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Ep010: Buying or Selling a Firm with Brannon Poe - Transcript

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Dave: Good morning, Brannon.

Brannon: Hey, good morning, Dave. How are you?

Dave: I am great. I am great. Welcome to the IC-DISC Show.

Brannon: Well, thank you. I’m so excited to be here.

Dave: Awesome. Well, let’s go ahead and get started. So let me go ahead and read your bio so people have a sense of who you are. Brannon Poe’s the founder of Poe Group Advisors, and has been facilitating successful accounting practice transitions through the US and Canada since 2003. Brannon started his career in public accounting as an auditor with Ernst & Young. He’s the author of Accountant’s Flight Plan: Best Practices for Today’s Firms, published by the AICPA and CPA Canada. And another book he has is On Your Own! How to Start Your Own CPA Firm as well as multiple blogs and the Accountant’s Flight Plan podcast.
So that gives us a good starting point. Why don’t we dive a little bit more into the personal side? Tell us a bit more about you personally. Where do you live? Are you married? Do you have any children?

Brannon: Yes, I live in Charleston, South Carolina and I’m married with three children. And we moved to Charleston 20 years ago, love it out here. And all of my children go to the College of Charleston right now. So we tried to push them out of the nest and get them to go far away, but nobody wants to leave.

Dave: Well, that must be a testament to the appeal of the living near you and your wife or the city of Charleston.

Brannon: Well, I like to think it’s both.

Dave: Okay, that is great. That is great. So tell me how did you make the shift from being an auditor in public accounting, to helping CPA firms transition to new ownership?

Brannon: It’s a good question. It’s an interesting story. So I’ll go back. I’m going to go all the way back to high school when I chose accounting.

Dave: Super.

Brannon: My parents were actually art teachers. And so growing up, I had no business sense or nobody in my family was a business person. And so I always had this interest in business. And when I was, I guess, maybe a junior in high school, I met this local entrepreneur that I looked up to and he said, I told him, “I really want to learn about business.” And he said, “Well, you should become a CPA. So you’ll get to see how people do things in business and you’ll get great ideas and you’ll see what works.” And I don’t know, that makes sense. So that’s what I did. And I went to college and majored in accounting and came out working for Ernst & Young and I enjoyed the school part of it learning the concepts. When I got into practice, I realized pretty quickly that it wasn’t for me. It wasn’t what I was going to want to do long term.
So fast forward, a little bit, I stayed in public accounting for a while, about five years and did some sales work in a small company. And then one day, a friend of mine called me and we went and did some CPE together, and he had just bought a CPA firm. And he said, “You should call this guy that I got my practice through. All he does is broker CPA firms. And you should call him. See if there’s a CPA firm in Charleston.” And so I got up the next morning, and I had forgot the guy’s name, that he told me. And I called the wrong guy. And I called the founder of Accounting Practice Sales which was Howard Holmes and he said, “I don’t have anybody selling firms in South Carolina. Would you like to sell CPA firms?” He was a startup at this point, in 2003. And I’m like, “Yeah, that sounds interesting. Maybe I would like to do that.”
And so, anyway, I started doing that. Howard is up selling the company to his brother, and when he got out, I started wanting to separate. So I separated from Accounting Practice Sales and that’s how Poe Group Advisors came to be.

Dave: Okay. Well, that is a great background description. So why don’t we start to drill into specifically what you do. So although I know a little bit about what you do, let’s assume I don’t know anything. So why is there even a need for you to do what you do?

Brannon: Well, that’s a good question. Why is there a need? I thought the same thing myself, how many firms are actually turning over every year? And if you think about it, what’s the average career of a CPA that owns a practice? At first, I thought, “Well, maybe it’s 30 years.” And I think it’s shorter than that. It’s probably more like 15 or 20 years. Because people get out for various reasons, they might have another opportunity. Not everybody stays as an owner for 30 years. So if you think about it in those number terms, that means if there are 20 CPA practices that are privately owned, one of those out of 20 is probably going to turn over in a year.

Dave: I see.

Brannon: Now a lot of those will turn over internally. But a lot of the owners, they don’t have a family member that’s a CPA that wants to take over, or they just don’t have a staff member that’s really keen on owning. So what are they going to do? So there’s no market for them. So that’s where we step in. We create the market for CPA firms. And our typical firm is anywhere from, yeah, anywhere from 500,000 to five million rather. Five million-

Dave: In annual revenues?

Brannon: Yes. That’s our sweet spot. So we have sold one firm to the top 100 firms. I mean, I think we could handle larger practices than that, but that’s our sweet spot.

Dave: Okay. So other than the firms being from 500,000 to five million in size, what are some of the other characteristics or mindsets of these owners that create a particularly good fit with what you all do or who’s that ideal person for you?

Brannon: I’ve got clients for it. Well, I can best help first of all, they need to be really ready to sell. I think that’s one of the biggest obstacles we have to determine, is are they truly ready, is the timing right? And we spend a lot of time with people who are years away from selling, and they’re just not quite ready. So we help them get ready. But before somebody goes into the market, they need to have reached that point where they’re truly ready to move on to something else or to retirement.
So I think that’s probably one of the key things and, obviously, we like firms that are more marketable. The more marketable firms are easier to attract good buyers. And that’s going to mean a variety of things. I’m not sure how much detail you want to go into here, but-

Dave: Sure, let’s go ahead.

Brannon: Sure. So a practice that’s really highly marketable would be one that’s profitable. One with preferably with good staff, preferably with staff that have, they see some longevity in the team. These are the ideal circumstances. And you want someone as a seller, our model is a little different, I think, than most people intuitively would think. A lot of buyers and sellers believe that if the seller stays in the practice for a long time after the sale, that that’s just automatically going to be better for transition. And we have, through experience, we’ve found out that that’s just not true. It’s not the case. That more often than not, that will cause problems in the transition. And if you think about it, it makes sense, if the seller is there… Let me give you a scenario.

Dave: Sure.

Brannon: So suppose you buy a practice. Suppose you’re the buyer and you buy a practice. And you step into a conference with a client. So it’s you, it’s the seller, and it’s the client. Who do you think that client’s going to direct their questions toward in that meeting?

Dave: Probably the seller.

Brannon: The seller.

Dave: Because that’s who they know.

Brannon: That’s who they know. So you as the buyer, are sitting there in this awkward position of being a third wheel in this meeting. And that does not help build that relationship with that client. And so if you’re the buyer, you’re better off not having the seller in that room. And you’re solving client problems, you’re bonding with that client. And the same is true for staff.
Now I’m not saying that doesn’t work sometimes. And there are situations where a seller involvement can be helpful. We find that true in more complex longer larger engagements, like a big audit for example. The seller can still serve in some capacity as an oversight on an audit and things like that. And I think that does give the client more comfort. But, yeah from a da-

Dave: That’s really interesting. Because one of the podcasts I really enjoy is one by John Warrillow, called Built to Sell and every week he has somebody who has sold their business. And it seems like in the non accounting realm, that anytime there’s a service business being sold, they almost always want the owner to stay around for two or three years, and the owner doesn’t want to stay around. And in that world, it seems like it’s oftentimes one of the biggest sticking points. And so what John recommends, he’s got this value builder scorecard thing, is that he said, the way you avoid that is you make yourself unnecessary in the business as the owner, you have a really great team that really runs the business. And so that they don’t really need you, that that’s how you get the maximum value, and you decrease how long the buyer’s going to make you stay. So would that apply to some extent, in a CPA firm as well? Is a CPA firm more valuable if the owner is less involved in the day-to-day of the business?

Brannon: Absolutely. Absolutely. That’s true. And I think that’s especially true as the firm is larger and larger, that becomes more and more true. But if you got a firm that’s doing between 500,000 or a million dollars a year, it’s hard to have that team that can really take over significant amount of your responsibilities. So-

Dave: Sure.

Brannon: … which is one of the advantages of scaling an accounting practice or any business, is that’s one of the big advantages of scale.

Dave: Interesting. So you’d mentioned that you help them get ready, if they’re not ready to sell for a few years. What does that involve? Or what do you mean by that, by helping them get ready?

Brannon: Well, we help them get clear about what they want. I think that’s probably one of the most important components, is just we consult with him. And we ask them some of the hard questions. And if they don’t have answers to those, then… A lot of times they’ll ponder it. We also have, you mentioned in my bio, Accountant’s Flight Plan, that’s a really good short book that helps people get their practice in the most marketable condition that they can. We do have a succession planning guide that we offer, it’s a free guide that touches on some of the probably some of the most simple things that people can focus on to get their practice in better shape to sell. I think pricing is a good example that a lot of CPAs don’t price their work. They don’t value their work-

Dave: They don’t charge enough?

Brannon: They don’t charge enough. They don’t value their work as much as the clients do. And I think they’re just sometimes too timid to try to push the limits on pricing. So it’s one of the things, “Can we have a chat or an account site plan about pricing and how to do that?” And you don’t have to do that all at once. You can test it, you can take a sample of clients and test out new pricing strategies. And then if it works, great, then you do it in a more widespread fashion. And unless the stuff is pretty simple, it’s just a matter of doing it. And unfortunately for sellers, when you’re at that stage in your career, where are you thinking about getting ready to get out, you don’t always have the drive to improve the practice. There’s not-

Dave: Sure.

Brannon: You’re tired. But sometimes people do get a burst of energy when they know they’re going to put it on the market. And we’ve had situations where a practice was under profitable, and they weren’t getting a lot of market interest. And that can be very motivating for a seller.

Dave: Sure.

Brannon: If you’re not getting the feedback you want for the marketplace. And then you realize, “Oh man, I really got to do something.” It’s obviously better if people are on the front-end of that, and they realize that maybe five or 10 years before they want to put it on the market.

Dave: Sure.

Brannon: Before they put it on the market and then dawn on the reality that, “Oh, man.” I think that’s going to be more of the case going forward because you do have some demographic things going on. You’ve got the baby boomer generation is aging into retirement. And there are going to be a lot of firms probably on the market. But then to counterbalance that, it’s going to be interesting to see how this works. The millennial generation is, I think this year, or next year going to outnumber the boomer generation in terms of total population size. Which I think a lot of people don’t realize that, that the millennial generation is going to be the largest generation.

Dave: Well, that is interesting. I didn’t know that.

Brannon: Yeah. And so I have an interesting tip, I’m actually doing a podcast next month with someone that talks about these generational differences. And my, I guess hunch, is that millennials may not have come of age quite as early as previous generations. They get married later, they have children later. But all these things are going to happen. And so when that happens, I think the demand for practices is going to increase, hopefully pretty substantially. Because-

Dave: That’s-

Brannon: … they’re going to be ready to go, “Okay. I’m not really happy working for someone else. I can go and buy a practice and increase my income and increase my freedom. Why wouldn’t I do that?” So I just think, it goes back to motivation. I think those life circumstances will motivate that generation.

Dave: That’s, I look forward to listening to that podcast. So I want to switch gears a little bit. And so I’m also, my training was also as a CPA in public accounting. So I’m just by chomping it a bit to get into the numbers. So help me understand what’s the typical evaluation for a CPA firm? Is it a multiple of revenues? Is it a multiple of profits? What’s the calculation there and what’s the range as far as the most lucrative, multiple you’ve seen and the worst you’ve seen?

Brannon: Well, it’s a big range. They do trade on a multiple of revenue. I think it’s a pretty widely known rule of thumb in the industry, that accounting practices trade for one times revenue. So that’s the starting point. Now you can’t really talk about price without talking about terms. And there’s a big difference between some sort of a earn-out type of calculation where the buyer says, “I’ll give you 20% now,” my depth is one times revenue, it’s 20% now, 20% next year and then so on for a one time payout over five years, essentially. Versus a cash deal where the buyer just pays for the practice like a normal business.

Dave: Okay. Right.

Brannon: And so typically there is a cash discount. Most of our practices do sell for cash. The nice thing about the CPA industry is there’s really good financing out there for CPA firm acquisitions.

Dave: Oh, okay.

Brannon: 10 year financing is available. And a lot of people don’t realize it but you can get… Typically you can get 90% funding for the deal, if you already-

Dave: Wow.

Brannon: … own a firm. If you already own a firm, you can often get 100% financing. So amortize it over 10 years, that makes the cash flow work a lot better than an earn-out type of formula. Also in terms of the terms earn-out creates a lot of conflict. I did a research project a few years ago, and I don’t know, there’s some really large percentage, it’s over half, there’s some dispute on the earn-out calculation. And then it’s not great for the buyer-seller relationship. And so we actually try to avoid earn-out. I think it’s just… Our philosophy is, “Hey, let’s just have a clean deal.” There’s some price where you’re willing to do a clean deal.

Dave: Right.

Brannon: And let’s keep it simple. And there are definitely circumstances that are unique and the terms have to be created specifically to address those circumstances. But-

Dave: No, I can’t see that.

Brannon: Yeah. So when we talk about price, we’re talking about cash prices. Now I’ve seen, you asked for worst and best, worst case scenario is you’ve got a fire sale where maybe there’s a death. We’ve had situations like that where the practice center just actually dies. And you have to sell it very quickly. And I’ve seen practices go for 50 cents on the dollar in those situations. Now you have, the other end of the spectrum, where you have a highly profitable practice in a major metropolitan area that actually is a hot market. There are hot markets. And in a hot market, I’ve seen them go for 1.3, 1.4 multiple-

Dave: Okay. Wow that’s amazing.

Brannon: … on a cash deal. So-

Dave: It’s interesting, I wasn’t aware of the ability to get financing, and now that you’ve shared that with me, I can see why your deals are mostly cash. Because even if a buyer comes to you and says, “Yeah, we’re willing to pay the price, but we want to pay it out over five years, we’ll put 20% down, and pay the owner out over five years.” I’m guessing you probably said to the buyer, “Well, wouldn’t it be better off for you to put 10% down, borrow the 90% from a bank over 10 years, and you’ll get a more,” I mean, it just seems like if somebody is trying to get a deal done, it seems like that deal is better for everybody. Because in essence, the buyer is getting a discount, by being an all cash deal. The terms he’s going to have with the bank are likely going to be more attractive than the terms he would get from the seller. So I can see where… It seems like in general markets that have a lot of owner financing, or seller financing or markets that don’t have great borrowing options, so out of default, they end up doing that.

Brannon: Yeah and I-

Dave: So that’s it.

Brannon: … started with a banker that just does these type of deals and the experience that they have CPAs is really positive. The failure rate is extremely low in a CPA firm. The default rate on loans is low. So yeah, and not only is it better from a cash flow perspective, from the buyer’s perspective, and this is what really is not always easily recognized, is that if you’re a buyer and you’re buying a firm for cash, it goes back to what I was saying, you don’t need the seller to stick around. And if you’re buying on earn-out, that seller is really not very likely to let go of the practice. They’re going to want to make sure that the buyer is performing the services as they… They’re going to try to control how the service is provided to those clients.

Dave: Yeah, because they have risk. So they’re concerned-

Brannon: Yeah. They have risk and they’re not willing to let go. And so you’ve got some incentives in that deal structure that actually affects the behaviors, both on the buyer side and the seller side that affect those behaviors that aren’t really conducive to a good transition. So we find that the earn-out not only is problematic in terms of cash flow, but it can be very problematic in terms of having control battles over how the practice is operated after the closing.

Dave: Yeah. It’s like the saying that the parent says to the child, “As long as you live under my roof, you’ll follow my rules.”

Brannon: Yep.

Dave: I can imagine the seller’s philosophy is a little bit the same, “As long as you own money, or as long as you owe me money, I’m going to have a say so in how your practice is run.”

Brannon: Right.

Dave: I see.

Brannon: And so it’s frustrating for the, yeah, it’s frustrating for the seller too, because they don’t have full control, but it’s frustrating for the buyer because they don’t really have the flexibility and the freedom to do what they think is best. And everybody’s going to run a practice differently. Just because the seller did it this way, it doesn’t mean that’s the best way. And the buyer may have some really great ideas and have a lot of energy to go in and make some changes, but their hands are tied. So-

Dave: No, that makes sense. Oh, hey, I don’t want to interrupt, I just want to-

Brannon: Sure.

Dave: … I’ve got here, a long list of questions I have for you.

Brannon: Okay.

Dave: So the multiple, as low as half to as high as 1.4X for cash deals. What’s the typical transaction fee that’s charged in the industry? And I’m not asking specifically for your range or your fees, but what’s a typical, is it a percentage of the sales price?

Brannon: Well, our fee is paid by the seller. The seller says, “What’s your fee?” And I say, “Well, you’re asking the wrong question.” And the right question is, what am I going to net after the fee? And that’s really what they-

Dave: Right.

Brannon: That’s what I think people should realize, is we are able to sell for a higher multiple than someone that’s going to sell on their own just because you’re going to-

Dave: Sure.

Brannon: … get a lot more market exposure, you’re going to get the structure, you’re going to get a lot of value. So I don’t know, my fee is 12%. Because that’s the standard fee. I’m not the cheapest in the industry. There’s some cheaper people out there, but that’s what our fee is.

Dave: Okay. Well, no, that’s helpful because I’m imagining, about a quarter of my listening base are CPAs and I’m guessing this podcast is going to be of great interest to that niche of our listener base and probably not so much for the other three quarters. So I’m just trying to anticipate the questions they’re going to have. So thank you for being so-

Brannon: Sure.

Dave: … candid there. What I’d like to do now, I’ll just walk through some typical examples. So I’m guessing you’ve done this long enough. I’m assuming you’ve sold, you’ve probably been involved in, I’m guessing more than 100 transactions or close to 100 transactions. Is that a fair assumption?

Brannon: I actually, I think we surpassed 300 last year.

Dave: Oh, wow.

Brannon: We’re doing over 300.

Dave: Okay.

Brannon: Yeah.

Dave: Okay. Well, that’s great. So let’s think of a deal that’s maybe… So let me just tell you the kinds of deals I want to talk about, I want to talk about several types. So one would be, think of a deal that had the youngest purchaser that you can think of and what did that look like? And then think of, I guess what would be the most typical scenario, as far as maybe the transaction, the characteristics of the seller, the characteristics of the buyer. But let’s just start with those two scenarios. Let’s start with the youngest. And the reason I ask this-

Brannon: Youngest.

Dave: … is you’ve told me a story, a couple of years ago, about somebody who bought a practice. And I think they were in their 20s, and it really surprised me that somebody that young would have the desire and confidence to do that. So I think back to my public accounting days, and if you start at 22 or 23, I mean, you’re barely even having any client management experience before 30. So it struck me that… So I was imagining in my mind, I wouldn’t have felt ready to buy a firm till I was probably 35 or 40. So let’s start with that one. What’s the youngest buyer you can recall? Or an example of a young buyer.

Brannon: Yeah. Well, there was a great example, if people care to listen, I did a podcast this year with a buyer named Jason Ding. And he, I want to say he’s in his late 20s. Now I’ve had have buyers a little younger than that. But this one really stood out because he was so bold in what he did, he bought a practice that was probably what I would consider more of a fixer upper. And he knew that going in, he knew that the practice was… The fees weren’t great. He felt like the systems were outdated and so he went in and massively increased prices.
But he was really smart about it. He went to the clients and said, basically, “Look here, I’m going up on the fee, however, this is what you’re going to get.” And I think he said he lost some really small percentage of his total client list. And he’s pretty much tripled the practice in, of course over a couple of years. So I think-

Dave: I remember this. I listened to that podcast. Yeah, I remember him.

Brannon: Yeah. So I think sometimes you get people that are in their 20s, I know I started my first business in my 20s. And there’s something really cool about that age because there’s that boldness. There’s that, “Well, I don’t see this as a big risk. So I’m just going to do it.” You don’t have any preconceptions of how things are supposed to do. And so there’s buyers that are really young. I think if you’re really young, the smart thing to do is start with a really small practice. Don’t go out and buy a million dollar practice, buy a 250…

Dave: Sure.

Brannon: … practice. And-

Dave: That makes sense. Now I’m curious, I don’t remember, did Jason come straight from public accounting or had he gone into industry? Do you recall?

Brannon: I’m trying to remember. I know he’s parents were CPAs. Yeah, I think he did go into industry initially and then he swore he’d never do public practice because he didn’t like the taxes and hours in his parents work.

Dave: Sure.

Brannon: But I do think he had industry experience. And what I’ve noticed is if someone’s got public and industry, they tend to do a better job of the small business advisory work.

Dave: I can see that.

Brannon: Yeah.

Dave: Yeah, they’ve actually been in the shoes more so, even if they were just in the accounting department of, say, a manufacturing company, they still understand it better than having just advise people. So yeah, that’s really interesting because I can tell you, I started my career at Arthur Andersen here in Houston. And if I had known then, that this concept of you could buy a small practice existed, I would have done everything differently in my career. I mean-

Brannon: Oh, wow.

Dave: … first of all, I would have went into tax instead of audit. And I would have focused on small, tried to be in the part of the practice that focused on small businesses. And then I would have tried to find somebody like you, as soon as I could, and with the idea of buying a practice while I was still in my 20s. So yeah, that’s just really interesting. And I have to think there’s lots of folks like this, in their 20s who have no idea that this is an option and that the financing is there.

Brannon: Yeah.

Dave: Is that been your experience, the most-

Brannon: I think that’s-

Dave: … potential buyers not even know that?

Brannon: I don’t know, because I’m talking to the people who do know that.

Dave: Oh, sure, sure.

Brannon: It’s hard for me to say. I don’t know. You bring up a great question, is it widely known that you can buy a CPA firm? I don’t know how many… I don’t know if that’s on everyone’s radar or not. I think it probably is. There’s a lot of marketing out there for it.

Dave: Okay, well, it takes long.

Brannon: If people do-

Dave: Go ahead.

Brannon: Yeah.

Dave: Go ahead.

Brannon: No, if the people are digging around a little bit, they can find firms for sale.

Dave: Okay. Well, that is interesting. So hopefully, if there are some CPAs that listen to this podcast who weren’t aware of that, or maybe what they’re not aware of is just how young they could buy a practice.

Brannon: Yep.

Dave: Because I’m guessing… So now let’s shift gears to a typical buyer. What would you say is the typical average age for your buyers? Is it somebody in their 30s, in their 40s?

Brannon: So we have buyers fall into two groups, and you have existing firms that are buyers, and those tend to be more mature people. I’d say, in their 40s and maybe early 50s. But individual that, we have a lot of buyers that I would characterize as someone that’s working in a CPA firm, they have 10, 15 years experience. But for whatever reason, they’re not happy where they are. And they don’t see a path to partnership or maybe they just don’t want to be partners with those partners, and they want to do their own thing.

Brannon: And so those people tend to be 35 to 45. So our individual buyers tend to be that age group, 35 to 45, which I think the oldest mill, yeah, the oldest millennials are now 38 years old. So they’re coming into that, back to what I was saying about the demographics, they’re coming into that prime age of practice ownership.

Dave: Then that’s a great stat on the top end of the millennial age there.

Brannon: Yeah.

Dave: Okay. So let’s look at, now let’s look at a typical deal, or maybe a recent deal. And let’s just get into the nitty gritty. And obviously, probably for confidentiality purposes, you won’t want to share specific details. But let’s talk about a practice you’ve sold in the last year, and let’s start with it from start to finish. How much time elapsed from the time you first spoke to this person until the practice was sold? Just walk us through a deal, if you will.

Brannon: Okay. So this one comes to mind, it’s really an interesting case. This gentleman, the first time I ever met him was about 10 years ago. And he clearly wasn’t ready when I first met him. So we just talked about practice management issues and he was keen on growing his practice. I think when I first met him, his practice was probably doing about a million dollars a year. And we just kept in touch, over the years. He’d touch base with me every couple of years and he started reading a lot of my blog, a lot of our blog posts, by the way are practice management related, and he followed us for a while and he was growing and he really wanted to grow the business. And he had this vision that he wanted to stay in front of the quality of the work. So in order to do that, he wanted to be overstaffed rather than understaffed. So he wanted to keep the quality, he wanted to make sure the quality of the work was really good. So that was his strategy.
And in some senses, it worked really well. He had this great team. He had been able to attract larger and larger clients, I think, his largest client was, I don’t know, maybe 100 million in revenue. And so he had this… So when he was ready to sell, he had about a $2 million practice. I think he was doing about two and a half. So he doubled it in that 10 year period. And he had a really great quality of clients, he had great quality of staff. So when he wanted to sell it, I knew those were really two big strengths of his business, but he didn’t really focus on cash flow as much as I think he should have to make his practice really, really marketable.
So it took us a while to sell it. And we had to find a buyer that had significant capital, and would also fit with that culture and saw the potential in the practice. But we did sell it just a couple of months ago. And the interesting thing was, is from the time he put it on the market, it was on the market for a while, till the time he sold, he improved the cash flow about two and a half times. So-

Dave: Wow.

Brannon: … and that was what I’m talking about, about the motivation to improve cash flow. Sometimes when a person puts their practice on the market, they realize, “Oh, man, I really should have been focusing on cash flow, on improving the profitability of the practice.” Because that’s what… I mean, what is a buyer buying when they buy any business? They’re buying an income stream. And if the income stream is not there, it’s problematic. So they’ve either got to… They have to fix it. The seller has to either get the practice profitability to where it needs to be or the buyer has to do it. And so if the buyer has to do it, then it’s going to cause the practice value to go down. So anyway, that was an interesting… Because what he did is, and we gave him a lot of feedback. So when we had buyers who’d give him the feedback, and I think that’s what really motivated him to improve that profitability.

Dave: Well, that is interesting. I cannot believe that time is flying by. So let’s talk about some of the biggest misconceptions people have because I have a friend who was an advisor to a practice in Texas. And that person was a CPA and I think the typical penny wise, pound foolish, he was so focused on the fee he was going to pay the broker. And I remember this guy’s response to my friend was, “I don’t need a broker. I know all the people in town who would have any interest in buying me and I’ve already talked to them and none of them are interested.”
And I remember, I actually talked to you about this a couple of years ago because I thought this could potentially be a practice you could sell. And I remember you told me that this guy had some erroneous assumptions. So why don’t we get into, maybe starting with this scenario of what are some of the misconceptions people have about your service? Versus just trying to do it themselves?

Brannon: Well, I think a lot of CPAs are really smart and they have clients that have sold and so they’re pretty familiar with that process. I had a client last year really sharp, sharp CPA. He had a close to $3 million firm with really excellent cash flow. Probably $1.3 million cash flow. A really incredibly good practice manager. And he was out trying to sell his practice. And he and I spoke and the problem is, is you’re running a business and that’s your business. This is our business. It’s not rocket science, but it’s what we joke and do every day.
And so we’re building a database of interested buyers, we have a process. So our buyers have to go through a process. And to do this on your own, first of all, is inefficient. Most of them don’t do it efficiently. So if you’re not doing this efficiently, it’s going to limit the number of buyers that you can even entertain at the same time.

Dave: I see.

Brannon: And the other thing is, is you’re not doing this every day so you’re not picking up on the little cues that buyers give, and sellers give. And so the way a buyer moves through our process gives us a lot of information about their motivation. And it gives us a lot of information about their capability to buy, their capacity, all of these things. And we can be really objective about these things. So there’s not a… Because it’s your business, I don’t care how smart you are, or how many deals you’ve seen, it’s still your business. So there’s a little bit of bias in your decision making process.
So I tell people, it’s like, “Okay, if you’re going to hire for a position, occasionally you might get really lucky and find a good candidate and hire that person and be a great employee. But typically if you hire the first person you interview, that might not be the best decision. It’s better usually to interview 10 people and pick the best fit out of those 10.” And so what we do is we provide a larger number of options, a process and our objective, experience driven observations about those people.
So we’re able to help that seller make the best fit. And so many sellers are really price driven, like, “What about the price? What about the fee?” You’re focusing on the wrong thing. Because what you should be focusing on is the fit. Because if you get somebody that’s really well suited for your practice, that solves all the problems. Because if they’re well suited, if they know they’re going to do well in that practice, they’re going to be willing to pay fair market value for it, first of all. So-

Dave: Right. Or even a premium.

Brannon: Or even a-

Dave: Even a slight premium, if-

Brannon: … so even a premium.

Dave: … they see that it’s a really great fit.

Brannon: Right. And then, and not only that, but the transition becomes smoother if you got the right person. I mean, this all boils down to getting the right person in there. And quite frankly, I think with our process and with our guidance, I think people are able to find and select the right buyer, not just a buyer.

Dave: That is interesting. Go ahead.

Brannon: Yeah. Well, and two, it’s really hard to negotiate without a competitive environment. So it’s hard to negotiate with one buyer.

Dave: Right. And they know that if the owner is trying to sell the practice themselves through just direct contact with known firms in the market, they probably know that it’s not as competitive of a bidding situation, whereas when you’re involved, they don’t know whether there’s one other interested better or 10 other interested bidders. So let’s go back to this-

Brannon: And we-

Dave: Oh, go ahead. Well, I just wanted to finish the story on this one. So this gentleman had a really profitable, $3 million practice, a million three or so of profit in it. And I believe you said he originally was trying to sell it himself?

Brannon: Right.

Dave: And then, so what happened then when he got… So just quickly, tell me how long did he try, what were his obstacles, and then what was the outcome once he hired you?

Brannon: Well, I think he was trying on his own, probably for four or five months. And I think he got pretty close to a deal. The other thing is, I think he was skeptical that I could really actually get him all cash. And get him a good premium and I think CPAs are naturally skeptical salespersons.

Dave: Sure, sure.

Brannon: I fall into that salesperson category which you is, I understand. So anyway, he talked to somebody that we had sold before. And they, I think he finally came around and talked to maybe two or three prior clients of ours. And then he was like, “Okay, maybe this guy’s really able to do what he says he’s going to do.”
And so he listed and he was also reluctant to build the profile properly. So we do a lot of work on the front-end to really create a nice profile for our practices. And this was a sharp guy. He’s a really smart guy. And he bucked me on how we were going to do the profile and anyway, he finally came around to our process. And once he did that, man, we had a lot of buyers, we had a lot of meetings for him.
The nice thing about this guy is he was willing to talk with everybody. And he was wasn’t really real choosy about who the buyer might be. And he was willing to do a lot of meetings, a lot of phone calls. So that just made… he had a lot of choices, and I always encourage sellers to talk to as many buyers as they can, because they’re going to get insights from each one of those conversations. They’re going to know what they don’t want, they’re just really going to be able to target that perfect fit more exactly. And so we ended up with like three or four offers on that deal, and we got full price for it. So he was happy.

Dave: Awesome. Well, that is a great story. Well, boy, I can’t believe our time is nearly up. So I’d like to wrap up, and then share some next steps with folks who are interested in exploring this further. So as I understand it, to me, the big takeaway from this is that there are a lot of misconceptions out there that cause sellers to make erroneous decisions. And one of the big ones is that there is abundant financing available with great terms such that there really are plenty of cash buyers out there. Or there could be even if just the buyer has to be educated on why they’d be better off borrowing the money from the bank. So to me, that seems like one of the first biggest misconceptions.
And then the next few you touched on recently are things that they can basically save 12% by selling it themselves. They’re not factoring in that you may be able to command a premium because of your process and competitive nature, you may be able to sell the practice for more than 12% more than they can.
And then another one is that because they’ve seen other clients of theirs sell a business, they feel like they understand the process and they can run a process. But it’s not what they do all day long and they have a business to run, so that it ends up probably getting pushed to the back burner and never gets the full attention. Does that summarize some of the biggest misconceptions?

Brannon: I think so. I do. I think the earn-out is a big misconception. And the longer transition involvement is a big misconception. I see a lot of private transitions, we observe deals that are done privately and the transitions in my opinion, are handled the way they are because of that deal structure. And they’re not handled well.

Dave: Yeah. Yeah.

Brannon: So the buyer ends up losing as well. It’s a shared loss, but it’s a loss nonetheless.

Dave: Sure. So let’s talk about, as we wrap up, where people can can reach you. So first off, what’s your web address?

Brannon: It is And that’s P-O-E, and advisors is spelled with an O, A-D-V-I-S-O-R-S.

Dave: Okay. And where would you direct, because there’s two types of listeners we’re going to have within the CPA realm, those who are contemplating selling a practice and those who might be considering buying a practice. Do you have a resource for either one of those buyers? And could you share that URL?

Brannon: Sure. So if you go to the website,, if you’re thinking about selling, we have a free succession planning guide. And that is\plan. And that’s really good for somebody who’s starting to think about exiting. And for buyers, I would direct you to our FAQ page. So if you go to and click on the buyer tab, there’s an FAQ page and there are several different resources on that page. So that would give you a smorgasbord of different products that we have that are free. We have a video about buying, we have just numerous resources. Choosing a firm, evaluating a firm. So it just depends on what stage that buyer is in, in their purchasing journey.

Dave: So what if somebody just wanted to cut to the chase and just have a call with you straight away? Are you amenable to that?

Brannon: Well, we have a lot of buyers. So I actually prefer-

Dave: I’m sorry, I’m just talking more on the seller side. Say that a seller was really interested, but he wanted to just call and talk to you first. Or do you really prefer that they-

Brannon: Well, we offer an exit strategy call. But people just need to email us to get that scheduled. I don’t take unscheduled calls.

Dave: Yeah, that makes sense.

Brannon: Yeah. But, we’re, you can just email.

Dave: So when they go to the… Okay, go ahead.

Brannon: Yeah. You can just go to the contact us page. Actually on the sellers page, we do have a place where you can request to consult and yeah, we plan to do an exit, we call it an exit strategy call and happy to do this with people. But we just have to get them on the schedule. They can email me for that, that’s

Dave: Okay, awesome. Well, Brannon, I really appreciate your time and I think you’ve really shared a lot of valuable information that will be interesting to a lot of our CPA listeners.

Brannon: Well, thank you for having me on. It’s been my pleasure.

Dave: All right. Well, you have a great day, Brannon.

Brannon: Okay, you too.