Recently, we had the pleasure of doing a crossover podcast episode with Rob Brown from the Inside Public Accounting podcast. We discussed the current landscape of accounting practice M&A, the influx of private equity, and what firm owners need to consider before making the decision to sell.
Poe Group has been in M&A since 2003, and this is undoubtedly one of the most exciting and frenetic periods we’ve observed. What we are seeing now is that the hardest decision isn’t whether to sell though, it’s when. And the answer isn’t just about market timing, but whether time has become more valuable to you than money.
Listen to the episode for insight into:
- Private Equity M&A Interest
- Understanding PE offers
- Timing Your Exit: Time vs. Money
- When to Use Burnout as a Signal to Fix, Not Sell
- What Modern Buyers Want
- The Magic of the $5 Million Revenue Mark
- Why Pruning Your Practice is Crucial for Growth
Here are the key takeaways from Rob and Brannon’s conversation:
The Private Equity Boom and the “Headline Offer”: Private equity is making massive waves in our profession, and it’s easy to see why. The accounting industry checks all the boxes for PE investors: recurring revenue, a highly fragmented market, and, frankly, a historically slow adoption of technology and optimized management systems. When PE brings scale to these entities, they become more stable, predictable, and ultimately more valuable.
But if you’re a firm owner fielding calls from PE, a word of caution: beware the “headline offer”. In this episode, we compare these to NFL player contracts. You hear about an amazing $50 million deal, but when you read the fine print, the guaranteed money at signing is a fraction of that, with the rest tied to highly conditional metrics. It’s no different in the private equity world. The headline offer might sound incredible, but if you don’t slow down and truly assess the fit, you could be setting yourself up for a bad situation.
When is the Right Time to Sell?: One of the hardest decisions a firm owner faces is timing their exit. When is the perfect time? As Rob Brown joked on the episode, it’s like having children,there’s never a perfect time.
While market conditions are exceptionally strong right now, the reality is that exiting isn’t strictly a financial decision. Ultimately, it boils down to your time. If you’re approaching retirement age and you keep working, you’ll probably continue to make more money. But eventually, you reach a point where your time becomes more valuable than your money. When you have enough financial security and you’re ready to spend your time living instead of working, that’s when it’s time to exit.
What Do Buyers Want Today?: Twenty years ago, we would see firms where the owner worked an unsustainable 3,500 hours a year. Buyers back then would notice, but it wouldn’t stop them from pursuing the practice. Today? Many buyers won’t even look at that firm because it’s way too owner-dependent.
Modern buyers,especially PE consolidators, are looking for highly profitable firms with great client bases and owners who aren’t working crazy hours. Furthermore, in an industry where finding top talent remains a persistent challenge, buyers are increasingly putting the emphasis on acquiring strong, capable teams over just buying a client list.
Sell, or Just Start Pruning?: Burnout is incredibly common right now. We’ve seen many firm owners go down the path of exploring a sale only to realize they don’t necessarily want to exit, they just need to fix their firm so they aren’t working so many hours.
We’re constantly shocked by the vast differences in profitability and operations across the CPA firms we work with. One of the most common issues is a simple lack of focus. Firms try to be everything to everyone: tax, audit, litigation support, wealth management, you name it.
Organic growth left unchecked is like an untended garden,you’re going to get weeds. If you want to improve your practice, the process is often counterintuitive: you have to start by pruning. Cut away the things that need to go away from your practice so the rest of it can grow and thrive.
Final Thoughts: If we could offer one guiding call to arms for accountants looking to succeed and thrive in this market, it’s this: Boundaries are your friend. Set firm boundaries around your time and your pricing. It will make you more profitable, drastically improve your quality of life, and ultimately make your firm much more attractive to buyers when the time is right.
To hear the full conversation, tune in to the latest episode of the Accountant’s Flight Plan podcast or catch us on the Inside Public Accounting podcast.
Key Timestamps:
00:00 – Introduction: Crossover episode announcement
02:07 – State of CPA firm M&A: Private equity’s explosive growth since 2002
04:16 – Why accounting ticks all the boxes for PE (recurring revenue, fragmentation, optimization opportunity)
06:09 – How hard is it to stay independent? The temptation of capital infusion
07:13 – The “headline offer” trap (like NFL contracts, read the fine print)
08:33 – Why most PE deals don’t work (and many never close)
10:08 – Distressed sales vs. strategic exits: sellers have more options than ever
11:17 – Difference between PE-backed firms and traditional CPA buyers
13:20 – Why PE deals are more complex (legal structures must be bankable for future leverage)
15:25 – Signals for when to sell: it’s about time, not money
17:09 – The retirement math: you’ll always be better off financially if you keep working, so when do you stop?
18:03 – Mid-career exits: elevating your role vs. escaping operational burden
19:27 – Burnout as a signal to fix, not sell
21:17 – What buyers want: profitability, teams, low owner dependency
22:39 – IPA data: 21% of firms merged last year, 35% of firms over $30M
24:04 – Systems lead to results (higher profit, less owner dependency)
25:06 – Is there a “too small to merge” threshold?
26:29 – The magic of $5 million revenue: escape velocity from the weeds
28:17 – Practical advice: get partner alignment first, then optimize
30:28 – The focus problem: trying to be everything to everybody kills profitability
31:26 – Pruning before growing: start by removing what doesn’t belong
Transcript
Disclaimer: The following is an unedited transcription of the episode and has not been combed for errors.
00:00:00:05 – 00:00:15:01
Unknown
I’m Brandon Poe, and this is the county’s Flight Plan podcast, where you can enjoy engaging conversations about mergers and acquisitions and accounting practice management. Listen in on strategies to build a more fun and valuable accounting firm.
00:00:15:03 – 00:00:36:11
Unknown
It’s podcast time. I’m Rob Brown with the Inside Public Accounting podcast all to have with me today, Brennan Polk from the Accountants Flight Plan podcast. Good day to you, Brennan. Hi, Rob. Good to see you. It is good to from across the pond, we’re doing a dual joint crossover episode. Salt Lake city were breaking new ground. Brennan. I’m going to celebrate about our show in a moment, but tell us about your accounts.
00:00:36:11 – 00:01:05:18
Unknown
It’s like plan podcast. Yeah. So we’ve had this podcast for, gosh, I think we started it in 2011 or 2012 somewhere long time ago. And we really run the gamut. You know, our main business is mergers and acquisitions. So we do have a lot of conversations around that. But I find that, a lot of my conversations are really more about practice management because most of the people who are selling really need to think about how to optimize their firms.
00:01:05:18 – 00:01:31:01
Unknown
So a lot of our, a lot of our content is around optimization. I’m also really interested in entrepreneurial community. So I bring people in outside of the industry, kind of infuse some of those, just entrepreneurial, topics and bring them to the accounting profession. Yeah, but our regular audience will know. Chelsea Summers, executive director of Insight Public Accounting.
00:01:31:01 – 00:01:48:05
Unknown
Chelsea and I host a show and we deep dive on the excellent research that they do, like the IPA 500 and the Rosenberg seven. We look at the bigger picture. You’re a little bit more in the weeds and exactly what works, but Chelsea’s really good at drawing out the stats and the facts, and we look at the stories behind those and what it all means.
00:01:48:05 – 00:02:07:16
Unknown
So this is new ground, this is brand new, and we’ve got a few topics that we’re going to have a conversation with Brandon today. We and we’re going to start with the state of CPA firm M&A. You are uniquely qualified to talk about this. So give us a sense of the landscape right now because there’s a lot happening isn’t there?
00:02:07:19 – 00:02:35:15
Unknown
Is I actually just went to a Harvard Business School conference on private equity in Boston. Now a couple of weeks ago I wrote a blog post about it. But, it’s an interesting time. It’s really I’ve been in M&A since 2003, and this is probably one of the most exciting periods of, M&A in this industry that I observe.
00:02:35:17 – 00:02:54:14
Unknown
Exciting. Do you mean frenetic and absolutely crazy? And so it’s a little it’s a little crazy. It is. And, you know, hindsight’s 2020 to see this coming. I feel like what has happened is the accounting industry has not.
00:02:54:16 – 00:03:27:13
Unknown
Changed itself very rapidly. I think the accounting industry is historically slow to change, slow to adopt new ideas. And now you’ve got private equity, which is a growing just. Private markets in general are growing. Well, that was one of the themes of the conference that I just went to is, you know, from about 2002, the amount of private equity in the economy in the United States has grown.
00:03:27:15 – 00:03:53:16
Unknown
Exponentially. And it continues to become a larger and larger share of investments and people’s, you know, in total capital invested. And there’s less public, there’s less companies going public now, due to various regulations and things like that. So it’s sort of, put a lot of capital into the private markets, which are finding its way into all sorts of different industries.
00:03:53:16 – 00:04:16:09
Unknown
And that’s what we’re experiencing in the accounting industry. Yeah. And I think what’s really kind of where the stars have lined up for private equity in our industry is we’re kind of like, we kind of ticks all the boxes for them. We’ve got, recurring revenue. We’ve got kind of a slower adoption of technology and good management systems.
00:04:16:14 – 00:04:46:07
Unknown
A lot of firms are, not optimized, and there’s a lot of small, fragmented. It’s a small, fragmented market. So, there’s just a lot of opportunity when you when you add scale, the entities become more stable. They become more predictable, and they become more valuable. And so that’s the whole reason for the private equity, interest in this is because they can, you know, they can grow.
00:04:46:07 – 00:05:09:01
Unknown
They can grow through acquisition roll up. It’s just a very traditional roll up strategy. Roll these firms up. You have a bigger, more predictable, more valuable entity. As they get larger, the multiples get higher. So that’s the that’s the benefit to the consolidators is they can, kind of buy low and sell high. That’s the that’s the name of the game.
00:05:09:02 – 00:05:36:03
Unknown
It’s a recurring theme on our shows where we talk about how disrupted probably equity is, but, how pervasive it is because it is everywhere that the top 30 firms have either taken or are having private equity conversations. And, the RPA do the IPO 500. And there’s so much moving around and firms getting bigger. And these all the M&A stuff is changing the landscape of accounting.
00:05:36:05 – 00:05:49:09
Unknown
Well, you’ve talked a little bit about the drivers, which is making people merge buy or sell. How much harder is it these days for firms to stay independent and resist the temptation of the dollar?
00:05:49:11 – 00:06:09:05
Unknown
Well, I don’t know. That’s a great question. I think because there’s a lot to be said for that injection of capital, isn’t it? It releases the partners from the equity bind. It allows succession in the firm. It makes them probably, a lot more able to buy great technology and attract best talent with the salaries that they’re able to afford.
00:06:09:05 – 00:06:43:21
Unknown
So it does do a lot for a firm. It does. I do think there’s definitely a trade off, though. And yes, lose control, lose, some of that kind of family feeling that some firms are proud to, to have. And, I think, I don’t know how you resist the temptation. I wouldn’t, you know, I think if someone wants to exit and the they find the right fit from a private equity firm, then that can be a good solution for them.
00:06:44:01 – 00:07:13:13
Unknown
If, they don’t find a right fit, whether it’s a private equity firm or any other buyer, they’re going to be problems with the, transition and the problems, potentially with how the firm operates after that closing. I think the fit is really maybe even more important when you’re looking at different private equity firms. And I think that’s the I see a lot of firms, they get tempted by what I call the headline offer.
00:07:13:15 – 00:07:39:05
Unknown
You know. And the headline offer sounds amazing. It’s it’s not unlike an NFL players headline offer. And you hear about these these amazing $50 million contracts. And then when you read the fine print it’s like, oh, but they only get like 2 million at signing. And then all the other the rest of the money is very conditional on certain metrics which may or may not be achievable.
00:07:39:07 – 00:08:09:18
Unknown
It’s no different with private equity. So some of the headline offers might be enticing, but I think the danger is if you go too fast and you don’t really slow down and assess the fit well and you just go right into negotiating mode, you can you can have a bad fit. Yeah. Well, I was speaking to somebody yesterday was a former leader of, one of the big global networks associations.
00:08:09:18 – 00:08:33:03
Unknown
And they said to me, most PE deals don’t work. Now, I don’t know. He’s evidence behind that, but there’s so many ways to define whether it’s worked or not. And which parties has it worked for? Because there’s a few different stakeholders in the deal, isn’t there? And he says it’s the same for M&A. There’s so many people moving at speed to put deals together, and you can only do so much due diligence.
00:08:33:03 – 00:08:52:07
Unknown
And it’s truly hard to gauge things like culture at the softer stuff. You can’t put a price on that and you’ve smushed two brands together, like putting Coca-Cola with Panda Pops or something like that. I don’t think you have time to Pop’s over the pond, but it’s the small mom and pop type operation. You put those two cultures together and you’re in for trouble.
00:08:52:07 – 00:09:21:18
Unknown
So there’s a lot at stake here. Isn’t the brand? There is. And, I think I just see a lot of firm owners get enticed into a discussion with a headline offer. To your point about not deals not working, a lot of them never make it to the finish line. True, though. Yes. Because sometimes it just becomes apparent when you’re dealing with someone that this is not going to work.
00:09:21:18 – 00:09:49:02
Unknown
Like, you just feel like, okay, the way they made that decision, I would never make that decision or the way they treat their team. I would not treat my team this way or whatever it might be. Those things do get revealed sometimes in the off and the deals don’t go through. And what we see a lot of times with, with PE firms is, you know, they’ll put out multiple letters of intent, but the ratio of the ones they close is pretty low.
00:09:49:04 – 00:10:08:04
Unknown
There’s an aspect to branding, isn’t there? A very what they call a distressed sale where the buyer is sorry. The seller is a very motivated to get out. 95% of CPAs are also close to retirement age. So this this whole swathe of people at the top end that need to divest themselves of their firm, they want to offload.
00:10:08:04 – 00:10:32:06
Unknown
They they’re not selling it to the staff. Well, they can’t there’s no other offers on the table. So they are really open to any kind of deal that’s put to them, whether it’s a good fit or no. And I think that that might be, I would sort of challenge that perception, because that’s kind of the value that we play in the marketplace is we give people a lot of choices and a lot of options to buyers.
00:10:32:08 – 00:10:56:22
Unknown
Yeah. And I think that’s fundamentally the value that we bring. And, you know, coupled that with the guidance of helping make those choices, I think people actually have a lot of options. The market’s very strong. If you’re a seller, you’re in a pretty good position right now for the most part. Now that markets vary and practice quality is important and you know there are things to consider there.
00:10:56:22 – 00:11:17:14
Unknown
It’s nuanced. But, in general, it’s a pretty strong market. If you own a firm and you want to exit, I would say you have more options now than you’ve ever had. Yeah, that seems to be the case. Tell us the difference between taking an offer from a private equity company and taking an offer for another accounting firm.
00:11:17:16 – 00:11:40:19
Unknown
Well, sometimes that can be that that water can be a little muddy, too, because, sometimes the you there are a lot of CPA firms that have private equity backed. Yeah. There isn’t that can be the same buyer couldn’t it really. So yeah. So they’re they’re they have a capital infusion and they’re making acquisitions. But they’re still a CPA firm.
00:11:40:21 – 00:12:09:06
Unknown
And they operate the way CPA firm operates. And they have that that experience in that history. And those can be really quite good buyers for people. Whereas, you know, just someone pursuing a roll up strategy. And it hasn’t been doing this for very long, that’s a little different, flavor of private equity. So, but, you know, we have all sorts of buyers.
00:12:09:07 – 00:12:42:22
Unknown
There’s still a lot of buyers in the marketplace there, still individual buyers in the marketplace. There are other firms that are not PE backed. And then you’ve got, the two that we spoke about like a pure PE firms or family offices and then the, the CPA, we’re back. But I would encourage encourage our clients, talk to everybody like talk to anybody that you that you know, has serious interest in your practice and has the experience and you feel like can run the practice, talk to all of them.
00:12:43:00 – 00:13:20:03
Unknown
The difference there is a difference in the dealmaking. Pretty, pretty big difference in the dealmaking. I wanted to ask you if there’s any thing that’s misunderstood about, say, private equity backed transactions, that there’s a lot maybe the doubters don’t know whether my experience has been they are more complex because and and almost you know, if you think about if you put yourself in the shoes of the private equity or the family office, their intent is to create, a pretty large entity that they’re eventually probably going to sell to a larger buyer at some point.
00:13:20:03 – 00:13:53:13
Unknown
So, all of their legal work, has to stand up to investor scrutiny, and it has to be, has to be bankable. So a lot of the times, the strategy is, you know, they’re going to they’re going to buy these firms, but then they’re going to leverage them later on or leverage the entity later on. So, you know, when they go to apply for financing, everything’s got to be very orderly in terms of the paperwork and the structures.
00:13:53:15 – 00:14:16:14
Unknown
So that creates some complexity that you just don’t have with individual buyers or traditional firm buyers. I spoke to a lady called Lucy Cohn recently. She is the first owner of 1 million pound firm here in the UK. She’s now president of the at the Association of the County Technicians. Very colorful character, very vibrant and edgy is Lucy.
00:14:16:16 – 00:14:39:13
Unknown
She has private equity money behind her firm, Mazuma. And she talked about how intense the process was and all the due diligence that was done by the firm and all the metrics they wanted on the firms that need to fill in now, she said it was exhausting. Do you get feedback like that from some of the people you’re working with?
00:14:39:15 – 00:15:03:14
Unknown
Yeah it is. It is definitely a more complex process. And and it’s not, you know, we we try to simplify it. Yeah. I have had I have had PE firms buy from us on really relatively simple contracts. Okay. When they’re in a again, it’s that competitive process like, they don’t want you to have competition.
00:15:03:14 – 00:15:25:08
Unknown
They don’t want you to have backup offers. But if you do, if you do, not only can you get a better deal, but you can make sure you don’t get pulled around during that process as much. You know, that makes sense. Talk to us about some of the, signals. Knowing when to sell the there’s internal signals and external signals that you speak a lot about.
00:15:25:08 – 00:15:54:13
Unknown
Brennan. I think the timing is the hardest decision people have to make is when time when is it time to sell? Like when to have children? There’s never a perfect time to have children. That’s a good. Yeah. I’ve never heard that analogy. Rob. That is really good. That is awesome. I think it’s, you know, but then if signals brand or not that there are signals when the time is more preferential than other times, well, the market’s good.
00:15:54:13 – 00:16:22:21
Unknown
The market is one thing. But what I’ve learned is selling is not about just getting top dollar. Selling is about your time basically. So, what I mean by that is either you want to spend your time living, you know, if you’re if you’re at retirement age, it really boils down to time, because if you keep working, you’re probably going to make more money, right?
00:16:22:23 – 00:16:46:10
Unknown
Even in this phase right now the market’s good, but the market probably be good in 2 or 3 years from now too. So every seller’s going to have to do that math of like, okay, yeah, I could sell now and exit for X, but if I, if I work two more years and still sell for X plus, well gosh, I’m financially I’m better off.
00:16:46:12 – 00:17:09:03
Unknown
And if you keep doing that math all the way out, you’re probably always going to be better off if you keep working financially. So that’s why I say like financially, this is not exiting is not necessarily a financial decision unless you’ve got a bigger opportunity. So I think there’s opportunity cost and and whether you’re working or not, there’s opportunity cost, right.
00:17:09:05 – 00:17:35:12
Unknown
If you’re retirement, if you’re retiring, your time becomes way more important than the money that you have. Right. And so when when you’ve reached that point of I have enough money and now time is more important to me than money. It’s time to exit, right? That’s really it. When someone’s retired leaving for retirement, that is the ultimately the decision they have to come to grips with.
00:17:35:13 – 00:18:03:07
Unknown
Now, if someone’s younger and they still have a lot of career left and they still want to work, and they’re not really trying to go travel the world and play golf every day. Then that’s a different decision. And that’s, hey, what do I want to do with my career spending time? And so either they have an entrepreneurial venture they want to go after we’ve had clients like that, or they really want to elevate their role.
00:18:03:09 – 00:18:30:11
Unknown
And private equity can be a really good solution for those people. If, hey, I’m good at I’m good at getting new business, I’m good at growing, but gosh, this operational stuff is just killing me. I get pulled back into the weeds. I can’t escape the weeds. Like to have an equity can be great for that because you get immediate support and you can get, a really an elevated role in the firm.
00:18:30:16 – 00:18:53:16
Unknown
So you know that I hope that sort of answered that question. It’s it does. Yeah. And Chelsea and I have spoken on the example book accounting podcast about those red flags or signals or green lights, for instance, if your firm has a good succession in place and you’re ready to move on, that’s a good signal. If you’re feeling burnt out as the owner of the family, you’ve come to the end of the road.
00:18:53:16 – 00:19:24:15
Unknown
That’s something plateau growth as well. You’ve seen firms start to level out. They’ve taken it as far as they can go. That’s a signal. Or they may be dependent on 1 or 2 clients on one of two markets wanted two niches and they can’t expand beyond that. Or maybe even competition pressure. There’s too many of the players coming into the market, and the owners are thinking, well, there’s enough now, so there’s plenty of signs that you should be looking at selling your firm, putting it on the market out there.
00:19:24:15 – 00:19:27:19
Unknown
Would you add anything to that?
00:19:27:20 – 00:19:48:00
Unknown
I think I think, the only thing I would say is like burnout is really common. Yes. And I’ve seen a lot of people go down the path of exploring and exit to realize like, oh, I just really need to fix my firm. You know, I need to I need to get it to where I’m not working so many hours.
00:19:48:00 – 00:20:11:20
Unknown
I need to get, it needs an overhaul. And I think a lot of firms need an overhaul, which is why private equity sees so much opportunity. Because they see a lot of firms that can be improved. And I would challenge that. Gosh, just about any firm could be improved, right. But as you say, it’s a lifestyle thing isn’t it?
00:20:11:20 – 00:20:34:07
Unknown
There are so many, aspects that point to mental health and stress and overload and pressure and it’s a different game brand. And now to what it was 20, 30 years ago. It is. But I think I think a lot of those things are easier to fix than people realize. I guess working too many hours, you can fix that if you’re not making enough money in your practice, that can be fixed.
00:20:34:09 – 00:20:54:11
Unknown
Now, it’s not going to be fixed if you keep doing what you’ve always been doing, you’ve got to change. And, some people have to get to that point of burnout and looking an exit for they realize, like, man, I really just need to change. Talk to us about what buyers want right now. Different buyers want different things.
00:20:54:13 – 00:21:17:07
Unknown
In general, like the most attractive firms are profitable. You know, they’re they’re making a good margin, have good client bases, and owners are not working too much. That’s really, you know, it’s funny, 20 years ago.
00:21:17:09 – 00:21:44:07
Unknown
I would find a firm where a seller was working crazy hours, you know? Yeah. I’ve seen people work over 30, 500 hours a year, which I didn’t even know there were that many hours in the year. That’s unsustainable, isn’t it? Yeah. It’s nonsense. Damn. But 20 years ago, buyers wouldn’t. They would notice, but it wouldn’t prevent them from pursuing that practice.
00:21:44:07 – 00:22:14:15
Unknown
Nowadays, a lot of buyers will just won’t even look at that firm because it’s way too owner dependent. Yeah, dependency risks. So I think, yeah I think that’s a, that that’s something that buyers are more in tune with. They’re also looking for teams. I think a lot of the, especially the private equity consolidators are more interested in the team than they are the client base.
00:22:14:17 – 00:22:39:17
Unknown
You know, finding really good people is difficult in this industry, and it’s been a challenge for a number of years. So, you know, we’re seeing a lot more emphasis put on teams. Yeah. Just looking at some of the statistics from the inside. Public Accounting Practice management report came out last year, 21% of firms branded the participated in the survey have completed at least one merger in the past year.
00:22:39:19 – 00:22:49:07
Unknown
That’s 21%. And for firms over 30 million in revenue, that jumps to 35%. A third of firms have taken a do.
00:22:49:09 – 00:23:12:13
Unknown
This so many. There’s so many reasons for that, as you hinted. But in the age of efficiency and technology was seen a lot more desirable firms that have some kind of operational readiness. And they’ve got, developing a good advisory mix. That’s something else in the plan. They’ve got some kind of specialization, as you said, they’ve got a good team or a good leadership bench.
00:23:12:15 – 00:23:32:21
Unknown
And the digitized as well listed, the technology is absorbed and integrated. So there are signs there. And a lot more firms have been able to compete that way, which is why nearly every firm is growing. Now we could have an argument about whether that’s the right kind of growth and at what expense, because you could just take on more clients and end up being a busy fool.
00:23:32:21 – 00:24:04:04
Unknown
Can’t you put that right kind of predictable, process driven, firm with good growth. They’re going to attract the best valuations. Yes, I would agree with pretty much everything you just said. That’s that’s true. But you know, buyers, buyers. What I find is the systems are not necessarily the primary thought, like the systems and processes aren’t the primary thought, but they lead to the results that I was speaking of.
00:24:04:04 – 00:24:46:19
Unknown
Like they lead to that higher, profitable, less owner dependent firm. So in order to get those things, you kind of have to have those processes and systems in place that are working. I think the hardest thing to, to kind of change out is like the client base itself. If you’ve got really good clients, if you’ve got a curated high quality client base that pays good fees, like that’s that’s to me is a slower or harder thing to build than the systems and processes and even even then, the team like it takes time to, to build this really great curated client list.
00:24:46:19 – 00:25:06:07
Unknown
So I’m just wondering that the biggest thing last year, obviously, was the headline Baker Tilly Moss Adams merger at 7 billion, to create the sixth largest firm in the US that was announced in April. So we learned from that that no firms are too big to merge. Is there a a number at the bottom end brand? Brandon tells us no.
00:25:06:07 – 00:25:38:04
Unknown
Firms are too small to merge before people. Oh, gosh. I never, contemplated that question before. So it’s interesting question. We don’t see a lot of mergers kind of in the smaller like under 5 million range. So, there’s a cutoff, isn’t there? I don’t know why that is. I think I think there’s a tendency if you’re that size, like, let’s say you have a 2.5 million revenue firm annual revenue.
00:25:38:06 – 00:26:08:19
Unknown
One thing I’ve seen work well is if you’re, you know, let’s say you’ve got younger leadership team. They want to grow. It’s a hard place to grow from. Two and a half to 5 million is is kind of a difficult place to be. Yes. But so making an acquisition of equal size is a great way to, you know, to quickly, elevate the practice.
00:26:08:20 – 00:26:29:19
Unknown
It was seeing so many fans on the consolidation trail. Right now, they’re just mopping up other firms. And it’s a great way to drive growth. It is because it it gives you just kind of an instant benefit that scale. You don’t have to go through that difficult period of time to, you know, go on from two and a half to 5 million.
00:26:29:19 – 00:26:53:09
Unknown
Building it organically can be really tough getting the right team, because what happens is, you never get that escape velocity. If you’re a partner in that firm, you know, you might grow and then you lose a tax manager or you, you lose a team member, and then you get pulled back down into the weeds. And then your growth kind of stalls because you can’t focus on growth.
00:26:53:09 – 00:27:10:07
Unknown
You’re focusing on getting the work out. The door again. We see some firms too, that don’t know whether they want to be buyers or sellers. If they’re a midsize firm, they can be in both markets, can’t they? They can. I mean, at some point they got to decide the. Right. So exactly. You got to pick a lane. Yeah.
00:27:10:09 – 00:27:24:12
Unknown
But you know, it can be a very strategic thing to acquire if you’re a smaller firm to make that acquisition, because there’s something somewhat magical when you get to 5 million.
00:27:24:14 – 00:27:43:03
Unknown
As if, let’s say, you know, you have a small firm. And at that point, if you’re at 5 million and you lose a tax manager, well, you can just spread the work around. And until you find some more help, it’s not really going to slow you down. And as a partner or an owner, you’re not going to get pulled back down into that role.
00:27:43:05 – 00:27:53:14
Unknown
Yeah. Let’s give some practical advice to firm owners. What should firms start doing today? Brannan in this crazy market?
00:27:53:16 – 00:28:17:14
Unknown
If they want to sell or get ready for a sale, give us a give us an angle on both. Okay, so, I think I think it’s smart to really take stock of where your firm is and, and take stock of the motivation of each of the partners is like, why do you want to do something? Who wants to exit?
00:28:17:14 – 00:28:41:05
Unknown
You know, I think there are there are a lot of situations where partners are not aligned. So you have to get that partner alignment and the exit timetables are not often quite aligned. You know, it’s it’s very common for one partner to be older and want to exit and the other partner or partners don’t want to exit. So I think getting that alignment first is really important.
00:28:41:05 – 00:29:15:17
Unknown
If you want to exit, and also, you know, so determining your time, your ideal time frame is important. And you know, forget the market for for a minute. Right. Just I think, I think you have to look internally and make sure it’s the decision that’s right for you and right for your firm. And if you’ve got time, if you say, okay, we got three years before we really want to exit or we got a year or two, whatever it is, then you can sort of say, okay, how do we optimize?
00:29:15:19 – 00:29:57:03
Unknown
Right? What do we need to do to really position ourselves well? What can we clean up? And that’s a different answer for different firms. Some people have I mean firms, that’s the one thing. And I’ll say we’ve seen, you know, I don’t know how many profit loss statements I’ve seen from different CPA firms over the past 25 years, but I’m always shocked at the variety of success and firms, the variety of the experience of ownership, whether that be profitability, owner, freedom, owner, lack of freedom, there’s just so much variety.
00:29:57:05 – 00:30:28:00
Unknown
Like there. They’re they’re not they’re being operated very, very, very differently. They run the gamut. So I think, you know, if you’re kind of underperforming, the what’s your problem? You got to diagnose it. Is it and, and there are some common ones like one things I see that’s really common is firms just aren’t focused, meaning they’re trying to be everything to everybody.
00:30:28:01 – 00:31:03:21
Unknown
And that’s usually not a formula for good profitability. You know I see firms that okay we’ve got this tax work and then we’re doing audit work and then we’re over here doing litigation support. And oh by the way, we’re also your wealth management. Outfit. And also we do, you know, peer review. I mean, it’s like you do your website as well, if you want to rebrand, it’s, you know, so, so a lot of people, they just need to they need to focus because.
00:31:04:02 – 00:31:26:12
Unknown
Because organic growth, if you just leave it to, to nature, you’re going to have weeds in your garden, you know? Yeah. And I think a lot of the time, what I see if you’re if someone’s going through a, an improvement process, it’s counterintuitive. But often you have to start by pruning the things that need to go away from the practice.
00:31:26:13 – 00:31:50:05
Unknown
That’s just gardening. 101, isn’t it? You got to prune to grow. You got to start pruning. So I completely understand. Well, you listen to a, crossover episode with Brannon pulling the account. His Flight Plan podcast, and, me, Rob Brown, and, my absent co-host Chelsea Simmons. We host the Inside Public Accounting podcast. We’ve been talking today about the private equity world and mergers and acquisitions in the world of counting.
00:31:50:07 – 00:32:08:14
Unknown
And if people want to find out more about you podcast and the kind of things you talk about, where would they go? The best way is to just go to our website, which is pod Group advisors.com, and you’ll find a podcast page there. You can also find our podcast on YouTube and all the major platforms. And what will they find when they get there?
00:32:08:14 – 00:32:32:01
Unknown
What kind of stuff are you putting out? Well, gosh, you know, I, I talk about all kinds of stuff on our podcast. You’ll find stuff from entrepreneurs outside of the profession, discussions about M&A and a lot of discussions about practice improvement and optimization. Haven’t we just chastised accountants for trying to do too much and all these different service lands?
00:32:32:01 – 00:32:54:02
Unknown
And then you tell me you’ll found everything on our podcast. Yeah. For everybody. I know that. That’s, Yeah. It’s, I’m I’m not taking my own medicine. I probably should stream on it, but that’s okay. We call it diversifying that way. And covering a few bases that that’s great too. Well, the Inside Public Accounting podcast is entitled The gardening.com and on all of you podcast channels as well.
00:32:54:03 – 00:33:15:03
Unknown
We look at the accounting landscape and the statistics and the facts and what the good fans are doing to become great fans and what makes the the best practice in finance really, really work well. Very big. Two on transparency of leadership, both in the accounting profession and the brand of accounting, but also in in leadership, people at the top of firms, because we know that there could be an immediate problem in accounting.
00:33:15:03 – 00:33:31:14
Unknown
We talked a lot about talent on our show and how firms are changing. So let’s all make it a better world for accounting. Brennan Paul, thank you so much for joining us today. We’ll be appearing on your show and you will be appearing on our. So our viewers, listeners will have a double chance to get a listen to this.
00:33:31:14 – 00:34:08:05
Unknown
Thank you so much for joining us today, Brian, just to leave the audience here, what’s the one word of advice you would give us? The call to arms for accountants out there to really succeed and thrive. Boundaries are your friend. Boundaries around your time, boundaries around your pricing boundaries. That’s very profound. I drop into the P to that one’s to, to that personal brand, which might not seem significant in the grand scheme of things, but I’m always encouraging accountants to think a little bit more about their personal reputation and their network and how they show up.
00:34:08:05 – 00:34:27:23
Unknown
And so they’ve got a voice, they’ve got some influence, they’ve got some authority, they’ve got more cachet to make good decisions and they’ve got more leverage in their career in the marketplace. I’d say that’s really important as well. It’s been a pleasure, Brennan. And, in Breaking New Ground, we have given our audience some good things to think about.
00:34:27:23 – 00:34:30:11
Unknown
We’ll see you next time. Thank you. Rob.
00:34:30:13 – 01:25:33:01
Unknown
Thanks for listening to the Accountant’s Flight Plan podcast. You can keep the momentum going by subscribing and sharing your thoughts with us. Visit our website at o group advisors.com for more resources, and tune in next time for more exciting conversations like this one. This podcast was produced and edited by Liesl Eppes of her group advisors. Thanks for listening.
