Welcome to the Escaping the Accountants Trap podcast. It's a podcast to help accountants, CPAs and bookkeepers escape what we call the accountants trap. It's where accountants are now, getting paid for their value and are forced to work long hours with high demand and clients with little pay. Well, how do you escape the trap? One way is the topic of today's episode, and that's by buying and selling accounting firms to help me with the discussion.

I've invited Jason Blumer, the CEO of the rival and organization that helps counter-cultural accountants and bookkeeping firm owners embrace their entrepreneurial side. Jason, welcome to the show. Cool. Adam, thanks for having me. I'm pumped to be here. I appreciate it, man. Yeah. So, Jason, I'm excited too. I'm excited about this episode because I'm going to talk about how to, you know, buying and selling accounting firms and whether or not you should buy and or sell your accounting firm.

But first, I want to talk about the sort of the mission of Thriver. You talk about helping counter-cultural accounting and bookkeeping firm owners sort of embrace their own entrepreneurial side. What do you mean by that? Yeah. Well, a thriver is for entrepreneurs. We are for service based entrepreneurs. That's kind of we're an entrepreneurial care organization. We like to say sometimes.

So thriving typically, it just attracts brands that are not traditional in nature. So they don't really struggle with cloud technology pricing virtual. They're just they'll try, you know, if they want to offshore their will try it. So they're just not really scared. So so we we love those countercultural firm owners. You know, and then the rest of our tagline is them embracing really their their creativity within the profession.

We believe all entrepreneurs are creative. They have to be innovative. And so we love it when they come in and they're trying new things, wrecking stuff. A lot of times they're messing up things. And we love that because we're that's what we're all trying to do figure out entrepreneurship together. So yeah. And I feel like this is so important, especially in the accounting space, because there's a lot of people, a lot of firms that are that are not countercultural.

They're they're trying to hang on to what has worked for the past 50 years. And a lot of people aren't responding to it. Yeah. No, I think yeah, clients are moving around now. They're. Yeah, they're moving from firm to firm. And so the traditional firms, the ones that are really locked up in a lot of old school methodologies, are the clients are just going to they're going to leave them over time.

Yeah. I think I think private equity coming in and starting to buy up firms is really going to bring a competitive way in which, you know, because the private equity people are going to run a firm like a business and that's that's all they care about. They're running businesses. And so, yeah, they're going to start to challenge the all of us other really long term traditional professionals to really step up our game.

So that might be good long term. But yeah, clients are not going to, they're not going to put up with paw Paw business models, over the next 5 to 7 years for sure. Yeah. Well, let's get into sort of the topic of today's episode, which is buying and selling accounting firms. So, so first of all, why is this such a hot topic?

Yeah. Well, I think, I think, post-pandemic. So, you know, we talk a lot about post-pandemic. A lot of people in the pandemic really went through such a traumatizing time. But it did force us all to do things and to rethink our business models, rethink how we want to commit to that. And I think now, couple that with the difficult economy, people are actually making decisions about leaving the profession or changing what they're doing.

So now they're just they're not going to keep doing what they're doing because it's it's been pretty difficult. So we're kind of pushing people out of their their, you know, their mode of rest and not making decisions and saying it's time to actually move forward and do something. And then when you have private equity coming in, it is buying up a lot of large or mid-market firms.

And it's making us all think, well, okay, we have to make some decisions about what we're going to do. So I think it's a couple of things post-pandemic. You know, the private equity is coming in bringing money in, to buy, and then people, you know, have dealt with their own work issues and they're ready to actually make decisions, to buy, sell, merge things like that.

Okay. So let's start with the private equity companies specifically. Who are they and why are they buying accounting firms? Yeah, that's that's a good point. I think, they're these are people that may or may not have, a background in accounting firm operations. They may, a lot of them may have operates, operated service based organizations. So we know some of them and it's typically, they're just professional business operators is basically what they are.

And they have a large fund of cash behind them that wants them to buy up businesses that can be profitable. And they're they're starting to come after accounting firms. And because we are a great, model of a business. We don't go away. Even during a recession, we don't go away. It's, it's got a little bit of a moat around it, right?

So you kind of have to have some technical ability to get into this business. So it has a little bit of protection, around it. And they're just they're just generally profitable. You can run them really profitable. Or, you know, most people run them, you know, pretty break even maybe, you know, five, seven, 10% margin on the bottom line or something like that.

So they're just great business models, consistent. And also, I think private equity is seeing that we have not run our firms very well. Okay. And so private equity knows how to do that. They're experts in running a business not the accounting side. They're like so they're actually buying up, other businesses to engineering companies. Just technical professions that don't know how to run businesses.

They're going to buy them up and run the technical proficiency of those teams through the model, and they're going to start charging. They're going to start making money. They're going to update. They're going to use software. They're going to go virtual. They're going to run things in a more modern way. And we're a great model of a business to buy and tweak and change.

Just make money. And then a lot of them are buying smaller ones and they're combining them, and then they're rolling them up to another private equity. They're reselling them too. So they're just we're just very attractive profession right now for them. So to what are the types of accounting firms that they're looking for. Because and here's why I ask that.

There's a lot of accounting firms, a lot of people listening maybe that. This is their accounting firm. It's it's really the accountant or the bookkeeper that that has the relationships with everybody. So. Yeah. Is that who are they sort of are they buying those types of firms and they're really just buying the book of business? Or are they looking for firms that is not revolving around one person?

Yeah. Yeah. They definitely want to buy a business that doesn't need the owners to run it. So they are looking at larger firms. They're looking at, you know, typically $10 million in revenue and up. It's kind of okay. They want to buy. We're not that big. We're us. We're a smaller firm. So we're not really an acquisition target.

And most firms are not. Most firms are not 10 million and up. So they're really buying what we would call larger businesses. And when they do that those automatically the owners are not running the business typically. Now some traditionally are embedded in a lot of those those models. But they can buy that business. And pretty much, whatever the owners were taken out because in our profession, owners siphon a lot of cash out of their, their traditionally their businesses.

That's how they've done it. They've run the business to drain it of its cash and pay its partners. And that's not a great investment model. It doesn't let you scale an organization very well. So they're going to buy it and get all that, you know, that come from those owners. They're going to get it back. It's going to hit the bottom line.

And they're going to start, you know, running. They're not going to rely on the owner as much as the owner stayed involved in client work. They're going to actually run a business set up layer structure leadership teams. And then you can have an organization, a service organization, kind of run, run, not totally on its own, but run without the partners involvement as much.

And they can they can pull some profit out of that because they're not paying such high comp out to those founding partners. Is there a market for firms that are doing less than 10 million annual revenue? Yeah. Well, there are yeah, I think there's all kinds of private equity. Models out there. Most of them, if they really know what they're doing, they're trying to buy up larger ones, package them or run them.

Run them together. So we've been approached by other ones that, some just want to, they have a fund behind them, some kind of private equity fund, and they want to buy a firm and operate it. Just that firm. And so we've been approached to do that, you know, just to by our firm, by just our firm and run our firm, because we have a strong brand, a great history.

A deep niche, a lot of advisory, you know, all those things make it make it more valuable. And, and my partner and I, we're involved in our firm. We are involved in it, but it can run. You know, we have a strong leadership team. All of that stuff makes it valuable. So it's some models will buy a smaller firm, but most of them are not interested in us in a small firm.

Really? Right now. Hey there. Adam here from the Escaping the Accountants Trap podcast. I'd like to personally invite you to a free masterclass that we're conducting this Thursday called How to Start a CFO service. To register, just go to the CFO project. Com and click Free Training at the top. See you then. Let's touch on what makes a firm valuable to a potential buyer.

You mentioned a couple of things. Yeah. What what would what would be sort of the top. Yeah. You know, few things that a firm who somebody listening that wants to possibly get their business ready for sale. Yeah. What do they need to put in place? Yeah. Well, Yeah, a lot of things. So a firm operating by itself, without the partner, is very helpful.

So, we like to talk about the growth of firms in terms of team sizes. So 3 to 5 team sizes is a range where that owner is really still deeply embedded in a lot of the client service. And so that's not really a purchasable business, probably because it's just really still the owner. Then when you get to about 5 to 8 people, you know, inch up to ten, ten, 12 people, you want an organization, really, if you're that large, you have to really you have to have built some pretty strong software and process, that runs a lot of the, the revenue generation in that company.

So if you're if you're an owner or partner and you got about 5 or 8 people and you still haven't devoted a lot of work to, the right workflow software or processes, then you're hitting, you're going to hit a growth ceiling. You just can't you can't grow past that, if at all relies on the head of the owner.

So about 5 to 8. That's where you got to start seeing yourself move out of the service of the revenue, and you got to see the processes in the software kind of move that team along. Some do it well, some don't. But at least the software and the processes have to move that team along without you telling them what to do.

And then when you're hitting up in 12, you know, 15 people, you want to find the owners definitely out of any revenue, you know, related work, typically out of any client facing work, it doesn't mean we don't talk to our clients. But during pricing, selling endure, and renewing our contracts, that's when my partner and, get involved.

And then we also do a lot of our own advisory, coaching and consulting that stuff we will do. My partner and, and the team are running the finance, sides of the business is the tax. And when they struggle, the leadership team is helping them. And that's kind of what you want to build and it makes you more of an attractive target.

Yeah that may take years to get there though at this time. Of course. There. Yeah. Yeah. And that's, that's one of the things that we do recommend for, for a lot of the accounting and firm and bookkeeping firm owners that we talked to that wants to get out of maybe the compliance transactional side of things. But still keep that book of businesses too delegated.

And then you focus on being the advisor which is, you know, higher higher value service to your clients anyways. Yeah. Well so we would say to anybody who does want to grow, you know, so services companies, they, they only grow by leveraging people. So if you want to grow you are going to have to hire people.

So, you know, if you're a solopreneur and you're really just on the cusp of hiring that first person, that's a growth move. Hire figure it out. Figure out. Because then you're going to have to keep them busy. And it's like, I don't know what to tell them to do, but you'll figure it out because you're paying them and then you get better at it.

And then you create new roles, and then you create layers like leadership teams. And then you can really structure up a company that can run over time. And it takes years to figure out. Yeah. Interesting. So let's let's flip it. Is buying a accounting firm. If you're if somebody owns an accounting firm or bookkeeping firm and they want to grow through acquisition.

Is that prudent. Yeah. And when would it be prudent. Yeah. It it can be. Yeah. It's it's very disruptive. We, you know, what we'll do is we'll roll in just small firms into our firm. And it's, it's helpful because when you roll in a group of 20, 30, 40, 50 clients and you get a couple of strong people that come in with that firm, it's the client base is not the thing we're buying as much anymore.

That used to be all that we would buy is a client base. But, you know, because marketing in the cloud, you know, you know, all of that digital work is very ubiquitous. We can go get our own clients now. So a lot of times we're just eliminating little firms out of the market. You know, we're wanting those people, those leaders to come into our firm.

And so when you do that, it's just somewhat it's pretty disruptive. So it's just a pain in the butt to roll in, you know, 30 clients into your firm while everybody's still serving their clients. And so our leadership team will do that. They'll do a lot of the legwork of contracting, drafting, meeting these new people. And we'll leave my partner and I will lead a little bit on training.

Some of the new team. So it can be pretty disruptive to do. So. You want to you want to do it when you're not overwhelmed? Yeah. You want to do it when you have some time to devote to it, for sure. That's what was interesting, is, you almost made it sound like you're rolling these smaller firms.

Not necessarily for their clients, but for their talent. Yeah. Yeah. Heck, yeah. So how do you how do you identify who to to buy? Well that's a that's a. It really that's a networking move. You know so we're at thrive is an organization that's always serving firm owners, accounting firm owners all over the U.S. and Canada. And we've had a podcast for, you know, you know, 13 years.

And so we just we just know people know firms. So a lot of times they'll reach out and go, I am done, man. I'm done with this. And you're and you can start having conversations. Or we can know really strong people that have a solopreneur based business or maybe one other person, and we'll approach them and we'll say, the person you are is a role we're about to fill.

We would love to just fill it, fill it with with you coming into the firm, if that works out for you. Some people are interested. Some are not. So that. So that's a lot of networking. But then the other route is to go to a marketplace, right? Po Group advisors to go to a place that has firms for sale.

That also works. What was that? Pope Group advisors. It's po po po group advisors is, you know, it's a well known, it's a well known consultancy that's, you know, helps people buy and sell firms all over the US and Canada. So you can go to a marketplace and pick one and buy that one. And that works.

That works too. Some people go in there, some private equity are purchasing from Po Group. Brandon Po is the founder there. Yeah. And so some people are just buying multiple firms in there and kind of wrapping them together. It's interesting. Yeah. That is dumping them into one big firm. Wow. Interesting. So you mentioned thrive a few times. Tell us more about your organization.

Yeah. So thrive is something I started about 12 years ago and it's I've been running my firm for about 20 years. So but about ten years in I was, I was just trying a lot of stuff, a lot of consulting and things like that. And started finding people. And again, this was ten years ago, so I was just now finding CPAs on Twitter.

Things like that, when there was just 4 or 5 CPAs on Twitter. Right, right. And we started talking and we would start helping each other. We call each other on the phone. And I just thought, we need a community. We need we need an organized way to be together. And so I, I started it it was, you know, I didn't know what a community was.

I just wanted I just knew I wanted to be with people. But they came in and we started, you know, doing education. They would want education. And so now it's just, it's kind of it's an organization that's been around for a long time, so. Wow. Yeah. All right. And what is the website? Just in case somebody wants to check?

Yeah. It's thrive.com. So it's word thrive to thrive. And then add AL.com on the end. So it's I don't know it's not phonetically pronounced. People get get it wrong. And that's a get and we'll definitely put that in the show note and the show notes so that so that somebody can check it out. As we're winding down here.

Where do you where is the accounting profession going. So somebody listening that owns an accounting firm or bookkeeping firm. Well what's it going to look like in the next 5 to 10 years. Yeah. I guess any time we have situations like I mean I've, I've been in my profession for 30 years now. So I have seen some ups and downs by now.

So there are patterns to these things. Thankfully it's cool to be able to look back and go, hey, this is not going to wreck us or anything. But when we're in places like this and I listed a couple of the layers, right? We're post-pandemic trying to figure out what is our work life look like. Now, we've learned a little bit about our personal selves, right?

We've all gone through therapy that now. So we're doing a lot of self-reflection. Right. Private equities coming in and going, hey, I'm going to buy your business if you're not going to run it well. And so I think, a lot of people are now, you know, there there are a lot of opportunities. Of course, the economy to, is, you know, we're we're in a little bit of a downturn with the economy.

And then we've got a lot of labor issues where, the pipeline of people coming into accounting or people leaving our profession is just a huge deal. Yeah, all of these sound bad, but these are huge opportunities for us. Yeah, really, really big opportunities. And so, if you if you have the right eye for this, you can know that while everybody's worried and struggling, if I kick my marketing into gear, I really start operating this business on software processes and I really grow and hire the right people.

Yeah, 5 or 7 years, you're going to really be able to stand out as a pretty strong competitor. So the accounting fresh is never going away. Yeah, I agree, it's never going away. So it's so now's the time for you to kind of get entrenched, to be in one of the strong wins and emerge in you know, three, five, seven years as a very strong firm.

Wow. Well, Jason, this has been a fantastic conversation. Thank you so much for coming on the show. Yeah. Thanks, Adam, for having me. This is a lot of fun and to everyone listening or watching, thank you so much for spending the last few minutes with us as we discussed how to escape the accountants trap. Bye for now.