247 Pros & Cons of Buying A Firm in 2024

Imagine buying three accounting firms and be like, you know what? You know what this makes me want to do is buy another accounting firm. Patrick's. That's Patrick. That's our guest today, Patrick Dichter. We've had him on the podcast before.

Super sharp guy, actually. A non accountant who for some reason is rolling up accounting firms. And by all accounts, he's made it.

He's made it this far. Couple few years, he got as far as an LOI on another deal. And so I wanted to pick his.

Brain on kind of the mechanics of how it came to be. Like, why would you do this again?

Most of us, like, we're just chugging.

Along with our firms, right? Like, we don't sit up in bed in the morning and go, you know.

What I need to do today is.

Buy somebody else's accounting firm. Usually because our own stuff is just, if not actively on fire and like a state of, like, a slow simmer.

So this was a fun one, picking.

Patrick's brain on this latest deal and just kind of the state of buying firms in general.

So come on in.

Let's pick Patrick's brain on firm acquisitions.

Patrick, thanks for being here.

Jason, thanks for having me.

Repeat guest of the pod. One of, like, an illustrious who maybe only Chad Davis is the other repeat guest.

Okay. Do I get a T shirt in the mail or. I don't know.

As I said that, I realized that may or may not be a club you want to be a part of. But we're having you back because for some reason, you thought it'd be a good idea to go and buy another accounting firm. If folks haven't heard you before, haven't seen you online, what's like the 32nd intro to Patrick?

Yeah, I bought three accounting firms within 12 months at the end of 21 into 22. I'm not an accountant by trade. You know, I have business background. I have an mba, but I'm not a formally trained accountant. And, yeah, I'm like two and a half years into this whole running an accounting firm journey, and some days it's great. Some days I get my butt kicked.

That's how it goes, man. You also just kicked off a pretty sweet podcast. You want to plug that straight off the top here?

Yeah, sure. So we launched a podcast called Inspired or Acquired. I co hosted with a business broker and kind of a different format. We interview people who run a business and we give them a valuation during the podcast. So we'll say, okay, this guy runs a landscaping company in Austin, and right now it's worth X. Would you sell your business or would you hold it? And so we see what they say and then we talk about like where it could go in five years and we do a little bit of live modeling in Excel, update the valuation and then say, you know, would you sell it then or would you hold it? So, yeah, trying it out. It's been fun so far and seeing if it's a format that resonates with listeners.

That's a super cool format. Have you had an accounting firm on yet?

No, I want to get B. Hall on there because, you know, he'd be a fun one and a big valuation, but I got to talk to Brandon about it.

He'd be a fun one, but he's also like extremely non representative of a normal accounting firm, right?

Yes, yes, he is a powerhouse and an outlier.

Okay, so you somehow got all the way back to an LOI despite doing this three times. And as we've discussed on the podcast in the past, taking all of the lumps that you would expect going through this process, not only as a just somebody acquiring other people's firms, but even as a non accountant, which factory gives very. I think you do a great job of giving like sage advice online without being gatekeeper about this because there's a lot of non accountants that are sort of sniffing around, doing it.

Yeah, it's also in the, you know, we're recording here in May. I feel like in the past few weeks there's been a lot of people like looking at firms or criticizing on accountants wanting to buy firms. So it's been a lively discussion. But yes, I, you know, for the past 18 months I was like passing on a bunch of things and saying I wasn't going to do any more deals unless it was a perfect fit. And I, and then lo and behold, there was something that came along that felt like a perfect fit. So I went and made a run in it and made an offer.

So I want to like get real nitty gritty on the mechanics of this for people who have never done it before, which is most firm owners and just don't even know the first thing about it. So working backwards from an loi, like, what is your process even for sourcing a deal? Are you talking to brokers? Are you doing this stuff yourself? Like, how do you even start. Start looking through these?

It's a mix. So sometimes it's with the broker, sometimes they'll, they'll reach out to me directly and sometimes you'll find it online. They list it themselves. But usually where it starts, you get, you know, prior one to three years of historical financials and they might have an asking price and then you know you're creating an offer and your LOI is not the final kind of legal document, but it's the main, main outlines of a deal. Right? Like how much I'm willing to pay upfront and like what the total purchase price is and what the targeted close date is and kind of what the transition would look like. And that's a big step. And then they might have other suitors during that. And then if they sign your loi, you're in exclusivity with them. So and then after that you go into due diligence where you say, are the financials legit? You learn more about the team, you go figure out the rest of the financing and you get your legal done and then you sign a purchase agreement. That's kind of the whole, the whole process. But it'd be cool to dig in.

Into like this one specifically and how you were thinking of pulling it together. But even just a step back from that, why were you like, why were you even open to another one? You know, like what is most firms out there just trundling along doing their own thing, like why, what's the upside of acquiring another one?

I think the right acquisition can definitely catapult you forward and save you time. And if you do the wrong one, it can be a really expensive lesson. So I've had a couple deals that have worked really well. I've had one that hasn't gone very well. So yeah, I wrote down three reasons why this one would be worth doing and three reasons why it might be a bad idea. But I think the long story short is a good one will catapult you forward, assuming it works out well.

So yeah, so this deal in particular, let's dig into that. Like what, what about this deal in particular was, was exciting for you.

Yeah. So the big things I look for now is like similar tech stack, similar type of client. Right. So I'm looking for, you know, a firm that has subscription style billing, qbo, ultra tax, because that's what we use and there's some team in place. I have zero interest in like a majority tax firm or an old school practice or like some small firm that's closing its doors like it's just not worth it compared to organic growth. So this firm was doing about 100,000 in monthly revenue. Pretty similar tech stack. There were a couple things that are different, like small practice management stuff. I guess that's not small, but practice management was different. But QBO was similar. Ultra Stack was similar. Similar type of client, you know, small business client where they're doing bookkeeping and tax and. Yeah, so those things made it feel really worthwhile to go after versus most months were growing organically by like 5 or 6k a month in new revenue. Right. So you just compare like 5k a month in organic growth versus like a hundred k of like being able to pull that in at once. That's the, the shortest way I can, I don't know, convey how it could catapult you forward.

How rare are those sort of firms? Are those really hard to find?

Yeah, either, you know, don't come up for sale or if they do, they, they go quickly. And the update would be like, I didn't get this one under loi. So he had a bunch of other offers and ultimately like he went with somebody else's loi. So who knows, maybe metal fall apart and come back. But yeah. So if it's a good firm like that and they're going to have a.

Bunch of other offers, was it ultimately a price thing, you think, or were there other factors that made your deal better or worse than somebody else's?

I didn't hear a lot. I would guess price is a big factor, but it's. I don't know. Sometimes you just don't get very much information from the other side.

Is it like buying a house where you get into it and you're like, oh, we've done all this work. And I'm like, this is a big deal. Like, you're starting to get like emotionally invested in it. Like, is it one of those things where it's a rug pull and you're like, oh my gosh, that was just a pile of wasted time and energy?

Yes, there's definitely some people that buy businesses, they call it deal heat, where you, like, you fall in love with the idea of it and like, mna sounds cool and it's sexy and you're like only seeing the positive side of it. And then, yeah, when you actually acquire a business, it's like an immense amount of work of integration. And there's always skeletons in the closet you don't know there. So that's part of it. So you do have to try to check yourself emotionally while you're going through it. Yeah.

So you said there were, there were three reasons why this was a potentially good deal for you. What were the reasons why it was potentially a bad deal though?

Bad deal would be, you know, the Financial risk just with interest rates where they are now, you know, SBA loan is probably going to be 11% interest rate for a good amount of that purchase price and just that, all that debt on my balance sheet. So financial risk 1, 2 would be the distraction from organic growth. Like our organic growth is going pretty well, but you have to admit that, you know, if we're selling 5 to 6k new MRR every single month, if I go do this acquisition, I'm probably going to take my eye off the ball a little bit with organic growth and recruiting and our core team and process improvement there. Right. So just the distraction of this whole thing. And the third would just be integration sucks. Like it's painful for everybody. So when I say integration, that means just like all the system switching over and getting to know like their whole process and like making it meld together over time and getting to know the team and going through, you know, getting all the payroll in one place and client billing in one place like that, that's just. It is like moving house. Like it always takes way more time and energy than you think it will and, and that's painful on, you know, our current team that would be involved with that.

Yeah, most people are stuck on like rolling out a, a tool or two and the change management headaches of that. How do. What is the. What, what is. I don't know, this there's more people thing. It's also a systems thing, but it's also like a human beings sort of thing.

Are your people really burnt out too.

Like the rest of ours? Like if you tell them, like if you walk in and you're like, hey, just got another firm, what's everybody's reaction going to be? Is it a of groans? Like, do you have the A team for helping with that integration yet?

It'd be groans. You know, obviously I'm going to try to make it worth our while and say like, hey, there's going to be more opportunity for people. Like there'll be more revenue for the people who are on production base so that they can make more. I try to tie some incentives with our current team to help with the integration, but yeah, there will be groans because they know what it was like with the other ones. You know, the dust has settled on those now. You know, it's been a year and a half since the last one, but I think there would definitely be groans of just like they know like how painful it is.

Did I see you've got a physical office too?

Like you've got some in person Folks and some remote folks.

Yeah. So we're in New Hampshire is where we're based. It's like 45 minutes north of Boston. Probably half our team is there, and they come in half the time, and then the rest of our team is distributed all over the country. You know, remote folks.

So as you're doing acquisitions, are you looking at local stuff at all, or is this all just virtual firms wherever they are?

Both. Yeah. So virtual or even, like, you know, if somebody else had a office in Dallas or in, I don't know, Florida or something, like, I'd be open to that if it was a similar style for virtual is ideal. But again, those. Those virtual firms go up really fast.

Really? Even. So a physical office in another place you would still be interested in.

Yeah, if it's the right one. Yeah. And it's not like it's something where I'm like, okay, I'm not signing up for that for 20 years, but, like, maybe we need that office for another two years and then see if we need it or not.

Most of us know like a firm or two locally where we're like, yeah, they're. They're getting close or they're going to do something different at some point. If there were a local two New Hampshire, like, conveniently close firm, would that change your calculation at all of, you know, integration and all that?

Yeah, it would. I think the big plus there is, like, clients would feel a little bit more comfortable and maybe you get some synergies with like, one office if they had an office. You know, some cost savings and culture is maybe a little easier when there's one office. But yeah, it's. I. That. That would feel rare to me that that would come up, you know, like some. Some other good modern firm like in New Hampshire that's sizable or like near Boston, like, I don't know. I just feel like most aren't within driving distance.

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One thing I really struggled with was I built a kind of a remote team from scratch and we had an in office team. And in some ways it made it easier for the in office team to like pretend they didn't exist and kind of do their own thing and operate within their own little bubble. So if you went out and you acquired a virtual firm, how is like, what is your approach to, I guess in a hybrid environment like that, like making a bunch of new people feel welcome and like they're part of the crew and all that?

Yeah, we just did this last week. So we had a three day company retreat where everybody came in. So people fly in from New York, Florida, Denver, all over. And three of those people are from previous acquisitions. So definitely try to be intentional and make them feel welcomed and do training and social events and break bread together. That helps. But I'm so torn on Office Man. I think our, our data tells us that like when people are local, like they tend to ramp up faster and like stick better. And like, yes, I want to hire remote and like I've always previously this, I worked remote for 10 years, but I can't deny that, you know, some of the remote people we've had, we struggled with or they've churned out. So I'll continue to try to hire remotely. But like if somebody lives near our office and it was like apples to apples, like I'd take the person that lives near our office and like I don't want to be there every day but like once or twice a week, a long way. So I don't know, like I, I really like go back and forth on this like every six months of like whether the office matters that much or not. But right now I feel like when I can, I will try to hire somebody that is, is near office if I can.

I, I, it's the least cool thing you can say in 2024, but I vastly prefer.

Absolutely. Yeah. I mean I feel like such a boomer saying that. But like, yeah, and even like last week, like so Many people were like, oh my gosh, I so great to be together in person. So I think even if you're a fully virtual firm, like, you're going to need to get everyone together once or twice a year.

Yeah, I was talking with a guy that runs an agency last, last week and he's like, every three time, three times every year we get together and it's always right about the time when people are kind of forgetting the direction and like, where we're trying to keep momentum and all that. And he's like, they settled into three times a year they get together and it's always kind of right when people are getting fried and maybe losing perspective. And then you come out of that and you kind of kick that momentum off again. And it like, it feels like you're in sync. Have you settled into like a, a cadence for that?

Right now it's been May and October, so May is everybody, and then October is like our tax and management team. So that seemed to work so far.

But on the, the deals that you're seeing, so you've had your nose in a bunch of these now. Like, you know, what is realistic, like, what is the market rate for this sort of thing? And I've always been kind of allergic to the whole, I don't know, people. People love to throw out really spectacular multiples that I don't know are very realistic or maybe they were like in a very specific scenario. Like, maybe that made sense. But oftentimes it can paint this sort of unrealistic picture where folks then are like, okay, I'm going to build this cool modern firm because I can go sell it at like a software multiple. And like, I just don't see that happening in real life, like in the day to day of the different types of firms that you're seeing. Like, what are the various. I'm interested in, I guess in what.

Are the different ways that people structure those deals?

And just from a real money standpoint, like, what is the range that is normal now?

Yeah, I think what I'm typically seeing is like multiples between 1 to 1.5 times annual revenue. Right. So if your firm does a million in revenue per year, anywhere from like 1 to 1.5 million purchase price, that doesn't really make a ton of sense because, you know, you know, some firms can be way more profitable, but that's what happens with accounting firms, for better or worse. I do think if you get bigger than that, you know, they'll trade off of like EBITDA multiple. So more of a Cash flow multiple. And I've had, you know, calls with private equity and some of them say they're paying four to five times the ebitda. And then there's some that are saying if you, if you can get over a million per year in ebitda, they'll pay you seven, eight, nine times. So that, I mean that's an amazing multiple. Like as far as small business goes, like most of the time it's between two to five. I think there's probably strings attached with that tied to retention. You're probably having to stick around or like roll equity into the bigger group. But all the same, I mean if you, if you're able to like, you know, have a firm that's doing 4 or 5 million in revenue and like a million of EBITDA and like sell it for 7 or 8 million, like that's crazy. It's life changing money, you know. So but for most of these smaller firms that we're talking about, like, yeah, 1 to 1.5 times annual revenue is like market and on an owner cash flow basis it tends to be between like two to four times. The owner cash flow is like what it ends up selling for.

And I imagine you're just looking at firms where the, the owner is as removed as possible from production, right?

I mean in a perfect world, but like it, the, the ones that I'm looking at are anywhere from like 500k in revenue, like 1.5 million revenue. So like yes, there's a staff and they have some good people, but like they're still involved, you know. So yeah, you want them less involved, right? You don't want them owning every client relationship, signing every tax return. But the reality is that like, you know, they're still probably working 40, 50 hours a week. Whether that's like in review or training other people or they're, they're the, the salesperson, they're doing something that's driving a lot of value.

How do you plan for that? Who, who picks up that job?

So depends on the makeup of the firm, right? So I've had some where I know that I have to backfill the tax talent right away. I've had others where the owner is like more of a fractional CFO that you're planning for. I think generally there's like a three month, three to six month transition where they'll be involved. And so you know, you have some time to like get in and like get to know the team and the clients and then you, you're banking on that. You're going to have to backfill it pretty quickly. So whether that's somebody on our team.

Or you're hiring for it, that that transition can be a, can be the real killer. Like, if you don't, like, nail that down and get explicit about it. What are, what do you recommend for owners coming in like that who may not have anything to do after this and like, may try to stick around or like, how have you navigated that?

I think you should plan that they're not going to stick around. Like, I've had one that stick around but. And like, that's worked out. But I think the norm is that you're going to butt heads so much that it's just healthier for everybody that they're out or they're just so burnt out that like, they need to be out. But what you should do is like, have a three to six month plan. You should meet weekly and like, you know, the first couple months are going to be total chaos or first couple weeks will be total chaos with just like getting all the logins and billing and payroll figured out. But then after that it's like strategically working through a list of like, okay, who are the ideal clients that I need to meet? Building a relationship with staff, understanding the processes, like knowing why they do things a certain way and then trying to, you know, move over the data and take things over and like, just weekly, like saying, how are we doing on this? What are the fires? Are there other things that we can move faster? And then, you know, if, if they're going to be out, then it comes a point where like, you know, staff come to you and like, hopefully clients all know who their main point of contact is at that point.

This may be more like personal for you, but you said acquisitions can, can kind of be a shortcut to organic.

Why?

Why do you want to ultimately grow? Like, why, why continue to get bigger?

So my North Star goal from the, from the very start of this, like the first firm I bought was doing 1.2 million in revenue. And from the very start, my goal was within five years to get to 5 million in revenue and like, you know, a certain level of profitability. And then I would keep the accounting firm and then try to start buying other types of small businesses. So my plan is still to try to get to 5 million within five years. You know, we did like 3.2 last year, so we're a little bit ahead of schedule, the revenue side. And then I'm going to come up for air at that point and then see like, okay, do I still want to try to acquire other types of small businesses? Or maybe I just like invest in other people and then keep going for more in the accounting space. But I think for me, 5 million is the type of firm where you've got, you know, sizable revenue, you've got key leaders in place, and it's resilient enough if I do try to go do other things or not work in the business like 50 hours a week like I am now. Like it can be a little bit more self sustaining or it'll kick off enough cash to be able to invest in other things. So that's really like why keep growing is, is to get to that 5 million top line number.

How did you get there? Was that just arbitrary? This is a challenging thing I want to do. Like, where's that come from?

Like round numbers, like 5 million probably means there's 20% cash flow and it probably means that I can have like, you know, five to seven leaders that I can really like count on. Maybe that might not be the right number. Maybe it's like maybe four is enough or maybe I have to push to six. I see Brandon Hollis all the time. Like you got to grind and get past three. That's just his perspective is after that things get a lot easier. I've seen that in a lot of other professional services businesses like you hit plateaus at certain numbers. But that was my original thing is I thought that 5 million top line would mean good stable business, good team in place and hopefully 20% cash flow. But it's been a lot less cash flow percent than that because I'm like hiring ahead a lot and like paying off these acquisitions. So time will tell.

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Notes this episode is sponsored in part by Cloud accountant staffing tax firms. Check out this resume, a real resume from a real person. That was accompanied by an intro video from this applicant. Two associate's degrees, one in accounting technology, the other in accountancy. Started doing tax work in 2019. Became a tax associate with a US firm in 2021. Was promoted to a senior tax associate in 22 and a tax manager and team lead in 2023. Work with assert with Intuit Pro Connect Tax Pro Series CCH Access Tax Dome, Intuit Practice Management Goodness sakes. Tally for QBO0. Prepping corporate and personal returns 1065 990s 1041s. Goodness sakes. Specialized in equity compensation Year end tax planning. This is a real live resume from a talented tax pro in the Philippines. The Cloud accountant staffing placed with a US tax firm. If you listen to much of my stuff, you know I was building a ton of my team in the Philippines. Super talented people over there totally changed our approach to getting work Done. Nice thing about working with them, you can just give them a call, have a conversation, tell them what your needs are. They've got recruiters on the ground, the Philippines. It'll go out and find folks that are qualified for what you need. You get resumes, you get video intros, you can hop on calls and interview these folks without dropping any money. You only gotta pay cloud accountant staffing when you agree to hire somebody. So literally you only are gonna pay a dime. If you got somebody that you've fallen.

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I think the other thing that's worth stating is the third deal that I did did not go very well, like on paper. Like, you know, we didn't retain the clients as well as I would have hoped. And so there'd be some people that say like, okay, don't do another acquisition. But I don't know, I think in my mind, like I've learned from that one and hopefully the next one goes better. But it's like, I think firm owners do the same thing. You know, they touch a hot stove and like, they're like, oh, I can never do that again. So I think if this deal would have gone through, it'd be interesting to see like if it, you know, panned out better than the third one that I did. But yeah, I think all in all, I think if, if somebody is growth minded, like, you just can't deny that doing everything yourself, especially people starting from scratch, like my hat is totally off to you. Like, if you can grow a firm from like 0 to a hundred k in revenue or 500k in revenue, like that's super impressive. But like, it's so taxing, right? And to be able to like do an acquisition that would help you cash flow sooner so you know, if you have family to take care of or you just save like yourself two years so you don't burn out. I think there's a lot to be said for that. So, yeah, my, my CliffNotes version would still be the right acquisition, will catapult you forward and like, there's a lot of bad firms out there that you shouldn't buy. But if you, if you find a good one, it can, can save you a good amount of time and really like be a good thing.

That's funny. Cause I think a lot of the people that build from Scratch would look at what you're doing and be like all that integration, like, oh my gosh. And having to deal with all those people and all that is like, feels tremendously taxing.

Yeah. So you just like those, like for my second year we did like 3.2 and like now our team is like, I don't know, 35 people. Like, and we've got really good momentum. Right. Like, how long would that take to do organically? Like I don't know, six, seven years. Right. Like, I just think the likelihood that you could stay focused and like not burn out and get there is much smaller.

You know, what did you do before all this?

Because you have a very, you just have a very different approach to leverage than like most accountants do. Or like you're just, you are like divorcing yourself from a lot of the stuff that they kind of just get mired in managing day to day. Like otherwise you couldn't do as much as you're doing.

I mean, I still work a lot in the day to day, but I'm just not doing the bill work, so. Background. Prior to this, I, after my mba, I worked at a digital marketing company for seven years and I was a sales leader. So selling and leading sales teams all over the country, selling like SEO and pay per click. And then for three years after that I did small business coaching and consulting. So we were helping people run their business better and smarter and trying to improve their business. And all my clients would have terrible bookkeeping. And I was always referring it out and so that's really like how this all started. The idea to buy an accounting firm is because I was referring a ton of bookkeeping out and then met a couple people that had bought businesses. So I'm, I'm like analytical by nature. I happen to be an intro that ended up in sales. So I don't know, that's kind of what makes me tick, is like solving problems, you know, and like puzzle pieces.

It's. Yeah, it's especially career changes. It's always funny to me how they end up in accounting, but I almost feel like we get, I almost feel like the, the career changer path to the accounting profession is more interesting than the college, the college path to accounting these days because we get folks in that have like entrepreneurial experience and even pulling them into your firm, they can relate better with clients. Like they've got that experience. When I was 20 years old and I first went to an accounting firm, it's like our clients are a bunch of 50 year olds. Like I Can't relate to these people. But I don't know, I. The whole, the whole conversation online of non accountants getting into this sort of thing, like where do you stand on that now? Folks coming in without the. Yeah, the most recent one was you know, somebody coming along and saying I don't have any tax experience but I'm going to do this anyways. What is, what's the responsible versus versus irresponsible version of that you think?

I think the responsible version is you need to buy a firm that's doing at least 7 or 800,000 in revenue and if there's tax being done, you need to have at least two tax pros down post close. So those would be the quick filters. And then I think the benefits to a non account owner is like somebody can just focus on recruiting, sales, marketing, tech, just running the day to day. Bring a little bit of a outside perspective. I think the risk or the downside would be like if, if you don't have those tax pros there, like you could burn out your team or you could be sending out a lot of bad work out the door that you don't know is like quality tax work. I think a non accountant can learn bookkeeping and like get in there and help contribute and roll up their sleeves. But so those are, those would be the pros that like, you know, they're, they're somebody that's just going to focus on like running and improving the firm and not get pulled into the day to day and they're probably the person that can grow a firm from like 1 to 5 million faster than the you know, accountant who's trying to juggle everything and do it all.

So I know I've. On the subject of like the tax versus bookkeeping work, I've. You brought up several things that now my mind like kind of associates with pasba. Not that PASBA necessarily invented this or they're the only ones doing it, but kind of building the business around monthly recurring bookkeeping and then only really doing tax work for those recurring clients. Right. Like what is in terms of like service lines? What are you building around now?

Yeah, you nailed it. That's like the pass model is like try to get the owner out of the day to day only work with clients on a monthly subscription style basis where you only do tax work for somebody that you do bookkeeping for. So and that's a large part of why the first firm I bought has gone really well because he, he followed a lot of the, the PASBA methodology. So we've Stuck to that as a firm, like we don't do one off tax returns. You know, we only work with clients on a subscription style basis. And then the way our org chart is structured is the accounting manager is the person who does the tax work. They're really like the linchpin. So they're the client relationship and then their staff accounts that sit under them and you know, value style billing. We don't track time and team members are on production pay. So they get a percent of the revenue that they work on, which are like, I don't know, key teachings of the PASBA methodology.

That may be like the hottest PASBA take is production pricing.

Yeah.

So you've got. So your accounting managers are doing all the tax work. So they're both overseeing the bookkeepers and doing the tax work. Who within that org chart is all production pay and who is not the.

Tax pro and the bookkeeper are on production pay.

Okay. And how many bookkeepers will. Is the tax pro different from the accounting manager?

No, I'm just using them interchangeably because some people, they, I don't know, they have different titles. They might call it like a tax director, but they're not, I don't know. So we'll just say tax pro and bookkeeper. Like each are on production pay.

And how many bookkeepers generally are under a given tax pro or accounting manager?

It's one to one. So they all kind of. Oh, it's like a cross matrix. So you don't want one tax pro only working with one staff account. They would work with multiple so that we all have exposure to different people and consistent processes throughout. But usually it's a one to one ratio.

Okay. But it's not like a pod of, you know, a collection of three bookkeepers with a single accounting manager. Okay.

Correct.

Interesting. Why is that? Just, just more cross pollination of working with different people.

Yep. You know, each person might have a little bit different style, but you know, we have to have consistent processes so that everyone can work with each other. And you know, if anyone leaves, then anyone else can pick up that client and like it up a little bit faster. Their capacity is usually between like 30 to 50 clients, you know, so each tax pro can take between 30 to 50 clients and each bookkeeper can take between 30 and 50 clients.

Probably 60% of what I know about firm acquisitions now is thanks to you. And I can't say I'm any less terrified about it, but at least I know a little more than I did before.

Awesome. Thank you for having me. And yeah, we'll see. Maybe I'll have another one on the line in a few months. But it's always fun to discuss and debate buy versus build. So thanks for having me. Jason.

Cool. Thanks man. Bless Patrick's heart, man.

Who all that change management.

I get it though. I do think if you're trying to get to a certain threshold or certain size, it is a faster way to get there. But yeah, all the trade offs are having to integrate. Folks love that he's talking about tech. Like if you can find somebody that's on your tech stack that makes them a really good target. But also just the fact that right now the vast majority of firms just aren't good targets. And if you are building your firm and hope to someday sell it, like to be thinking of things like is my tech stack something that someone else is reasonably going to be able to absorb into what they're doing? Am I doing 80% of the work? So that if you pull me out of the picture it's like, well, this new firm's actually going to have to try to find a way to do the work without you. Really interesting as as there's more talk about like private equity and all that rolling up accounting firms which just doesn't seem realistic to me. I love talking with Patrick because he's like a very level headed person who is rolling up small firms and genuinely seems to be like trying to do that in as calm and sustainable a way as possible.

Frankly I would love it if we.

Had 100 more Patrick's. Even though they are not accountants, they're not people from the industry to have a whole bunch more people come in. We've got all of these, these firms that are like aging out and people that are burning out and they don't know what to do with their firms just to get some fresh meat in and like perspective on how we can run our firms better. Because at least in the US market right now we just need more of them. Like there's just not enough professionals out there to help clients.

That's it for today. Thanks to Patrick for joining in.

I'm gonna put links to his super cool new podcast down in the show.

Notes.

Just like jamming on a different business every episode. Doing that valuation live. Super fascinating and has even like given me some different perspective for how I would advise clients when they do that sort of live.

Here's what this business could do over.

The next five years. Here's how it could impact the valuation, that sort of thing. Really interesting. So check that one out.

That's down in the show notes and.

I'll see you next time.