Navigating the Emotional Journey of Selling an Accounting Firm

What will it take to sell your accounting firm? 

In this episode of Accounting for Innovation, Jody Padar—the Radical CPA—shares her personal and professional journey of selling her cloud-based accounting firm. Jody discusses the emotional complexities, the importance of aligning values with the acquiring firm, and the critical steps she took to prepare her firm for acquisition. 

In this episode, we cover:

• The emotional aspect of selling a firm and its impact on the owner
• Importance of aligning values with the acquiring firm
• Jody's journey of building a cloud-based, innovative accounting firm since 2010
• The process of getting courted by top firms and the decision-making involved
• The significance of having a good advisor and the role of the network
• Practical tips for preparing a firm for sale
• Experiences of negotiations and aligning with potential buyers
• Lessons learned about maintaining firm culture and ensuring team fit during and after the acquisition

Read more about Jody's deal that failed prior to her acquisition in this article she wrote for Accounting Today:

https://www.accountingtoday.com/opinion/the-feeling-side-of-accounting-firm-m-a

This episode is brought to you by Decimal and the Radical CPA.

Transcript

0:00

Welcome to the Accounting for Innovation podcast, where we explore cutting edge strategies and insights into the world of accounting and finance. Presented by Decimal and the Radical CPA, each episode dives deep into industry trends. Whether you're a seasoned professional or a budding entrepreneur, join us as we unpack key concepts and share practical tips to drive success.

Jody Padar: 0:26

Welcome to season two, where we're going to kick off this season talking about M& A.

Matt Tait: 0:30

Jody, I think this is going to be an exciting conversation, not only the whole season, but as you and I know, acquisitions, P. E., M& A is a huge topic. So we're going to start with, I think is a fascinating story of you and your firm getting acquired in the process that you ran. So looking at it from the seller of a firm perspective, second episode, we'll talk about it more from the decimal perspective. Thank you. It's a company that's done two acquisitions. We'll look at the buyer side, and I think that's going to give us a good, well rounded perspective on M and A in the accounting industry. I think one of the hottest topics in all of accounting. From the biggest firms to the smallest firms, right now is mergers and acquisitions. Whether it's private equity or firms merging to avoid private equity, people want to know what it's like to buy, what it's like to sell their firm. And that's why I'm excited today to start with the seller perspective. For people that are thinking about selling their firm, We're considering the possibility. There's a lot to learn from your story about selling your firm. So before we start, give us a little bit of the brief overview and background of your firm and what made you start to think about wanting to get acquired.

Jody Padar: 1:45

Okay. So first I'm going to set the stage in that this is kind of emotional for me, Matt, like, like when people think about selling, like it really is. I don't want to say your baby because it's not a baby, but it's your heart. Like it's your heart. And so when you think about even selling, which I think is totally lost out of most MNA conversations, everyone forgets about the blood, sweat, and tears that someone put into building the firm before it gets merged or acquired. So I think that's one unique thing that I want to bring to the conversation that nobody ever talks about is the heart that goes into what it means to sell your firm. And how it affects your life. So to back up, so I built, I would say the firm of the future in 2010. Now it took me many years to get it to where it was, but when everyone talks about this firm of the future, I was like, yeah, I invented it. And it sounds kind of like. You know, ego driven, but it kind of really was right. There were a handful of us at the time who were innovating and iterating through what it meant to have a cloud based firm, to use social media, to get customers, to really focus on a client experience. And to start pricing, upfront and without billing by the hour. And in 2010, that was unheard of. Everyone told me I was not, hence my title, the radical CPA. and now everybody's copying it, right? Like they, they, so somehow the, the, the tune changed. But come 2018. Now, mind you too, like I had built it, I had iterated through it, around 2006. Seven, I had started, my firm, but I was still working as a contractor in someone else's firm because I hadn't gone all in because I was a little bit nervous of saying, okay, like I, I can trust myself looking back. I would say I probably should have jumped all in sooner. I also joined my dad's firm, which at the time had like a 50, 000 book of business that was like 1040. So it was really like immaterial in the whole scheme of things. And when I joined him, he said, go find your own clients. So it was truly me who built the book. Now I, started using new technologies and I would say like, Round 2010 is when I really started realizing that cloud technology would fundamentally change how my firm would operate. And, you know, fast forward by 2015, it had a really solid base. We were going like crazy. and it was funny too, because this was like in the financial, like even Remember like 2008, 2009 when all the financial stuff was happening. Like that was when I was growing the fastest. So like I had no, like everyone was saying, oh, like, you know, we're in a recession. Really, nobody told me about it. So I was like growing the fastest because people were buying what I had to sell, right? Like they liked the product market fit that I had determined. So anyways, fast forward, by 2015, I had written my first. Book and I had started to work more outside of my firm than inside of my firm. My partner was really doing all the day to day and I was just kind of like, I was around, but I wasn't really in my firm. I had already kind of worked myself out of my firm and by and by 2018, top 100 firms started to court me. So they really started calling up and saying, Hey Jody, we wanna build a cast practice. We love your, your firm. We want you to be part of. And when one suitor kind of reached out, I was like, okay, What am I going to do? And because of my status in the industry, and because I knew everybody, I called Joel Sinkin, who I love dearly. And I said, okay, like they're interested. What do I do? And he said, okay. Right. And he said, let's see if there's a way we can, you know, position me for sale. Right. So basically kind of, it's like calling your realtor for all intents and purposes. Oh, a hundred percent. I got to get my house in order. Right. Like now, and they go through and they say, okay, you know, you got to paint this room and so he kind of got me in the mindset of, okay, I need to like, kind of, figure out what that looked like. It meant transitioning from an S corp to an LLC. and kind of organizing my book so it was ready for sale. and kind of doing, I'll say a little bit of housekeeping on the, on the back end. And then I started talking to suitors, right? So essentially, Managing partners of all these top 100 firms would call and they would have this like half hour interview call where they're basically, I'd say dating, right? They're basically interviewing you and you're interviewing them and you're seeing if you can align. And the more calls that I had, the more frustrated I got. Um, because I knew I would never fit. I like, I knew that I would just be eaten by this firm and the beautiful thing that I had built would never go across the firm like that. It, I didn't have, I wouldn't have the power inside a big firm like that to actually change, even though that's what the managing partner said. They said, Oh, well, you know, we want you to teach us, but I knew like that it probably wouldn't happen. And I started actually having a longer conversation with a firm that I won't name. and we were. talking. I flew down to meet them. I met a bunch of their partners. They were courting me as much as, and they were top 50 at the time. Now I think they're like top 25 or top. They might even be higher than that. and they were courting me just as, as much, right? Like we kind of got to that next level and I thought, okay, maybe I can fit in here. Like maybe this, this firm is innovative enough that even if my firm isn't completely the same, I Like we, we could live here, right? Like we could, we could cohabitate together and, we got all the way to the end and basically they pulled the deal at the end and I thought that I was going to have, like, I, I, not to say I was like a deal is never done until it's done, but I thought that like, this is where we were going to land and what was. Interesting for me too, is I had a small team, so I only had two and a half full time equivalents working for me. So my partner knew what was happening and my part time person knew what was happening. The only person who didn't know what was happening in the firm was the admin. So when you think about that, which is kind of funny too, because, when you think about the trust that has to happen, those conversations, a lot of times, nobody knows what's going on until the very end. They were involved in it from the very beginning and they knew their lives would fundamentally change. So anyways, it's kind of funny because the, the partner pulled the deal and, in the meantime, I had engaged with one of my dear friends, Bill Paroli, who was the past chair of the AICPA to kind of walk me through this because he had done a bunch of M& A with other firms. wanted not to be taken advantage of when you're a small firm and you know, my book was around 700, right. And you have these top 100 like courting you and you level of expertise in M. have a different level. L is that you're gonna be t And so I wanted someone o Yeah. Gee, I have the past chair of the AICPA who's on my team. So never be like the power of the network is amazing, right. To have, to have someone like that on your team, but anyway, so that deal got pulled and in the meantime, I was doing a lot of consulting with technology companies, which is kind of where my focus had been and not really on my firm. Cause my partner was pretty much running my firm. You know, completely by itself. And I was not really in it at all. Other than I like came to the office every day. And then, I started to work with Botkeeper as a consultant and really helping them kind of in the go to market side. And I kind of fell in love with the tech world and working in technology and working with CPAs and, because my market of my social media presence, I was like, okay. Actually, here's a really good value for me. And this is where I can bring something to the table. And so, the conversations got deeper with Botkeeper and at that point in time, Botkeeper was still serving, regular businesses as well. They weren't only focused on the accountant market, even though, like I knew that that was going to be kind of where they were

Matt Tait: 10:06

going.

Jody Padar: 10:07

Yeah. And so, Enrico and I, you know, came to the decision, Hey, if you buy my firm, then become part of the leadership team at Backkeeper and we're going to sell to, accounting professionals. And for me, it matched my why of being able to bring more tech innovation to firms and kind of, keep. Talking about all the stuff that I've talked about for the last year and still talk about, right? Like this is still my why is like, how do you bring innovation into the accounting firms? And so, so anyway, so we got to that point and we said, okay, now we're going to go through like a sale because we aligned on something, right? Like, and I think that's the big thing is like, you really have to align with who you're merging with, who you're buying with. If there's no alignment of values, forget it. The deal's not going to work. The deal's going to fall apart. Like, and. I think when I hear some of these M& A guys talk, they forget that they're people. Like, at the end of the day, accounting firms are made up of people and people have values and wants and needs and not all of them are in it for the best price. Some of it is about like anything else. Like you want it, like, yes, you want a fair price for your book, but you want to be aligned with the person who you're, you're moving in with because like, hello, like this is where you're going to be long term and you have to make sure your team. Can stay there because if your team doesn't stay and they quit on you, well, you only get paid out now. Like I won't talk about my deals, but I got paid out a lot quicker than other, other, firms. But if your clients don't stay, you, you don't get paid out. So it's in your best interest. To make sure that your firm fits your team fits and everybody kind of fits from a values perspective first. And then the work is the work, right? Like, but how do you align there first?

Matt Tait: 12:01

Well, and I think there are three main themes that I'm taking from your story that I think are really important for people to internalize. Number one is find a good advisor. And if you don't have one that you trust in your network, same as you did with other firms, interview people to be advisors. And find one that you trust and that you like. Number two is focus on the people. It is an emotional decision and make sure you treat it as such. There's also the practical side of the money and all of that stuff, but there is a philosophical alignment that you want to find a place where you and your team will fit. Because as you mentioned, there are earnouts that come with it. You will be there for a while. Your team will be there for a while. And you need to make sure it's a place you're comfortable. And you and I have both heard stories of people that sold and there was no philosophical alignment. And it was an implosion. It implodes every time and it hurts everybody. But the third thing that I think you mentioned earliest on, and I want to unpack it first is you mentioned I needed to do some cleanup. And it's something that I talk a lot about when I talk to people about acquisitions in the space is you should always build your firm as if you're going to sell it. The reason being you will establish the right economics so that you will get the best outcome because we've all seen where it's like, Oh, I need to clean up this billing, or I need to do a little bit here. I need to tweak this or whatever it is. You start to lessen the potential outcome for yourself if you haven't built it in a way that puts it in the position to sell. Is that a good kind of summarization of your lessons? Yeah,

Jody Padar: 13:47

I, I, I think that's a really good, a really good summary. And I think the cleanup part was, was important, right? And you have to, and, and, When they started courting me, I wasn't thinking about selling. Like it, it came out of the blue. I thought, and the other thing is, is my, again, my partner was my dad. So when you think about family business and family financials, like again, like that, that's what you're looking at. Right. And now you have to clean it up because someone else is, is, is looking at it as well. and I, I think that's important to like, that you should get ready for spending money. For sale. And you should think about the other thing that was very unique to me as all these firms were looking at me is my P and L look very different than their P and L. They didn't know how to compare them when I, when the top 100 firms were looking at me. Yes, they could look at like the net profitability, but they were like, why are your technology costs so high? I'm like, cause I don't have any labor, but why are your

Matt Tait: 14:44

labor costs so high?

Jody Padar: 14:47

We're like, wait, wait, wait. Like, what do I do? Hello? Your accountants, let's figure this out. But you don't fit into this, like this bowl. They're like, Oh my gosh, now what do we do?

Matt Tait: 15:01

But I do think you're seeing it more and more and. I think what you did was atypical at the time, but it's becoming a lot more typical. What I find is very ironic, and this is probably what needs to change the fastest, is a lot of accounting firms don't have the same level of detailed Work put into their own financials that they put into their clients financials and pretending that there was an outsider looking in. And so I think that's a big part of it then. So let's continue to unpack. We've, we've unpacked the financials built as if you're going to sell, put financial packages together for your firm that you look at every week or every month, however often that are the same, put together the same diligence as you put together your clients. But then. Advisory. How do people go about and find they don't have the network that you do, that you, they aren't the radical CPA. How do they find the right trustworthy advisor?

Jody Padar: 16:05

So I think the reason my advisor worked for me is I had Joel Sinkin, who was like kind of an M& A guy, right? Like, and he was, and you know, there's a few of them out there. You can, You can find them online. Right. But I had another CPA who had been through it and he had merged into a smaller firm. And I actually think that's a better advisor because I think there's two pieces to it. There's like the M and a guy who's like the deal guy, but then there's the person who has your best interest at heart and. I remember the very, and I actually wrote an Accounting Today article on this and we can post it in the links, but I remember the very first conversation I had after I shared my financials and everything with Bill. And I said, Bill, what do you think my firm is worth? And he said to me, it's priceless because it's yours. And that never left me. And I think that's the part that you don't always think about, but truly it's priceless because you built it and you have to, and then you have to kind of get to, okay, what does the market say it's worth except, right? Oh,

Matt Tait: 17:08

a hundred percent. But I do think in, and as somebody that's done multiple acquisitions and been on the acquirer side, and by the way, what you mentioned about dealing with big firms and being interested in having bought a company from KPMG, that's a whole story we'll tell in the next episode, but, The people is most important thing and your philosophical alignment. If you're a person that's staying, how do you really? Make sure that the place that you're looking is aligned with your values and the values of your team.

Jody Padar: 17:39

it never dawned on me that I could write it into a contract to take care of them. And like one of the exit clauses, just, and this is something to know about is like, if you leave a lot of times you can't take people, like if you land somewhere and then you want to leave that company, you can't, you can't take your employees with you. Like we wrote it into my contract that if I left, my partner could come with me. Like, that's brilliant. I would have never thought about that in my, in my life. Right. And I think, and, and so having the attorney who's used to it, right. It's so important from an advisory standpoint who can help you like, so, okay, you're aligned on values, but now, okay, how do you contractualize so that those values actually get put in the contract and how do you think through what can put in the, be put in the contract so that. At the end of the day, when, when the deal's done, everything's closed and now you're trying to unpack things, you have it at the detail level. Should be in the contract as to what's going to stay and what's going to go. And, and like, those are the things looking back now, I would say, okay, I would do a much better job getting a lot more specific than I did going in, but you don't know that until you've been through it, right? Like, so I would say. Get that advisor and think about all the things that are really important to you and make a list of them And then have your attorney work through how you can contractualize those important things, too And and that will be taking care of your people ultimately, too Because that's saying who they're reporting to who they're not reporting Like all of that stuff you can actually put that in a contract that I think most people don't realize can actually be put in A contract

Matt Tait: 19:25

as a lawyer I can tell you anything can be put in a contract i've even put an ironhead You pig's head, iron dinner belt into one. And I was riding around an orange bicycle from one. So I've put it a lot into contracts. You put a lot in there, but I do think there are two things as we close. And as we close out that I think are really important as we talk about M& A. Number one is when you negotiate. Always do what you say you're going to do, period.

Jody Padar: 19:52

No matter

Matt Tait: 19:53

what. Following your word. I don't care who you're negotiating with and who you're negotiating against. Always do what you say you're going to do. And, and number two is think about the details. And don't sacrifice details and quality for speed. A lot of people get deal lock and they go fast when they should have just taken a little extra time. So with that, thank you for tuning into the Accounting for Innovation Podcast, brought to you by Decimal and the Radical CPA. You can find more insightful episodes of the Accounting for Innovation Podcast wherever you listen to podcasts. And please don't forget to pick up Jody's new book, radical Pricing, how to Optimize Profits, delight Clients, and Build a Top Value Firm. And Jody and I would both love to connect with you on LinkedIn. Thanks again.