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Is Your Firm Ready for a Broker? With Brannon Poe

Published by Summit Marketing Team on Apr 7, 2023 6:00:00 AM

The Modern CPA Success Show: Episode 86


Has your ability to scale your firm plateaued? Or maybe you’re done building, ready to exit, and looking for a buyer. Whether you need a fresh perspective or an exit plan, this podcast is for you. Brannon Poe, CPA, and author of Accountant’s Flight Plan, gives advice for running your firm like you're ready to sell it and working with a broker when you’re ready to find a buyer.





[00:00:00] Welcome to the modern CPA success show where we’re 100% focused on helping accounting firms achieve success. If you're an accounting firm owner who wants to learn how to grow your firm by providing virtual CFO services, then this podcast is for you. 

[00:00:18] Tom Wadelton: Welcome to our episode today. My name is Tom Wadelton.

[00:00:21] I am one of the facilitators for today's session. I'm a full-time Virtual CFO at Summit CPA group. My other co-facilitator, Adam Hale. Adam, hello. 

Adam Hale: Hello. Yep. Hello everybody.

Tom Wadelton: Are you doing well today. And then we're excited to have a guest today. So, Brannon Poe is with us and without giving a lot of introduction, Brannon, you wanna tell us a little bit about you and career journey and what's taking you to the kind of things that are keeping you busy today?

[00:00:46] Brannon Poe: Sure. So I started my career in public practice. I am a CPA. I started with Ernst and Young in audit side and quickly realized I was in the wrong place. 

[00:00:56] Adam Hale: and most people are, you know, you said Ernst and Young and Audit, so that pretty much solidifies that. I think everybody is probably in agreement. So, sorry, go ahead.

[00:01:05] Brannon Poe: [00:01:06] Yeah, so I actually left and went to work for a smaller, kind of mid-size firm and did some tax work and just, you know, I spent about five, six years in public and just realized I'm probably not best suited for public. I wanted to do sales work, and so I actually went into a different industry for a little while.

[00:01:25] I went into a kind of construction related industry, did sales and learned sales, and really enjoyed it and. Found the career I'm in now, which is brokering CPA firms. Mm-hmm. In 2003. And that was a great way to marry my accounting experience with my sort of like of sales work. And so I've been selling firms since 2003.

[00:01:49] And then in 2020 we launched a virtual workshop for CPA firm owners called Accounting Practice Academy. 

[00:01:58] Adam Hale: Oh wow. What do you do in the, [00:02:00] what's the purpose of the workshop? 

[00:02:02] Brannon Poe: So the workshop is, you know, really it sort of targets that smaller CPA firm owner, I'd say one to 5 million in revenue is our target.

[00:02:12] And what we do is go back to fundamentals. By the time you get to a million in revenue, your practice might have become a little, you know, scattered, unfocused. And so we, you know, we use a lot of the data driven analysis tools that we use on our brokerage business to help owners of firms kind of see their firm from a high level, almost buyer's perspective.

[00:02:40] And so with our M and A experience I think some of those data points they're obvious to me cuz I look at firms every day. But they're very sort of, when a firm is unfocused, you can't see your way out of that spot very easily. And so we help people see their practice the way it really is, and then they can make really clear decisions about how to cut their hours, build capacity, break free from some of the work that's really anchoring them into their current situation.

[00:03:13] And so we start with a big heavy de of pruning typically. So most of our members will go through, they'll prune their practice. Then they'll start looking really hard at pricing strategies. They'll look at their team and what they can delegate, get off of their plate, and then evolve more into the advisory space if that's where they choose to go.

[00:03:33] Tom Wadelton: Interesting. 

[00:03:34] Adam Hale: Yeah. 

[00:03:35] Tom Wadelton: I'm curious, when you talk about pruning, let's start there. What are the biggest areas that you have people initially? Because I would assume, and maybe I'm wrong, I'm a million dollars. You're coming in. I'm hoping you can tell me. Okay. Keep what you have and get. Right. And you're saying, no, let's prune.

[00:03:49] Maybe I'm wrong on that, but I would guess that's true. Where? 

Brannon Poe: Where, yeah. That's prune. 

Tom Wadelton: Where are the main targets that you're initially saying, okay, here's what you're cutting. 

[00:03:57] Brannon Poe: Well, it depends on who. It depends on what they have, right? So [00:04:00] What we have is we give 'em tools so they can look at what their practice is and they can make their own decisions about what they need to prune.

[00:04:07] So the data, it's a data driven exercise. So for some people, I tell you, a common thing people prune is just the standalone 1040 Tax Return.

[00:04:17] Adam Hale: Okay. In person. Right. Those are the worst. Oh, yeah. Like if they follow that with in-person, everybody's just like, whoop, not worth anything

[00:04:28] Brannon Poe: Yeah. I mean, if you look at like, really how many touches you have on that client, how much time is involved, how much seasonality is involved with that. Like if you look at all of these things it's usually not, it's not priced where you're making money on that. For most, for most firms that size.

[00:04:48] And we did an analysis on, you know, again, on theM and A side, we did a pretty thorough analysis just this year on firms. And we looked at days on the market, right? Like which firms are selling quickly, which firms are staying on the market for a long time, and what kind of patterns emerge from that analysis and the pattern that probably

[00:05:11] jumped out the most was when we see a high number of personal tax returns in a practice. We see higher staff turnover. We see lower cashflow owner percentages. and we see higher owner hours and therefore more days on the market when it goes to sell and lower multiples when it does sell.

[00:05:35] So that was the one thing that really popped out from that analysis. 

Tom Wadelton: Interesting. 

[00:05:39] Adam Hale: Yeah. When we went through our, so when, you know, our journey was we got to about, probably about a million or two in revenue at the time. And then we were like, okay, how are we gonna grow so we can grow organically, which we're doing pretty well, and then we can do it through acquisition.

[00:05:53] We felt like we had our practice kind of a little bit under control. We thought, well, let's, you know, entertain some acquisitions. [00:06:00] And at the time we were brick and mortar. So we were in a physical location, so there's some boundaries there that we had to kind of adhere to. But we did stretch our legs a little bit and kind of started to look out.

[00:06:10] And I'll tell you what, time and time again, what we found with exiting firm owners were they were aging out. Mm-hmm. , they worked. 2,800 billable hours or 2,400 billable hours. Like whenever you did the math on all the 1040s they did. It's like, well, hell, you're paying to work there . You know what I mean?

[00:06:28] If you took your hourly rate times, how many hours you worked and your profitability, like what you brought home, it's like you paid to have a staff around you doing a few of those things. And so after we looked under the hood of, you know, probably three or four of those, we were just like, we put our hands up and we're like, we don't wanna, you know, take me to hire two to three people.

[00:06:45] And then, because they did a lot of in-person work, now I had to replace a personality too in a relationship, which even makes it worse. You know, right from the get-go. So. 

[00:06:56] Brannon Poe: Yep. The good news though, is that it's not that hard to fix once you know how to fix it. And you know, I feel like the staffing challenges that people are facing right now, are somewhat of a blessing in disguise.

[00:07:11] Because it's forcing, it's forcing people to like, oh gosh, I don't have any capacity. What's their first instinct? Oh, I need more people. Right? Right now they can't get those people, so they're having to think, okay, I. Okay. In that case, what do I do in pruning and actually pruning, you know, is just like in your garden, you've gotta prune, you've gotta weed it.

[00:07:36] And if you don't you're not gonna get that next level growth until you do those things. 

[00:07:41] Tom Wadelton: Yeah. So do you subscribe to the adage of, you should be running a firm, like you're preparing it for sale? Yeah. I hear that quite a bit. And do you think that's a good way that people should have in their mind?

[00:07:51] Brannon Poe: Oh, absolutely. It's,  I mean, because it just gives you a fresh perspective. Mm-hmm. , if nothing else, I mean, you have [00:08:00] no intention of selling your firm. You should look at it from that perspective from time to time anyway, because the things that are gonna make a buyer like your firm more are also gonna be the things that make you like your firm more.

[00:08:11] Tom Wadelton: Sure right? I think that makes sense. 

[00:08:13]  Adam Hale: Yeah, a hundred percent. 

Brannon Poe: And it, it's kinda like if you, if you have a house, how many of you had a house and you fix it up right before you put it on the market? Well, and then you think, gosh, if I had redone this kitchen five years ago, we could have enjoyed it. You know?

[00:08:25] Or if I had done this patio edition or whatever, I could have enjoyed it and then sold it and still gotten the. Same, same concept. 

[00:08:33] Adam Hale: Yeah, I, what's interesting and Brannon, I don't know how often you've ever googled your name, but like we had this nice link to your website and everything, but I just you know, just typed in your name by the way.

[00:08:44] Don't do that. . There's a lot of Brannon pose that are like on parole, apparently . Just saying like, so just, you're not putting that out there . No, I was making sure that the Brannon Poe. But so I. Get sucked into a video every now and again. But that aside, what I thought was kind of interesting you know, whatever I was looking at your profile on your website is that, you know, oftentimes you talk about, like, you know, you'll run into somebody talking about running an effective firm or exiting a firm you know, or starting a firm, and I saw the two books that you authored are kind of bookings, if you will.

[00:09:20] You have like, How to start your own CPA firm and then how to get out of it. Mm-hmm. So can you kind of walk us through that journey like, cuz I think a lot of the people that are listening to our podcast are folks that are just tired of industry. They worked at EY, they worked at Deloitte, and they're like, Hey, there's a better way to do this.

[00:09:38] I wanna be able to grow and start my practice. So if we could maybe just start with, you know, some of the fundamentals and things that you've seen people really grow in, again, with that mentality of like think of the end in mind, you know, right from the beginning. Can you kind of walk us through some tips and tricks that you think that would be helpful for those people that are on the podcast that are really trying to just really grow their firm from the [00:10:00] beginning?

[00:10:01] Brannon Poe: Yeah. So to the books, so the first book I wrote was Accountants Flight Plan. Mm-hmm. , which was. A little bit about exiting, but it was a lot about practice management that I had just learned through working with clients that were selling. And so that first book was written from the perspective of, you know, I've just collected all these interesting

[00:10:24] practice management techniques from clients of ours. And somebody would for example, someone would have a really good high quality team that they didn't have to micromanage at all and just. people that kind of really took care of the firm and they got good margins that way. And so I just asked the seller like, you know, how did this come to be?

[00:10:44] Like, what was your secret to to having this, you know, outcome? And I was just taking notes. And then I had a lot of notes. I kept a little journal and my wife said, you know, you gotta, you probably could write a book from this journal . And I was like, you know, that's a really good idea. I probably should do that.

[00:11:03] And I did. And then it got picked up by the AICPA and was published as an ebook. And then they asked me to do a rewrite of on your own, how to Start your own firm. So I wrote the second edition of that book basically modernize it. I think it was originally written, the first edition was in the nineties or eighties even.

[00:11:22] So it was, it was kind of old. I think there's a third edition now. Anyway I think the practice management the Accountant’s Flight Plan is basically a practice management book, which is great if you're preparing your firm for an exit, but it's also great if you're building a firm. So I don't know that like a lot of the things that I write about are very fundamental.

[00:11:42] There's not like some secret. Magic tech stack or magic paint by numbers pricing strategy, or it's just kind of like foundational common sense stuff about running a business that's, you know, it's not that [00:12:00] complicated, but people just don't spend the time and focus on it enough. I mean, you see that with, as CFOs, you see that with your, your business clients, right.

[00:12:08] If you can just get people to focus on, focus their attention there, they'll make progress. And it's the same thing with CPA on firms. But starting, I think starting a firm has become very different with the technology. So when I wrote On Your Own, there weren't that many virtual firms in existence at that time.

[00:12:27] And so if I were gonna rewrite that again, I would probably highly recommend people create a virtual practice instead of a brick and mortar practice.

[00:12:35] Adam Hale: Why is that? 

[00:12:39] Brannon Poe: The scalability. I mean, the hardest thing about starting a firm from scratch is it takes a while to get clients, if you're gonna start a brick and mortar traditional practice.

[00:12:50] Now, I think there's a certain shortage of CPAs, so it might not be as hard as it was even five years ago, but it's just way easier to start a virtual firm because your market is, your geographical market is so much bigger. So you can do some pretty good digital marketing and probably start a practice faster than if you were gonna start a brick and mortar.

[00:13:16] Adam Hale: Yeah. I mean, we're fully distributed. We believe that, I mean, it was not only, it was for talent acquisition, and I know if you're starting your practice, you're not thinking about hiring people right away. But, you know, being able to hire outside of your market was important. Being able to get clients all over the place.

[00:13:30] And in terms of increasing enterprise value you know, we talked about probably the, the biggest Achilles heel is, at least it was for us whenever we were looking at buying firms, was whenever we heard. , you know, what percentage is your in-house tax returns done? That's what would make us throw up in the back of our mouth.

[00:13:46] I would assume that you get the opposite whenever you're doing virtual, right? So the client's used to being in a virtual environment. So if I'm in Indiana and I buy a firm in Louisiana [00:14:00] and they're used to working virtually, now I don't have to worry about the obstacle of not being able to go to the client's office or them come to me. Right?

[00:14:07] Brannon Poe: Right. No, absolutely. But I feel like even if you're starting a virtual firm, you've gotta get the fundamentals right? Like, if you don't have the right pricing strategy, you're not gonna prosper. Sure. If you don't have the right client selection process or filtering. You're gonna, you're gonna suffer, right?

[00:14:26] And even as you do grow and you scale and you hire people, if you don't have a good hiring process, that's another skillset that people need to have or need to be able to employ people that have that skillset. It's a critical skillset. So all of those things of scaling, whether you're scaling really any business, , those are the things that determine success.

[00:14:49] Tom Wadelton: You talked about the Accounting Practice Academy, and one thing that stuck with me, Brannon, that you said was as you came in, you're talking to people about pruning and pricing. I think there might have been one other thing, and then you move into advising, and my guess is when you first started working with people, what they probably say is, I wanna move into advising.

[00:15:05] And you're saying do these things first. It might be obvious, but why do they need to do those couple things before they can move to advising? 

[00:15:13] Brannon Poe: because they don't have the time and capacity to dedicate to it. 

[00:15:16] Tom Wadelton: So the pruning and pricing. Okay. That actually is different than what I thought you were gonna say.

[00:15:19] Okay. Did you say just a little bit more about that? That that's how you, that's how you free up the focus to be able to then implement that piece? 

[00:15:26] Adam Hale: Yep. 

[00:15:27] Brannon Poe: Most CPAs that how made a strategic plan to operate otherwise operate in a very chaotic fashion. They're working too many hours, they're working their staff too many hours.

[00:15:43] they're focusing on too many different lines of work. You know, if you have a CPA firm and you're doing two audits in a one owner firm , you are wasting your time. Sure. There's no way you're making money on two audits unless they're paying you 900,000 a year. 

[00:15:58] Adam Hale: Yep it makes a lot of sense.

[00:16:01] Brannon Poe: you know, it's just, it's an, what was it, Adam Smith, one of the fundamental economists, economic principles that he sort of was all about, was like segregation of duties and specialization. That's the key to economic development is you can't be so scattered. You can't have a sole practice and have an audit practice.

[00:16:24] A wealth management practice, a tax practice, a bookkeeping firm, a payroll firm, you can’t. You know, unless you have a team, I shouldn't say it's the ownership. It's the team. If you don't have a team that's focused, like if you have a, let's say if you had an audit partner or a tax partner or a tax manager that you didn't have to worry about losing then you could develop out lots of different specialties.

[00:16:51] But if you're a small firm and you're trying to scatter. Your service offerings too much. You'll become unfocused and unprofitable 

[00:17:00] Tom Wadelton: That's really helpful. I'll just tell you what I thought you were gonna go, and so this is a really helpful answer. What I thought you were gonna say is that you can't scale if you're not doing it on top of a pruned in good pricing structure, right?

[00:17:11] You're gonna go off of this, it's new service, and if your house isn't in order, then that's gonna be a mess. Two, the additional part that you mentioned that. I like in part because Adam and I, in our firm, we do coaching to other CPA firms who wanna offer CFO practices. And it's really common that people wanna go someplace.

[00:17:27] And if we were to check in with them like six months later, they're not nearly where they said they were gonna be. And I think one of the questions we often don't ask is like, how much time are you devoting to this? And most likely it's very much what you're saying is, you know, they're using spare time, which probably is either none up to maybe an hour or so a week.

[00:17:44] And so you could look and say, okay, so yeah, then 20 weeks. , how would you expect to get really far? You've had no time to devote to this, cuz it's spare time that no one feels like they have. So I like your answer there. That's really helpful. 

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[00:18:23] If you are ready to grow your firm, visit summitcpa.net/vcfoplaybook to enroll  now.

[00:18:32] Adam Hale: You know, it's a little off topic, but something that I work with all my clients that I work with and I personally use all the time, and Tom, I know you've heard me preach about it a million times over is just Four disciplines of execution. Yeah. Like I just, that book, I always, I come back to that book probably two or three times a year.

[00:18:52] And the reason being is because Brannon, it's everything that you just said. It is so simple. You feel stupid. Like, after you read it, you're just like, well, duh. You know what I mean? There's no silver bullet there. It's just like fundamentals. But what it really hits on. everybody studies strategy and how to do this and how to do that.

[00:19:10] Nobody really studies execution, like what it takes to actually get something done. And so whenever, you know, whenever we have somebody go to take the course, or I have a client that's kind of on the fence, if they wanna work with us, I like send 'em a little brief on 40x and I'm like, if this gets you energized, if this like.

[00:19:28] You know, you get you excited, then you would love to work with us. If it doesn't, then probably not your cup of tea, cuz we're really about getting intentional with the business and helping you execute on all those kind of things from a delivery standpoint. But again, also from, you know, That same intentionality needs to come in your firm and what I'm hearing you say, which I completely agree with, because it, that's whenever it matters.

[00:19:50] Whenever you look under the hood, you have all these sexy metrics that you look at, like what's your average bill rate and what's your utilization? All these metrics that you look at. But ultimately what's probably driving a [00:20:00] lot of value that you see is operationally how you’re set up right. So Jodi and I made a pretty conscious effort early on.

[00:20:08] I mean, don't get me wrong, we worked our ass off and we worked 80 hours a week, but we knew that wasn't the end goal. and what we did was we constantly made an investment back into the firm. So whenever we would, we literally built out an org chart and knew like how big and how many people we'd have whenever we wanted to get to a certain spot.

[00:20:25] And whenever we'd pick up two or three clients, we'd be like, oh, halfway to the accounting director. Oh, all the, now it's ready to hire the accounting director. So we started filling those seats in with new clients. Now what sucked for us is, you know, you jump a million dollars in revenue.

[00:20:38] Reinvested all that back into roles, but ultimately what that led us to was by the time we made our exit in April of this last year, you know, if they ask us like, Hey, what happens if Jodi or Adam go away? Nothing. You know what I mean? We had a very high functioning team don't get me wrong, like we bring our own value in different ways. 

But as far as executing the day-to-day and making sure everything stays on, you know, level set and going, like, we had a very high functioning team. So that was kind of our process as well, was just focusing on the operations and the SOPs and making sure that Jody and I are less and less valuable.

[00:21:15] And that's why we intentionally made it like Summit CPA, right? Instead of Grunden and Hale or something like that. Is because, and I know that some States with law firms and you gotta put your name in it and that kind of stuff, but we intentionally did that because also whenever we went to a client, we didn't want 'em to know that there was only two of us.

[00:21:31] Right out of the gate, there could have been two of us or 200 of us, they didn't know we're Summit CPA Group, so we always wanted to look bigger than what we were. And then we always didn't want it to be contingent upon like, oh, I'm talking to the founder. You know, because that, again, would detract value.

[00:21:45] Do you see that in other firms that you're working with? . 

[00:21:49] Brannon Poe: I do. I mean, I think the fact that you guys really focused on people and you got to a place of where you could slowly let go is in [00:22:00] some ways that's a counterintuitive strategy. Right. I think especially if you, when you start a firm or you're early in the firm, you know, maybe an acquisition, you sort of instinctively think, well, gosh, If I'm gonna grow, I have to do more, right?

[00:22:18] I have to do more sales work. I have to do more client work. I have to do more, more, and more. And actually, it's sort of the opposite. You have to at some point, at some point that's true, that you do have to do more. But then when you wanna scale, then you have to say, I gotta do less. Mm-hmm. , what can I do?

[00:22:39] What can someone else do for me? And so growing is a process of actually letting go of things. And the more you, yeah, the more you grow, the more you let go of. And that requires really good team building skills, right? That's acquiring the right talent, investing your time and resources into developing that talent.

[00:23:02] and being able to let go mean you gotta have somebody to delegate too, right? . 

[00:23:07] Adam Hale: Well, right. And a lot of times it's an ego trip a little bit too. You know, everybody wants to throw on their cape and go in and save the day, you know, that kind of a thing. So it does take a little bit you know, you have to swallow your pride a little bit whenever you are coaching and delegating.

[00:23:21] Work to others not to be like, oh, nope, get outta my way. I mean, I think that's kind of the curse of professional service firms in general, whether you're talking about a law office or you're talking about, you know, there's, how, how can you coach many people to do what you do as opposed to you being the one all be all for your specific thing.

[00:23:39] So we talk a lot about that and again, it was a little bit of a painful experience for us because, Scaling's difficult, especially whenever you're giving it all back  to new hires. But we had the intent of growing for that purpose and then eventually looking to exit. And we knew that that would kind of increase our intrinsic value.

[00:23:57] The more you know, the less [00:24:00] reliant the business was really on us, you know? 

[00:24:02] Brannon Poe: Yeah, absolutely. I, yeah. And that strategy worked out really well for you guys. 

[00:24:08] Adam Hale: Yeah. No. Yep. Absolutely. So what about so I know people still though, are interested in those those sexy metrics that we were talking about, right?

[00:24:16] Like, so what are you seeing in the marketplace today? What are some of the, the numbers and the things that I know. in general, they always talk about top line growth. You know, if you wanna maximize value 10 to 20% year over year growth, there's a certain bottom line percentage or you know, it used to be firms always you could count on it.

[00:24:34] Firms always sold for one to 1.25 times revenue. You know, and, and a lot of times it's 1.1 cuz the 10% was the commission for the broker. And that was just kind of like par for the course. And then it feels like over the last like five or six years, everybody's kind of converted to, you know, if they're really small, like an SDE multiple, if they're bigger, an EBITDA multiple.

[00:24:55] What are you seeing and what are some of those benchmarks for people to be able to kind of maximize their, you know, their exit? 

[00:25:05] Brannon Poe: Well, so what we tell people an apa, of course we keep it simple. I mentioned to you, it's like we focus on the fundamentals, keep it simple. So we have four KPIs that any small CPA firm owner should track, and those four KPIs are really simple.

[00:25:20] I'm gonna rush this cash flow to owner. 

[00:25:22] Tom Wadelton: You say cash. Cash flow is first, 

[00:25:24] Brannon Poe:  Cash flow to owner, right? Top line. Revenue headcount, just raw headcount. And then lastly, your number of days off, owner days off, no phone or days. and a day off. Yeah, and a day off means you're not working at all. You're completely unplugged.

[00:25:47] You're not checking a single email, taking a single phone call. So those are the four, four things that we tell you. Track those things. You'll see amazing progress in your firm if you track 20 [00:26:00] things. If everything's important, then nothing's important. So pick what you want to really focus on. I tell people, you know, in that one to 5 million range cashflow to owner, the goal should be 50%.

[00:26:17] Now I do see there's usually a fall off. You get to about 3 million. That cashflow owner percentage is gonna generally decline. It's probably gonna go down to 35 to 40% just because there's not as much owner production, so it's, it's sort of natural to get, you know, get about a two and a half to $3 million mark.

[00:26:39] You're gonna see a little bit of decline under cash flow percentage. Time off, like super important because if you're trying to sell your firm a buyer, like you said Adam, you see these practitioners just working crazy hours. People don't want that. That's, that's a, that's a business that's too dependent on the owner and just, and culturally, I think people really, CPAs aren't working those old school hours anymore.

[00:27:08] Some are, but I think the majority of buyers that I talk to are very turned off. 

[00:27:15] Tom Wadelton: What would you like to see then, and that's, what do you like to see for the understates off then Brannon? 

[00:27:19] Brannon Poe: I like to see under 2000 total hours a year. . 

[00:27:23] Adam Hale: Okay. And then how much of that do you usually target for chargeable? Or do you.

[00:27:26] [00:27:28] Brannon Poe: I don't, I don't recommend people figure that, like if you're looking at cash flow to owner, it doesn't matter how much is chargeable and how much is not, the less chargeable the better for an owner. Okay. I wrote this piece with Rob Siegfried. Are you familiar with Rob? He's got a pretty big consulting firm and he's a CPA that started from scratch and.

[00:27:51] It, his goal was to get to zero billable hours after about 12 years of our ownership. And people at the time, he had other managing partners [00:28:00] of much bigger firms say, you're crazy. You, you know, you don't have to get down to zero billable hours. It doesn't take that much time to manage practice. And anyway, he said, you know, my time is better spent developing my people covering risk of my practice and growing the firm and, and working.

[00:28:20] working on growth and that, you know, was in his mind the most essential three things that he could do for the business. So I don't think tracking, you know, I'm a big value pricing proponent. I don't think anybody should, I don't know why anybody would track time, honestly. Maybe you can use it for productivity, but if you, you know, if you think about the people that report to you, you kind of know if they're productive, whether regardless of what their time sheet says.

[00:28:54] Right. And if you don't, then you're just not paying attention at all.

[00:28:57] Tom Wadelton: No, we track, we do value pricing and track time. I have found it valuable as I look back on my own time in certain clients and I can look at how much we charge them my time. And you're probably not surprised. There are some clients that are disproportionate.

[00:29:09] and that's had me look and say, okay, what do I need to be doing differently cuz I'm spending way too much time for this client compared to someone else. And I've been able to make some changes and in some cases looking saying May maybe this is a client that really isn't a fit for what we're trying to do, or we should change pricing.

[00:29:22] So I found that valuable from our size. I could, at the same time, if one of my team members says, Hey, I'm completely swamped, that would be one of the places we could look and say, well what's taking your time? And is there something we can do around that? So I think it can be an useful analytical. 

[00:29:37] Brannon Poe: Yeah.

[00:29:38] Yeah. I, for my management style, I just, I don't find it valuable. And I think you know, from a pricing standpoint, it's really something. I agree with Ron Baker's philosophy that it should just be left behind. . 

[00:29:56] Adam Hale: Yeah. No, we actually just listened to Ron and I know Jodi's been on [00:30:00] his podcast a few times and Jodi talks with him a lot.

[00:30:03] We kind of agree with Ron. We agree with him differently. You know, like we believe in the value-based billing and he had to recently kind of change up his methodology and his thinking too. Like he's done a reboot on, you know, the practicality of his original assumptions of what value-based billing was.

[00:30:19] And it kind of aligns more with what we do in terms of like subscription-based billing. Yeah, but I think that, and I'm totally down for it and I can't wait for the day that it actually makes sense. But some of the stuff that you would measure is just kind of pie in the sky. You know, for us, and as Tom said you know, and this is the great debate in the space, right?

[00:30:39] We use the time entries for very high level stuff. So if Tom comes to me and says, man, I'm just stressed out. I can't take any more clients, cuz we measure based on book of business, you know, value based Tom, you should be able to run a million dollar book. What's going on buddy? You know, and then I look at his time and what we find is a couple things.

[00:30:56] Number one, for being able to price those value-based services you know, there's been time and time again that we would say this service is absolutely killing us. Processing customer invoices is the worst thing in the face of the earth cuz that's what we are gonna get in trouble the most for. And then but doing like bank recs

[00:31:12] is probably, you know, we're making handover fist money. And then whenever you looked at the items, it's like, oh, actually it's the complete opposite. We make the most money doing AR because we charge a premium for it cuz we hate it. And then we discount the value of a bank rec. and it takes us a lot of time.

[00:31:29] And so, we do it to measure kind of pricing, you know, and we just kind of look at it from 10,000 feet and look for trends. We win some, lose some whenever you do value-based billing, right? But we look for trends in job profitability, just to kind of see where we're at. And then again, just only if somebody comes to us and they're just like, Hey, I am absolutely swamped.

[00:31:48] It's like, well, which client's killing you? And a lot of times what Tom would say is, . I hate working with a ABC client. They're consuming my life. And then you look at their time sheet and you're like, huh, you're [00:32:00] spending about an hour a month on them. like, what's going on? Like you're spending 15 hours a month on this other client that we charge half as much money.

[00:32:07] Like, oh, but I like working with them. You know what I mean? So there's always like this, like very, you know, so it's a very like, Dramatic example, but time and time again, we see that whenever you ask a person, so we don't use it to like beat anybody over the head or look at utilization and realization and drive right.

[00:32:24] Business results. So we agree and totally in that regard. And same with the value-based. We just haven't been able to fundamentally get away from the emotional side of people saying, I'm tired and I, and then point to the wrong thing, or us say, we're valuing this correctly and then come to find out we're not, you know what I mean?

[00:32:43] Like, we haven't been able to take the emotion out of, of the determination of whether or not we're doing good. That's, that's always kind of my pitch back to anybody that's like, I don't want to. Trust me, we don't want to count track time either. But , those are the only things that, you know that we find challenging.

[00:32:59] Especially whenever you've got, you know, 70, 80, a hundred employees, it becomes a lot more difficult. 

[00:33:05] Brannon Poe: Right. And, and I think that's perfectly valid with larger teams. But you know, with most of our clients in that one to 5 million range, they don't have extremely large teams. So there tends to be a sense of.

[00:33:21] It's a little easier to put your finger on the problem Yes. Without the time sheet. In my opinion. 

[00:33:27] Adam Hale: Do,  you find that to be an obstacle if you did run into somebody like that? Like, so if I'm a buyer, I'm coming in, I would, as I would imagine, any partner meeting I've ever been in, what's their realization?

[00:33:36] What, how many billable hours do they have? So if you're selling a business that doesn't track time and you're selling them to. , you know, a client, and the client's like, cool, give me the rundown. How many charge hours do they have? How many, you know, and you're like, oh, they don't have any of that stuff. Is that  a problem?

[00:33:51] Brannon Poe: It happens. No, it happens all the time because most, a lot of firms don't have that stuff, especially for the owner. Like the owners, they might, [00:34:00] you know, the staff might track time, but the owner might not track time, right? I mean, we just go back to the fundamentals. Like, look, look at the cash flow.

[00:34:06] Look at the owner hours, like, you know, look at the main metrics and usually if those metrics are really good, then those details tend to not matter so much. 

[00:34:20] Tom Wadelton: Do you mind filling in Brannon then? I imagine people are listening, said, okay, there were four key metrics. What are they?

[00:34:25] And we, we haven't talked about top line revenue or headcount. Do you mind filling in those two? And that way people feel like they know what they're  looking at.

[00:34:31] Brannon Poe: Sure. So I mean, top line revenue when you're, when you're going for a sale, growth is definitely a positive. , you want to see, like, what I find that makes buyers most comfortable is there's a steady, sort of consistent pattern of growth.

[00:34:51] Fast growth can scare people. Mm-hmm. sometimes in that, you know, easy come, easy go, I think is the mindset there. If the client's not that old or hasn't been with the firm that long, then they might not be as sticky as a client that's been there longer, and there's some truth to that. . So I think in terms of growth, I think you wanna see, you know, steady.

[00:35:11] Okay. Steady growth and then in terms of headcount I think that's just an important track for your, for your own observation. I think if you're going for a sale you know, if you're understaffed right now, that's a negative. If you actually have, if you're overstaffed right now, that's great because.

[00:35:32] most buyers probably need the capacity. So.

[00:35:37] Tom Wadelton:  Is that measured in terms of revenue per headcount under, or overstaffed, or how, how does someone say this is, you know, it's a $4 million firm. They're under overstaffed. . 

[00:35:48] Brannon Poe: Well, I've seen a lot of variation in staff's size and, and revenue per person. I saw an interesting I saw Verne Har speak at a EO event a few months [00:36:00] ago, and he had this really interesting kind of general statistic about revenue per person.

[00:36:06] And I may not get the numbers exactly right, but I'm gonna get 'em pretty close. So I'll ask you, what do you think is the average revenue for a small company, you know, like an under 10 million company. What do you think the average revenue per person is for everyone in the firm? Any for everyone in the firm?

[00:36:25] Just not a CPA firm, a general, just, this is like general small business statistics.

[00:36:30] Adam Hale: Oh, probably a hundred thousand per headcount or? Well, if it's not a professional service firm, I guess professional service, I would probably say 150. If it's not a professional service, then I would probably, you know, it's probably sub 100,000 would be 

[00:36:44] Tom Wadelton:  I would've said about 200 before I heard answer, so I won't.

[00:36:48] Brannon Poe: Yeah. I think it's closer to what you said, Tom. I think the number that Vern quoted was around 200. Guess what it's for? A large company 

[00:36:58] Tom Wadelton: should go off of their synergies. It should be higher, but my guess is it's not. 

[00:37:03] Brannon Poe: It's a lot higher. It's like 600. Yeah. and I found that to be like, that really is a head scratcher.

[00:37:12] Like how is that? Because you think there's different, you know, there's mid-level management layers, there's a lot of structure. So I found that was interesting. I think a CPA firm should be around 200, 250. 

[00:37:27] Adam Hale: 200 to 250. Wow. So what we're finding is like, I think in the cas, they just came out with a study, I think they were, the average CAS practice, which is advisory, I think is right around 125,000 people.

[00:37:43] Oh, I have the, I mean, and this only has like 67 firms. We are at the D CPA. And. Yeah, and I mean, kind of to your point, like whenever we're, we're talking and looking at some of these metrics, I mean, it's just a different way to look at business, especially whenever you're looking at The median result was [00:38:00] 121,000.

[00:38:00] Yeah. And so the top performers were 231, so a pretty big delta between the top performers and, and the other ones. But I think, and that was at the cast benchmark survey from cpa.com. That just came out like a month ago. Pretty interesting stats there. But I think I, what was funny is we had, I had this marketing guy come on.

[00:38:20] , you know, and he was talking to me about, you know, Hey, how do I market to CPA firms? Really wanna, I just wanna focus solely on CPA firms. I'm like, oh, cool. He goes, I, I go, what's your target market? And he's like, I wanna work with, you know, probably above 50 employees CPA firms, is kind of what I'm thinking.

[00:38:36] And I said, Hey, by chance marketing guy, did you do your research? And he's like, he's like, oh yeah. I was like, you know how many accounting firms there are in the us? And he's like, And he's like, I don't know. I was like, eh, about 45, 46,000. And you know, his eyes light up and he is like super excited. And I go, you know, like the fifth, the 500th largest firm.

[00:38:57] only has 20 employees . So like whenever you look on the, whenever you look on the CPA's top 400 or the SI top 500, you know, there's mega Giants in the top four and then five to 30 are also just massive. And then you get to even the top 100 and they have 300 employees and you're the top 100 out of 46,000 firms in the us.

[00:39:22] You know, the fifth hundred largest firm has like 20 to 25 employees and is. right around 3 million dollars. So most of the CPA firms that are operating out of there, sub 20 people and probably living somewhere from that half a million to a million and half in revenue. Do you find that quite a bit whenever you're like people coming to you, like what's a normal size when people are trying to exit?

[00:39:44] Do you do you go off of like different metrics? If they're sub 1 million, do you not really work with people that are sub 1 million? How does that happen. 

[00:39:52] Brannon Poe: So we our typical client, I think our average on the sale side is probably about eight or 900 k. 

[00:40:00] On average on our APA side it's probably about just over a million, maybe 1.1, 1.2.

[00:40:08] Okay. The firms that we work with. 

[00:40:10] Tom Wadelton: So those are four, five person firms. Does that sound about right? If you're 800, 900,000. Okay. . 

[00:40:17] Brannon Poe: Yep. Four or five person firms. And you know, it's interesting though, cuz I've seen, like I've seen some really high performing firms. I sold a one owner firm that was doing almost 3 million, well, a few years ago.

[00:40:29] Adam Hale: Right, right. Like, there can be exceptions for sure. Yeah. 

[00:40:34] Brannon Poe: There are, there's just a lot of, and there's a lot of variety in just the performance of these firms. It's all you think.

[00:40:40] Tom Wadelton: What do you think are some of the biggest myths about selling when someone comes to you and I assume they say, Hey, here's what I heard.

[00:40:45] Like Adam said, you know, it's this kind of multiple, do you hear several things that are pretty common myths where you're like, that's not really what you're gonna find? 

[00:40:54] Brannon Poe: Yeah. People think they have to people think when they're selling, they have to take all the risk. In other words, they sell on a burnout basis, and that's a.

[00:41:02] common myth. And that the truth is the truth is you'll find buyers that'll buy that way for sure. I mean, that's that's not a bad deal for the buyer, but there's also really good financing mm-hmm. in the marketplace. There's a lot of lenders that focus on CPA firm acquisition loans, and so there's, and the, and the success rate of those loans is good.

[00:41:23] So they like to do those deals. So there's 10 year financing. If you own a firm, often you can get a hundred percent financing. Okay? Over a 10 year period. So I think that's one of the.

[00:41:35] Adam Hale: So if somebody wants an earn out, you say, Hey, don't worry, I'm gonna go talk to Brannon because I know there are people out there that are gonna bankroll this for you.

[00:41:43] Don't worry , . You know? Cause there's no, no reason to just accept it. Because that's what you hear everybody does. What about the, the multiple, are you usually seeing it as a multiple of this cash flow to owner? Or are you seeing it more of like a percentage of sales? How are you usually [00:42:00] valuing. 

[00:42:02] Brannon Poe:  It's, yeah, it's still a multiple of revenue, top line revenue.

[00:42:05] And, you know, I've done a lot of thinking about why that is, and I think it's because the practice is malleable. In other words, the owner determines the results of the firm. Mm-hmm. . And we've had a number of examples where I had one example in particular. This was really interesting where. . I had a firm in Charlotte, North Carolina, and the cashflow owner was about 60, maybe even 65% on an 800 K firm, one owner firm.

[00:42:40] So it was a high performing firm, and the buyer was from another state, and he had a CPA firm at a state that he sold, and he was operating at about a 40% cash flow owner. and then fast forward. And what's interesting is the seller ended up buying another firm through us in another city. And so we got to watch this little pattern play out both ways.

[00:43:09] The buyer who bought the high performing firm, I came back to him five, six years later. Guess what his margin was? It's about 40% new firm. The guy that sold, bought a lower performing firm, but guess where it was five years later, right? Yeah. 60, 65%. So who owns the firm is really gonna determine the results over time.

[00:43:33] Adam Hale: Hmm. Okay, but still small, right? Like, so for instance, I can't impact a 10 million firm profitability as an owner like I could a 800,000 because like I said, what I would find most of the time and what I would argue or wanna see with that person that all of a sudden turned it into 60 or 65, I'd be okay.

[00:43:54] Now you don't work. Let's see, who has more days off and who doesn't work? What we found [00:44:00] always is that person that hustled for the sixties to 65%. They were charging a premium and they were doing it all themselves. I get 500 bucks an hour. So I go out there and I just bill like crazy. I like working on Sundays and at nine o'clock at night, and then the other guy's like, Nope, push it down.

[00:44:16] You know what I mean? Like, so we took more of the, the reduction to put people in place because we wanted to build, I mean, those things to me, and that's why I say, and I think that's the reason why whenever you say there's 46,000 accounting firms, and there's only 500 that have more than 20 employees. I think it's because as a professional service firm, we really struggle with the idea of leverage and treating it like a normal business.

[00:44:42] We have to do it like based on our backs. And then, you know, and then that's why also if you have 20 or 30 people, you also have a five or six person partner. You know what I mean? It's like why do you have 10 people and four partners, like in what world? 

[00:44:56] Brannon Poe: Well, and I think a lot of. I mean, that brings up a really interesting problem and I see this, I've known about this problem for a long time and I really don't know that there's a good solution for it.

[00:45:09] But what happens is when you have multiple partners, somebody is going to be very change resistant, most likely. And so it's really important, like who has veto power in your partner group. You know, if you're trying to change a practice, if you're trying to scale a practice that's risky, it's kind of messy.

[00:45:33] And so if you've got a partner that's vetoing change and vetoing that growth, you're not gonna get very far. And that is a common problem. So as people partner up, as they scale and you get three or four partners, my experience has been somebody's gonna be risk averse. Somebody's gonna be change resistant, and they're gonna veto everything.

[00:45:56] And the whole thing just kind of, you know, tops up.

[00:45:59] Tom Wadelton: And if you talk, I, I think seamless succession is one of your, is it product or sort of the mode you guys work in, is that right?

[00:46:07] Brannon Poe:  It's, what we've named our process Seamless. 

[00:46:08] Tom Wadelton: I'm curious, when someone sells, is there a typical amount that owner stays on and continues working for that seamless part where you end up saying, okay, yeah, so they're, if they're a personnel that doesn't match with the buyer, this is a real problem.

[00:46:24] Brannon Poe: Well, I think getting the right fit is really job one when you go to sell. So if. . If that doesn't work, that's probably a problem no matter how long the transition is going to be. Most of our transitions now, this gets tailored, some depending on the complexity of the client work and the capacity of the firm.

[00:46:46] And, and there are a lot of variables that can impact the transition time. But like in an ideal scenario for us, for a one to $5 million firm, two to four months is what we recommend. It's a pretty quick. Yep. But that requires you finding a very capable buyer. Right. You need to find someone who can.

[00:47:07] We just sold a 2 million firm in Georgia in October, and the transition was like a month. Maybe even less. Buyer was like, I'm good. You can go now. , 

[00:47:21] Tom Wadelton: Brannon, as we work toward wrapping this up, I'm curious for the listener out here who's thinking maybe sometime I would, what would your advice be for at what point someone should call you, maybe timing-wise and when it makes sense to contact you versus maybe a do-it-yourself or a different type of person?

[00:47:37] Brannon Poe: Okay. So, I think ideally if we can start the conversation three to five years before the sale, 

[00:47:44] Tom Wadelton: Probably longer than most people that's, would think, I would guess for the person thinking that, okay. 

[00:47:49] Brannon Poe: Well, I mean, if their practice needs, you know, a lot of times people come to me and they say, well, how much is my practice worth?

[00:47:55] Right? And so I give them my, you know, my sort. [00:48:00] understanding of that value. And if they don't like that value, then given enough time, they've got time to work on that. Right? So and that's kind of where Accounting Practice Academy came in is we saw that people sometimes needed to get their practice in a better position so they could sell for the pricing.

[00:48:18] That makes a lot of sense. Get close. You know, as far as the do-it-yourself, I think internal sales are often do-it-yourself. You know, what I do is not rocket science. But we have a large stable of buyers. We have a process that helps people determine the right fit. You know, we market the firm very professionally so that we are able to capture the strengths of the firm and even the weaknesses of the firm.

[00:48:44] And that helps find the better. And I tell people like, Hey, if you're gonna sell your house, do you want one buyer or do you want 10? Sure. What do you think's gonna help you get the best fit and the best price? So it's somewhat of a numbers game. , and that's where our, you know, marketing and our time in the marketplace.

[00:49:00] We've just built a big database of buyers and if you, you know, put your practice on the sit on the market with us, you're gonna get a lot of exposure and you're gonna get a nice process to help maximize the value. Right? We also offer transition guidance. So that's another big value add is just how do we tell the clients, how do we nurture the staff relationships?

[00:49:22] You know, what do we need to focus on? during that transition period? 

[00:49:25] Adam Hale: Yeah, my experience would be always get a broker involved. I mean, just everything that you just said. And then plus some, I mean, just the experience, run an interference, being able to get a better deal. They're usually worth their weight and goals.

[00:49:37] Tom Wadelton: I think same, even some to just take the emotion out, right? When it's my baby, I've grown and I have to think, how do I improve it? Someone else who can look at it and just say, here are the facts, is worth a ton. Most people have a really hard time with that. Well, Brannon, thank you very much. This has really been helpful and I think to a lot of people looking wherever they are in that journey, especially when you say three to five years out for them, this is probably really valuable.

[00:49:57] Even if it's, I'm not gonna sell, like you said, [00:50:00] some of the best run firms are the ones being run like you're planning to sell it cuz that's what makes it a good firm and more fun to run in. So thank you Adam. Thanks as always for helping facilitate the conversation. 

Brannon Poe: Thank you. 

[00:50:12] Adam Hale: Yeah, thanks. We could probably go two sessions on this one pretty easy.

[00:50:15] So, thanks for coming and joining us. Yeah. Have a great day. 

[00:50:20] Brannon Poe: Glad to come back. Thanks. 

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Scaling and Selling: Is Your Firm Ready for a Broker? With Brannon Poe


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Episode 86 - Scaling and Selling: Is Your Firm Ready for a Broker? With Brannon Poe 👉



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