensate myself for as the new owner.
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Um, so that's, you know, we're and we're looking at EBITDA.
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If we find something that's um, you know, let's say some amazing sale happened during the year that's a one-off because somebody got a grant and they were able to do this.
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You you name it.
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There could be any number of reasons why the EBITDA number is not what you can count on going forward.
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So we're trying to get on what can you rely on, not like, okay, you had a good year this last year that doesn't make the price spike because of that one good fortune.
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That makes sense.
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And it's all the things like for me as a business owner, you know, I've kind of come up with a compensation package for myself.
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But if a new manager comes in, it might be a different compensation package.
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It might go to a the the management team of the platform that my company will be joining.
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And additionally, that the corporate vehicle that I have to help me run my business is no longer necessarily going to be have to be an ongoing expense of the new arrangement.
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Um, and I also like that you kind of highlighted some of those one-offs, you know, that the first thing that came to my mind, I know there's a lot out there, but like if I, you know, years back got a PPP loan, right?
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You know, some kind of relief like that, um, that was not an indicator of what my bottom line is always going to look like going forward.
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Exactly.
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And at the same time, you know, if you were damn if you were in impacted by COVID, say you're a restaurant and you were closed for six months, well, that's not really, you know, we would we would flip it the other way too.
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Yeah.
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So, you know, we would try to balance out for a PPP loan and also balance out for, well, you're we don't anticipate that you're gonna be shut down for six months.
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Right.
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And so the diligence process, it sounds like it's just a very transparent way to walk through all of these considerations.
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Here are our financial statements in accordance with GAAP.
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Here is the appropriate accounting mechanism to get to EBITDA, and here are the things where we're removing or adding back to come to a normalized amount that will be the driving factor for some kind of a transaction.
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And just being clear in this was our starting point, this is our ending point, this is our position.
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But also just recognizing the realities of there are two parties in this negotiation, and when their team is walking through these steps and making these arguments, we also want our team to be walking through these steps and making these arguments.
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That's right, because as we I if as we identify something or they identify something, you want to balance it off.
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It's like you said, we want everybody to be on the same page here.
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So uh if you've um thought of something but you didn't think of this, let's bring all the heads together to get to the right answer uh rather than you know just trusting that the other side's uh totally uh completely accurate.
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And now, like, do I have options here?
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Say I'm a seller, you know, toying around with the idea of selling my business, and it might be two, three years out, you know.
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But do I have options at different points in time?
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I guess two questions to you.
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One is when do I start this process?
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And two is what kind of help do I ask you for?
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What are options you can provide for me?
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Let's start with one.
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The sooner the better.
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Thing uh I would say most of these are looking back for at least two full years and then and then like a trailing 12 months from whatever point in time the sale will be.
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So if you are in a ready state two years in advance so that there's not gonna be a lot of uh messiness in the accounting, that's helpful because both sides have to deal with that.
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And you know, if you've positioned yourself to be uh as normal, profitable as you can be, you're in a you're gonna be in a great position.
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If you've kind of been um scrambling and just closing the books quickly every month, and you know, maybe there's a little bit of a mess here that we didn't clean up and we saved it for later.
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Let's just take care of that now uh so it doesn't pop up in this diligence.
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So the sooner the better.
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Um on the options, we're really flexible.
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So there's um, you know, a lot of different things we can do and a lot of different ways we can do it.
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We would take a lead from your bank.
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You know, if your bank says we need a quality of earnings report, then we're gonna ask for examples or what exactly, exactly, exactly do they want because there is no uh rule out there that says a quality of earnings means you do this step and that step and this step.
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It's not, you know, for an audit, I could tell you this is what we're gonna do for cash, this is what we're gonna do for debt.
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It's not the same under in this in this world, but we have all those tools at our disposal, right?
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So, you know, one of the more basic things is a proof of cash, because we're not auditing anything.
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So one of the things that we will do is take your bank statements and compare all the deposits in your operating account to your revenue.
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You know, does it match, does it not?
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If it doesn't, can we explain why?
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Uh that's kind of a simple, one of the more simple um steps that we do.
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That would be less expensive, um, but you know, we can get as complicated as it needs to be.
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Um, you know, the the complexity, you know, if you have a business and you're the single owner and you have one location and this is what you've been doing for years, that's relatively easy.
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But if you have 13 businesses and your brother owns one and your mom's 75% in this one, and uh you just acquired this this place, and you know, then it can get more complicated.
00:20:58.960 --> 00:20:59.920
That makes sense.
00:20:59.920 --> 00:21:07.200
And and and I like too that you you know bring up I just realized we hadn't kind of used that word Q of E yet, the quality of earnings.
00:21:07.200 --> 00:21:12.960
But just you know, I kind of asked you just for a clarification on this quality of earnings being a component of this world of diligence.
00:21:12.960 --> 00:21:17.440
But I also like that you highlighted the distinction between this and an audit.
00:21:17.440 --> 00:21:30.400
You know, an audit being a financial statement audit, looking at an organization's annual financial statements or, you know, maybe quarterly reporting as is appropriate, and determining that this is fairly stated in accordance with Genetic Seven Accounting Principles.
00:21:30.400 --> 00:21:31.839
That's the scope of an audit.
00:21:31.839 --> 00:21:33.279
The scope of this is different.
00:21:33.279 --> 00:21:35.599
This is a different engagement with a different playbook, right?
00:21:35.599 --> 00:21:35.839
Yeah.
00:21:35.839 --> 00:21:36.319
Right.
00:21:36.480 --> 00:21:44.400
I mean, an audit is uh an accountant giving an opinion about the fairness of how these financial statements are presented.
00:21:44.400 --> 00:21:47.200
They're they're uh materially correct.
00:21:47.200 --> 00:21:49.759
We're not giving an opinion at all.
00:21:49.759 --> 00:21:57.119
But we are also not just looking at an annual look and a total capture of everything.
00:21:57.119 --> 00:22:25.519
We're looking at month to month, you know, what the margins each month are they consistent if not why not uh much more of an operational kind of view for someone than a look back at what happened you know over the last year uh so that's that's a it is we're more looking at ongoing as as far as close to today as we can because we want to look forward.
00:22:25.920 --> 00:22:41.359
And and I like that you said as well Ryan you know sort of the sooner the better in terms of if I'm gonna be flirt with a sale even if it's maybe three years out let's just start the conversation and figure out okay what would could should this look like in the next couple of years?
00:22:41.359 --> 00:23:10.480
What are some opportunities for me to kind of optimize my business looking forward knowing someday that EBITDA figure with some modifications is going to drive a purchase price for my business maybe what levers can I start pulling and buttons pushing today to really optimize my activities for that future date but then also just what's the best fit for how we want to kick the tires and how we want to start to look at this kind of stuff that the proof of cash flows, the the different kinds of considerations.
00:23:10.480 --> 00:23:15.839
I've even heard you talk about like red flag reports just you know really customizing the right fit for the right client.
00:23:16.160 --> 00:24:26.799
And let's go like beyond accounting you know what is a buyer looking for for value long term because if you are um an owner and you this is your baby and it's your business it's all you do um but you're looking to exit if you if there's a lot of value in in you and so what you know I think what a person would coach you anyone in this space is have a lieutenant that you are training that can you know do what you do um so when a when your business moves on there isn't an abrupt like who's gonna who has these relationships now and and how are we gonna keep uh you know cash flows the way that they were without this person who's who's the end all be all of the business and um you know thinking about tax structuring and you know there depending on which side you're on you want to set up the deal differently for tax advantages all thinking through all of that uh in advance is helpful just so you line yourself up as best you can to to drive value.
00:24:27.119 --> 00:24:31.279
Exactly as faster that you you call that out because even like the intangibles matter.
00:24:31.279 --> 00:25:04.319
You know obviously the uh uh a lot that's gonna be driving kind of the the the the ultimate purchase price is gonna be that free cash flow concept of of what cash this business actually will be generating in the years to come and what will a new owner be willing to pay to obtain that future cash flow but you know the customer lists the relationships the the leadership team you know all of that a buyer's interested in those as well and Ryan I kind of want to double click a little bit on that idea of how this can it's not just a one size fits all.
00:25:04.319 --> 00:25:17.119
You know there are different ways to approach this different ways to understand who are you what are your objectives what kind of transaction are you navigating what's the right fit for you just help help me drill in a little bit onto kind of what some of those options are.
00:25:17.119 --> 00:25:17.839
Sure.
00:25:18.079 --> 00:25:42.000
Well we are uh we we offer kind of a red flag report taking a quick glance at what you've provided to help us say right away like this looks like an issue I know what kind of business you have so and I've experienced this before so before we even get started I can tell you this is going to be an issue we need to resolve it or you know it's gonna be problematic.
00:25:42.000 --> 00:26:16.720
So that is a low a low risk way to get in and then just let us see from our experience you know from looking at a lot of these and seeing what you're providing and knowing you know like I'm gonna give you an example of a construction company they have a certain kind of accounting called percentage of completion and you know a lot of people that's it's not easy to do that and if you've never done it before and you're just recording things as cash comes in or goes out you're not ready for somebody to look at that and say and buy your business.
00:26:16.720 --> 00:26:27.279
So we could see that right away you know we can look at month to month what is your margin and if it's all over the place we're gonna say something's not right here.
00:26:27.279 --> 00:26:38.559
And before we dive into it and get into the weeds we can just lay that at your feet and say this is kind of an issue how do you want to handle it and then you can decide.
00:26:38.960 --> 00:26:44.799
So we don't have to jump into a a full scope quality of earnings engagement bank ready.
00:26:44.799 --> 00:27:41.839
Right right but we could say you know we we considered this this made sense to us uh you know without doing further work this is this we these are the issues that we think may be there or if this looks good you know we think we you could go further without a lot of issues and and I like that call out too of sort of that you know cash versus accrual consideration because you know when two businesses are trying to look like what they would be combined they're going to want to kind of look on the on the same accounting language you know following gap, final accrual basis, you know applying the appropriate revenue recognition principles not just you know cash is revenue when it comes in the door and cash is expense when it leaves the door just how are we really tracking you know our true activities and finding like a reliable margin to then build from so I like that idea of that red flags report to just surface those considerations before we get too far along the process.
00:27:41.839 --> 00:27:42.319
Right.
00:27:42.319 --> 00:27:59.759
And and that helps us too from the earlier you know we were kind of describing if this might be one, two, three years out this could be an opportunity just to have the first set of conversations and and help us think through what can we tweak over the next couple of years to set us up for success.
00:27:59.759 --> 00:28:04.960
I think that's a great example of something to surface opportunities to help us be set up for success.
00:28:05.200 --> 00:28:05.599
That's right.
00:28:05.599 --> 00:28:36.559
If you are in the middle of a deal and you discover hey I haven't been accounting for this correctly over this the whole period that we're looking at and then you're trying to figure that out while everybody is ready to go and and you know there's money involved that's a lot of pressure to put on yourself to try and figure out in a hurry and it would just be better for you and your sleep at night to have gone through that in advance so at least you know what's coming, you know
00:28:36.559 --> 00:28:44.960
And I imagine that would not be something we want to wake up to to where I've been having these conversations about my business is worth X.
00:28:45.920 --> 00:28:53.599
And then something gets uncovered and I found out it's really worth N when I've had X in my mind this entire time.
00:28:54.400 --> 00:29:13.359
Yeah it's very difficult to come off of a especially lower price than you had in mind and and and people get really stuck on the first you know the number that maybe they first hear or uh the highest number they've ever heard and they hang on to it.
00:29:13.359 --> 00:29:20.319
But uh that the reality of the market may be that that's not that's not gonna happen.
00:29:20.799 --> 00:29:25.920
Well and Ryan while I have you I'd also like your thoughts just about kind of the ecosystem.
00:29:25.920 --> 00:29:46.000
I I know that you and your team have a lot of capabilities and help clients navigate a lot of different um considerations uh in this realm but you also kind of take a team approach to this of having other professionals and providers in this space to kind of be able to help a client from A to Z navigate this process.
00:29:46.000 --> 00:29:51.039
Just kind of tell me a little bit about what that environment looks like who other players in this space are.
00:29:51.440 --> 00:29:51.920
Sure.
00:29:51.920 --> 00:30:18.480
So think uh investment bankers uh private equity uh managers uh lawyers uh these are all people that we have connections with so if you were if you have a business that you're looking to market and you don't know where to start if you start with us we can we can send you some options for others to talk to who can also help and and then you know who knows where it might go from there.
00:30:18.480 --> 00:30:45.839
But sure you know investment bankers are are typically selling private equity guys are typically buying um and we have connections within those worlds from doing this work and um you know happy to point people where they need to go to to get the best offer they can so that could probably be one of my first conversations with you then is just help educate me on this process.
00:30:46.000 --> 00:30:47.279
What does this look like?
00:30:47.279 --> 00:30:59.279
What are the series of steps that are in my future what are considerations I need to have in mind and maybe try and surface earlier rather than later but also just you know who are the different people who are going to be in my world in the in the near future.
00:31:00.160 --> 00:31:00.880
That's right.
00:31:01.119 --> 00:31:06.880
Well well Ryan I have really enjoyed this discussion I appreciate you joining me on the microphone today.
00:31:06.880 --> 00:31:17.759
And I will ask one more favor from you before I let you go and that's just kind of any final takeaways you have for our listeners just kind of one last thing for the for them to keep top of mind as they're leaving this conversation.
00:31:18.319 --> 00:31:27.119
Yeah that that's just pick up the phone and give me a call give us a call um we're not going to charge you to talk to you for 15 minutes.
00:31:27.119 --> 00:31:47.039
We're we want to help we want to be more than just you know guys who crunch numbers and we are I mean we have personalities we want to talk to you um and learn what's going on with you and you know I think you could learn a lot in 15 minutes just a quick conversation and it doesn't have to go anywhere.
00:31:47.039 --> 00:31:54.079
You know it it it's just a an opportunity to learn something and to set yourself on the right path.
00:31:54.079 --> 00:32:06.319
You know we're not gonna uncover all of your problems and solve everything right away but uh you know we're here to help I I love that as a takeaway this is what we do this is what we enjoy.
00:32:06.400 --> 00:32:18.799
We would appreciate the phone call to talk you through your goals your thoughts your objectives and kind of you know what the future could hold for you and just give you some some more context around the environment and what to expect and kind of what next steps would look like.
00:32:19.039 --> 00:32:23.519
Exactly we we like this we're not you know it's not it's not a bother to talk to you.
00:32:23.599 --> 00:32:41.680
It's exciting well Ryan thank you again for joining me and to our audience also thank you for joining in if you have any fault questions about the business discussions we had today or any other business challenges you're navigating please don't hesitate to contact us at mjcpa.com
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Welcome to Beanstalk, M&J's podcast where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience.
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If a corporate transaction is in your future, whether you'll be on the buying side or the selling side, a detailed look at the target company's financials is in your future.
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The sooner we can know what to expect, means the sooner we can get started and the sooner we can set ourselves up for success.
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For today's discussion, I am very excited to be joined by Ryan Kelley, a partner with our consulting practice out of our New Orleans office and the leader of our diligence practice.
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Hi, Ryan.
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Hey, Brandon.
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And Ryan, um, will you just do a favor for our audience and our listeners and just kind of give some background on your role at Mauldin & Jenkins and your professional experience?
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Sure.
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So I'm a partner in the New Orleans office.
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I uh started my career in audit and spent almost 20 years doing audits and then I converted over to consulting after that and um I moved into this diligent space more recently.
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And and and Ryan, you know, I kind of gave the intro, you know, about the the real meat of today's discussion, which is going to be the kind of MA space and diving into considerations like diligence and quality of earnings and all that.
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But before I get too deep, you know, one thing when I think of Ryan, you know, I just think as somebody who can help clients solve complex challenges, right?
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You're the kind of guy where it's like, hey, Ryan, my client has something going a little wrong.
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We're not exactly sure what's wrong, they're not actually sure what's wrong, but like we want to get in this together and really understand their challenges and come up with solutions in a roadmap.
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So you kind of kind of talk me through just how you work with clients.
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Sure.
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Well, thanks.
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First of all, appreciate that you think of me that way.
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Uh yeah, I mean, a lot of what we do is so difficult for your average person to understand.
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And even a finance person a lot of times has challenges with, you know, ultra complex kind of work.
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So yeah, I to um take things that are complicated and try and break them down in a way that it's easy to understand.
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You know, doing some of the litigation work that I do, I'm trying to target my uh my message to an audience that really has no idea.
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What I'm talking about, and and so avoid talking about things that aren't as critical to getting to the answer and focus on like these are the things that are driving this issue.
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Let's focus on that.
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That's right, because you even have experience as like an expert witness or you know, whatever the terminology is.
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Correct me there, but that's right.
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But but really help ensure an entire room of people who are not involved in a particular subject matter can kind of see what's going on and how to come to the right conclusion on things.
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That's right.
00:03:01.599 --> 00:03:06.479
And it's not so different in these diligence spaces because there's two sides.
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And, you know, I'm I'm used to um arguing a point for you know my side, and there will be a person just like me on the opposite side, you know, pushing for their clients' interests as well.
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And and I think that's the important thing too, just for me as a business leader, a business owner, is to know that I have somebody on my side.
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You know, somebody who's gonna take an objective look and apply their objective expertise to the situation at hand, but to really help everybody see what I am trying to say here, right?
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And what I'm trying to accomplish.
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Right.
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And guiding you along the way and with like no judgment of how you did it in the past, and you know, but this is what somebody coming in from the other side is gonna think when they see X, Y, Z.
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So let me help you uncover that now.
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Let's figure out a response.
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And then, you know, when that question inevitably comes, you're prepared.
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So so kind of with that background, that context, and and kind of that methodology and workflow that you kind of navigate, let's just dive a little bit into that kind of world of diligence.
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You know, right now there's a lot of hot M&A activity.
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You know, there's consolidation as various industries, there's a lot of a dry powder out there, there's capital looking for a home and a good investment uh uh to invest into, a good business to invest into, um, as well as just you know some good opportunities to scale, add mass, and you know, kind of continue um expanding and evolving our products and services.
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And with that M&A space comes the world of due diligence, the world of quality of earnings.
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So to start, will you just kind of walk me through, just at the highest level initially, what is diligence?
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If you're a if you're, let's say, a buyer and you're coming into a company and you don't have any idea, you're you weren't, you weren't working for the company, you don't know what their results have been over time, you don't know their cash flow.
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Uh, you would get somebody like us to take a look at the books and say, okay, we see, you know, we see what this says, but is there anything underneath there that we need to check out deeper?
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You know, are there costs in there that I'm gonna be able to avoid when I take this company on?
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Are there costs that are not there because, for example, it's a part of a bigger corporation, right?
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And it's gonna get carved out.
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And I need to think through, okay, they're no longer gonna have the support of the parent company.
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What am I gonna have to add in to supplement that?
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So we're trying to help figure out what the future cash flow is gonna be for a buyer, and that drives the value of the company.
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So, so just to kind of tie it into something, you know, near and dear to my heart as a business leader, you know, professional services.
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So, this is something if I were looking to join forces with another professional services company, even though we're both in the similar business, serving our clients and selling our selling our services, you know, we might have different pricing models, different ways we scope work, different ways we manage teams, different organizational charts of how our leadership works.
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So some of that, it sounds like is just trying to kind of normalize if our businesses were to follow kind of a more similar playbook, what would we, what would we look like together?
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Is that is that a fair representation?
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It is.
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It is.
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And in some cases, it might just be rearranging how uh the books are organized.
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You know, we you and I had a project not long ago where uh one company is considering acquiring another company, but they're the way that they look at the financial statements and run the business, the income statement was more by uh operating kind of activity where the other business was more by department, you know.
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So instead of seeing, you know, just rent expense, rent expense could have been buried in three other departments.
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And so helping them figure out, okay, how do we remat this?
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So I'm used to so I can see your business the way that I'm used to seeing mine.
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And I guess too, just a just a high-level question, what sort of drives this kind of effort?
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You know, at what point in time do we realize, okay, I need to call up Ryan and talk diligence?
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You know, what usually sparks that to a business leader's mind?
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A bank saying you have to do this, that's one.
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Um, but just if there's a person on the other side like me, um, having somebody who knows what that person knows and and to be able to get insider information, I guess, for for what to expect with that.
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So uh let's start with the banks though.
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If a if a bank is gonna be financing the deal, it's it's typical that they would want some kind of diligence done to be comfortable with this, because all they really have is the paper that they're getting that was produced by the company that's selling.
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So they're gonna want to know, you know, how how much can I rely on that?
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Um, but then, you know, if if you are, let's say, a seller and a buyer comes and offers you a price, you know, they're probably it's probably not the best price you could get right off the bat.
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And so what is that price?
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And um, you know, having somebody can help you figure that out.
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And and that makes perfect sense.
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And that oftentimes the first spark might be, okay, I'm looking to buy a company.
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And I need capital to buy that company.
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And I go to my bank and relationships and I say, Hey, can you help provide me some capital to buy this company?
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Like, okay, they're first gonna probably ask the question, well, show me the financials of the company you're trying to buy that we're gonna be, you know, financing through this capital.
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And as you describe, like the bank's not just gonna want to take the target company's word for it in the financials.
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They're gonna want to have a deeper level look into what really is happening at this target company.
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Um, so that makes perfect sense.
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But but exactly as you described as well, that means the buyer has somebody like you on their side, because the bank's probably gonna require it, or whoever the source of capital is.
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But I think a bank is a good example.
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But it probably makes sense for the seller to think of that too, right?
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Right.
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Because, you know, they're just as in a lot of things, you know, if you get a valuation done, um, depending on where you would like that to come out, can influence the estimates that are made, the kind of the decisions that are made about you know what's included, what's not included.
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So having somebody uh counterbalance the the other side helps a lot.
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And Ryan, you kind of bring up the concept of like a valuation.
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What is my business worth?
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You know, what would a buyer pay for my business?
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And that is an area to where, you know, obviously a firm like ours, we do have business valuation services.
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But then we also, as we're talking about today, have due diligence services.
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Can you just kind of tell me about like where those interconnect, how they're a little bit different, and kind of why they are two distinct processes rather than just kind of one particular exact scope of work?
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Sure.
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So we're we're using the same underlying data to come up with our product, let's say, but the evaluation guys are doing the math to figure out what is it worth, looking at comparables, looking at market multiples, those kinds of things.
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I'm more focused on is the data that they're looking at reliable.
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Is it's not an audit, but it's like an audit.
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Uh we're not sampling, but we are combing through transactions to identify things that weren't accounted for correctly or um you know are unique and shouldn't be looked at going forward.
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And in in evaluation, they would do something like that, but they're they're probably gonna rely more on what they have and come up with the value like this is what you gave me, this is what you have, where I'm really digging into what you gave them to say you can rely on that.
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Yeah, that makes perfect sense.
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And and also, you know, oftentimes whenever it comes to how is this deal gonna be structured, what's gonna be kind of the driver of the purchase price?
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Is this like a gross revenues consideration or you know, very often, or you know, a net fees probably more likely, you know, or the the a multiple of EBITDA seems like one of the most common kind of anchors to derive a value from, and then a multiple of that EBITDA figure depending on kind of the health of the enterprise.
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So can you kind of talk me through what that means?
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When I say, okay, for this purchase price, it's gonna be X multiple of EBITDA.
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What am I saying?
00:11:54.399 --> 00:12:06.159
You're basically trying to find the free cash flows and saying, okay, how many years of that am I willing to pay for now in anticipation that I'm gonna get that going forward?
00:12:06.159 --> 00:12:12.559
So, you know, EBITDA is more or less cash in the bank account at the end of the day.
00:12:12.559 --> 00:12:18.159
After the when the year's over, um, you know, depreciation isn't a cash outflow.
00:12:18.159 --> 00:12:25.519
Interest and taxes are, but they can be manipulated depending on how you're financed and how you're structured tax-wise.
00:12:25.519 --> 00:12:28.960
So you're getting to how much cash am I going to get out of this?
00:12:28.960 --> 00:12:38.399
How many years of that cash am I willing to pay for it that a buyer, or I mean sorry, a seller is willing to accept as the purchase price.
00:12:38.720 --> 00:12:39.440
That makes sense.
00:12:39.440 --> 00:12:44.799
And and and that's where probably like this like normalizing EBITDA concept comes from.
00:12:44.799 --> 00:13:01.679
Because as you just described, you know, you start with that good EBITDA number, which is kind of from a traditional accounting perspective, that the best representation of a cash flow, an objective cash flow an enterprise generates, because we're moving the non-cash considerations like depreciation, because the equipment was already bought.
00:13:01.679 --> 00:13:05.440
You know, every time the depreciation hits the PL, it's not an additional cash outflow.
00:13:05.440 --> 00:13:09.519
It's just recognizing over time the expense from that first capital purchase.
00:13:09.519 --> 00:13:22.799
But as you described, like when it comes to taxes, you know, we're a C Corp, they're an S-corp, or maybe we're looking into a partnership, or the corporate structure of the new arrangement might be different than the corporate structure of the prior arrangement.
00:13:22.799 --> 00:13:25.840
Therefore, the tax is going to be different potentially.
00:13:25.840 --> 00:13:27.840
So we want to kind of normalize for that.
00:13:27.840 --> 00:13:33.679
Um, and then also I always find the interest, you know, the interest part of that, you know, interesting as well.
00:13:33.679 --> 00:13:41.679
Because, you know, whether we're, if we're going to be funding this deal through capital from the bank, we're going to be adding interest into the deal.
00:13:41.679 --> 00:13:44.799
And that's not a reflection of the business objectively.
00:13:44.799 --> 00:13:48.159
That's just kind of a part of making this deal happen.
00:13:48.159 --> 00:13:52.799
So we don't want to necessarily, you know, reduce the value of that business because of how I'm purchasing.
00:13:53.120 --> 00:13:53.600
Exactly.
00:13:53.600 --> 00:13:57.519
Because those, those are all variables that the deal can change.
00:13:57.519 --> 00:13:58.080
Yeah.
00:13:58.480 --> 00:14:19.919
And what are some other things that you kind of encounter in terms of, you know, maybe using that ebita as a starting point, but then other things you need to kind of do to try and help a potential buyer know what cash flow they're going to be obtaining from this business and helping a seller understand what they're really selling?
00:14:20.240 --> 00:14:26.320
Yeah, we we try to peel out what what does the owner get out of this company?
00:14:26.320 --> 00:14:29.679
Because there's going to be a new owner, and that owner is not going to be there anymore.
00:14:29.679 --> 00:14:34.240
So if the owner, you know, had whatever what's the owner's salary?
00:14:34.240 --> 00:14:37.600
What is the owner distributing to themselves?
00:14:37.600 --> 00:15:02.320
Are they, do they have a vehicle that they lease with the company to carve all that out so a buyer knows, like, okay, if I step in the shoes of the owner, this is what the company is going to be able to provide to me if I, you know, if I'm them, or just totally strip it out so we can see, you know, this is the cash flow absent, what I may, you know, compensate myself for as the new owner.
00:15:02.320 --> 00:15:06.159
Um, so that's, you know, we're and we're looking at EBITDA.
00:15:06.159 --> 00:15:20.480
If we find something that's um, you know, let's say some amazing sale happened during the year that's a one-off because somebody got a grant and they were able to do this.
00:15:20.480 --> 00:15:21.519
You you name it.
00:15:21.519 --> 00:15:28.080
There could be any number of reasons why the EBITDA number is not what you can count on going forward.
00:15:28.080 --> 00:15:39.679
So we're trying to get on what can you rely on, not like, okay, you had a good year this last year that doesn't make the price spike because of that one good fortune.
00:15:40.080 --> 00:15:40.879
That makes sense.
00:15:40.879 --> 00:15:47.519
And it's all the things like for me as a business owner, you know, I've kind of come up with a compensation package for myself.
00:15:47.519 --> 00:15:51.600
But if a new manager comes in, it might be a different compensation package.
00:15:51.600 --> 00:15:56.799
It might go to a the the management team of the platform that my company will be joining.
00:15:56.799 --> 00:16:06.159
And additionally, that the corporate vehicle that I have to help me run my business is no longer necessarily going to be have to be an ongoing expense of the new arrangement.
00:16:06.159 --> 00:16:15.519
Um, and I also like that you kind of highlighted some of those one-offs, you know, that the first thing that came to my mind, I know there's a lot out there, but like if I, you know, years back got a PPP loan, right?
00:16:15.519 --> 00:16:22.559
You know, some kind of relief like that, um, that was not an indicator of what my bottom line is always going to look like going forward.
00:16:22.559 --> 00:16:23.519
Exactly.
00:16:23.840 --> 00:16:37.120
And at the same time, you know, if you were damn if you were in impacted by COVID, say you're a restaurant and you were closed for six months, well, that's not really, you know, we would we would flip it the other way too.
00:16:37.120 --> 00:16:37.679
Yeah.
00:16:37.679 --> 00:16:48.000
So, you know, we would try to balance out for a PPP loan and also balance out for, well, you're we don't anticipate that you're gonna be shut down for six months.
00:16:48.240 --> 00:16:48.799
Right.
00:16:48.799 --> 00:16:57.440
And so the diligence process, it sounds like it's just a very transparent way to walk through all of these considerations.
00:16:57.440 --> 00:17:01.519
Here are our financial statements in accordance with GAAP.
00:17:01.519 --> 00:17:14.400
Here is the appropriate accounting mechanism to get to EBITDA, and here are the things where we're removing or adding back to come to a normalized amount that will be the driving factor for some kind of a transaction.
00:17:14.400 --> 00:17:19.920
And just being clear in this was our starting point, this is our ending point, this is our position.
00:17:19.920 --> 00:17:34.000
But also just recognizing the realities of there are two parties in this negotiation, and when their team is walking through these steps and making these arguments, we also want our team to be walking through these steps and making these arguments.
00:17:34.240 --> 00:17:40.000
That's right, because as we I if as we identify something or they identify something, you want to balance it off.
00:17:40.000 --> 00:17:43.440
It's like you said, we want everybody to be on the same page here.
00:17:43.440 --> 00:18:00.000
So uh if you've um thought of something but you didn't think of this, let's bring all the heads together to get to the right answer uh rather than you know just trusting that the other side's uh totally uh completely accurate.
00:18:00.799 --> 00:18:02.960
And now, like, do I have options here?
00:18:02.960 --> 00:18:10.960
Say I'm a seller, you know, toying around with the idea of selling my business, and it might be two, three years out, you know.
00:18:10.960 --> 00:18:14.079
But do I have options at different points in time?
00:18:14.079 --> 00:18:15.839
I guess two questions to you.
00:18:15.839 --> 00:18:18.240
One is when do I start this process?
00:18:18.240 --> 00:18:21.440
And two is what kind of help do I ask you for?
00:18:21.440 --> 00:18:23.200
What are options you can provide for me?
00:18:23.519 --> 00:18:24.799
Let's start with one.
00:18:24.799 --> 00:18:26.400
The sooner the better.
00:18:26.400 --> 00:18:37.839
Thing uh I would say most of these are looking back for at least two full years and then and then like a trailing 12 months from whatever point in time the sale will be.
00:18:37.839 --> 00:18:50.079
So if you are in a ready state two years in advance so that there's not gonna be a lot of uh messiness in the accounting, that's helpful because both sides have to deal with that.
00:18:50.079 --> 00:18:58.960
And you know, if you've positioned yourself to be uh as normal, profitable as you can be, you're in a you're gonna be in a great position.
00:18:58.960 --> 00:19:08.559
If you've kind of been um scrambling and just closing the books quickly every month, and you know, maybe there's a little bit of a mess here that we didn't clean up and we saved it for later.
00:19:08.559 --> 00:19:13.359
Let's just take care of that now uh so it doesn't pop up in this diligence.
00:19:13.359 --> 00:19:15.519
So the sooner the better.
00:19:15.519 --> 00:19:19.119
Um on the options, we're really flexible.
00:19:19.119 --> 00:19:24.319
So there's um, you know, a lot of different things we can do and a lot of different ways we can do it.
00:19:24.319 --> 00:19:27.119
We would take a lead from your bank.
00:19:27.119 --> 00:19:45.599
You know, if your bank says we need a quality of earnings report, then we're gonna ask for examples or what exactly, exactly, exactly do they want because there is no uh rule out there that says a quality of earnings means you do this step and that step and this step.
00:19:45.599 --> 00:19:52.000
It's not, you know, for an audit, I could tell you this is what we're gonna do for cash, this is what we're gonna do for debt.
00:19:52.000 --> 00:19:58.799
It's not the same under in this in this world, but we have all those tools at our disposal, right?
00:19:58.799 --> 00:20:06.480
So, you know, one of the more basic things is a proof of cash, because we're not auditing anything.
00:20:06.480 --> 00:20:15.119
So one of the things that we will do is take your bank statements and compare all the deposits in your operating account to your revenue.
00:20:15.119 --> 00:20:17.039
You know, does it match, does it not?
00:20:17.039 --> 00:20:19.440
If it doesn't, can we explain why?
00:20:19.440 --> 00:20:24.640
Uh that's kind of a simple, one of the more simple um steps that we do.
00:20:24.640 --> 00:20:32.079
That would be less expensive, um, but you know, we can get as complicated as it needs to be.
00:20:32.079 --> 00:20:46.319
Um, you know, the the complexity, you know, if you have a business and you're the single owner and you have one location and this is what you've been doing for years, that's relatively easy.
00:20:46.319 --> 00:20:58.640
But if you have 13 businesses and your brother owns one and your mom's 75% in this one, and uh you just acquired this this place, and you know, then it can get more complicated.
00:20:58.960 --> 00:20:59.920
That makes sense.
00:20:59.920 --> 00:21:07.200
And and and I like too that you you know bring up I just realized we hadn't kind of used that word Q of E yet, the quality of earnings.
00:21:07.200 --> 00:21:12.960
But just you know, I kind of asked you just for a clarification on this quality of earnings being a component of this world of diligence.
00:21:12.960 --> 00:21:17.440
But I also like that you highlighted the distinction between this and an audit.
00:21:17.440 --> 00:21:30.400
You know, an audit being a financial statement audit, looking at an organization's annual financial statements or, you know, maybe quarterly reporting as is appropriate, and determining that this is fairly stated in accordance with Genetic Seven Accounting Principles.
00:21:30.400 --> 00:21:31.839
That's the scope of an audit.
00:21:31.839 --> 00:21:33.279
The scope of this is different.
00:21:33.279 --> 00:21:35.599
This is a different engagement with a different playbook, right?
00:21:35.599 --> 00:21:35.839
Yeah.
00:21:35.839 --> 00:21:36.319
Right.
00:21:36.480 --> 00:21:44.400
I mean, an audit is uh an accountant giving an opinion about the fairness of how these financial statements are presented.
00:21:44.400 --> 00:21:47.200
They're they're uh materially correct.
00:21:47.200 --> 00:21:49.759
We're not giving an opinion at all.
00:21:49.759 --> 00:21:57.119
But we are also not just looking at an annual look and a total capture of everything.
00:21:57.119 --> 00:22:25.519
We're looking at month to month, you know, what the margins each month are they consistent if not why not uh much more of an operational kind of view for someone than a look back at what happened you know over the last year uh so that's that's a it is we're more looking at ongoing as as far as close to today as we can because we want to look forward.
00:22:25.920 --> 00:22:41.359
And and I like that you said as well Ryan you know sort of the sooner the better in terms of if I'm gonna be flirt with a sale even if it's maybe three years out let's just start the conversation and figure out okay what would could should this look like in the next couple of years?
00:22:41.359 --> 00:23:10.480
What are some opportunities for me to kind of optimize my business looking forward knowing someday that EBITDA figure with some modifications is going to drive a purchase price for my business maybe what levers can I start pulling and buttons pushing today to really optimize my activities for that future date but then also just what's the best fit for how we want to kick the tires and how we want to start to look at this kind of stuff that the proof of cash flows, the the different kinds of considerations.
00:23:10.480 --> 00:23:15.839
I've even heard you talk about like red flag reports just you know really customizing the right fit for the right client.
00:23:16.160 --> 00:24:26.799
And let's go like beyond accounting you know what is a buyer looking for for value long term because if you are um an owner and you this is your baby and it's your business it's all you do um but you're looking to exit if you if there's a lot of value in in you and so what you know I think what a person would coach you anyone in this space is have a lieutenant that you are training that can you know do what you do um so when a when your business moves on there isn't an abrupt like who's gonna who has these relationships now and and how are we gonna keep uh you know cash flows the way that they were without this person who's who's the end all be all of the business and um you know thinking about tax structuring and you know there depending on which side you're on you want to set up the deal differently for tax advantages all thinking through all of that uh in advance is helpful just so you line yourself up as best you can to to drive value.
00:24:27.119 --> 00:24:31.279
Exactly as faster that you you call that out because even like the intangibles matter.
00:24:31.279 --> 00:25:04.319
You know obviously the uh uh a lot that's gonna be driving kind of the the the the ultimate purchase price is gonna be that free cash flow concept of of what cash this business actually will be generating in the years to come and what will a new owner be willing to pay to obtain that future cash flow but you know the customer lists the relationships the the leadership team you know all of that a buyer's interested in those as well and Ryan I kind of want to double click a little bit on that idea of how this can it's not just a one size fits all.
00:25:04.319 --> 00:25:17.119
You know there are different ways to approach this different ways to understand who are you what are your objectives what kind of transaction are you navigating what's the right fit for you just help help me drill in a little bit onto kind of what some of those options are.
00:25:17.119 --> 00:25:17.839
Sure.
00:25:18.079 --> 00:25:42.000
Well we are uh we we offer kind of a red flag report taking a quick glance at what you've provided to help us say right away like this looks like an issue I know what kind of business you have so and I've experienced this before so before we even get started I can tell you this is going to be an issue we need to resolve it or you know it's gonna be problematic.
00:25:42.000 --> 00:26:16.720
So that is a low a low risk way to get in and then just let us see from our experience you know from looking at a lot of these and seeing what you're providing and knowing you know like I'm gonna give you an example of a construction company they have a certain kind of accounting called percentage of completion and you know a lot of people that's it's not easy to do that and if you've never done it before and you're just recording things as cash comes in or goes out you're not ready for somebody to look at that and say and buy your business.
00:26:16.720 --> 00:26:27.279
So we could see that right away you know we can look at month to month what is your margin and if it's all over the place we're gonna say something's not right here.
00:26:27.279 --> 00:26:38.559
And before we dive into it and get into the weeds we can just lay that at your feet and say this is kind of an issue how do you want to handle it and then you can decide.
00:26:38.960 --> 00:26:44.799
So we don't have to jump into a a full scope quality of earnings engagement bank ready.
00:26:44.799 --> 00:27:41.839
Right right but we could say you know we we considered this this made sense to us uh you know without doing further work this is this we these are the issues that we think may be there or if this looks good you know we think we you could go further without a lot of issues and and I like that call out too of sort of that you know cash versus accrual consideration because you know when two businesses are trying to look like what they would be combined they're going to want to kind of look on the on the same accounting language you know following gap, final accrual basis, you know applying the appropriate revenue recognition principles not just you know cash is revenue when it comes in the door and cash is expense when it leaves the door just how are we really tracking you know our true activities and finding like a reliable margin to then build from so I like that idea of that red flags report to just surface those considerations before we get too far along the process.
00:27:41.839 --> 00:27:42.319
Right.
00:27:42.319 --> 00:27:59.759
And and that helps us too from the earlier you know we were kind of describing if this might be one, two, three years out this could be an opportunity just to have the first set of conversations and and help us think through what can we tweak over the next couple of years to set us up for success.
00:27:59.759 --> 00:28:04.960
I think that's a great example of something to surface opportunities to help us be set up for success.
00:28:05.200 --> 00:28:05.599
That's right.
00:28:05.599 --> 00:28:36.559
If you are in the middle of a deal and you discover hey I haven't been accounting for this correctly over this the whole period that we're looking at and then you're trying to figure that out while everybody is ready to go and and you know there's money involved that's a lot of pressure to put on yourself to try and figure out in a hurry and it would just be better for you and your sleep at night to have gone through that in advance so at least you know what's coming, you know
00:28:36.559 --> 00:28:44.960
And I imagine that would not be something we want to wake up to to where I've been having these conversations about my business is worth X.
00:28:45.920 --> 00:28:53.599
And then something gets uncovered and I found out it's really worth N when I've had X in my mind this entire time.
00:28:54.400 --> 00:29:13.359
Yeah it's very difficult to come off of a especially lower price than you had in mind and and and people get really stuck on the first you know the number that maybe they first hear or uh the highest number they've ever heard and they hang on to it.
00:29:13.359 --> 00:29:20.319
But uh that the reality of the market may be that that's not that's not gonna happen.
00:29:20.799 --> 00:29:25.920
Well and Ryan while I have you I'd also like your thoughts just about kind of the ecosystem.
00:29:25.920 --> 00:29:46.000
I I know that you and your team have a lot of capabilities and help clients navigate a lot of different um considerations uh in this realm but you also kind of take a team approach to this of having other professionals and providers in this space to kind of be able to help a client from A to Z navigate this process.
00:29:46.000 --> 00:29:51.039
Just kind of tell me a little bit about what that environment looks like who other players in this space are.
00:29:51.440 --> 00:29:51.920
Sure.
00:29:51.920 --> 00:30:18.480
So think uh investment bankers uh private equity uh managers uh lawyers uh these are all people that we have connections with so if you were if you have a business that you're looking to market and you don't know where to start if you start with us we can we can send you some options for others to talk to who can also help and and then you know who knows where it might go from there.
00:30:18.480 --> 00:30:45.839
But sure you know investment bankers are are typically selling private equity guys are typically buying um and we have connections within those worlds from doing this work and um you know happy to point people where they need to go to to get the best offer they can so that could probably be one of my first conversations with you then is just help educate me on this process.
00:30:46.000 --> 00:30:47.279
What does this look like?
00:30:47.279 --> 00:30:59.279
What are the series of steps that are in my future what are considerations I need to have in mind and maybe try and surface earlier rather than later but also just you know who are the different people who are going to be in my world in the in the near future.
00:31:00.160 --> 00:31:00.880
That's right.
00:31:01.119 --> 00:31:06.880
Well well Ryan I have really enjoyed this discussion I appreciate you joining me on the microphone today.
00:31:06.880 --> 00:31:17.759
And I will ask one more favor from you before I let you go and that's just kind of any final takeaways you have for our listeners just kind of one last thing for the for them to keep top of mind as they're leaving this conversation.
00:31:18.319 --> 00:31:27.119
Yeah that that's just pick up the phone and give me a call give us a call um we're not going to charge you to talk to you for 15 minutes.
00:31:27.119 --> 00:31:47.039
We're we want to help we want to be more than just you know guys who crunch numbers and we are I mean we have personalities we want to talk to you um and learn what's going on with you and you know I think you could learn a lot in 15 minutes just a quick conversation and it doesn't have to go anywhere.
00:31:47.039 --> 00:31:54.079
You know it it it's just a an opportunity to learn something and to set yourself on the right path.
00:31:54.079 --> 00:32:06.319
You know we're not gonna uncover all of your problems and solve everything right away but uh you know we're here to help I I love that as a takeaway this is what we do this is what we enjoy.
00:32:06.400 --> 00:32:18.799
We would appreciate the phone call to talk you through your goals your thoughts your objectives and kind of you know what the future could hold for you and just give you some some more context around the environment and what to expect and kind of what next steps would look like.
00:32:19.039 --> 00:32:23.519
Exactly we we like this we're not you know it's not it's not a bother to talk to you.
00:32:23.599 --> 00:32:41.680
It's exciting well Ryan thank you again for joining me and to our audience also thank you for joining in if you have any fault questions about the business discussions we had today or any other business challenges you're navigating please don't hesitate to contact us at mjcpa.com
