SPEAKER_00 0:00

So I don't care who you are, who you're merging with, I don't care if you're buying your best friend's business or your mom's business. You need to make sure that you have evaluation done so you don't overpay. And that's a really easy way to bankrupt your business. Jet?

SPEAKER_02 0:19

Harrow?

SPEAKER_00 0:20

Business?

SPEAKER_02 0:20

Handort.

SPEAKER_00 0:21

Let's get into it.

SPEAKER_02 0:22

Let's get into it. Let's get into it. Let's get into it. So uh we are thinking of starting an outer practice.

SPEAKER_00 0:33

We are, we are.

SPEAKER_02 0:34

Yes.

SPEAKER_00 0:34

So are we starting it? Are we buying it?

SPEAKER_02 0:37

Uh we have to figure that out. We need to figure out if we find the right feed to buy, or if we build it internally and bring a manager, a principal that can run with it and help us uh grow it.

SPEAKER_00 0:54

So it'll be white glove auditing.

SPEAKER_02 0:56

Yeah. I guess it's just an air service line. We're not going to change the name for it, but we're going to have assurance.

SPEAKER_00 1:03

We need a different entity for it though.

SPEAKER_02 1:05

We sure do. We sure do. How did how do you learn about that?

SPEAKER_00 1:09

I I'm not done.

SPEAKER_02 1:10

You're not done. What do you say?

SPEAKER_00 1:12

No, hey, you know what I did yesterday? What do you do? Before I worked on their podcast stuff.

SPEAKER_02 1:17

Yeah.

SPEAKER_00 1:18

I went down the biggest rabbit hole of audit firms in the whole US.

SPEAKER_02 1:23

Tell me awesome.

SPEAKER_00 1:24

I mean, I was finding all the small practice audit firms, learning about the owners. So some there's somebody in Idaho right now, and I've I'm like, I've looked at your profile picture on Facebook. Like, I know all about you when you started your audit firm. All of it. But I've been working really hard on that yesterday because that's a huge goal of mine. I want to get it done by September.

SPEAKER_02 1:47

We are going to do it. Let's make it happen.

SPEAKER_00 1:48

I want to close on it by September.

SPEAKER_02 1:50

Let's make it happen.

SPEAKER_00 1:51

So if you're listening and you own an audit practice, or maybe you um are a CPA with audit experience and want to build out an audit practice, come have a chat.

SPEAKER_02 2:03

Yes, and then I'm going to style after Le Pro 15, let's make that happen. And then I will treat you.

SPEAKER_00 2:09

I want to close in September. I need someone who's willing to stay for three to six months. Transition period. Yeah. I'll make it worth your while. We'll make it worth your while, lucrative. Yes. Um, we're a good time to hang around with. Yes. Also celebrate group. We'll bring you on the podcast.

SPEAKER_02 2:26

Yes. Have a little a lot of fun stuff.

SPEAKER_00 2:29

Bring you on the pod.

SPEAKER_02 2:30

Yes. So you wanna you wanna talk about uh you know, then let's make this episode about merger and acquisition.

SPEAKER_00 2:38

All right, let's talk about merger acquisition. So buying and selling a business sounds like big, like it sounds like a big deal, right? Yes, that's because it is, but it doesn't have to always be so big and so complex.

SPEAKER_02 2:54

Yes, and we have gone through one.

SPEAKER_00 2:56

We did, we did. We merged last May, officially merged last May. So we understood it, and we can talk about that a little bit. So how we did it was one, like it was a discovery phase, and we kind of worked together before, and we talked about it before, so I'll make it brief, but we worked together before actually merging our businesses, and we worked together so seamlessly and so organically, like there wasn't much effort. It was easy, and I think that's how we both knew we were like, okay, that was easy. It's called we had complimentary skills. So like I wouldn't go and find someone with my same skill set because there's nothing I can replicate that by hiring a manager, right? So finding you with complementary skill set was a huge deal.

SPEAKER_02 3:40

Yes, it really was, it really was. And and why were you why were you open to it? And then also we we did a merger. We didn't do an acquisition. Then mergers, is there a money board for mergers versus acquisitions?

SPEAKER_00 3:57

Sometimes I I mean I mean it depends on if like what what the company looked like before, if anyone's getting out of the business, and maybe there's if it's going to be merged and be like a 50-50 ownership situation, and one business maybe had a har a higher revenue or a higher IBIDUC, a higher valuation than the other, then yes, sometimes they have may have to pay them out and purchase that equity. Does that make sense?

SPEAKER_01 4:23

Yes.

SPEAKER_00 4:23

But again, like it's all different, it just depends on the situation. That's why I mean I love MA because it's just so variable. They're they're never going to be the same because it's all different. Like every every situation is different. There can be like backdoor deal, like all kinds of variables um within those transactions.

SPEAKER_02 4:44

And in our case, there wasn't any money. That was only$100 to open the new bank account, right?$100,$100, and then Yeah, hey, isn't that funny?

SPEAKER_00 4:54

We we started White Glove with$100,$200.

SPEAKER_02 4:56

Yeah,$200. That that is funny now, and it was okay back then, but you don't you don't realize how much money it takes to run a business.

SPEAKER_00 5:08

Blood, sweat and tears.

SPEAKER_02 5:09

Yes, and and we did it. We did it, and that is why. Yeah.

SPEAKER_00 5:14

Okay.

SPEAKER_02 5:14

So I guess why uh why does an MA deal happen? Why why companies decide to merge or acquire another firms? Why why is that?

SPEAKER_00 5:24

Mostly to grow. Um, so some businesses grow organically, kind of how I mean obviously we merged, but then we pretty much grew it from$200 to what it is today, which is honestly, we need to talk about that one day. Another, we should do an episode about growing your business from$200 to a six-figure monthly, because we made six figures.

SPEAKER_02 5:44

Yes, we indeed six figures. That was crazy. Yeah. And we are now that is the standard. We we have had a couple of months making six figures.

SPEAKER_00 5:50

Yes, exactly. Yeah, good. So from$200 last May to six figures this February month. Yeah, right.

SPEAKER_02 5:59

Yeah.

SPEAKER_00 5:59

Um, so I think definitely MA happens because people want to grow. Sometimes businesses can grow organically, others acquire to scale faster. Um, like merger, acquisition, partial buyouts, things like that.

SPEAKER_02 6:14

Yeah. So I guess uh why did we merge? I would love to hear your opinion. Why did you why did you decide to merge? And then I would say why we merge, and then then the most common reasons you talk about, you know, just growth. And then why are we thinking in buying this other firm?

SPEAKER_00 6:31

Yeah. So for me, I first I did not want anyone to have a piece of my business. I'm like, I'm gonna do 100%, I'm gonna, I'm gonna control 100%, etc. Right. Now I know that it takes more people to scale and to grow something. And honestly, I don't think we'll ever bring in anyone else. Not in ownership, right? I mean, I don't, I don't think I think our we have such complimentary skills, I think we kind of cover the basis. But aside from that, I needed, and I knew like for my business to be what I knew it could be, to be this massive like conglomerate with high quality service, like high value. I needed to have tax, right? And I'm like, I'm not doing any tax. Uh, I don't want to learn. I I don't want to do it. I'm like, I want to focus and stay in my lane, and I need someone who can stay. So when we met, and I was like, okay, we have similar values because that's important, similar like goals. We've talked about this before already. So um you were you did a good job, but you're smart. My clients who I did send to you, like you did work good work for, they enjoyed working with you. Um I trusted you because we have similar values again. And my experience with working with you was super easy, seamless. And again, like you took responsibility and you knew you know what you're doing. You're good at what you do.

SPEAKER_02 7:52

Yeah, yeah, the the same thing with me. Uh I also needed accounting. I I needed you, and I mainly needed the cash flow, the monthly cash flow of accounting. And I realized that for me to build an accounting practice and accounting side of the business, it was going to take too much work and too much training to bring a manager to oversee that person to hire the manager and then to bring somebody that I would have to pay a salary, and I didn't have the book of business yet, and was going to be really expensive and high stress situation. So, you know, because we were we were referring business back and forth and we kind of knew each other and you already had tried a big project together. Yes, and you're and you already had a book of business. I'm like, and you already had an accounting department, like, yeah, hey, let's come, let's join together, let's send these invoices together, and then that that is just how it happens. And right now, I am over the tax department, you are over the accounting department and the advisory. And it wasn't only the accounting thing, it was also the CFO experience that you had and your advisory and your advis and your experience with with advisory. Before I merged with you, we only had the tax department. And I guess you only had the accounting.

SPEAKER_00 9:19

I really started just doing advisory, right? So I just started doing CFO and then I realized how terrible my clients' books were. Yeah. And I'm like, I can't give you any guidance if your books look like this. So I was like, okay, I have to do accounting.

SPEAKER_01 9:31

Yeah.

SPEAKER_00 9:32

And then when I'm doing accounting, I'm like, I need to do tax. And then I think what we're running into now that we're doing advisory accounting and tax, we're like, we need audit.

SPEAKER_01 9:43

Yes.

SPEAKER_00 9:43

And will it stop there? Probably not.

SPEAKER_01 9:45

No.

SPEAKER_00 9:46

Well, why will we need IT? Will we need lawyer services? Will we need marketing? Will we need, I mean, I don't know. We might even open a restaurant. Who knows at this point? Well, the White Glove restaurant.

SPEAKER_02 9:57

We maybe they care.

SPEAKER_00 9:59

They care for our employees, restaurant for our employees to go eat.

SPEAKER_02 10:02

Yes.

SPEAKER_00 10:03

We're making our money back that we pay them.

SPEAKER_02 10:05

A real estate business would be probably the first thing. Yes. We we gotta have an office. Yes. It's that real estate holding business for sure. Yes, but but you're right. Uh we needed your services, we needed each other. Then we join, and then now because we we are getting a lot of audit requests, and our clients need audit services. Why give it away? Why refer it away whenever we can do that?

SPEAKER_00 10:28

And we know that we can give them high-quality service. We do good work, we have good processes in place, we have good standards and we have good values.

SPEAKER_02 10:36

Yeah. The only thing with this audit acquisition, out that be allowed. The only different thing is that we don't know much about audit. So we have to find the right partner. Partner to bring in and that that they know what they're doing. And then that also where it comes out more the enterprise stuff over it. And as far as I know, it's kind of a different business model out there versus tax preparation, accounting.

SPEAKER_00 11:03

Yeah, sure.

SPEAKER_02 11:03

Advisory.

SPEAKER_00 11:04

But that's something I think that a true entrepreneur or a true business owner does is they can find the people who know how to do it and they can actually run the business.

SPEAKER_01 11:14

Yeah.

SPEAKER_00 11:15

And that's what we enjoy doing, and we're good at it.

SPEAKER_02 11:17

Yeah.

SPEAKER_00 11:18

I mean, decently good at it, right?

SPEAKER_02 11:19

Yeah, I agree with you. Yeah. No, we are really good. So we are really good at what we do. So what I guess what made it a good deal for us to join, and then for this next audit firm that we're buying, what would make it a good deal? And then also, also we can use this to, you know, to give them people that they're trying to grow. Like what will make it a good deal for you?

SPEAKER_00 11:39

Yeah. So if it if it's to make it a good deal to acquire a business or to merge with the business is structurally, like how are they structured? Is it similar to your business? Is it how you want your business to be structured? Right? Yeah. Is it like because you can't you can't merge with someone who has completely different mindset or different structure for their business and how they want their business ran. Um, you also need to take cash flow into consideration, like you mentioned. Um, something good about tax is that you get a lot of revenue between January and April. That's something bad about tax is that's very little, it trickles in very little after April. But something good about accounting is that it's recurring revenue. So every month you're getting that revenue, it's smaller quantity, but you're it's continuous monthly revenue.

SPEAKER_01 12:26

Yes.

SPEAKER_00 12:27

Um, so making sure the cash flow aligns, um, that you know, and evaluating that person or that company's books and their pro internal processes, their team, the culture of their business, making sure that it aligns with your current business and or what you want it to be. So if you're going in for an acquisition, I would say before you acquire the business, make sure you fully understand the culture of the company, whether that's going and visiting or um talking with the owner, meeting the owner if they don't want their employees knowing about the acquisition yet.

SPEAKER_01 13:04

Yeah.

SPEAKER_00 13:05

Just a lot of discovery on your end for acquisition. And the same thing for a merger, too. You know, if you're considering merging, I mean, even if you have to go in as like a client or a customer one day, go and understand that business that you're about to buy or merge with. Because you can't quite understand it if you're just looking at the books. And then you also can't quite understand it if you're just talking to the people. You need to look under the hood and experience the culture.

SPEAKER_02 13:31

Yeah. Yeah, it's definitely the due diligence, it's a lot, you know, and definitely before somebody makes uh makes a major loan acquisition deal, they have to do their due diligence and definitely bring advisor because it's an expensive transaction and you want to make it as successful as possible. And a lot of that comes out of the of the due diligence aspect of it. So, yeah, and then for us, at least for me, what made the big deal, a good deal was the cash flow. By April, I was freaking out about hey, how am I going to bring money on May in June because the tax revenue comes in, but that is where you came in and we merged in in time. May first have I have to label just. That's why you wanted May.

SPEAKER_00 14:17

You're like, I want to keep my money from tax season.

SPEAKER_02 14:19

Yes, yes, yes, yes. You also yours had some cleanup work. That was also a lot of money. And uh and I I had a lot of invoices on page. So but with that being said, now why now what will make our next next deal or the other fame a good deal for us, and guess I guess why we are stepping into it, is because we want to add a new service line of it. And then and then this is why we are doing it. Now, what will make a good deal the fame or the person or the practice we are acquiring? It will depend, you know. We just gotta look at how big they are. Do they have the talent, do they have the people that we that can come over here? Do they have the right value? You know? Do they have the right client book and all and all of that? And it's not only about revenue.

SPEAKER_00 15:11

No. And I I thought about that last night. Um, actually, and yesterday I I did a lot of research. I was like I was telling you about audit firms. And my in my mind, the ideal person is like they just have a handful of people, right? I'm not worried about how much money they're bringing in because quite frankly, I don't care. I don't care if they're losing money because I know how to run a business, I know how to make a business profitable. Yeah. So I have no issues with that. But I want to make sure they have good core values, a good team, a strong team.

SPEAKER_01 15:42

Yeah.

SPEAKER_00 15:43

And a strong understanding and and really high quality work, audit work, right? So those are my biggest things. Like I want the the work to be high quality, the people know and understand what they're doing and have good values. And then we can bring them in and teach them the white glove way and even elevate that even more. But again, like if they're losing money, so what?

SPEAKER_02 16:06

I agree, I agree. And then uh we just have to do what we just have to do due diligence, focusing on those things and making sure they're providing good value, uh good services.

SPEAKER_00 16:17

And the best way to do that is we'll bring to bring an expert because as we said, we will we will hire an expert to come and evaluate that and evaluate audits that they have done. And I will also ask to interview previous audit clients.

SPEAKER_01 16:32

Yes.

SPEAKER_00 16:33

So though that's gonna be how I see it is I finding someone, making sure that we obviously we need to get along with the practice owner because they're going to need to be there and working with us for three to six months. I want them to put me through a crash course and explain to me how the entire thing is ran in the first three months. I want to sit there with them every day. Honestly, I don't care what state or what country this business is in. It's probably somewhere in the US, but yeah, I don't care what say I will go there for a few months and sit sit with you every day and learn exactly how to do an audit, how to do everything that you do to run that practice. And once we understand, we don't have to know every detail, but understanding that. And that's what I would suggest to anyone who's looking to acquire is to sit through and understand that business. Talk to the current owner and have them walk you through and learn how to do the jobs, right? You don't have to be able to do the job, but learning and understanding what it takes. Because there's lots of nuances, like, for example, like window tint, right? So that's, I mean, there's a lot of things that go into that, like razor blades, like understanding the cost of that, and like the and and there's a waste like when you're printing or when you're getting that um the film, the wrap, there's waste because you have to cut to the design of the car, different types of cars. So you need to be able to understand that to be able to run your business properly and put people in places to help you run your business.

SPEAKER_02 17:54

Yes, I agree, I agree. And yes, you need to understand high worlds. You need to understand the numbers to make sure you we are uh people are doing an educated decision uh into it. So, how do how do people usually structure these measures and acquisition deals and how do people go about it?

SPEAKER_00 18:14

Yeah, good question. There's and again, like this is one of my favorite ways or favorite part things about a MA deal is because it it's just so like it's a creative thing. You can really get so creative with it structuring a deal. So, for example, like we talked about we put a hundred bucks in when we merged and we just merged. We didn't do like no change of hands of money or anything like that. But other people, um, and other acquisitions and like what we will have coming up soon that with the audit practice, my plan is to give them a lump sum of money at the beginning, and then within three to six months, we pay them a salary for the rest of their life. Or or until we get to X amount of dollars, right? Yeah, we come up with that number, and what we'll do, we have to do a valuation of that business. So for the deal structure, like we didn't do that, but we were too young. We didn't need to for our situation. But I would recommend against that. I don't care if you trust the person, we got lucky. Like and this does not happen. So I don't care who you are, who you're merging with, I don't care if you're buying your best friend's business or your mama's business. You need to make sure that you have evaluation done so you don't overpay.

SPEAKER_01 19:29

Yes.

SPEAKER_00 19:30

That's a really easy way to bankrupt your business. Yes. It's overpaying and carrying a large payment that you that that business can't carry and can't afford.

SPEAKER_02 19:40

Yeah, and I see other and I see it all the time, uh I see it all the time they acquire business. Usually whenever you're buying a business, you use debt. Yes. And they run take care of it.

SPEAKER_00 19:52

Which is a deal structures, yes, debt payment, SBA loans, um, private lenders, bank loans, various types of ways.

SPEAKER_02 20:01

You gotta make sure it works out. Yeah, you gotta make sure it works out. Uh for cholen, definitely you gotta do your due diligence on the business evaluation. Uh, as you said, you gotta evaluate the owners, have do a business evaluation because anybody can come up with an Excel with a PDF, but you need to have an audit done in that to make sure those non-back.

SPEAKER_00 20:24

Like a true valuation because I've seen it. I've seen like people who were trying to sell their business, and these were actual like the people who actually do like go to market, a broker, like who who go to the market and actually sell someone's business. They did their own valuation and they used well what's called adbacks aggressively, so much so that it may it inflated the eBIT by like 20%, which inflated then the valuation by 20%, right?

SPEAKER_01 20:55

Yeah.

SPEAKER_00 20:56

So when I went back through and did our due diligence, I caught that. They had excessive amounts of adbacks, and adbacks are only to be used if that expense is only for that owner, you know, not necessarily for the business. So, like for example, like excessive uses of like a vehicle. Sometimes there's an owner who may have three or four cars when you only need one. So then you would add back the the costs of the other two cars or three cars, but the one car you would leave because you have to have that to operate the business, right?

SPEAKER_01 21:26

Yes.

SPEAKER_00 21:26

So that's what an ad back is. And in this instance, the business owner or the I guess it was really the firm, the brokerage, yeah, had put so many ad backs that were true, I would consider business expense. So one of them was meals, right?

unknown 21:42

Yeah.

SPEAKER_00 21:42

Meals with their employees.

SPEAKER_01 21:43

Yeah.

SPEAKER_00 21:44

And you that's an arguable thing. However, if the employees are accustomed to a certain standard, that's why I understand the culture is important, but the the employees were used to going to lunch every single Friday. So if you take that Away when you acquire morale goes down. So it's not an adback, it's a part of the business culture that you need to include in the expenses.

SPEAKER_02 22:08

Yeah. And you have to be careful with that because the devils is in the number.

SPEAKER_00 22:14

Yes. And whenever the details of the numbers, too. Yes. Because I could have looked at that valuation and said, okay, great. And like match the numbers and saw saw the adbacks and said, cool. But instead, I was like, okay, what makes up the meal expense? Why is it so high? What makes that up? So I asked them, you have to you have to do your proper due diligence. You can't just look at the numbers and say, oh, that makes sense. You have to find out why they're spending that much.

SPEAKER_02 22:39

And you need to understand everything. You need you need to understand the business that way you are not being ripped off. And yes, and then they do that. You know why they do that, right? Because the the broker is making a commission, a percentage of the sale. The higher the add back, the higher the net income, the higher the net income, the higher the sale's price, the higher the sale's price, the higher the commission of the broker. And never, never go with the numbers that the broker provides.

SPEAKER_00 23:15

Always do your own due diligence and hire a separate person to do the valuation of the business.

SPEAKER_02 23:25

Like a real estate commercial properties, you take that net income or that Ivina and you multiply this by a cap rate. You know, it can be like three times whatever.

SPEAKER_00 23:36

But they I mean, there are a couple ways, and we can do it. We should do an episode about valuations, actually.

SPEAKER_01 23:40

Yeah.

SPEAKER_00 23:41

But there are uh there's actually quite a few different valuation methods that you can do, and that many people do, but that is the most common, and that's how almost every single broker I've ever seen. That's how they do it.

SPEAKER_02 23:52

And then the higher down net income, like you if you have five times, let's say the car, the cap rate is three, five times three is fifteen dollars. But now if that if that if that's if the net income is six, the cap rate is the same. But six times three is eighteen. So the purchase price goes higher just by changing those numbers. So, but also besides the number and making a due diligence, how do you figure out the people's side of it? Making sure like we are a good culture, the merger is going to go good, we are going to keep the employees around, the employees are not going to change. Like, how do we, how do you uh how do people define that through a merger and acquisition?

SPEAKER_00 24:37

Yeah, that's a that's a good um question. So the first thing is the culture fit. So ensuring that, like we like I mentioned earlier, meeting meet and greets are really are great. So when I worked for a different company and we did merger and we did quite a few acquisitions, we would always, always, every single time, go in person, fly all over the world, go in person to meet the team, the core team. So we wouldn't necessarily meet everyone who's doing the shipping, we would probably meet the shipping manager and just get a feel for the culture there. So like if everyone was dressed nice and like wearing, you know, and like everyone seemed more formal, then we would now understand, okay, that culture is more formal. Or if people had more of a casual laid-back, like feel to them, um, and like playful banter back and forth with an employees, and you know, okay, it's it's more of a casual culture, people are friendly, they're joking and having a good time. Just understanding that culture and making sure it aligns with one, the culture that you have, your current business if you're merging, merging or if you're purchasing to um include that, and then making sure that it's what you want to see in your business. At the end of the day, it's your business. Are you comfortable with people wearing suits? Are you comfortable with people wearing t-shirts? You know, what kind of culture do you want to have? Um, that's something to ask yourself on the people's side.

SPEAKER_02 25:57

A question about that, how do you make sure they are not faking it? Because sometimes at every job it's oh, we have we have an audit. Everybody start cleaning up, everybody starts dressing up, everybody start acting better. And what they're doing.

SPEAKER_00 26:11

And that has to be an assumption. Like you have to assume that that is happening. But that's why I'm thinking, like when you see them on multiple occasions, so the way that we would do it is that we would have like um Zoom calls first with the people and kind of understand their and then you kind of see the way they work because when you're talking to them three or four times on a Zoom, you can see, okay, they're rushing out of here, so they're really busy, or they don't have good time management, right? And you kind of learn these things about the people and you see how they communicate to you, like with you. And something that we would do is we would take a couple of them separately, like for dinner. And I would always do like little micro interviews. They I didn't call them interviews. I just said, hey, can we chat or can I ask you about this? Can you teach me about this to each individual? And you get them on a one-on-one, you can kind of see their personality a little bit better. And I would ask them questions like, like, um, who do you think like is the is like the key play, the the key person, the best person, like someone who you would I would not notice normally. And things like that, and you see how they respond. And I've had people say that, say themselves a few times, you know. And that's just it's an interesting, I won't get into the details, but it's interesting and it says a lot about the person, yeah, when they do that. And then another thing that we would do is we would take them to dinner or to lunch, yeah, and like a couple at a time, or like one or two, and like we would spl, there were three of us who would go to these, so we would kind of divide and conquer, yeah, and take a couple people, um, and kind of learn more about them. And and they would sometimes some of them would spill the tea about the drama going on in the businesses.

SPEAKER_02 27:50

That is so cool. Yeah, hey, you have to ask people, you have to knock, uh, knock doors around, and people love talking about themselves and people love feeling in making themselves feel important. So if you're asking the right question at the right time and it feels comfortable, they're definitely not going to tell everything with you. So I guess uh what would be some of the common mistakes to avoid all like some mistakes you see happening a lot. I'm like, man, you could have avoided that. What what would that be?

SPEAKER_00 28:21

Good question. I mean, number one's gonna be skipping due diligence. That is the big one.

SPEAKER_01 28:27

Yeah.

SPEAKER_00 28:28

And not and not doing your own due diligence because so many people get into these situations, and I've had to talk and help them out of it, or try to help them out of it. And what happens is is they they didn't do due diligence. Like, for example, there's someone, this person actually was an old friend of mine. They purchased a convenience store without any due diligence. Like they went and got a bank loan. I don't know how they even got a bank loan without due diligence, but they got a bank loan, gave it to the new owner. New owner said, See ya. They didn't even know how the due the um store even operated or worked. So once they got in there, things were brought. I mean, if it was just a whole mess, right? But they didn't know due diligence. That's why financial due diligence is so important, but also the operating part of due diligence. I think people forget that one more than more often than not. Yes. Because you have to understand how the business operates. You can't, especially like if it's a business where you're going to have to be involved in some form or fashion. Like if it's not just a turnkey, like, oh, here you run it, but people all the all the employees are running it already. You just get to make the key decisions, right? Yeah. So definitely um due diligence on all levels, not just financial. And that's something that we we've helped clients do operation due diligence as well, making sure you understand how the business operates. Um, ownership transition. That's another big one that people often forget. So they get the keys to the business, right? They understand like somewhat how it operates, they they know their financials are good. They go in and they're all of a sudden they're like, oh, wait, we don't have the passwords to this. Right? They're like, oh wait, uh, how do I get into this computer? Who who manages this? Like all of these little small nuanced things that happen in a business or that gets forgotten about gets dropped because the owner's not there because it lives in the owner's head a lot of times. And we've experienced that too, like with ourselves, right? So the owner knew these things were to get done and they did them. Or maybe the nuances of like, hey, that back door, you have to actually like pull it a little tight and then lock it, because if not, it's not going to close properly. And only the owner knows that because they close up every day, right?

SPEAKER_01 30:39

Yes.

SPEAKER_00 30:39

So all of these little things. So ownership transition is really important. So setting up and what that could look like is setting up a time frame and say, hey, can you stay here for a week and walk me through every day three months? Can we do a one-day big download session where we sit in an office and we go over like what your day looks like A to Z A to Z and all the nuances. And you do like a I always tell the um owners who are selling to do a brain dump. Because I'm like, the the new owners, they'll go through the paperwork, whatever. Just do a brain dump of all of the little things as you're going. So if you're getting ready to sell your business, go ahead and have a Word document up, a OneNote up, something like that, and start doing a brain dump of all of the nuances of your business. That person will thank you. And then and it's your business that you started. So a lot of times you don't want to see to see it go belly up, right?

SPEAKER_02 31:32

That's a good point.

SPEAKER_00 31:32

So help protect that.

SPEAKER_02 31:34

Yes, that is such a good point. And then and then that is why it's important to keep the seller around for at least six months to a year to make sure the transitions is being successfully and get a guaranteed that the seller is going to keep it's going to make the transition to successful. And this is important with the smaller businesses because that seller is the face of the business. That all the clients, not the seller. Maybe a lot of the clients are in there because of the seller.

SPEAKER_00 32:06

That and see, that's something that's a good point. That's something to really keep in mind too, is I've seen businesses like people have acquired and it doesn't work for them. They fail. And not because they're a bad business owner, but frankly, because all of their clients and customers are there because of that person, because of the owner. Their friends, what they like. That's something that we're working on doing. We're like everyone's here for us. And I think we've gotten better at that now. Yes. Of saying, hey, look, we have this great team, not just Harrow. It's not just Jet. We have this great team of people who can help and support you and who have the same values, the same care, the same communication, honestly, maybe better communication these days than we do. Because lately we've been so busy.

SPEAKER_02 32:49

Yeah, I agree. For sure, for sure. And that is that is important to make sure that transition happens. And then you have to include that on the purchase price agreement. Hey, I'm only giving you like 25-50% up front. Once the transition is completed, you're going to give you the rest, the rest of it, because I want to make sure you're around there. They need to have a an incentive to stay. Yes, an incentive to stake, uh a skin on the game to be able to do that. And the best way to do that is by making is by money, a significant amount of money, and money that is significant for them, you know.

SPEAKER_00 33:26

And oftentimes I've seen it where um people will come in to purchase a business and they will make the owners hold like a 30% stake of the business for X amount of years, and then after X amount of years, they buy them out the rest of the way.

SPEAKER_02 33:39

Yes, that is absolutely a great way. Yeah.

SPEAKER_00 33:41

Yeah, it actually worked out really, really well for both parties. Yes. To be done that way.

SPEAKER_02 33:46

Yeah. I think for CPA for the outer firm that we are acquiring, that would work.

SPEAKER_00 33:52

I think so too. Great. That was an idea that I had yesterday, too.

SPEAKER_02 33:55

Yeah, I think that would be awesome. And that uh and that would be a good idea.

SPEAKER_00 33:58

And I think that they would like that. It would be lucrative for them too, because they would get money now and then say, hey, in a year, we'll pay you like you'll we'll purchase the other 30% from you.

SPEAKER_02 34:08

Yes.

SPEAKER_00 34:08

33%.

SPEAKER_02 34:09

I agree. I agree.

SPEAKER_00 34:10

And I don't want 25%.

SPEAKER_02 34:12

Something like that. Whatever. Whatever.

SPEAKER_00 34:14

And then we can we can do that, but I don't want them to have more control than me.

SPEAKER_02 34:19

Why is that? But how much how much percentage do you say?

SPEAKER_00 34:22

Like give that's why I said I said 33 at first. It's like I I don't want them to have 33%. I mean, we would still outrank them, but but I think I think yeah, I don't like like that number. I think we give them 25% or less. But we can see how it plays out. But I think if they have 25% remaining in the business, then we still have uh but remember the purpose is to give them enough skin in the game and also and not uh influence. Or or if we gave them 49 and we took 51 and you and I just held the 51. Or you know what, you know who could own the 51?

SPEAKER_02 34:57

Oh, that's yeah.

SPEAKER_00 34:58

Heroin Jet.

SPEAKER_02 34:59

The heroin jet holdings LLCs LLCs? I know for sure. But yes, but we definitely need to keep the owner around to make the transition easy. And if you're buying a business, you need to keep the owner around. Definitely if it is a smaller business, more like a one-man show, no bigger than those that have any circular team or anything between.

SPEAKER_00 35:24

Do you think that we'll be friends with them? Also, do you kind of hope they're in different states we can go and see how that state is?

SPEAKER_02 35:30

Probably not. It's probably it would probably be harder though. We have we have follow our clients here in Tennessee.

SPEAKER_00 35:35

I know. Well, not all of them. I think it would be better to be in a different state because think about our expansion efforts.

SPEAKER_02 35:41

Yeah, I think that's actually a good point.

SPEAKER_00 35:43

I would prefer it to be somewhere else.

SPEAKER_02 35:45

Yeah, that's actually a good point. How much money do you want to invest in this? What what is what is your budget?

SPEAKER_00 35:51

Honestly, like I don't want to give it away and have people holding me to what I'm gonna say here. If there's an audit person listening to this right now, yeah, we can clip it. But so we're not gonna clip this. I I want it, I want them to hear. But so don't hold me to this, but I'm going to say my thought is like I'll give you six figures, like 100K in September. Okay. If I say, hey, here's a hundred K in September, and then on top of that, I'm gonna pay you X amount of dollars per month that you stay here at the business for six months to a year. Maybe, maybe I pay you for a year, but you stay and you work full time for three months, part-time for six months, and then you have three months of like pay with no work, but you're on call. Like, I think I just came up with our plan full time for three months, part-time for six months, and then you're on call for the last three months, right? Yes, and then that that's a full year of a full salary that you're getting. And it'll be a a lucrative salary.

SPEAKER_01 36:51

Yeah.

SPEAKER_00 36:51

And then after that, and again, it it all depends on what the business is worth. I'm gonna do the valuation for it.

SPEAKER_01 36:57

Yeah.

SPEAKER_00 36:58

I mean, I guess we can have a third party, but I'd rather do I trust myself more than a third party person.

SPEAKER_01 37:03

I agree. I agree.

SPEAKER_00 37:04

Um, so and they can have their own valuation done too, and we can compare numbers.

SPEAKER_02 37:08

But then 100k will be for what percentage of the business.

SPEAKER_00 37:12

Well, that's I have to see the valuation. So let's say I have to know what what the business is actually valued at. I'm thinking the size of the practice that we're going to purchase, the business probably won't be worth more than half a million.

SPEAKER_02 37:25

Yes, that's a good point. And then how many people do you think half a million priorities should have? Probably two or three people. Yeah, yeah, it's definitely be on the smaller side of it.

SPEAKER_00 37:35

And then because we if one thing we can do is we can grow a business, we can make it profitable too.

SPEAKER_02 37:40

Yes, we can.

SPEAKER_00 37:41

If that's all we can do, then that's all we can do.

SPEAKER_02 37:43

But we can grow it, yeah.

SPEAKER_00 37:44

So um we definitely can do that for sure.

SPEAKER_02 37:47

Yeah, I think that would be a good plan. I think that is the right target uh for us, and then then we just need to get the financing ready. So we need to start talking like something like I'm not financing it, we're paying cash. Yes, let's do it. Let's do it. Yeah, I don't uh we don't we don't have the Kaiser now in the back. Well, but but with that being said, though, if you're if you're planning on thinking on buying a business, you need to start thinking about how you are financing the business, the way you are prepared for it. And also always people say, hey, uh cash is king, cash flow is more keen. But for stuff like this, you need the cash. Yeah. Because whenever an opportunity comes around, whoever can jump on it faster.

SPEAKER_00 38:34

Uh those early bird gets the worm, the worm, right? So being being prepared to go into a like a purchase.

SPEAKER_01 38:42

Yeah.

SPEAKER_00 38:42

Like just like buying a house or buying a car, right? You can't just wake up one day and say, Well, I guess a car you can. But you can't wake up one day. I mean, I guess if you have bad credit, you can't do that.

SPEAKER_01 38:50

Yeah.

SPEAKER_00 38:51

But you can't wake up and say, Okay, I'm gonna buy a house today. You need to first prepare your credit, right? Yes, prepare a down payment, find the house and do your due diligence, make sure the house isn't like leaking somewhere, have faulty floors or I don't know, the random nuances, right? Make sure it's make sure it's not on a cemetery or something. I mean people like that.

SPEAKER_02 39:11

But before even finding a house, you need to talk to your bankers and see how much you can afford. Exactly. And that's why it's always good to get the financing prepared first and prepare for it. Now, if if we know we need to, if you know you're buying a business in September and you want you and you are going to link 100k, you need to have the money safe up in Dale. And and make it and maybe I wouldn't give 100.

SPEAKER_00 39:37

It depends on how much it's worth, right? Because like I would buy, like, say say we bought 51% of it right away.

SPEAKER_02 39:43

And it also depends on the goals of the person, okay. Why are they selling? You know, as a buyer, you need to ask, okay, why are theirs why are they selling? What is their goal? Maybe their goal is they don't care about the money, they just want to, they just want to transition into a retired retirement age.

SPEAKER_00 40:00

And they don't want their employees to not have anywhere to go.

SPEAKER_02 40:02

Yeah, and then and then they also want the clients to be taken care of. So it all depends. Imagine our acquisition deal is not only about the money they finance, it's also about okay, why is he selling?

SPEAKER_00 40:14

Why he or she's selling, like why the point because it's like you don't want to buy a business that they're selling because it's a terrible business, because it's losing money, right? Again, unless you know how to turn it around, which um not all businesses can be turned around. I I do believe that there are some who are that are just failing businesses.

SPEAKER_02 40:33

Yeah, for sure. Um because because the market can be tough. The the product what they're selling can be competitive.

SPEAKER_00 40:40

They may especially like with the internet now, too. Yeah, there there are so many nuanced little fidgets and things like that that we've seen businesses who made a certain fidget toy, yeah, you know, explode and then go bankrupt.

SPEAKER_02 40:54

Yes, yes, and it's just it's just crazy. I mean, it's just crazy because you gotta know the market. You gotta know the market, you gotta know your competition, you gotta know what you are playing with. Thank God, uh, accounting industry, finance, there is a lot of disruption going around, but we are in top of it because of how young we are, the technology that we are using, and then and then everything else going on in the market for sure. But you know what is something exciting about accounting though, and something about other industries? There is a lot of private equity uh going on around, and and one of the most common private uh major and acquisition uh strategy is just doing all of these roll-ups. You know, you buy all of these smaller business in the same industry, and now you grow bigger businesses, and now you have something more valuable that people will pay a higher cap rate for it because it's more consistent, you have more diversification for it. It's already scaled, yeah. It's already scaled, and somebody will pay that, will pay that, will buy it because five, six, and like I mean, people people 10x, 8x businesses all the time, too.

SPEAKER_00 42:08

Yeah, so it I mean it's yeah.

SPEAKER_02 42:10

Will you will you be willing to go on a shopping as preheel and then selling it to Prabhupada Kuri for the time of money?

SPEAKER_00 42:18

I don't know. Ask me in a year.

SPEAKER_02 42:20

Yes, I will ask you in a year, you know.

SPEAKER_00 42:22

You know, so right now it's so fun.

SPEAKER_02 42:25

It is it's actually a lot of fun.

SPEAKER_00 42:26

We have young, we take care of you on a I'm having a good time. And like I love my clients, I love hanging out with them, I love talking about the uh the business all day long. Um, so number six, so their last thing here is uh ready to buy or sell. So, do you want to talk a little bit about that?

SPEAKER_02 42:45

I feel yes, I think uh you know, big uh if you are a buyer or a seller, both of you like be clear on the goal, be clear on the vision, go go prepare to the negotiation table. That way, that way you know where to extend to extend your ground seller, know your valuation, don't use emotion, you know, make sure you know how much your business is worth. And and if you're thinking about selling your business, for as a seller, I will I will be thinking three years in advance, you know, because you need to get your business ready to sell. So right now, if if you want to sell your business right away and you haven't been thinking about selling in the last three years, you are not going to get the most value for your business because you haven't prepared your business, you haven't prepared your business for sale, you haven't created the SOP, you haven't shown enough growth, and you need to be prepared. Buyer just have the financing ready for it. Define your like your your ideal partner, the ideal company you want to grow for it. And then for sellers and buyers, be ready for the Different lifestyle, like buying a business, going through that, it's a lot of transition into the transitions, it's high.

SPEAKER_00 44:08

Or into the new business that you're buying. Uh okay. No, thank you.

SPEAKER_02 44:12

For the seller, and for the seller, it's like sometimes they sell the business and they don't then the life was their business.

SPEAKER_00 44:19

Yes.

SPEAKER_02 44:20

And then they don't know what to do with it.

SPEAKER_00 44:22

So post-sale depression. That's what I call it.

SPEAKER_02 44:25

Yeah.

SPEAKER_00 44:25

Post sale depression. It's very, very true. And it happens. I'm not gonna be morbid here about I guess I will be morbid. So I've witnessed like I I've been a part of where people have sold their businesses and passed away very shortly after.

SPEAKER_02 44:41

Yeah. I said it's the same way that people are looking forward to retirement and then they get retired. Yeah, yeah, just die.

SPEAKER_00 44:48

Just like your job because it's your life, you know, right? So that no, this was good stuff. So then we talked about six things, right? We talked about why merger and acquisitions happen. We talked about what makes a good deal, we talked about deal structure, we talked about the people side of everything, we talked about mistakes to avoid, heavy on the due diligence side, and we talked about being ready to buy or sell.

SPEAKER_01 45:12

Yes.

SPEAKER_00 45:13

At some point, we need to talk about valuing a business and the different methods. Yes. But we do have a six-episode series that we're going to work on, and then we will talk about that.

SPEAKER_02 45:25

Yes, yeah. I think that would be good because uh to value your business, you probably need to have an enterprise, you know, because a solo, solopreneur business is worth nothing.

SPEAKER_00 45:36

That's a perfect follow-up after that, exactly.

SPEAKER_02 45:38

Yes, it's it's worth nothing, and then make sure you're watching the series from going to solopreneur to an enterprise. And on the first one we talked last episode, we talked about becoming going from being income focused to asset focused. You need to be focusing on building an asset, building your business to be as valuable as it can be. And a lot of business owners don't think about that. They just think about how much money they can be uh making for the business. And then, yeah, and then if you find this helpful, share it with your friends, share it with somebody that is looking to buy or sell a business. And if you have any question, just drop a comment and let us know after chat to us.

SPEAKER_00 46:26

Yeah, yeah, like what or like like Jet said, share this with a uh fellow business owner who maybe wants to sell or merge or um share it with someone who wants to buy a business.

SPEAKER_02 46:38

Yeah, and then uh if you like to do, please like, subscribe wherever you're watching this. And we appreciate all of the support and we are excited for you to be part of this. Thank you guys. Peace out.