Buying A Book Of Fees | Merge, Acquire or Divorce

Are accounting & bookkeeping biz sausage factories? Whether you're eyeing an acquisition, weighing up a merger, or quietly polishing your practice for sale, this one's worth the listen. Amy and Will are pulling up the handbrake on the "just buy a book of fees and ride off into the sunset" fantasy that LinkedIn keeps selling you.

In this ep they're tackling the tricky question: why are you actually doing this? Buy-in, partner exit, ego trip, fear of missing out, or that classic "I don't want to leave opportunity on the table" itch? The motive matters, because the wrong one turns a turning point into a horror story faster than you can say "unsigned shareholders' agreement".

They discuss the stuff you need to know including business divorces, missing position descriptions, dodgy client lists, mismatched tech stacks, and the bit most buyers underestimate: actually transferring clients properly. Skip these and your dream deal becomes a lawyer's picnic with you holding the basket.

So, strap yourselves in for this tech accounting ride and remember to share it with a mate and drop us a review because we love that stuff.

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PRODUCTION
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Transcript

Cold Open And Catch-Up

SPEAKER_04 0:00

Hey Will.

SPEAKER_00 0:01

Hey Amy.

SPEAKER_04 0:03

Why do we just start it like that? That's pretty funny, actually. How are you doing, buddy? How's things?

SPEAKER_00 0:08

Things are good. Things are looking on up. We I'm are we allowed to talk about dates and stuff here? Because uh we just had Easter long weekend, but it by the time this releases, it probably is quite a bit after Easter. Anyway. A little bit, but yeah, no, I had a good long weekend, just had the Easter long weekends, went uh up to the country, sat and listened to the birds and got away from the nine to five grind, and it was lovely. And now we're back in reality. What about you, Amy?

SPEAKER_03 0:32

Um I didn't even eat that much chocolate this year, which is a good thing for a change.

SPEAKER_00 0:37

I'll tell you what, we busted out like 70 egg Easter. It was stupid. That's actually pretty impressive.

SPEAKER_04 0:44

It's actually pretty impressive. It was overboard. Anyway, yeah, sorry. All right, all right, what are we talking about today? Um, nothing East related, actually, interestingly enough. We are talking about a fairly hot topic though, and it's very topical at the moment. It's like, but why is it such a hot topic? Hot like a hot cross button. There you go. There is the signway! I got it!

SPEAKER_03 1:01

That was good.

SPEAKER_04 1:03

Um merge. Or acquire and get a divorce.

SPEAKER_00 1:10

Boom! All in the one episode. Yeah. So let's see how we go.

Why Firm Buying Feels Hot

SPEAKER_04 1:29

Why is it such a hot topic? Why do you reckon?

SPEAKER_00 1:33

Oh, it's just I actually think people like talking about it and flirting with the idea of um firm acquis or acquiring a firm, acquiring a business. There's obviously plenty of people sprucing social media content out there and pretending to be influencers and experts in how to do it so that they can make a dollar on consulting to you on uh how not to mess it up.

SPEAKER_04 1:52

Hang on, is that MA? Is that AI? Is that every freaking business topic under the sun at the moment with influencers thinking that they know? Carry on, sorry.

SPEAKER_00 2:00

Well, I don't know. My um my TikTok feed seems to send me a lot of uh people that are talking about the the idea of how uh how underrealized the opportunity is in acquiring small businesses. And there's so much upside. And I agree on paper. Yep. I think it's very easy to convince yourself that the math is gonna math when you look at it logically. But obviously, risk gets priced into these transactions and things can go horribly wrong. So I think it's a hot topic because stakes are pretty high. Um, it's a very big unknown, but there's also the allure of like if you can get it right, it really can allow you to almost beat the market and be a great way to build up and accumulate wealth. And I think that's the attraction to it.

SPEAKER_04 2:49

I think there's also a misconception in the industry that you know we have a generation of aging business owners that are about to sell out and all of a sudden there's a heap of opportunity there. And I say misconception because I don't necessarily think that there is a lot of them. Hang on, I'll rephrase that. There are a lot, but are they actually looking to sell or retire or do you know what I mean?

SPEAKER_00 3:13

Like I Yeah, I know what you mean. I I don't know, I've seen people that work well into their 70s and 80s in the business that they love and they hand it down to children, they stay on part-time. There's some people that just decide that they're happy to kind of fold it all up and close down and wind down gradually, and they don't necessarily need to sell or make it this transaction. That's what I mean. Yeah. I don't know. There's not that much out.

SPEAKER_04 3:35

Yeah, I don't know that there is this, like, and that's why I wonder whether there is it is this misconception that there are a shit ton of, you know, aging accountants out there that are about to, you know, get to retirement age. I don't think that's a natural transition. If nothing else, I think that, you know, the 60 to 80 year old demographic of when people tend to think that they would like to retire, you've just spent the last 40 to 50 years using your brain daily in a very intelligent way. You can't just shut that off all of a sudden if you decide, right, 65, I'm done, 70, I'm done, whatever it is, right? I think that there is there's uh it's very healthy to want to continue in some capacity still providing the advice that you can and should be doing. Because why would you just tap out of that?

SPEAKER_00 4:21

If I put myself in my shoes in when I was 65, though I don't know what else. Always be kind to your future self. Future will, if I was 65 and I was on the tools and working with a bunch of great clients that I enjoyed working with, and there were some other clients that I was neither here nor there inclined to keep working with, you know what I would do? I would disengage the ones that I don't have an emotional attachment or natural curiosity towards, and I would keep working with the ones that I do. Yeah, and just keep on doing it. I'd keep the good ones and I'd just slowly wind down doing that. Um would be the the logical approach for me. Uh if I was if I was like on the tool, solo practitioner, small team, that that type of thing.

SPEAKER_04 5:01

Right. So would you disengage or would you actually sell them? There you go. Because getting back to the topic at hand.

SPEAKER_00 5:08

Um, I I wouldn't I couldn't be bothered to go through the effort of selling a small parcel of fees.

SPEAKER_03 5:15

Okay.

SPEAKER_00 5:16

I think I would probably be keen to if someone came along that I was working with that was coming through that I felt like was going to be a positive contributor to the profession and just needed a little bit of a a start, I would probably just broker some sort of deal with them. Um kind of like some sort of royalty agreement or something like that, where we just we take something on the trail for the next five years but slowly transition clients to them to help them build up their own business. Um I reckon that'd be pretty fulfilling to help someone get into practice and and uh carry the torch for another 40 years.

The Real Motives Behind Acquisitions

SPEAKER_04 5:47

That talks that talks to the acquisition piece though, because if you just mentioned small parcel of fees, so I guess if you want to un unpack this a little bit more, why do it? Like let's just go down the psychology of why do you want to acquire? Why do you want to merge? Why do you want to maybe sell a parcel of fees? Because those who want to buy, obviously they need to buy from someone who wants to sell. And I think that there is a we could spend an entire episode purely on this one little piece of this.

SPEAKER_00 6:20

Yeah, true, true. And I would, I would love it, because I feel like the more you dig and the more you get exposed to in M ⁇ A arounds, practices, and even businesses in general. Like there's there's so much more to learn from experiences that have worked out or not worked out. And yeah, um, I've already come across some horror stories and also seen some some successful outcomes. So um I'm keen to to chat about it and explore it for as long as you want beyond this episode, Amy. But why why acquire? Um I think people will have a number of different motivators for it. Some people will be internally in a practice already and want to acquire or buy their way into partnership. That's the the obvious one. And there's existing systems and processes and uh ways that these firms have arrangements with banks, but also different buy-in terms where you're just writing a small check um to buy in, but then you kind of agree to a Rev share on the way out so that you support the retiring partners into their retirement. Um but then there's also the firms that will allow you to buy in, but it's buying in by buying the book of fees off an exiting partner so that they get the transaction on the way out, and then there's banks that will actually lend against lend money to um the the firm to facilitate those those buybacks and and buyouts. Um so those are the like the the ones that are most common. The ones on the fringes that there is plenty of, I guess, interest from a private equity having a look at the market and sort of uh jumping at the bit to get involved, is this market of where there isn't a natural successor to come along and take over the fees. And it is these firms that are going onto the market that our partners are looking to retire, they are looking to transition out and they do want to recoup their investment or get something on the way out to support retirement. Um, it's this market of like, okay, well, you haven't sold to someone internally, you're taking it out to market, and there are brokers and marketplaces that sort of regulate supply and demand in this domain, but there is a lot of risk in this area. So yeah, I'd say someone could be thinking very early on in their journey, hey, I I want to go and fast track my ability to build up a business here, and I'm gonna go acquire a parcel of fees and work with the exiting practitioner for a period of time, meet their clients, learn a little bit about their processes and systems, and that's plausible. But to do that, it's very unlikely that you're necessarily gonna have, well, it could be unlikely that you're gonna have necessarily the financial backing yourself to go and prove to the bank that they should lend you the money to go and do that if you're that early on in your own journey of be being a business owner practitioner. So that's where it can get a little bit tricky. But if you go and refinance the family home or whatever, because you've got equity in it and you want to go and roll the dice and go and buy a parcel of fees and just jump straight into the deep end, then yeah, sure, you can do that, but that's fraught with risk as well.

SPEAKER_04 9:16

So I think there's like one might suggest that there's better ROI in the business than in the house, though. So anyway.

SPEAKER_00 9:22

Uh well that's I agree. So that would probably be my answer is people are looking for human nature, you want to try and cut corners and find the quickest path to get from A to B. And property ladder doesn't really seem to be stacking up for a lot of Australians right now. So if you're good on the tools. The greatest Australian dream that we're ever shoved down our throats. Absolutely, and maybe we will keep having it shoved down our throat for the next little while. But it is if you're on the tools and you have the ability to run a business, if you have the ability to service clients technically, and you're you are a good generalist, um, and you you you are like you've got the not necessarily extroverted, but you have the I guess the retail customer service experience somewhere, you you're probably a really strong candidate for someone that can buy one of these firms, take it over, run it, and do a really good job, and it can set you up pretty substantially, probably way, way quicker than uh getting in on on property ever would. But that's my answer. Amy, why do you think people are are gonna go out and buy a firm?

The Myth That Practice Ownership Is Easy

SPEAKER_00 10:22

Uh or why is it a hot topic?

SPEAKER_04 10:23

Why is it a hot topic at the moment? Because I think that people believe that it's easy. Yeah. Emphasis on a few words there. Believe and easy are the two ones that I would choose on that one. Um, it's it's neither.

SPEAKER_00 10:38

Where are they getting it? Where why do they believe it's easy?

SPEAKER_04 10:41

Um again, I'm gonna go back to that theory that uh I think there is a misconception that they think that oh running an accounting practice is easy. You know, you can just you can just turn that into a sausage factory. That's it's so easy just to do that. And I'm like, oh my god, here's here's a myth buster. It's not, you cannot turn an accounting practice into a sausage factory. You can definitely do things to streamline and systematize things, definitely 100%. But if you actually want it as being a proper sausage factory, then go buy a sausage factory. Go buy a sausage factory, exactly. Um but uh but I guess the other thing is that like it used to be quite transactional. I think that's the other thing, is that people the work or the acquisition used to be incredibly transactional. It was literally what's the value of the book, let's just acquire it, be done, dust it, right? There was no that sorry, there was obviously some consideration, but it it feels like there was very little consideration around um, you know, how the client base was gonna react, how the team base was going to react, um, how you're actually gonna do this acquisition.

SPEAKER_00 11:44

How your existing clients, how your existing schedule and commitments and work-life balance were gonna react, how your family was gonna react. Like it's more than just what's on the buy side, correct, sorry, the sell side of the transaction. There's also the buy side. You've got to think of both. Yeah, I've seen heaps of people misjudge that, think I've got my firm under control.

SPEAKER_04 12:05

My firm's fine. I'll just add, you know, the same amount of fees again, or half the same amount. It'll be easy.

SPEAKER_00 12:10

No, no, no, no. No, it really doesn't take much to break the equilibrium. Yeah. Oh, I was gonna say something about straw breaking a camel's back, but breaking the equilibrium? That is fancy. Um But yeah, it'd like it it doesn't take much.

SPEAKER_04 12:27

Look, I think the reason why people want to acquire and or grow, and I always ask people that, they're like, Yeah, I want to buy a book of fees. I'm like, why? Why do you want to do it?

SPEAKER_00 12:35

Why didn't you why didn't you ask me that question when I came to you and I was like, I'm buying a book of fees?

SPEAKER_04 12:40

Because I can understand why you want to do it. Oh, okay. But the reason why is because the reason why I asked that question is because I don't think a lot of people have necessarily thought about the deep down reasons why they want to. What are the reasons? Do you actually is it is it to stroke your ego? Which is totally fine, by the way. It's totally fine if that's a reason why. Is it so that you can turn around and go, because I've acquired a book of fees, because I want to grow, because I genuinely actually want to service more clients. But why do you want to service more clients? Why don't you just want to service the current clients that you've got better? Do you have the bandwidth? Do you have the breadth of, you know, team members that can actually deliver on the service that you want? Because I hear a lot of bitching and whinging from the accounting industry about how they don't have time to do anything else apart from basic compliance work. So why in the hell are you going out and acquiring more fees if you can't even service the client base that you've got?

SPEAKER_00 13:30

Whew, this is tough love for Amy. We're renaming this podcast, everyone. Tough love.

SPEAKER_04 13:35

You

Lodgement Reality Check Before Growth

SPEAKER_04 13:36

know what? I see a lot of accounting practices at the moment in the Australian market. We are five weeks away from the 15th of May, give or take, for the due date of the minimum 85% requirement for lodgements. Minimum. Yeah? Okay. Number one, why is that not 100%? That's my first question. Let's move on from that swiftly. Swiftly moving on.

SPEAKER_00 13:58

Because there's repercussions of if you fall below the 85% and start. Oh, there's not repercussions, my butt.

SPEAKER_04 14:06

Yeah, and what do they do? What are they really doing?

SPEAKER_00 14:09

No, I'm not below 85%.

SPEAKER_04 14:10

Good.

SPEAKER_00 14:12

Yep. Or ask me again on May 16th.

SPEAKER_04 14:16

There you go. Point is though, I speak to a lot of accounting practices, and at the moment, most firms are averaging at about sitting at about the 60% mark. Yeah. Oh. I'm just no, I'm just today. Oh yeah. Today. Being five weeks before. Yeah, of course, of course they will. But my question is, why aren't they already at 85%? It's the start of April. Why aren't they already at 85%? So my we're the broader question around all of this is if you can't process the basic compliance requirements that you have as a practice owner under your tax agent's license, why are you looking to either offer additional services or acquire more fees?

SPEAKER_00 14:52

I'd I'd say it's not because it's the practitioner that is deadline driven. It's also the client that is deadline driven. So a lot of the time clients know that they don't have an obligation until the 15th of May. And so, yeah, you might send your information requests out or give them a call ten times before they actually send you anything to start the job.

SPEAKER_04 15:12

Well, whilst I agree with that, you also sound like one of those accountants that when I say, What are your lodgement targets sitting at? and they tell me what their figures are, and then they go, Yeah, but you know, there's a whole heap sitting in suspended or waiting on waiting on lodgement. They're done, they just haven't been lodged yet. And I'm like, you know what? That's two to five percent of your actual book max.

SPEAKER_00 15:28

And also, let's leave a little bit of creative space for people or accountants to come up with some of the strategies and things around what that would look like. Yes, they should be done in tax planning, but also sometimes context after the fact can inform how you're gonna package everything up and what kind of conversations you're gonna have and what perspective you're looking, what context you're looking at preparing last year's stuff, the lens that you're looking at, knowing that you're setting it up for the current year and and next year as well. Like you can't just be in and out by by August.

SPEAKER_04 15:58

That's no, I'm not suggesting that you should be. I work on a if you work to nine percent a month, month or month of lodgements, you'll get your minimum 85% requirement by the start of April, which then gives you Oh yeah. Yeah, that then gives you six, then gives you six weeks for the stragglers, plus the brain space and the freedom to actually start doing proper tax planning, proper planning for the next year, proper, you know, let's review our systems, our processes, our tech, our everything within practice, basically. You know what? And then look at acquiring more.

SPEAKER_00 16:31

I'm gonna fall on my sword here and I'm gonna say you are 100% right, and I should just eat SHR.

SPEAKER_03 16:38

We can say shit, it's okay.

SPEAKER_00 16:39

I should. You're right. Like, best practice would be you have that cascading waterfall of your nine percents per month per month. Yeah, on average. You're right, you're 100% right. There's actually not really I was just growing up.

SPEAKER_04 16:51

Literally, correct. I'm like, there's no reason why you can't. So my point more so is therefore. So why do you actually want to acquire? Why do you want to merge? What is the driving force behind it? Ultimately, as a as an entrepreneurial human being who is in business, you know, in the accounting industry, we want to do better, we want to be better. That's just the nature of human beings. So it comes down to human nature, that's why. Also, because we've been conditioned to think that in order to keep up with the Joneses, we need to get X, Y, Z. These are our per se success metrics. I would then come back and go, what are your personal success metrics? Not what has been rammed down your throat as what they should be, what are yours? You don't need to answer that, but I'm just as a question to ask yourself.

SPEAKER_00 17:31

Um happy to. I uh my personal success. Uh I am someone that's got a young family, want to set my kids up and next generation up, so that they have as good of an opportunity and chance to do what they want in the future. I feel like I have a 10-year window where I'm in my absolute prime from a career perspective, where I've got the energy to really apply myself for 10 years, whilst also being able to juggle and balance the at-home being present for the kids while they're young and being involved. So I feel like I'm in that 10-year window where I can balance both effectively, but really make a crack at it. And I've got it's not to say that when you're like past a certain age that the windows of opportunities start to close in on you, but there in my experience, there definitely is a prime to your career where you seem to have the energy and then you've got the experiences that allow where you still have relevant, like the context of the operating environment today is still close enough to when you earned the experiences from five years ago that you can apply the lessons from there, and it's you're getting maximum return on how relevant um those moves actually are. So my answer is wealth creation. Yeah, the answer well. Sorry. Blah blah blah blah blah blah blah. Wealth creation. Yeah, it is, um, but it's like you could leave it for later, or you could do it earlier. My view is I just happen to hit the window where I'm on the balance of everything, my probability for getting maximum return and bang for buck here off my efforts. I'm at the start of that window. So I should pursue it now because my motivator and the thing that bothers me the most is leaving opportunity on the table or feeling like I haven't at least I haven't taken advantage of an opportunity that presented itself. That stuff eats away at me. If I look back at all my like sliding doors moments in my life, it's the times when I didn't take action that bother me and keep me up at night. So for my own sanity and um whatever you feel like Maslow's pyramid, you climb to the very top of it. For me, it's like taking advantage of opportunities that you've worked for and that were presented to you, not feeling like you shied away from something, is just a value that I hold dear to myself.

unknown 19:44

Good.

Sponsors And Practice Tech Tools

SPEAKER_04 19:45

And on that note, I feel like we should not have to cut you off, Will, not at all. I agree with everything that you've just said. Cut me off.

SPEAKER_00 19:53

Cut me off.

SPEAKER_04 19:54

Let's go and hear from our wonderful sponsors. This episode is brought to you by Business Automation Works, the team behind ATO Mate and Omble.

SPEAKER_00 20:08

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SPEAKER_00 20:52

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SPEAKER_00 21:19

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SPEAKER_04 21:56

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Mergers As Business Marriages

SPEAKER_04 23:22

So, we were just talking about the why to acquire, etc. Two things that we haven't covered off, which we need to do, is mergers and business divorces. Which I think are one in the same but opposites.

SPEAKER_00 23:36

You've got you've got experience in business divorces, which I actually want to start tapping into because I don't have that much. They're not nice. No, I know, and it's like, but that's why it's important to talk about them. Yeah. This is this is why we're doing this. Eventually. Shared experiences and perspectives, and you've got some, I feel like you've got some that you can talk to us about on divorces.

SPEAKER_04 23:54

Okay, so I can talk around the per se merge, and I can also talk around the business divorce on both accounts. Okay. The question that I always ask people when they decide to fall into business love is why? Why are you doing it? And the reason why I decided originally that I was going to in my own personal business, there is I never actually made it official, if that makes sense. However, um, it was that was the path that we were going down. And the reason why we were is I think in hindsight, I was young, naive, and I don't feel like I trusted my own ability around what I was getting into, and therefore I felt like I needed the support. Also, I really felt that at the time that person had a shit ton of value to give to the business, which they did for the period of time that we were, you know, working together.

SPEAKER_00 24:43

Did you feel like it was 50-50 at the time? Or were there like really any red flags? Were there red flags?

SPEAKER_04 24:47

There were some red flags, yeah.

SPEAKER_00 24:49

Oh, okay.

SPEAKER_04 24:50

Not major red flags, but there definitely were some red flags. Um, but I think the so what I ask accountants now when they talk about wanting to merge is I'm like, you do realize that this is quite literally in every sense of the word, apart from the intimacy compar can um perspective, it's a marriage. So do you actually want to get married to someone without the intimacy? If you are already married or you're not already married or whatever the case is, do you actually want to get married to someone? Because that is a big thing. And, you know, there is a potential that I am about to get into another business marriage. Um, in a good way, I have thought about all of these things just a little bit. Well, yeah, you're very well prepared for this one. I'm very well prepared for this one. Let's just say that maybe the last one I was I left them at the altar. Maybe, no, I don't know how we say that, but anyway. Who left who? Who left who? Anyway, it doesn't matter. Um, but uh this is I ask these questions when it comes to merging because it is a big, big, big decision. You know, like, and if you're going down the path of, you know, I'm more of the rainmaker and they're more of the technical aspect, like they're the the technical expert, and they love doing the technical, and I love going out and being the rainmaker, I'm gonna tell you now, it is going to fall to shit real fast.

SPEAKER_00 25:55

You reckon?

SPEAKER_04 25:56

Yes, hundred percent.

SPEAKER_00 25:57

Okay, so in your experience, when when does it work out best and when does it not?

SPEAKER_04 26:03

When does it work out best?

SPEAKER_00 26:04

I think that you need what's the yeah, what's the right dynamic and balance between the other things?

SPEAKER_04 26:08

I think they both need to have the skill and expertise level of both. Wow. I don't think you should be able to rely on the other for the other because inadvertently there always becomes an imbalance because the technical expert has FOMO from the rainmaker. The rainmaker gets shitty that the technical expert isn't executing on the work that needs to be done, right? So that's what I've found. That is a generalized statement. Oh, of course. It is very generalized, it doesn't always happen that way. But what I have found in the past is someone usually gets a nose out of join. Then there's the equity split. Well, who does what? If I'm bringing in all the fees and this person's just processing, do you know what I mean? Like there's also that money thing that is a huge issue.

SPEAKER_00 26:50

I just could not go into business with someone and it not be 50-50.

SPEAKER_04 26:54

I'm with you.

SPEAKER_00 26:54

I get that. Like I know that there are obviously very plausible reasons why someone, one, it might be 60-40, 80-20, or like two two parties at a 20 and you at a 60. Like I know that there are obviously situations where it is different and it does work out, but I just feel like if you're not whole if it is your main thing and it's both of your main things and you're not equal equally responsible and share in the upside and the downside, I just find it hard. I can't I struggle to see how you would be able to navigate conflict authentically and come at it from the same perspective that is gonna give you a high probability of getting the best outcome.

SPEAKER_04 27:32

Okay, but that's if you start a business together. Yeah, and if you but the issue, but the issue is when you merge a business together, it's not it's never 50-50. Or it is rarely, it's never gonna be an equal portion of I'm bringing a book of 500,000, you're bringing a book of 500,000 together, that's what our book is. Why merge? You know what I mean?

SPEAKER_00 27:50

So then why do people merge?

SPEAKER_04 27:52

Because in from what I have seen in the past, is it can be incredibly lonely being a sole practitioner, a sole director with a team. It is, it is, it's hard. It is hard not having someone to bounce off. It's hard not having someone to rely on, to have conversations with. It's hard just on the daily, taking care of your team, taking care of your clients, and then actually having to make decisions about life just generally.

SPEAKER_00 28:15

It's just it's freaking hard work. Do you reckon the faint-hearted? No, I I agree, but I'm going into solution mode now. But do you reckon it's you're you're better off or it you would work out with a more positive outcome than taking the merger path if you actually found support groups and colleagues and had informal con yeah, definitely. That works out better, right?

SPEAKER_04 28:37

Yeah, the other reason why people merge though is obviously to increase wealth. Like that's generally what happens. But the unfortunate thing is I have seen time and time again far too many practices that have essentially three partners, two partners, three partners, however many partners in them. And it's like you've got two businesses, three businesses, six businesses, and they are all individually run based on the idiosyncrasies and personalities of that individual partner/slash director within a practice. It's not cohesive, it's not ABC Accounting Proprietary Limited, it's Will's business and then Amy's business, and then Ali's or Andrew's. Do you know what I mean? Like it's that's the split of how the practice works.

SPEAKER_00 29:13

What's the point?

SPEAKER_04 29:14

That's kill that.

SPEAKER_00 29:15

You're like you're either in it together and you find that you how you can be complimentary, and in which case you have a valid reason to be in business together, yeah. Create a team, create an environment. Go off and do it yourself, yeah, or just go off and do yourself and find people to collaborate with along the way, but you're not in don't get into business together because there's going to be imbalances throughout the journey, and you're only accountable for 50% of the emotional state of that relationship. You don't control the other 50%, and that's just that's 50% risk.

SPEAKER_04 29:49

Correct.

Business Divorces And Missing Agreements

SPEAKER_04 29:50

Business divorces.

SPEAKER_00 29:51

Yeah.

SPEAKER_04 29:52

The ones that I have seen have actually been more amicable than what I anticipated and or thought, which is actually really quite pleasing to see. I think that they what I've seen from a business divorce versus a marriage divorce per se is they are less messy.

SPEAKER_03 30:09

Business divorces?

SPEAKER_04 30:10

Business divorces are less messy. Uh uh, yeah, they're cleaner. I could, I was just about to be really sexist then and I was like, no, stop yourself, Amy, stop yourself. Um against my own sex, just so we're clear now. Um, anywho, um, I can't talk. I've never been married, I've never been through a divorce, so let's just leave that one alone. Um but they are probably cleaner than a standard divorce, from what I've seen in terms of I think that there's less emotion in them because it does just come down to um money, clients, and then living the outside. Have you? Interesting.

SPEAKER_00 30:42

Like where you don't have a shareholders' agreement, you don't have a partnership agreement, and then you kind of just one person wants to go full legal nuclear and and then you just don't see eye to eye, and then you start racking up legal bills and it becomes a lawyer's picnic.

SPEAKER_04 30:55

How do you how do you not have like uh in agreements in place? How do you not have position descriptions? How do you not have I's dotted T's crossed in this regard?

SPEAKER_00 31:07

Because we're too busy helping other like clients and growing the business. That's that's that's the response. It's absolutely wrong, and like you should be looking to it's the oxygen mask thing first, right? You can't help other people if you don't help yourself first. So uh yeah, people should be but when you're starting at the very beginning, there's like so much hustle to go and make things happen and prove to yourself that this is viable and you just start chasing cash flow and doing the right things that yeah, sometimes you and this is the same we see it with clients all the time. They just don't dot the I's cross the T's, get the agreements in place. And we've seen a couple of cases go through to the um the Administrative Appeals Tribunal um recently where not having these documented agreements in place can actually unwind a lot of the transactions and things like that that can result in adverse tax consequences. So, like take the same advice yourself. Document what you need to document and think worst case scenario. Otherwise, when if and when worst case scenario comes along, you're not covered and it becomes an absolute shit fight. Sorry, rant over, go.

SPEAKER_04 32:09

No, you're right. Segway into please make sure that every client has an engagement letter. Oh, that's a must. Oh, that yes, but what's the difference between that and what we're just talking about? Just saying you're just about to get married. Anyway.

SPEAKER_00 32:24

All right, divorce. How did I end up in this chair, the one that's a little bit more than a little bit of a chance?

SPEAKER_04 32:28

You're the accountant in this situation. Well, thank you for the advice. Anyway, um, I think you also need clear position descriptions, roles, responsibilities, who takes care of what, because I've been in good partnerships where they have had a different shareholders like equity shareholding, but they've had very clear roles and responsibilities as to who was doing what. And for the most part, it actually works, it worked really well.

SPEAKER_00 32:54

Yeah, that is definitely what everyone should do. I agree.

SPEAKER_04 32:57

Cool. So a few things if we are going to merge or acquire that we need to be kind of conscious of, and in terms of a business divorce, it's sort of the same, but in reverse.

Due Diligence And Deal Breakers

SPEAKER_03 33:06

Um, little bit of due diligence. A little oh more than a little bit. I would say that was understated, by the way. Yeah. A lot of due diligence.

SPEAKER_00 33:13

But don't like drown yourself in due diligence to the point where because one of the inconsiderations is also if you're buying a firm from uh an exiting practitioner, you've got to be conscious that you're gonna be in a handover period as well. So how you conduct yourself through that due diligence if they aren't appointing legal counsel or someone to do it for like to represent themselves, you are it's like it, this is almost the it's a second date. First date is yeah, great, here's the country, here's what we're gonna do, here's all the ideas, here's what integration's gonna look like, how amazing. Second date is okay, we're now in due diligence, we barely know each other. So you there's like it tensions are pretty high in that environment. So you just um you've got to be conscious of that, that you don't want to just approach it in the wrong way, and you've got to make sure that you are very clear around not necessarily expectations, but the reasons why you're asking for certain things and what some of the concerns might be and how they might be able to alleviate some of those along the way. But I've seen some shockers. So when we we bought uh our first firm that we bought, we spoke to a bunch of people that had gone through that process before.

SPEAKER_01 34:13

Yep.

SPEAKER_00 34:13

And one of the people that we spoke to bought a firm from someone and they did very light DD, just checked a couple of invoices, engagements, um, and um employment agreements with staff to make sure that there was like no uh there was no um non-competes and stuff were covered off in those. And then a couple of months after the transaction went through, the um clients started ringing up about balances and things that were missing from a reconciliation perspective in bank accounts, and it turns out, and then the the police got involved because it turns out that the practitioner was actually skimming off the top. Um and like that's like a worst-case scenario, and I don't know, and know what ended up happening, but I think a lot of those clients actually ended up going to other accountants because they were just traumatized by the events and they didn't hold it against the firm that did it. And then in an 80-20, where you get 80% up front, 20% um in in 12 months on retention of clients, you still walk away with the 80%. So the guy that did it walked away with the 80%, obviously had the police after him, probably got prosecuted, and may have got thrown into jail. But that's like a worst-case scenario. But you kind of have to think about all right, what questions can we ask and put in our checklist to make sure that we're not exposing ourselves to these kinds of things?

SPEAKER_04 35:25

Uh I have a few. Um valuation of the client listing would be uh a fairly good one. The breakdown of the client listing, as in like the makeup, as in um individuals, businesses, all the rest of that kind of stuff. Um what tech stack do they currently use? Processes, procedures, uh what's their headcount from a HR perspective internally? Are you wanting to keep on team members? Are you not necessarily uh location, demographic of clients generally speaking? And these are I'm just reeling off a few, you know, kind of things that you need to consider. I'm not going into great detail of it. Um, but I think also the how the clients have been trained would be one of my things. Like, as in like I this might sound really stupid, but what's their current billing methodology? Do they bill on WIP? Do they bill up front? Does it take payment?

SPEAKER_00 36:13

That's a massive one because that talks to uh how well the client base has been trained versus how molycoddled the client base is basically, how demanding they are, how what their expectations are, and whether the team is actually used to that kind of measurement and commercialization framework. Like you can't go and take a team of people that have never done timesheets, have never managed WIP before, and have never written up, written down and actually invoiced out on WIP. You can't take an environ that kind of environment, expect people that have just done fixed fee billing and have never had to worry about whip before and then get them to fold into your timesheet-based, whip-based environment. So like uh you've got to be really careful with that kind of stuff. But a lot of that, to be fair, some some of the brokers do a good job of putting that up front and kind of pre-negotiating that. And so when you go into DD, you're just kind of validating a lot of the materials that you've already digested in the pre-sale or pre-contract phase, um, which is good, but uh there's like the for me, the biggest one, and we talked about this before, Amy, is the transfer of the client list is probably, and I would say this is the single biggest deal breaker for me in a in a transaction, is what the agreement is around the transition of that responsibility responsibility.

Client Transfer Consent And Privacy Risk

SPEAKER_00 37:32

Yep.

SPEAKER_04 37:33

So I think like there was, I mean, there's obviously the client list on your tax agent portal, so there was a period there where um where the client agent linking when director's IDs first came out and the client agent linking wasn't quite up and running, and there was a period there where there are a number of firms who uh had to get each client to do that individually because the tax the ATO were not doing um that bulk upload or that bulk um trans transition. And I feel for those firms, I know a couple of firms and I'm sorry about that, but that's just that was just the timing of when it happened.

SPEAKER_00 38:06

100%. That's where like strategy in the deal comes in because there is no way I would have signed up for an asset purchase uh if I had to roll clients from one tax agent to a new, I would have gone for a share a share sell transaction, which comes with a lot more um risk from uh what's on their balance sheet, what skeletons are in the closet, um, and what are you protected or exposed with. Um, but like there is no way that unless an HO whole of practice transfer, if that was off the table, I would not touch a transfer of a client list from one tax agent number two to another. Because if you don't have client agent linking, as we all know, if you have to go and redo that manually for a whole bunch of clients post-transaction, that is like that would that breaks the deal for me. Yeah, 100%.

SPEAKER_04 38:49

I agree. Well, thankfully, you don't have to do that anymore.

SPEAKER_00 38:51

Um, there is uh but you do have to go out and get explicit consent from clients to roll to novate the agreements over to either a new engagement or you need to novate the existing engagement. And you need, if you read the ATO terms, you need explicit consent from those clients. Also, from a privacy act perspective, access to TFNs and things like that, you need explicit consent from the client to go and do that. Now we know there's been heaps of cowboy acquisitions that have gone through over the past couple of years where people don't. They will just basically sign up for a whole practice transfer, roll it over into the new tax agent, um, and you just kind of roll move on. Um I know from them. You just I know a lot of them. You can't. And you are so people think oh, like, what's the worst that can happen from an ATO perspective? You are so exposed from a privacy act perspective, which is way more punitive than anything TASA related, because if you've been accessing client tax file numbers and you haven't got their explicit consent to do so, you're in a lot of hot water.

SPEAKER_04 39:53

Yeah, wow. Um so oh, let's go back to that original point around getting an engagement agreement with every brand new potential client that you are going to take on board through that sale, basically.

SPEAKER_00 40:02

Yeah, gross. Or what we've done is we novate. So we um we're gross. Yeah. Yeah, I'm not gonna do another engagement. Um our approach is least disruption as possible. So we go out, and that's part of one of the settlement post-settlement conditions is hey, um, Mr. and Mrs. Practitioner, um, as part of this agreement, you agree 28 days post-settle post-transaction, post-settlement, you agree that you are going to inform all of your existing clients. We're gonna give ourselves 28 days, and then after 28 days to have all of these conversations with all of the clients, they're going to get a DocuSign request that says they're they are consenting to novate their uh existing engagement agreement over to this uh this new entity and roll over their tax agent and ASIC registered agent from this entity to the new entity. That's how we do it. It's a little bit more involved and it puts a lot of pressure on the first 28 days post-completion, uh, sorry, post-settlement, which is where a lot of a lot of firms don't like being very hands-on in the first 28 days. It's kind of like I will do the transaction, we'll step back and we'll give it a few months and we'll just ease our way into it from a cultural.

SPEAKER_04 41:05

I don't want to let the clients know yet. No, I just, you know, I don't want to upset the client well.

SPEAKER_00 41:08

If you're buying, I'm sorry, but you have to start the clock. Like if you're on a 12-month retention period, you've got to go out to those clients and you have to set the the new rules of engagement. You can't like otherwise you're just taking on too much risk. And so we our view is you've got 28 days, we're happy to sit through all of those meetings with those clients. But at the end of 28 days, the goal is for us to be able to novate all of the engagements across um to the new entity.

SPEAKER_04 41:34

That should be, yes,

Team Communication And Integration Rules

SPEAKER_04 41:35

100%. The only other thing that I would say is having conversations with the team.

SPEAKER_03 41:39

Oh, yeah.

SPEAKER_04 41:40

Yeah, you say that like that should be a given.

SPEAKER_00 41:43

No, but that happens before. That's supposed to happen before contract before completion.

SPEAKER_04 41:47

I agree, but you say that like it should be just a given. Sorry, no way. 100%. That's why I'm raising it because I love it. It needs to be they need to be told they never but not just the team that you're going to be acquiring, the team that you currently have as well, right? There's a lot to be said for that. There needs to be transparency in communication. I know unfortunately the accounting industry sometimes doesn't like to be as transparent as what they should be when it comes to communication, because there is a fear of conflict, there is a fear of you know having awkward conversations. See it as a courageous conversation opportunity and communication.

SPEAKER_00 42:22

What was that?

SPEAKER_04 42:22

Courageous conversation. Conversation opportunity. Have a courageous conversation. Do people say that? I do. Oh my god. Because it changes it. Anyway, I don't know whether you like that or you're about to take a look at the code.

SPEAKER_00 42:34

No, I can't like, oh, I feel like I'm being kindergartened. Like have a courageous, have a conversation, be a fucking adult and have a conversation.

SPEAKER_04 42:44

Adult up and have the conversation. Except if you soften it. Anyway. All right, okay. So all of this comes in merge, acquire, business divorces, divorces, divorces. These all come down to having good, clear, open lines of communication. And I don't know.

SPEAKER_00 43:02

And being concise around what you if you go into business and you are trying to hide things from people and get an edge and one up people and not disclose certain things, man, that just always comes back to bite you in the ass hard. You've got to be open, you've got to be transparent. It's like it is like dating. You're obviously not going to go and get married to someone that you don't have all of the insight and information into who they are, what they stand for, what their values are. That's why people date because you go and figure all that stuff out. Can you do that after day one?

SPEAKER_04 43:28

Well, I don't know what you're talking about. Sorry, yeah, I get your point. I get your point.

SPEAKER_00 43:31

But that's approach it in the same way. You need to go in with like what are your intentions, what are your non-negotiables, what are your deal breakers, and you need to be asking the the the courageous questions, Amy, to make sure that you're guessing the responses. To get the responses that you need back from the other party and give them an opportunity to expose what their non negotiables are as well. And if it doesn't match, it doesn't match.

SPEAKER_04 43:55

Yeah.

SPEAKER_00 43:56

Move on.

SPEAKER_04 43:57

Yeah, agreed.

SPEAKER_00 43:58

Agreed. It's more important to do the work. On finding the right fit than it is to think about just going along with the wrong fit, because the amount of work that you have to do afterwards, if you've gone along with the wrong fit, is just so much more energy and effort, which then slows down your momentum and then kills you your ability to go and do more of these types of acquisitions and actually roll up a consistent, cohesive internal team culture around what does it mean to be this type of firm or this is what our philosophy is and this is how we're going to approach things. Like you want to have consistency at some point in the post-acquisition journey. And if you cater to anything that falls outside of that consist guardrails of consistency in the types of deals that you're doing, then you're just setting yourself up for failure. Sorry.

SPEAKER_04 44:43

Love it.

Final Advice And Where To Get Help

SPEAKER_04 44:44

But to finish on a good note. Oh, yeah, of course. Do it. It's actually cool. Do it. It's fun. And if, you know, shameless plug on both parts. If anybody's looking to merge or buy or sell their firm, speak to Will. If anybody needs some assistance getting their firm ready to go, speak to me.

SPEAKER_00 45:00

Neither of us are doing divorces, though, are we? No.

SPEAKER_04 45:03

No divorces. Look, I can do divorces if you need. Anyway, from a tech perspective. Thank you, Will. Love it as always. Thank you, Amy.

SPEAKER_00 45:09

See you for the next one. Bye. Bye, everyone.

SPEAKER_02 45:16

Hey, hey team, it's Allie from All Aussie Accounting Adventures. Thanks for joining us for this tech edition and joining Amy and Will. We hope you've picked up a few great insights and ideas. If you'd like to keep following the adventure, make sure you check out our website and find us all across the socials. We are everywhere. You know us. Just search All Aussie Accounting Adventures. Whether it's conferences, the website, the podcast, social media, there's always something happening with us, so make sure to follow. And don't forget to share the episode with your accounting mates. We love that stuff. So thanks for listening, and we'll see you on the next adventure.