M&A - Maximizing the Value of your Bookkeeping Firm
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Mergers and Acquisition - Maximizing the value of your Bookkeeping Firm in Preparation for Sale. Bob Wang, the President of Legacy Advantage shares his thoughts on how to Maximize the Value of Your Bookkeeping Business. He recently acquired a bookkeeping business in December 2016, and he shares 4 things that he had looked for in his due diligence process.
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M&A - Maximizing the Value of your Bookkeeping Firm
- 1. Bob Wang CPA, CA Legacy Advantage CPA Ltd. June 10, 2017 Maximizing the Value of Your Firm in Preparation for Sale
- 2. Agenda About Legacy Advantage CPA Increasing the value of your firm Q&A
- 3. Intuit Confidential and Proprietary 3 Thanks to Intuit & Quickbooks Online
- 4. To become the most trusted bookkeeping company in Canada
- 5. Opportunity #1 People have hard time finding a good bookkeeper. Why not create a bookkeeping business that creates a win-win-win partnership between accountant, bookkeeper and business owner Opportunity #2 Create a world-wide bookkeeping brand that is built on trust and competence.
- 7. Intuit’s Canadian Firm of the Future - Runner Up
- 8. Results Only Work Environment Cloud Based Better Employment Experience = Better Client Experience
- 9. Acquisitions I’m not an M&A expert, but here’s my wishlist
- 10. $1 for $1 So RETENTION is important
- 11. “If you’re not growing, you’re dying” ... many famous people
- 12. Intuit Confidential and Proprietary 12 • Healthy Company Culture • Cultural FIT • Comfortable with Change Employees
- 13. Intuit Confidential and Proprietary 13 • Well trained staff • Decentralized relationships • Good documentation • What if I don’t have employees? Independence from the Business Owner
- 14. Intuit Confidential and Proprietary 14 • Why value pricing? • Better client experience • Better cashflow • More predictability • Ensure each client is profitable Value Pricing
- 15. Intuit Confidential and Proprietary 15 • Core technology • We only look at Quickbooks or Quickbooks Online firms… with a strong preference for QBO • Nice to have • Up-to-date CRM • Paperless document management Technological Fit
- 16. Conclusion: • Have great employees • Business independence • Value pricing • Technological fit
- 17. Contact: Bob Wang bwang@legacyadvantage.ca LinkedIn Q&A: Your opportunity to ask and learn
Editor's Notes
- Hi My name is Bob, and I’m super excited to be here. RELAX. Take a breath
- First I’m going to share a bit about who Legacy is, and then we’re going to get into our main topic of how to increase the value of your firm.
- First of all, thank you to Intuit for inviting me to speak and share my story. In the beginning, when I first started Legacy, I had to decide whether I was go with Quickbooks, Sage, or Xero, and going with these guys has been one of the best decisions I had made in business. They are a tremendous partner and have supported me and my clients since day one. I’ve recently acquired a bookkeeping business from a lady who was retiring, so they’ve invited me to share my story with you. They wanted me to share my perspective on Maximizing the Value of Your Firm in Preparation for Sale
- I want give you some more background about Legacy. Who we are, what we do, and where we are going Legacy Advantage is a bookkeeping company, and our vision is become the most trusted bookkeeping company in Canada
- While I was working at KPMG, I noticed 2 huge opportunities. Opportunity #1 - It was really hard for business leaders to find a good bookkeeper! I wanted to create an awesome bookkeeping business that would create a win win win relationship between the accountants, the clients, and us. The accountants get a win because they get a nice clean set of financials from us. Instead of spending weeks trying to figure out the mistakes, they can just slap a T2 on it, and it's done. This is a win for them because no matter how much work they do, their billing is about the same. If you have to spend lots of time your bill is around $3K. If you don't have any ADJ's your NTR/T2 is still about $3K. So.. why not work with a bookkeeping firm that can give you that level of quality? It's a win for the client because they get better financials throughout the year so they can make better decisions. It's a win for us because we get build a great business because of it. Opportunity #2 - There isn't a name brand that is known for bookkeeping. Most of the time, when people ask for bookkeeping, they usually ask for a referral from their accountants, lawyers, and friends and family. There isn’t a “place” to go to find a bookkeeper. So, we want to be become the brand that people associate with bookkeeping. When people are looking for a bookkeeping solution, I want them to think Legacy.
- In two years, we have grown to 2 offices, 15 staff, and over 200 clients.
- We’ve also been recognized as the Runner Up for Canada’s Firm of the Future Award. I know, it’s a runner up award, but since the winner is somewhere on the East Coast, I think we can call ourselves, the Western Canada’s Firm of the Future. This award recognizes us for our leadership in the use of technology, and the unique value we are able to bring to our client through our cloud technology.
- There are a few other things that make us unique. - We have a ROWE, a Results Only Work Environment. Though we have a physical office, we don’t have set working hours. For example, we have a few early birds that work from 7 to 3 and a few night hours that work from 1PM to 9PM. This allows our staff to plan their work around their life instead of planning their life around their work - We are cloud based, so there’s not set work location. Most of our associates work from the office because they enjoy being there, but sometimes, they want to focus on a big project, so they would just work from home. One time, we had an associate that wanted to spend Chinese New Years in with his family in HK so he worked from HK for 2 weeks. - We prioritize employment experience over client experience. We strongly believe that our associates are more important than our clients. If we treat them well, they, in turn, will service our clients well. These are just a few foundations on which our organization is built.
- In December of 2016, we completed an acquisition of a firm from a lady who was retiring. One of our growth strategies is to do these acquisitions to go into strategic markets. Our plan in the next few years is to perform a few acquisitions in Alberta so we can have a presence out there. By no means am I an expert in M&A. Rather, what I want to present to you is a list of things that I had looked for when buying this firm.
- First, let’s talk about price - The general value of accounting firms is around $1 valuation / $1 revenues, BUT most of the time, there is a retention clause. What that means that cash you receive at the end of your 3-5 retention clause will depend on how many of the clients that you sold, actually stay with the new buyers. So, there are 2 main ways to increase the cash you receive at the end of the day - Increase your client base - Improve your retention.
- The first advice I would give you is “Don’t stop growing!”. There’s a famous quote “If you’re not growing, you’re dying”... said my many famous people. But seriously, if you’re not growing, you’re not challenging yourself and keeping up with the trends, then you’re business is shrinking into obsolescence.
- Your employees are going to make or break your deal, so how do you make sure that your employees are an asset and not your liability? 1. Do you have a company culture that people buy into? Do you stand for anything? If you don’t have a company culture, then your employees are just like mercenaries. They hired to do a job and they’ll leave at any sign of trouble. If you have a great company culture, and your employees feel empowered, and their job gives them a purpose, then they will stick it out to the bitter end. Which do you think is more valuable to a buyer? 2. This is something that you can’t necessarily control, but it’s important for you to know. Does your company’s culture fit with ours? If not, not matter the price, we will not go through with the acquisition because it will just lead to conflict later. 3. Are they comfortable with change? - Change of owners usually comes with the introduction of new processes, new software, a new way of doing things. Are they going to embrace the change or resist it? - Help them prepare for it. Slowly introduce Quickbooks Online or a CRM or some cloud apps so that they are used to change or see value in change. - In our case, most of the employees that came along with the purchase SAID that they were open to change. When the time came, they actually weren’t willing to change. This was a huge oversight on my end. I tend to believe people when they say something, but that’s not the reality. I should have done more due diligence. - So, we had to let all of them go, because they weren’t willing to change. How do you think that went when we had to tell the clients that were acquired? Not well. Many left because their “go-to gal” had been fired. This directly translates to a lower cash payment at the end of three years Employee retention translates to client retention translates to higher cash payment at the end of the 3-5 years
- The more independent the business is from you, the more valuable your business will be. Why? It comes down to retention. What are some of these characteristics of an independent business? • Well trained staff that are empowered to build relationships with clients directly. Train your staff better so they are more than just data entry people. They are trained to solve problems themselves, so they are not reliant on you. AND delegate the relationship management to your managers or staff.. Involve more people in your client relationships. Why? So that your clients are comfortable dealing with a TEAM AND NOT JUST an individual. They trust that your FIRM is going to take care of them, not that ONE person. • Good documentation on each file. i.e. If this client were to be serviced by someone else, will this person be able to pick up where the other person left off? Logins Nuances of each file Contact person Past communication • What if you don’t have employees? • I want to be honest with you. I personally would not consider a firm with no employees. Why? Because the risk of your clients leaving when you leave is too high.
- The third thing I’m looking at is how you price your clients. We prefer businesses that value price their clients, as supposed to charging them hourly. Here’s why we think it’s a better model, and why we look for firms that do the same. 1. Client experience - Hourly billing is always tricky. The clients frequently balk at how much time we spent on their bookkeeping. This is especially true when there is a transition of owners. We acquired a business in December, so in January, we needed to wrap up year-end. Of course, this process takes more time because we have to review a year’s worth of work before sending it off to the accountant. Well, that level of review translated to a higher bill for our hourly clients. It’s not that we weren’t efficient. It’s just that we had to do more work! - Did the client understand that? No way. What they saw is a transition of owners, and a higher bil. So some left. - Had they been on a flat monthly fee, he wouldn’t have felt the difference. 2. Cashflow - With value billing, both you and the client know how much each party is going to pay. Therefore, we bill them at the beginning of each month. This way, you get paid before you do the work, which improves Cashflow. If you have your clients on monthly recurring billing that’s billed on the 1st of each month, then it’s going to be worth more to me because we get the cash up front, and you improve my cashflow. 3. Predictability - When I am looking at whether or not to buy a firm, I clearly distinguish between what’s recurring & non-recurring revenue. Recurring revenue means more to me because it’s more predictable. The best way you can prove to me this revenue is predictable is when it’s on a set monthly payment plan. Caveat: Ensure each client is profitable - A very big risk with value pricing or fixed fee pricing is that you underestimate how much time it takes to perform their bookkeeping or tax filing. Therefore, you undercharge. You think.. oh well, it’s OK, the valuation is based on price. Well, let me tell you now, if it’s not profitable for you, it won’t be profitable for us. If it’s not profitable for us, we will let the client go. This will lower your retention.
- Last but not least, technology. We want to ensure that your technology is compatible with our firm. From your perspective, it might be important to think about what technology your potential buyers use. If you are an accounting firm, you probably want to ensure that all of your staff are trained on caseware. If you are a bookkeeping firm and you are primarily using Sage, then only other Sage firms will buy your practice. If you are in the Intuit environment, then you will probably only sell to other Quickbooks or Quickbooks Online (QBO) users. In our case, we only look at Quickbooks or Quickbooks Online firms… with a strong preference for QBO. Nothing against Sage, we, as Legacy, have committed to the Quickbooks environment, so we are only looking for firms that are using the same tools. A few nice to haves are An up to date CRM. [Ask the audience] What’s a CRM?; What does it do? Paperless Document Management System Like I said, this is a “nice to have”. It’s a lot easier to move digital files than physical files. If you have everything scanned in, then merging data bases is going to be much smoother. If you want to sell to a modern firm, you have to have modern practices
- Again, I’m not an M&A Expert. I’m just sharing from my experience, and these are the 4 things that are on my wishlist Great employees Business that’s independent from you Your clients are value priced and put on monthly recurring billing Technological fit.
- That’s it! Here are a few ways you can connect with me if you’d like. And now I’’ll open it up for questions.. OR Best of luck with increasing the value of your firm!