MERGER SHE WROTE
Merger She Wrote is a podcast for business owners looking to scale, sell, or transition their companies. Each episode unpacks the strategies behind successful exits, the pitfalls to avoid, and the steps to maximize value. Featuring expert insights and real-world case studies, this podcast helps you navigate the complexities of M&A with confidence. Whether you're planning your next move or just starting to think about the future, Merger She Wrote gives you the knowledge you need to make informed decisions and build a business buyers want.
MERGER SHE WROTE
EP 14 | Buying a CPA Firm: Strategies for Accountants Who Want to Own
Buying a business isn’t passive income, it’s hard work, tough calls, and smart planning.
Jessica Golden, managing partner of Kramer & Golden Public Accounting Group, shares how she bought an accounting firm while living 2,500 miles away in Hawaii. From broker listings to SBA loans and last-minute financing hurdles, she reveals what the business-buying process really looks like behind the scenes.
You’ll hear how she evaluated deals, built a smooth seller partnership, and avoided scams while keeping clients and staff happy through the transition.
Press play for a candid roadmap to buying a business the right way—without the sugarcoating.
In the world of business, not all deals are what they seem. Fortunes rise, empires crumble, all with the stroke of a pen Mergers, acquisitions, hostile takeovers. Welcome to Mergers, she Wrote, where we examine strategies and stories behind the biggest deals in business, because in M&A, the real risks are the ones you don't take. Welcome back to Merger, she Wrote. I'm your host, paloma Goggins, the owner of Nocturnal Legal, and today I have a treat because my guest is a certified public accountant who purchased another accounting firm and she is going to give us the lowdown on all the things that you should be looking for, regardless of the type of business that you're buying, from a diligence and financial standpoint. Jessica, welcome to the podcast. Thank you so much for being my guest today. Thanks, paloma. So Jessica Golden is the managing partner of Kramer and Golden Public Accounting Group, which is a full-service accounting and tax practice serving businesses and individuals. She's headquartered in Phoenix, but she lives full-time in Hawaii.
Speaker 2:Well, right now, 50% of the time, that's true, that's true.
Speaker 1:Jessica's been spending a lot of time here, also working on the business flip-flopping between the two states, so I'd love to kick off this episode by just covering some basics. Which is what attracted you to buying the business that you bought originally?
Speaker 2:Well, so I think like we can take a step back with, like, how do you even find a business to buy? Because I think a lot of people, including myself, when I started this process, like I had no idea that this whole thing was even out there. So, like the fact that there's these broker websites that just list all kinds of businesses for sale, whether it's an accounting firm or like a pool- cleaning business or a restaurant or like whatever, whatever kind of business you could possibly ever want to buy.
Speaker 2:You know there's these broker websites out there that just have like listings of, like potential companies that are for sale and there's these business brokers like essentially like real estate brokers that work on buying and selling or, you know, selling these businesses for owners. So I didn't even know that world was out there and I kind of stumbled across it in my search for something outside of the corporate world. You know, just wanting to be my own boss, but so I looked at a bunch of different firms and just to give a little bit more background, you know, when you find a like a listing that you like on one of these websites, you know you kind of like put in for more information, you sign like a boilerplate NDA and you get like a little bit more information back, but it's all like anonymous, right, like you don't even know what, what firm you're looking at, who the seller is or whatever. So I would say I looked at, maybe like, or I put in for more information on, maybe like 10 to 15 different firms and well, I mean I feel like, if you're going to, well, it's funny because the one that I ended up buying was the very first one I looked at. Go figure, but I felt like I really needed to like explore everything that was out there before I made such a big investment.
Speaker 2:Right, and I don't know what you've kind of seen like in the deals that you've worked on, but like I got a pretty wide range of additional information in response, where, you know, sometimes it's like one paragraph and a little bit of financial data and like sometimes it's 15 page like almost like marketing materials, yeah, and I feel like as that kind of tells a lot about the seller, like what you get back from them, right, or how much effort are they putting into this, and kind of first impressions go a long way.
Speaker 2:So not to say that I didn't look at ones that had, like you know, just a little bit of information, but the one I didn't end up buying like had like a probably like a 15 page like report that you know gave a lot of information about like what type of clients there are, how many employees there are, like what kind of tax returns they did, and like more in-depth financial information. So, but something that was really important to me was finding a firm that had like high quality earnings Cause there's a lot of different types of accounting firms out there and some of them are doing, you know, a thousand returns for two hundred dollars, or some are doing, you know you know a hundred returns for two thousand dollars each, and that's a huge difference.
Speaker 2:So your goal was quality over quantity yeah, absolutely, and not to say that, like you know, you know either way you're ending up with the same gross revenue. But are you busy all year long? Because maybe those simple returns are all going to be done before April 15th and then the rest of the year is really slow. But if you have more complex returns, then maybe those people have businesses and those businesses have tax returns and those businesses need bookkeeping services and those individuals need tax planning throughout the year. So I think looking at like how much revenue do you have throughout the year is just as important as looking at total overall revenue for the year, especially if you have employees, right? Because, like, how do you pay your employees in October if all your tax returns are done by April?
Speaker 1:You have to have some really strong financial capabilities to be like. I'm not spending every dime in my bank account because I have to have reserves.
Speaker 2:But also you need stuff for them to do. They can't just sit around and do nothing.
Speaker 1:I mean, in some ways I feel like a cycl. Um, you know, there's a broker I know in the Valley, uh, Ryan Gipple, who does accounting practices and his, his business being a broker is very seasonal and he loves it. But to your point, I don't know, you'd have. You'd be like, okay, employees, just sit around and wait.
Speaker 2:Let's time to do some scanning for the next eight months.
Speaker 1:Oh no, yeah Well, and that's that's very true. And to your point originally, what you were saying with the packet that comes with the. I think sometimes it could be a reflection of how much information the the seller, has prepared in advance or been able to pull together about their business prior to putting it for sale. But I also think it can be a reflection of the broker as well and how much time and energy they want to spend leading up to listing the business. And I almost feel like in some instances and it's not always true, but when a broker feels like the deal the business isn't going to sell for very much or it's not that good of a business, they'll put in less effort.
Speaker 2:Oh yeah, I mean because I'm assuming they're getting some sort of percentage of the sales price right. Of course, just like a real estate broker would do, but also it's not attracting potential buyers either.
Speaker 1:No, no yeah it's a vicious cycle, a negative feedback loop. But yeah, there are some brokers that will use confidential information memorandums, which is like SIM C-I-M, to give you this big pamphlet of information which, to your point, I think it gives you the confidence to at least submit a ladder of intent, even though it's not binding. A lot of times people put money down in escrow. Even if's refundable, it's still scary to go through that process.
Speaker 2:So or I mean even selling that or signing that loi was a big step, especially when you don't even know, like, what the firm is blind commitment yeah, you have, like you, you kind of have some information, but you are seeing like such a small picture or like slice of the picture. Um, so yeah, just I think from a comfort level standpoint, like having that additional information just makes you feel more comfortable to take that next step for sure.
Speaker 2:Um, and another big thing for me was like the transition aspect of it, because I mean, like you know, having your own you know legal firm, that's a very client facing client relationship type business and you know accounting is the same way.
Speaker 2:So I feel like there's different schools of thought where they're. You know some people believe you should just have like a quick and clean cut over, like the sooner the better, say goodbye to the owner. The new owner comes in and you know you just have to forge those relationship with the client. And then you know, other people think that the transition can be like longer, I mean, and for me I felt more comfortable with just like a longer transition period and in the this case, in the firm that I chose, myself and the seller, we just clicked like right away. We worked together really good, we wanted to be partners going forward and that was essentially her succession plan into retirement, into a couple years. So that's what worked well for us and we felt it worked for us, our clients and our employees the best. And that's hard to find when you're looking for an accounting firm and probably any business Cause I would think a lot of owners like they want to sell and get out right, for whatever reason it is.
Speaker 1:A hundred percent Now I feel like it's not necessarily that the majority of sellers are in retirement mode, but you know, I do think the bulk of people who have successful businesses that are exiting are in that phase where they want to wind down or they want to be done. And unfortunately, I do think that there's too many sellers that exist out there that should have sold earlier, because then they could have had the stamina or the the desire to stay on and make the transition more seamless. Because, to your your point, I mean a lot of accounting acquisitions, just for whatever reason, they do include some form of earn out or adjustment to the purchase price based on post-closing revenues. And what better way to make sure that, as a seller, you're getting a majority of that revenue post-closing than to stay on for a period post?
Speaker 2:Well, exactly, and I mean like, and I'm assuming the reason why those types of things are worked into the deal is because you're so afraid that the clients are going to leave right?
Speaker 1:Yes, absolutely.
Speaker 2:A lot of people are with. You know it's a trusted financial advisor. You know, if you don't have that trust, what's to stop them from going somewhere else? Because essentially they're starting over with someone new anyways.
Speaker 1:A hundred percent. No, I that you know. I think professional services to me also encompasses physician practices, and we see that a lot. You know that specific problem. Anytime you're in a service-based industry, you have that exact same problem. And I was working, you know, with an individual who was looking towards selling and the nature of their practice was predominantly female patients, and the one buyer that they found and were trying to essentially secure to move forward was a male physician and all I could think of was why like this isn't the right.
Speaker 1:Yeah, like, and and I just I think in something that's so personal, um, to have had a female physician for the last 20 plus years, to then be told I'm retiring, here's a male physician to take over. I can guess that the attrition rate for that specific instance would be exceptionally high. Yeah, agreed. So I think this idea of right fit buyer and also feeling burnt out I mean, if you start earlier, you also have runway, so that if you're finding the wrong buyer, you have time to continue looking, so that you're not just square peg round hole.
Speaker 2:Yeah, absolutely, and I think, um, in our case, um, like that was obviously very important to her as a seller to find the right buyer, and I know she said she talked to a lot of different people, but I think that, us being very similar and we clicked like so, like right off the bat, like it, just it just kind of worked, you know, and it made her feel more comfortable about handing over this business that she spent her life building you know, Um, and she wanted her clients to be in good hands too.
Speaker 1:Yeah, I think key takeaway from that piece of her conversation is the chemistry matters.
Speaker 2:Yeah, absolutely I was thinking.
Speaker 1:I, you know, I do such complex um thinking throughout my day that my husband always gives me. You know shit about how I watched just the worst television at night Mine too.
Speaker 1:So, uh, we have that in common. But yeah, I've just, I want to shut my brain off and nothing is better than you know, reality television that requires no brain usage, and I was thinking as you were describing this you know, getting the SIM, getting very little information, putting in your LOI and getting like essentially married to this business. To go through with diligence is like love is blind, like the Netflix show, where they're like picking people based on some very limited information behind a wall and then you have to make sure it works after you decide to get engaged. But it's, it's true, the LOI is kind of the same. You know, you're deciding to get engaged and see how it works after you get into the nitty gritty of life, which is diligence in this case.
Speaker 1:Yeah, my metaphor has run away from me, but I think that it's really. It's kind of accurate. You're really kind of going into it a little bit blind, and I think that that's an awesome takeaway from this conversation for anybody who's listening that is thinking about selling or preparing to sell or maybe already listed and they're not getting good, you know, bites on on their listing is maybe you need to reconsider what you have posted and what you're sharing. Right, because it is. It is scary.
Speaker 2:Even if it's non-binding, it's big steps yeah, and if your broker maybe isn't preparing the right materials, maybe it's time to find a new one. Maybe you need a new broker.
Speaker 1:Maybe you need to put your broker's feet to the fire because you probably already signed a binding contract. All right, so can you. I think, in this process, one of the things you and I wanted to talk about today is the financing piece of it. You've had one lender on Merger. She wrote kind of talking about the basics, but would love to hear from your perspective on this process, from a buyer's perspective, you know. Walk us through this. What did this look like? How did you start down that path? And we can get into some of the more detail as you go.
Speaker 2:Okay, so as a background, you know, we have a family owned business besides this one where I've I've dealt with, you know, getting SB financing or other small business loans and we had just used like a local bank and I wouldn't say it was like the best experience and we used the bank cause it was, I guess, convenient. I'm I don't know. But so when I was going into this process, of course, like we mentioned, I lived in Hawaii. I'm not going to use a local Hawaii bank to buy an accounting firm in Arizona.
Speaker 1:I don't even know, probably not.
Speaker 2:So I mean, I was just kind of trying to do some research online like what's the best way to get an SBA loan. An SBA loan, which is what I ended up using, was an SBA loan. But there's a lot of like online matching tools and I think there's even on like the, the SBA website, where you can put in your information and they'll supposedly like match you with interested lenders. But as I was kind of walking through that process, I felt like it was just like really overwhelming and kind of like more of like a sales tactic type thing, where it's like I don't have time to like meet with like 10 different banks and give them all the same information because all of them want something right to bought the deal. So it was just like I felt like it was very overwhelming.
Speaker 2:And I don't even remember how I came across this guy at this point, because this was like over a year ago at this point.
Speaker 2:But I ended up using like an SBA loan broker and that's all he does is he finds deals and he essentially like matches that party with a bank. So you know him and I connected. I told him a little bit about the firm that I was looking at. We talked a little bit about the finances of it and like the story, because that's really what it is. It's like making a story and selling it to the bank, right, so they want to invest in that deal, and that's all I had to do. And then he came back to me and said okay, I have this bank, here are the terms like this is what we can do, and it's not like you have like an approval at that point, but they at least, like, will give you kind of like an informal nod, you know, before you go down the process of providing their very lengthy list of requests. You know, so it feels good going into into it, like you're not doing all of that work for nothing.
Speaker 1:Over and over too. Yeah, yeah.
Speaker 2:Yeah, Cause it's just. I mean, even coming from a finance background, I felt like it was overwhelming. I mean, I had a full-time job at that time also you know, so I didn't have you know a hundred percent of my time to devote to finding the perfect bank and you know what all of the terms are like pretty similar when we're talking about these SBA loans. You like might get like a quarter of a percent difference like on your spread, but like we're not talking like big difference in terms.
Speaker 1:So, with that in mind because I do know, I guess, from people trying to shop SBA loans in the past, that they've come back and said pretty much like there's no movement or there's very little movement in the people that they've talked to there's no movement or there's very little movement in the people that they've talked to when the broker that you utilized kind of came back with like a match, do you know what the reasoning was behind the match? Or did they give you multiple options and you got a chance to like speak with them?
Speaker 2:No, he just came back with like the match.
Speaker 2:With like one, yes, and honestly I'm like I don't even care, it's fine. Those terms sound fine to me. You know, that's wild Because at the end of the day, like all of the terms are like pretty similar. Yeah, um, but to be fair, we actually didn't end up going with that bank, so we ended up going with another bank, um, and it was kind of like far along in the process. But what ended up happening was there was like one cpa on the board of that bank who just could not fathom running a CPA firm like hybrid or like somewhat remotely.
Speaker 2:So he wouldn't sign up on the deal, so we did have to start over with a new bank, but I don't think that that's the norm in most situations. But yeah, no, it wasn't like. He presented me with like a list. Here's like the different terms. I just and I didn't ask honestly like this term seemed fine to me, so I'm just like let's go.
Speaker 1:I think that's fascinating. I I knew about the idea that you're painting a picture financially, because it's no different than when you're buying a home. You have to paint the picture of here's the job, here's our assets, here's all the stuff that makes us capable of paying for this loan. And in a lot of ways it's kind of strange because it's not so black and white like everybody thinks. So I sort of understood and knew that probably it would be the same with any sort of business or commercial loan. But to hear that a single person put the kibosh on this, deal One person.
Speaker 1:And I guess, like the question I have based on that story is is there usually a CPA in the background making decisions?
Speaker 2:I think it was just happened well okay, so most banks have some sort of like border investment committee that will do like the final sign off. So this was like, unfortunately, like pretty far along in the process, so all of like the bank people had already signed off on it, so it was just going to the final approval and I think it just happened to be that he was a CPA on the board.
Speaker 1:I don't know if that's the norm. That was like his background.
Speaker 2:Yeah, that just happened to be like. You know, he owned his own CPA firm and was on the board of this bank and, you know, was part of the committee that had the final say on like what the bank. That's really fascinating. Yeah, it goes through us. So it was an unfortunate turn of events, but, as you know, this deal was a really long process so we had plenty of time to find a new bank.
Speaker 1:Yeah, no, that's wild. Well, and I was going to say too, one thing that's unique to buying an accounting practice is you do have hard deadlines, not hard deadlines for the acquisition itself, but hard deadlines in the tax world that play an important role on when you want to acquire, because can you imagine buying and then heading right into, like the deadline?
Speaker 2:Oh, no, yeah, absolutely not. So I feel like your story is no, yeah, absolutely not.
Speaker 1:So I feel like your story is also a good kind of warning to people that, like you know, if you had something in your mind and you don't make it work within the time frame like you might be pushing, especially in an accounting practice or some other business where the deadline you know is for whatever that industry is is more specific to an like maybe a month or two, or maybe more or another quarter any side, any sort of business that's cyclical like that, and I mean in our case it was like a year.
Speaker 2:I mean we, we set that from the outset because I was also working for a publicly traded company so we had a lot of SEC deadlines and all kinds of other stuff audit deadlines. So between both of our deadlines that was just realistically what would work for us.
Speaker 2:And we were both willing to just kind of be like, OK, we're in it for the long haul, but also the timing. You can lose sight of things too right, Things can slip. And you're like, okay, we're in for the long haul, but it also, you know, like the timing. You know you can lose sight of things too right, Like things can slip, and you're like, oh, we have so much time for that, we don't need to pay attention to that right now. But I felt that whole year we were always doing something.
Speaker 1:No, absolutely. I like to use the like college syllabus example as like how people let things not feel like they're important or like things that you know. You look at the syllabus for a class that starts and you're like, oh, there's a giant paper due at the end of the semester.
Speaker 1:There's no reason to get started on it in the first month of your semester and then all of a sudden you wake up and you've got like less than 30 days to write this like 25 page paper. And I feel like that happens all the time in the deal world, where people think they have plenty of time and it just slips through the cracks, especially to your point. Buyer is working full time and their regular job this acquisition is their foray into owning their own business. Balancing that is is a full-time job in and of itself, but also the seller. I feel like a lot of people don't realize that. You know, collecting all of the materials to share with the buyer for the diligence process could be a full-time job for them.
Speaker 1:Trying to operate their business while also doing all of that and helping them through the diligence process, having not done it prior to, like getting the LOI under contract was like that. I mean, I've seen, unfortunately, some businesses where they've got staff that they are like yeah, all of our contracts are in paper form and they're in the copy room making scans for days and they're not doing their regular jobs. So things are falling behind and it just gets really messy. And the one kind of big underlying factor that I tell people is like if you are diverting your people and your staff, or even you and you're the person calling all the shots in your business from a daily operational standpoint, doing diligence, for example, does that hurt your revenue in the months leading up to closing and does that impact a post-closing adjustment or an adjustment to your purchase price, because your balance sheet that you recently provided them at closing is now a little bit tanked or a little bit less? You know things to consider, I guess.
Speaker 2:Or even client relations that have slipped during that time.
Speaker 1:Lose a big client in the process. Yeah Well, and I was going to say, too, this idea of providing all the information for the financial piece of this. I mean, looking back on this process. You know how much time and energy I mean from cause. I see how much time and energy, but you know how much extra time did you spend? Were you working on the weekends? Were you working after hours?
Speaker 2:That's like the story of my life Paloma weekends and after hours.
Speaker 1:But yes, a hundred percent, it's just I mean cause.
Speaker 2:I was working during the day and in the evenings on the weekend on my regular job, you know. So it was all on top of that right.
Speaker 2:But I mean, I'm sure you've seen the list from these banks, but it's long. They want a lot of things, whether and it's not just all from the seller right. Of course, you need to give historical financials historical tax returns for, you know, usually three years. But they also want future projections. They also want a business plan. They want personal financial information, which is basically like putting together your own personal balance sheet. But when you it doesn't sound like a lot to say that, but when you're having to look up like every single like credit card, bank account, investment, 401k, the value of your home, the value of your mortgage or like the balance on your mortgage it's a lot to look up and then to update multiple times throughout the process too. So there is a lot of information that the bank wants like as part of these part of the approval process.
Speaker 2:So it did take quite a bit of time on my part. I mean, I have a financial background, so I felt like it was. It didn't. It wasn't anything hard, it was just time. Yeah, but I think for somebody who doesn't have a financial background it could be a lot more time and a lot more struggle to get to like what you need. Um, I don't mean I don't know what you've seen on deals that are not CPA related, like your buyers, like what kind of stuff they're going through, but I would imagine it's a lot of work for them.
Speaker 1:For sure, I think, to your point, having two accountants working together is like the powerhouse of getting things moved along from a financial standpoint and and you know, as you've said you know both in passing and as we've been talking about like having an accountant as someone that's providing the financials. It's much more sound, it's much more put together. But I think you know one thing you said, which is a really solid point, is like okay, they're asking for projections. Was that something that the seller provided you with, something you created? So I think that can really depend on the deal, and I think there's a lot of deals that get hung up.
Speaker 1:Financing gets delayed, the closing gets delayed because the financials that a lender asks for they're so unprepared to provide, because their books are a mess to start with, so they almost have to do like forensic accounting to just build their books in the first place and then they can go back and I've seen a lot of businesses that list realize they're in really poor shape, maybe with a broker that didn't give them the real skinny, which is like anybody who's not a full cash buyer is going to need way more information than this. But so that's fascinating. So you put together the projections. What about the business plan?
Speaker 2:Did the lender put that together too. Okay. So the broker that I use he actually offers like a full service package where he'll do it all for you, for a price, of course, Um, but he straight out told me he's like you do not need my services, you can fully do this yourself, you know, cause, whatever he saw, that I had already provided to him.
Speaker 2:So, like you said, historical financial statements and having ones that are actually accurate and reliable is the key. So the seller has to have that in place and you're going to need like three years is what I mean. I've seen three years is pretty standard and I wanted to see them, and I think even the bank asked for the monthly, like I wanted to see it month by month for three years, because you want to see trends right, especially when it's a cyclical business.
Speaker 2:You want to see what kind of revenue you're earning on, like maybe, the downturns, but also that helps you with your projections too. So, like I. But then you also have to understand, you know, okay. So what are some of the items that are maybe non-recurring? What are some of the items that the seller is adding back in, like their seller discretionary earnings calculation? Is the lease transferable? Are you going to have a big jump in lease costs If you have employee turnover? Is it going to cost you a lot more to hire new employees? Like, what are the employees getting paid right now? Is it market above, market below market? You know where are you at.
Speaker 2:What about health insurance? You know so are you going to be able to get a policy that's consistent for the same price? So these are all things you have to think about when you're doing a projection, and for me I felt like it was like pretty easy to put together just because I understood like the business and I understood the numbers. But also like an accounting practice isn't necessarily a complex business. Your biggest cost is going to be payroll, right, yeah, but in a company where, let's say, you're talking about inventory or you're actually you know so for me it was an asset, we structured it as an asset acquisition. But maybe you're doing a stock deal and now you're talking about you know so for me it was an asset, we structured it as an asset acquisition. But maybe you're doing a stock deal and now you're talking about you know potentially buying balance sheet items like liabilities and accounts receivable, then that's like a whole different ballgame, doing some sort of projection on you know losses from those items too.
Speaker 1:No, that is so true, and I feel like there's inherently so much more risk when you're buying accounts receivable because you're trusting that they are going to be receivable at the end of the day and if, post-closing you find out that they're actually just bad debt or not collectible in some capacity, if you don't have something built into the purchase agreement allowing for an adjustment.
Speaker 1:I always advocate for some sort of escrow holdback for indemnity, especially in situations not similar to yours, where there is inventory fluctuations or accounts receivable that are being acquired or market fluctuations. I remember working with someone that had a seasonal business where they were only operational in the months when the river was good to raft, and one of the concerns was what happens when, if the river dries up, and I'm thinking to myself boy, are we getting into the weeds on, like you know, the worst case scenario. It's not that it wasn't a valid concern but, as you could imagine, their books were crazy in certain months and then completely dry in other months, and so it made the books look really uneven and, you know, it made for a really interesting process for the buyer and seller.
Speaker 2:So I don't think in that case, it doesn't need to be a deal breaker though. You just needs to be like. Everybody understands that this is like a seasonal business and that's just what it is.
Speaker 1:Yes, no, so true. And I was going to say too, I think, sometimes people who come from a non-financial background and that's myself included I think the only reason why I am more well-versed in financials is now because of all the deals that I've done throughout my years of practice and also my husband having financial backgrounds. So we have conversations in ways that I probably would have never had if I had married another lawyer who doesn't do anything financial related. But I think what's fascinating is when you get into viewing not only seasonal businesses but businesses that have serious market fluctuations, to be able to look at the books and make sense of them, to know whether you're buying a job for yourself or whether you're buying truly a business that has cash flow.
Speaker 1:For most people they, probably with no financial background, can't really tell the difference, and I worked on a deal a couple years ago where the buyer just got totally scared and it was because an advisor of theirs looked at the books and was like the business is making no money and we were all super confused because it was closely held and the owner was taking huge draws right, and so it's not that it wasn't making money.
Speaker 1:It was just the owner was running his life through the business, which is so common in these closely held businesses and no one could get them back. And it was one of those moments of like how did we get so far afield that we're not even capable of having a conversation any longer? Like there's such bad trust now, and so that, to me, has scarred me in a lot of ways, because we were like down the deal path and then it completely fell, apart from a financial standpoint. So from your background and your perspective, like how can someone who's an absolute layperson or knows a little bit of finance, but certainly not at an accountant level, what can they do to become more educated or to better understand? Is there anything they can read or learn? Is it better to just have an advisor come in and help?
Speaker 2:well. So in the case that you talked about, where that dealer just got like I mean, the buyer just got like cold feet, right, I feel like that came from a place of like, insecurity and not being comfortable, like and not really understanding what they're looking at, because owner draws have nothing to do with profitability, right?
Speaker 2:Well, in the sense that you're not going to take a draw if you're not profitable, but you know, like that is not like something that's on the P and L Right, and I think a lot of the deals, like we'll they'll do these seller discretionary earnings type calculations to kind of back out some of those things. So I think, um, so having a financial advisor that to help you through the process and then having that person being able to sit down with the buyer and explain it to them in lay terms, is probably the best course of action, I think, for just a lot of people. They just they'll look at these financials and they just like, shut down Right, like they just like it's just too much, it's overwhelming and they don't know what to look at or what to focus on. I mean, as I mentioned, we have a family business and you know my husband owns bars. We've talked about this before. But even him, you know, like he's like I don't know what this means you know.
Speaker 2:So like he relies on me to like really kind of look at those financials and interpret it for them, and that's what I think any buyer that isn't comfortable looking at it themselves should have a trusted financial advisor to interpret it for them and explain it to them in lay terms.
Speaker 2:When you say financial advisor, like accountant, I mean it could be a lot of people right, it could just be like a friend who is financially savvy. It could be like this loan broker that I used. It could be your CPA, it could be your bookkeeper. It could be a lot loan broker that I used. It could be your CPA, it could be your bookkeeper. It could be a lot of different people, as long as they understand it and you, as a buyer, trust them.
Speaker 1:I like that answer. I was just trying to have you give more specifics. So we touched very briefly on the fact that this CPA guy on the lender committee board for financing, you know, put the kibosh on you having this loan because you were going to be hybrid. You know, as someone who lives in Hawaii and is traveling to Arizona frequently to essentially operate your business both on the ground and from afar, you know what has this looked like. Has it looked like what you expected from a time commitment? I just want listeners who are thinking about buying a business out of state to have some idea of what kind of commitment if they are going to do this. What does it look like for them? Is it feasible? And the answer is yes.
Speaker 2:Well, it's definitely feasible. That being said said, I went into this with kind of like open eyes, like I knew that I was gonna have to be in Phoenix a lot and I was okay with that, you know. So I picked a place that I enjoyed being, so that helped, um, and certainly when the transaction first closed, I was here pretty much like all of the time, um, and now that we're kind of a little bit more like steady I, I'm splitting my time 50-50. You know, during tax season it's going to be a whole different ballgame. I'm going to be here a lot. But it's definitely feasible, you can do it. But I think you just have to actually understand that there is going to be a time commitment and you are going to be going back and forth a lot.
Speaker 2:Of course, for like for me, it's like a client facing business and we still have clients who come into the office and want to meet with us and or want to drop off things in person and they want to see your face. But you know, not all businesses are like that. I think it just. I think it depends. I mean, I think like for you, you are allowed, you are able to do a lot of stuff from like much more remotely.
Speaker 2:Um, but I think it depends on what your client base is and you know how your business operates. Um, but yeah, it's definitely possible. But, that being said, like when I was doing my projections, I was like I really had to project out like what are these travel costs really gonna be, you know, between like the airfare and having like a place here and getting a car and all those things like, because all that is eating into your bottom line. So I had to make sure that the business was profitable enough to also like accommodate all those additional costs that were going into it yeah, no, I could see that for sure.
Speaker 1:I mean, especially if, if you're coming, you know once or twice a month like the airfare stacks up really quickly and I mean get a lot of good miles out of it. But no, I would agree. I think this idea that, to your point, there's certainly some businesses that are not being operated on a hybrid or remote basis that a buyer could come into and start streamlining and make more of a completely remote or a hybrid situation. I think that could be a way for some buyers to create additional revenue in their business when they have an office that's underutilized or it's just not utilized enough. And there's, I think, to your point, there are some businesses that don't lend themselves.
Speaker 1:You know, I know estate planning attorneys constantly have to have people come into their office.
Speaker 1:It's just the nature of their practice, and so I don't think it's necessarily a be all end, all that. You have to be physically in the state, but I think certainly you've got to be realistic, because I do think some buyers are a little unrealistic about how hands-off they can be. I've seen it time and again in the marketplace where you have some business here in Phoenix and you've got a buyer in Florida or New York or somewhere from very far away Hawaii is also far, but I would argue you know horse apiece a little bit in terms of time and requirement to fly. But I do think there's this misnomer and perhaps social media has perpetuated this a little bit that there are all these businesses to be had where you can buy them and not only work them remotely but also be a really hands-off passive owner and your business is just going to continue to operate without you. And I don't know of many, if at all any businesses where you can just let it run without you.
Speaker 2:You mean the social media posts where families are traveling the world making hundreds of thousands of dollars a year. Yes, I've seen those too. Yeah, and I just can't like. How do you spend, you know, all this money buying a business and then just trust someone else to run it the same way that you would? I mean, perhaps, if you're buying like a car wash or a laundromat or something like that, maybe that would be like like a little bit easier, but certainly not you know accounting firm, or even like a plumbing operation or a contractor. You know something where, like you, you really need to put your time and energy into it and to make it successful. And then, and of course, you could always hire, like you know, a professional to run it for you. But then at that point, what are you paying that person to do that? And then what's actually left over at the end of the day? For, like owner draws, probably not a lot. So then maybe you need to buy 15 businesses to make the same amount of money.
Speaker 2:You know, I don't know.
Speaker 1:Yeah, no, I think you know I don't know. Yeah, no, I think there's a lot of misconceptions, especially with social media, about what is possible and I think, unfortunately, like you said, the posts about traveling the world and having successful businesses not that there aren't businesses out there that are doing that, and maybe more of the influencer style businesses that are, you know, just showing their travels and I the bad part is it's I always tell people, a lot of it is smoke and mirrors, like you don't know what's behind the scenes, and people, I mean I think people underestimate how much can be faked for social media where it looks like you're on a luxury plane but it's really just a set and you pay an hourly rate, to take some pictures on a luxury plane and it's half a shelf an airplane and it's the studio meant for influencers to look like they're ultra wealthy.
Speaker 1:Or you can go rent a Lamborghini for the day you know. You don't have to have it or own it. So I think that unfortunately, that is driving not necessarily unrealistic goals in the merger and acquisition space, but I do think from time to time I end up having to have some real talk with people about that's just not how it works when you're really doing an acquisition, even if you've read it online like a lot of people want to do 100 seller financing and that just does not exist.
Speaker 1:Oh yeah, if it's your mom and dad, yeah yeah, there you go um, but but beyond family it's unless somebody's really in a bad way, they're probably not going to take that gamble. Especially if they're capable of selling to a third party, then they probably probably have something good.
Speaker 2:Honestly, if they have, if a seller is willing to a hundred percent finance it they're that desperate to sell it, it's probably not the best deal.
Speaker 1:Red flag. Yeah, exactly, yeah.
Speaker 2:I mean I guess have you seen because I feel like there are so many social media posts about this especially, you know it's like, oh, baby boomers retiring so many small businesses for sale, like, have you seen like an uptick of just people like reaching out to you to like kind of at the beginning of their journey, to look for something to buy?
Speaker 1:There's a lot more active lookers in the buyer space. I will say and I don't know, it could be economic too but recently, over the last couple of years, there's been more flitty buyers where they look really gun-ho and then they just disappear. And so we just we have to approach, especially when representing the sell side, we have to approach the LOI a little bit differently, because people will just disappear into thin air and you can't get ahold of them, and if you're not smart you'll be stuck in the LOI a little bit differently, because people will just disappear into thin air and you can't get a hold of them and if you're not smart you'll be stuck in an LOI that says you can't market the business for three to six months.
Speaker 1:And it's like okay, Well, and like if the buyer has left the chat like why, why should you be stuck not marketing the business? So I think that there's unfortunately some some avalanche or side effects of this got to have it buy it now. Everybody's moving at a pace that's really unsustainable. I've also seen from the market just people wanting to move exceptionally fast. I mean, m&a has always moved fast, but I feel like people are trying to move even faster and I think that the process just doesn't lend itself to that.
Speaker 1:I think people make mistakes, they ignore their intuition, they sign on the dotted line and, at the end of the day, there's only so much you can do as an advisor to tell them not to and just let the tips fall where they may. You and I had been talking briefly before this episode in preparation for like what our discussion would revolve around, and I wanted to make sure we covered this and I think it parlays back to our earlier part of the conversation, which is you have a website, is it buy, biz, sell, biz, buy, sell. I can never remember the order.
Speaker 2:Biz buy, sell. I think it is that's kind of the most comprehensive one I saw, like the.
Speaker 1:Craigslist of business listings the Zillow of businesses.
Speaker 1:The bad part about that website is that anyone can post and you were saying how you submitted to like 15 different businesses to get information and to feel out maybe which business would be the right fit for you. And recently had an experience with a client of mine who reached out to a business, had them pretty much almost ready to sign this LOI and they wanted the earnest deposit of 25,000 deposited with some company that we couldn't find anywhere on the internet. And you know, thankfully my client is super savvy and you know he came to me and was like hey, I think I got something on the line, but none of this makes any sense. Like my gut is like this is not right. And we did kind of side-by-side due diligence of like couldn't find the attorney online, couldn't find the, the uh firm, the escrow firm, the title agency online. You know the target acquisition had a website but it looked like it hadn't been updated since the 90s and it just it just smelled bad.
Speaker 2:Yeah, red flags um so we decided.
Speaker 1:You know, the only way to move forward was for me to act as the escrow, just temporarily, so that we knew that the funds wouldn't be sent somewhere else. And as soon as we did that, they made an excuse and the whole thing fell through, and I think it was. It's just a really good story to warn people that you know same, same kind of of like don't wire money to people that text you saying that they're the IRS and you owe them money. Um, it looks and it feels a little bit more formal because it's through a website that everybody utilizes, but you still got to do your due diligence.
Speaker 2:And and I like how it's like they even had an escrow company that was like fictitious, right, so do your homework. And if you haven't heard of them, yes, don't ever wire the money.
Speaker 2:If it doesn't, don't wire the money don't wire the money, don't do it and you had told me in passing that you can fact check people that are accountants well, so anyone who is a certified public accountant is certified by the state board of accountancy. So I have a Hawaii CPA license, I have an Arizona CPA license and there is like a Utah and say that I clearly do not. You know. So, yeah, the information, I mean internet has a wealth of information but yeah, you can find out this kind of information about people Like I mean, this is specific for CPAs. I'm not sure if there's something similar for you know attorneys to see, but I'm assuming anyone who's certified that you could easily, you should be able to fact check this information.
Speaker 1:There is. There is For attorneys. There you can go on any state bar website and do a lookup for an attorney and and, on the flip side, for people who are like well, how do you fact check a business If you know? Maybe not all businesses have websites, which is true, there are some that still don't have websites, but you should be able to find them on the state secretary website. Or for Arizona, the Arizona Corporation.
Speaker 2:Commission.
Speaker 1:And so there's ways.
Speaker 2:And you can see who owns those businesses too on those websites. Well, I mean, it could be like a couple of layers deeps of LLCs, but you can still go down. But it's like, if it's clearly like a name who's not the name you've been talking to, like that's also a red flag, right.
Speaker 1:Absolutely yeah, no, and and you know check socials like this target that we had all the bad feelings about. Um, you know they were serviced a B to C service-based business. I'm sorry, but in today's world, 2025, there's very few B2C service-based businesses that don't have social media accounts or some sort of online presence so that you can type in whatever you need, like HVAC, for example, like HVAC Phoenix, and like they should have a Google profile with a phone number for you to call, and, and if they don't have any of that, that should be a huge red flag that they're not really operating.
Speaker 2:And I think, like, especially within the Phoenix market and you do this so much like you probably know a lot of the escrow agents, right, and if it's somebody that you haven't heard of, like that's also probably a red flag. But I think you know kind of the moral to that story is, don't get so excited about a deal that you're willing to do anything to get it done, because sometimes it's just not the right deal.
Speaker 1:You could say that a million times yeah.
Speaker 2:I mean like, don't overlook things like that. You know red flags like that, or, but also don't overlook like things like financial inaccuracies or discrepancies that don't just seem right. Or you know, maybe a seller who doesn't ever get back to you, or you know like you just don't get good vibes from in that respect, because that's probably how they treat their customers too. So I mean, there's always another deal out there.
Speaker 1:A hundred percent. No, I, the bad vibes thing. I was laughing because I was like the bad vibes thing. I was laughing because I was like it's, so, it's, it's so non-scientific of a phrase, but it's, it's so true.
Speaker 1:Um, listen to your gut. I know it sounds difficult, that sometimes. I mean there's times when you know I, $150 per whatever the service is right, it's really high. Like, go do market research so that you know what's normal for that industry. If you've never been in that industry before, it's not hard.
Speaker 1:If you're going to buy a dog washing or grooming business and they give you a P&L or a projection and it looks like they're charging like three times what the market has per dog or per wash or whatever it is. Maybe it's not true, right, like, maybe those things are just inflated. And so I just there's so much you can do leading up to putting in the LOI or even putting in the work to do the purchase agreement that there's there's no need to go down that path and lose money beforehand. Okay, well, we covered a lot of ground and I loved our conversation and I think you know hearing from you about the financial pieces. You know your experience going through the lender process. Is there anything else that you would like to share before we close our episode for the day?
Speaker 2:I mean, I think really just like enjoy the process and really just give it a hundred percent, because it's like the rest of your life, right? That's the way I was looking at it. I'm like this is going to be my career for the rest of my life, so I put basically everything I had into it and if you're not prepared to do that, it's maybe it's not the right time to be a buyer. Well said.
Speaker 1:I feel like a lot of people get wrapped up in the chase and they forget that they actually have to step into the shoes of operating after closing Like surprise, all the work that you just did. There's more work to be had.
Speaker 2:So I and it's like you don't like get a break. It's not like moving between one job to the next, right, it's closing and then the next day you're working.
Speaker 1:Yes, yeah, You're an owner. Yeah, Talk about whiplash. No, I don't. I think not enough people are talking about that is the glow up in identity of like you're pursuing a business to be a business owner and then you're a business owner one day. So well, I really appreciated our conversation today.
Speaker 2:Thank you so much.
Speaker 1:Yes. Thank you so much for being on Tune in next time and like and share this video if you thought it was helpful. In the world of business, not all deals are what they seem. Fortunes rise, empires crumble, all with the stroke of a pen. Mergers, acquisitions, hostile takeovers Welcome to Mergers, she Wrote, where we examine strategies and stories behind the biggest deals in business. Because in M&A, the real risks are the ones you don't take.