Chris Williams EXPOSES the Hidden Path to Accounting Firm Success!

Summary

In this conversation, Chris Williams shares his journey of acquiring an accounting firm, System 6, and the experiences that led him to this entrepreneurial path. He discusses his background in finance, the decision-making process behind acquiring a business, the importance of mentorship, and the steps involved in sourcing and negotiating a deal. Chris emphasizes the significance of building relationships with investors and the challenges of finding the right business in a growing industry. In this conversation, Jon Stoddard discusses the unique business model of his CPA practice, the valuation of CPA firms, and the complexities of asset purchase agreements. He shares insights on transitioning ownership smoothly, strategies for growth and revenue, and his evolution as a CEO. Jon emphasizes the importance of company culture and providing a great work experience for employees, while also offering valuable advice for new entrepreneurs navigating their journeys.

Takeaways

Chris Williams acquired System 6, an accounting firm, in 2021.
He transitioned from a finance career to entrepreneurship.
Mentorship played a crucial role in his acquisition journey.
Identifying the right industry was key to his success.
The search process involved direct outreach to potential sellers.
Negotiating the deal required collaboration with investors.
Chris aimed for a business with growth potential and recurring revenue.
He utilized tools like Zoom Info for sourcing opportunities.
Building relationships with investors was essential for support.
The acquisition process took about four months from initial contact to closing. It's important to understand the unique business model of your CPA practice.
Valuation of CPA practices can vary significantly based on profitability.
Navigating the asset purchase agreement can be complex but is essential for scaling.
Transitioning ownership smoothly is crucial for team morale and business continuity.
Growth strategies should focus on both organic growth and acquisitions.
Evolving as a CEO involves learning to handle challenges with calmness and assurance.
Creating a positive company culture is key to employee satisfaction and retention.
Future aspirations should include both personal growth and business expansion.
New entrepreneurs should focus on building solid partnerships and choosing the right industry.
Team management and employee well-being are paramount in a service-oriented business.

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Transcript:

Jon Stoddard (00:00.332)
Welcome to the top &A entrepreneurs. Today my guest is Chris Williams. Chris owns System 6. It's an accounting firm. He bought this accounting firm in 2021 with 18 employees, now has 30. He's going to tell us this acquisition journey. Before I do that though, if you like this content, make sure you subscribe and hit that bell button so you're to get it. So Chris, let's talk about your story.

Yeah, awesome. John will 1st. Thanks for having me love to be here and it's been a really fun. 1314 months so far since we bought the business, so I'm excited to talk about it and share the journey before the journey through the acquisition and obviously the journey over the last. 14 months since we bought it, where did you start from now? Where did you come from before? I grew up. I grew up in Washington DC went to college, worked in finance for the 1st 5 years of my career. So I did.

Investment banking for a couple years then moved out to the West coast where I now live. So I'm in the Bay area in 2015 for private equity job did that for 3 years had. A fantastic experience. Honestly, I some people really don't like their time working in finance. I enjoyed it, but I felt like I wanted to get closer ultimately to driving results, not just sort of setting expectations as an investor.

So that led me to business school. So I went to business school from 2018 to 2020 really to explore like what other paths were out there, you know, was startup the right path for me was. Joining sort of 1 of those post MBA rotational programs inside of a larger organization where you get a ton of training the right path for me. And then while at business school, I discovered the path of like, hey, go out and find a great small business from an owner who wants to retire.

and go look to acquire that business and then scale and grow with a group of investors from, I guess, the starting point of having bought a business versus a startup. So I kind of knew I wanted to do something out on the risk spectrum, out on the entrepreneurial spectrum, like, hey, I'm in my early 30s. It's a great time to bet on myself to do something different. I wanted to operate and grow a business. And then became, I want to do a startup?

Jon Stoddard (02:17.003)
Not for me at all. So like, let's go find an awesome business to buy in a great industry and, you know, try to go grow from there. So how old were you at that time? I was 29. Yeah. 29 plus or minus. So yeah, that was kind of my decision. And like 2020, the world was changing super fast. know, pretty radically. Yeah. Ultimately decided like, I met some great mentors and investors who spend their career.

Basically supporting entrepreneurial, you know, women and men to go find small businesses to acquire. that your business school or? Yeah, so those are, you know, I went to Stanford. There people who had gone to Stanford themselves and like are in the network through, you know, being alumni. And then they had also like acquired businesses, you know, one, two, three million dollars of EBITDA grown themselves for, you know, 10 plus or minus years.

usually sold it or sometimes still own it. And now they're like in their forties and fifties and want to be in the mentorship board positions, not, in the day to day firefighting. did you, let me ask you how you approach them. I mean, was it a formal setting where, Hey, we're looking for mentors. Did you reach out to them and say this was I'd like to do? Would you be interested in? Yeah. mean, so, so I think it's maybe a little bit less formal than that.

Hey, and I think you can do this while you're in business school or also you don't need to go to business school. Like, there's a lot of pros and cons there, but hey, I'm looking to get into entrepreneurial acquisitions. I am thinking about, you know, buying a business in a couple different industries. I'd love to talk to you, introduce myself. You know, they're in the business of finding younger people to back financially. So it's like in their interest to take a phone call to start to build a relationship. So, no, the first conversation was.

know, hey, I heard your name from somebody else that bought a business. I'm thinking about going down this path. I'd love to introduce myself, tell you about why I want to do this. you know, and it's a little bit of dating, right? It's like, they're asking me questions. I'm asking them questions because, you know, the people that you're partnering with to acquire a business, grow it, scale it. Are, you know, therapists in a lot of ways, you know, they're, they're a lot more than just investors. So they were they.

Jon Stoddard (04:39.973)
they typical search fund or were they just mentors willing to back you? These are investors and these are individual like high net worth investors in search funds. Yeah. So the search fund and I didn't really raise a formal search fund, but the traditional search fund, you know, is a capital vehicle that has 10 to 20 investors in it. And that's a combination of like individuals. And then also

These small private equity firms effectively that invest in search funds and then. You know, so that see that operator of the search fund has 10 to 20 investors who put money in, know, and then ultimately help the search or find and acquire and then operate a business. So these individuals are yes, serial investors in search funds. They had done a search on themselves, bought a business, run it, scaled it. Some still own it. Some sold it. Now they have a bunch of wealth in there.

investing in search funds and doing other entrepreneurial stuff as well. Gotcha. And then the people that you went to to ask for their mentorship, they said, well, you should either. Well, what were their recommendations? Yeah. So I had to make a decision. And I think this is especially in like small business Twitter community, a decision that is talked about a lot of like, hey, do I want to raise a search fund now, which is like

You raise several hundred thousand dollars of cash. That's like two years of runway. You know, it comes with very sort of defined terms, both on what your economics are going to look like and also like what type of business you can look for, what size. Or I, you know, I had it was COVID. No one's traveling. I'm not spending much money. I felt like I had enough runway on my savings to sort of search without having to raise money. I couldn't buy business on my own, but.

you know, keep a little bit more flexibility for myself in terms of what size business I could buy. owning most of it, right? Yeah, maybe I find small and I would say that that wasn't the focus for me to own most of it. It was I wanted to be able to, if I saw a small company that I really liked, go down the SBA route, own more of it. But hey, if I found an awesome business doing like four million of EBITDA that I was really excited about, go buy that. Yes, you own less of it.

Jon Stoddard (06:55.661)
but you also, it's a bigger pie. So like it can even out depending on how you look at the math and depending on the outcome, like all of these outcomes, actually have to grow the business. So what I approached them about more was like, hey, I'm not sure I'm ready to actually raise a fund, but like, I wanna start talking about industries with you guys. I wanna start looking at businesses myself. Can we have a recurring call every other week? And I'll bring an agenda and I wanna use you guys as sounding boards.

And I think, you know, with any type of mentorship advisors, potential investors, as long as you're sort of being upfront of what you're looking to do and that they'll sort of decide, Hey, I'm interested in that because I like you. think you have potential or like, Hey, that's not a fit. And you just, you know, you'd be upfront with people and they'll, you know, it's their prerogative and it's okay to get told, no, you want to find the people who actually are. mean, ideally they understand that, well, he wants to go buy a business and he may come back to me for asking for money to help with the down payment.

Yeah, right. mean, this is that's part of their job is relationships with people who want to buy business. Because what I did, you know, they're in the business of investing. So they need to have people to to invest in. So, yeah, you know, I didn't raise a formal fund. had to to investors that I was very much partnered with, you know, without them giving me cash upfront.

And then, you know, we looked at a variety of different businesses and a variety of different industries. But you did all the work, like finding the businesses, right? Or yeah. So I would say investors are great. You know, they're very, it's a push pull dynamic. Like they're not going to push a ton of outcomes down onto you. Like, Hey, here's a sourcing team or Hey, here's a bunch of deals. Like they didn't send me a few over, over the time, but for the most part, it's go build the industry ideas yourself.

but like you want to talk to an expert in the industry. I know five people or hey, I've seen that industry before. So when you bring something to investors, they're very good at reacting. Like you can kind of pull insights and help out of them. But it is an entrepreneurial. Yeah, and they don't want to work with anybody that sits on their ass. Yeah, yeah, for sure. And right. Because also like, hey, it only gets more entrepreneurial once you buy a business. So.

Jon Stoddard (09:11.309)
You know, this search process is a test period where they want to make sure they believe you're going to be a good owner and operator of a small, you know, where a bunch of different hats type of business. So yeah, you gotta be able to like go out and hustle and do it yourself. where did you land on the niche you wanted to go into? Did they insert that niche or would you brought it to them? No, it's funny. I, you know, I very distinctly remember the conversation from one of my investors. You know, we were talking about, speaking, you know,

back office services, one industry that's come up a lot in the search fund world is PEO, kind of outsourced HR and benefits. There's been a ton of private equity activity in there. And one of my investors was like, you should look at outsourced accounting, outsourced finance. And I was like, well, that's gonna get automated, because I'd seen the headlines at that point and I hadn't drilled down. And he was like, no, I use one of those services for my family office. It's way more complicated than people think. You should go look.

And that led me down some research, a couple of phone calls. And the more I learned about the industry, the more I thought it was pretty compelling. then eventually you start sourcing, which means emailing brokers, emailing companies directly. that's the value, I think, of having investors who have seen a ton of different industries, a ton of different businesses, is they can be like,

Hey, here's a thread, go pull on that. And then you go run it down. What did you decide on as far as your criteria? It had to be in California. It had to have 10 plus employees, 1 million EBITDA. Yeah. So geography is one thing that's important for me. It wasn't in California, but it was like, I'm not going to move my life across the country. So I felt like it had to be a business that I could, I don't know, get on a two hour

are or less playing play mentally my mindset with with the understanding like, if I bought a business in Utah, I was going to move there for a year or two. My fiance, probably not. But like, we're both at the stage of our careers. We're working a ton. So like, if I'm flying back and forth on the weekends, yeah, it would have been a change, but one of the manageable. So that was my geography. So kind of Western third of the United States. Yeah, size wise, I wanted it to be like really close to a million to be the dot or above. And then for me, you know, this is very much about

Jon Stoddard (11:31.657)
I want to build and grow a business for decades or, you know, associated businesses. So it had to be in a large, you know, growing industry where I felt like there were opportunities organically to grow through new customers, but also through acquisitions over time. And, you know, all the typical search fund general, like Investor 101, like you want recurring consistent revenue, you would love it not to have a ton of capex.

The ideal requirement. right. mean, one thing you learn and one thing every. Whether you're a search fund or just someone looking for a business is like, hey, newsflash like perfection isn't out there. Right? So, like, what are you willing to live with? Like, our industry has higher churn. Then, you know, a lot of investors would love to see, you know, we serve small businesses. Sometimes they got a business. Sometimes they get bought. Sometimes they get too big and they go in house. Sometimes we don't serve well. You know, we're not.

software where there's 110 % retention. So you don't have everything, but I really felt like it had to work for my personal life. So the geography thing, and then it had to be an industry where I felt like I could grow both organically and through acquisitions for a long time. And so that meant growing industry in a big industry. Yeah. And where did you find this, Lee? I had a subscription to Zoom Info, which is really a

a company database generally intended for salespeople. And I did a filter for, I think, outsource accounting and outsource bookkeeping. You run a bunch of keywords, filter it for 50 employees or fewer. And I sent a bunch of emails. So this came from a proprietary direct email outbound. I had a conversation with Jeremy, the awesome seller, who's still a good friend. In September, I was not yet ready.

At that point for maybe this business or business of the size, so we kind of stayed in touch. had, he wasn't quite yet ready, but he had some stuff happen and it's, one of those stories where like, you talk to an interesting business, stay in touch, like, don't bother the guy every or the woman every three weeks. But like, I sent him a note in January, you know, maybe after a couple of phone calls. And he kind of reached back out a couple of months later and sort of March, 2021, we kind of said, hey, let's let's run at this. And then it was a couple of months from there.

Jon Stoddard (13:54.349)
Yeah. So he wasn't exactly a motivated seller yet. He was like, he was like, Hey, I've had, I've been approached a few times. You he had gone down the path with, I would say like a, you know, larger player who was going to just kind of acquire and absorb him. And he felt like, well, that's going to be pretty damaging to my team and to my culture. kind of come with a lot of strings attached. So, you know, it was

not the first time he thought about it or had a conversation, but it wasn't like, hey, I'm selling by the end of 2020 for tax reasons, like a lot of people were. And then he had some personal stuff happen and some other companies approached him or I think he felt like, okay, now I think I'm ready. And we had actually, he reached out to me to ask questions about the acquisition process, because we had sort of hit pause on our conversation.

And then he reached back out to me and was like, Hey, I'm starting to have these conversations with these other potential bidders. love your perspective. And I was sort of like, Hey, actually this is a good time for me. what the things like? You're the, this is my first acquisition. So you want to hear my process? Yeah. I I, I, it's my first personal one, right? I've been through it in my investing background. We bought plenty of businesses, but certainly the first time I bought something small like this. and, yeah, so we kind of.

I gave him some perspective and then we started talking about whether or not we could do a deal together. Yeah. So what did that what kind of you don't have to be specific on the details, but what did that look like? I mean, was he looking for a specific multiple? had a really good idea what that looked like. And you decided on that or did you already have the financials, the report cards? So I think you kind of have two options, right? It's like if the seller is

You know, super, super focused on price. You can say, hey, I can look sometimes it's not realistic a lot of times not realistic, but sometimes maybe the seller has a high target and you can say, like, that's great. But like, then let me sort of structure it the way I need to structure it. Or the seller may be, you know, really focused, not props on the headline price, but, you know, maybe they're really focused on.

Jon Stoddard (16:12.013)
The terms of the deal and then the price becomes more of a negotiation. So you hear people say, like, hey, if you want to name your price, I get to name the terms or vice versa. For us, it was. You know, I'd seen the financials, he kind of had a price in mind and then was like, hey, can we structure this in a way that works for me, you know, for my investors, myself being sort of the largest owner and then.

Does it can we structure in a way that works for you, including the price? So that was it. That's the way you said it. Yeah. Yeah. I mean, it was kind of like, hey, if. I think I can get to this number, but like, this is what it's going to have to mean for you from this is what the seller note structure is going to have to look like. And this is what the process is going to look like. Like, we're going to do the SBA and that's going to take some time and you're going to have to deal with, you you're going have to be patient because some of that stuff just takes time.

So that was kind of the way we went about it. And how much, I don't know you talking about not having specifics, but how much seller financing did it look like? mean, you know, yeah, so it's doing, it's a pretty standard like SBA structure. So we did 75 % seller note, 15%, excuse me, 75 % SBA note, you know, with Live Oak, who's fantastic.

and then 15 % seller note and then 10 % investor cash. okay. All right. Yeah, maybe a little bit bigger than seller, bigger seller note than some people. No, not really. mean, no, know a guy that does like 50 % of their notes. it all depends. You know, I think a lot of it depends on the Did he push back on that or did he say, you know, see, the reason I asked that is because if something happened in his life that

you know, it takes his attention away, whether it's an illness or something, you know, he doesn't want to focus on seller notes and you having to pay. Yeah. I mean, think it's to some extent, it's part of that. The way you say, like, Hey, you've got your price. If you really want to hit this, the seller, it's setting expectations upfront. Like the seller note has to be this amount. And this is what the structure has to be because the bank needs to be able to run their numbers.

Jon Stoddard (18:33.601)
You know, and like they need to make things work. So, we kind of set the expectations in front of just like, this is kind of what the structure needs to be. and I also took, know, I would say a pretty collaborative approach to it in general, where like, I wanted it not to be a terribly hard negotiation. I on the margin and happy to pay an extra, you know, 5 % or 10%. Some people would push back on that, but like, I was like, Hey, I would much rather pay a little bit more or.

not negotiate on this point on the seller note to have a seller who is really a partner as I need him post close. I'm like, I'm in this for the next 10 to 20 years. Those little things on the margin, you can deal with them. In hindsight, you always wish that you negotiated harder on everything, but that's life. Yeah. When did you take the deal to your mentors? Did you structure it first or?

No, I mean, this was, you know, these are types of people I'm talking to on a couple of times a month basis. So, you know, hey, I'm looking at this deal. What do you guys think? First, you know, talking about it from a business, then you start talking about price, you know, and then the, when we start negotiating on things, it was not a like, hey, I'm taking it to you and here's a once a month call. It was like very much in the weeds together. You know, he met them during the process.

Hey, you he and I are negotiating over this point. Like, can you, can we talk tomorrow? so I definitely, I mean, I was driving everything, but I had my investors like ability to talk to me, you know, tomorrow or whatever. Because he is he putting in the, the, the 10 or 15%. Is that what he was doing or the seller note? Yeah. no, I, your mentors from Stanford. Yeah. So they were, I did a portion of that 10 % and they did a portion of that 10%. Okay. I got you.

What was that as like, was it preferred stock? Something? Yeah, so pretty typical, you know, again, like self-funded structure. So they've got, you know, participating preferred equity is like the super, you know, specific term where they get, you know, a preferred return. These are generally in the like 8 to 10 % range annually. And then, you know, after that gets paid off, they have ownership and the common equity, you know, a small portion and then I own, you know, the majority of the business.

Jon Stoddard (21:00.973)
I'm the one that has the personal guarantees. So I'm the one taking the risk. Right. And how long did that process take from he returning your email to? So we started talking in March 2021 and we were closed by July by the end of July 2021. So yeah. Okay. Yeah. Yeah. And, you know, so that's a function of, I'd already built a relationship. I'd already built some conviction in the industry. That's one of the good things about looking at it.

Doing your search somewhat industry focused is like, when you see a business, it's actually actionable. You've kind of already answered the is this a good industry question? Part of it was like, I bought an accounting business, so the financials were in pretty good order. Like, if they hadn't been like, yeah, they're going to kind of don't buy the accounting business. So, yeah, I guess it was a relatively quick process, but again, I had already looked at the industry. I already talked to him a couple times. So.

Let me ask you about the when you set the financials over to Live Oak Bank. I mean, how long did it take them to like, hey, we like the deal or did they underwrite and prove it pretty quickly or what? Yeah. So, you know, one of the good things about Live Oak is they have like industry specific teams. you know, they have Shannon Hay. He's awesome. Like someone who does accounting. That's all he does is like accounting and CPA kind of type businesses.

so, you know, we had to go through, make, make sure the third party valuation came back and was fine. you know, there were some ad backs we had to be able to prove out, but I think that like, I don't know, that was kind of a month between like, Hey, we're starting to look at this. And then do we have like full green light from them? It'd be my guess. Yeah. Yeah. Did they ask for more additional documents or notes or understanding or.

They've seen so many of them, they knew exactly what to look for. Yeah, not a ton. We were a little bit different. We're not a typical CPA firm where we're doing a bunch of taxes, stuff like that. So I think there was a little bit of a, we paid more than one times revenue. And so there was bit of an education. I think also in a lot of ways on the valuation firm on

Jon Stoddard (23:25.805)
Hey, this is a little bit of a different business. It's not your old school CPA practice. So just like, explaining the difference in business models, explaining the difference in how our revenue works, et cetera. But no, there wasn't like a ton of like, deep requests that I remember. was in Wrightsville, I think it's called Wrightsville, North Carolina for a wedding.

Ironically, it's like, went and met with the live team, like, met in person that would like some couple people on credit committee. That wasn't a requirement, but I was like, in town. I think that probably helps. Right? Anytime you can meet with your lender, especially last year and like, have a beer together and talk about the business and talk about your vision. But there wasn't a ton of. Really? I guess, prying diligence requests from Aaron. It was just like, hey, we need to make sure we understand why this looks different than a CPA business. Why, you know.

purchase prices, not just one times. So let me, let me ask you about that. Maybe you have more expertise. Why is the CPA business standardized to one X sales? Yeah. I mean, I think,

It's, I mean, it's an interesting question in my mind because like coming from someone, I don't have a perfect answer for that. cause I think that's just like, it's been around forever. One thing I find very interesting about that is like. One X sales is not the same depending on the profitability of the business. And so, you know, if you have a CPA practice, that's doing like 20 % cashflow margin, even on margin, whatever you want to call it. And it's EPA practice that's doing like 30 % margin, you know, right? Like that's.

why would you pay the same dollars for the revenue for that business? Because there's like very different cashflow characteristics from those two different businesses. Yeah. So I mean, I mean, it's, it's a deal for the buyer because you can come in and go, I'll take company B who would choose. Right. Yeah. And, and, and I do think, you know, perhaps it's because the, you know, bigger firms,

Jon Stoddard (25:35.999)
Who do a lot of the acquisitions in the space see they don't really, you know. Perhaps care what the profitability is on a 10 person firm, because they're just buying a million bucks to revenue and they know on their systems and their processes. That they're going to be able to generate X margin and so they may not even be paying attention to the embedded margin because they think they can just kind of like. Drive prices or, you know, cut utilization.

Increase utilization, whatever, and just generate whatever their kind of profit margins are. That's good. Yeah, I think that's 1. mean, I think 2. What are you really buying at the end of the day? You are buying. In some regards, a customer list, you know, a book of business. So that is, you know, a function of. It's revenue you're behind the revenue from those customers, but.

I do think you have to look at cashflow. And I know people do, right? That's the difference between 0.8 and 1.2 or whatever is when people look at the cashflow embedded in the CPA practice. But honestly, like I'm not an accountant, I'm not a CPA. So I haven't been in the space forever. I don't have a perfect answer for that. So when did you get the, okay, we gave you the loan, we improved it. And was that kind of a bigger hurdle than the guy signing it, the asset purchase agreement or what? No, I think, you know, that was kind of

binary like all of those, you know, anytime you go to the SBA, it's kind of like, hey, like, it's either going to happen or not. I guess, I mean, in my experience, it was sort of like, let's see and make sure evaluation comes back appropriate, make sure the committee is comfortable. And there wasn't a ton of back and forth. It was just like, okay, we're good to go. I'm sure there are situations where they come back. No. And then you do have a bunch of back and forth.

I think one lesson I learned from the asset purchase agreement process with Jeremy, who's a great seller and like I said, we still have a good relationship, he I think thought it was going to be much more of like, hey, I'm selling to an individual person and it's going to be a relatively simple purchase agreement. We approached this from this is the purchase agreement we're using to buy the first company and something that we hope becomes much bigger.

Jon Stoddard (27:52.809)
It was probably like a bit complicated for the size of business that we bought. But maybe that's a good thing to start to try and like, get it ready to scale and professionalize it more, you know, to have some more sophisticated legal structures in place around equity for the existing team, cetera. So there is, I would say, some education I had to do like, hey, why is this getting more complicated? Like, why is this a longer purchase agreement? Why do I have to?

You know, and so there is some pain for the seller for sure around the SBA of just like, it's taking time, know, documents on our end that, know, obviously this SBA has to dig into my investors and that can cause some delays. I think that's an important thing, you know, and honestly, like maybe I over-engineered the legal document a little bit, but it's something to educate sellers about early, is like, Hey, if you're coming in with, especially if you have other investors, like this might not feel like, you know,

the sort of local down the street acquisition. And part of that is a good thing because we're trying to set this up to be able to scale and professionalize. Yeah. What did that have to do with that? it's not, I don't understand why that you need to make those adjustments now. Yeah. That's a good question. Let me think about that for a second.

You know, so, so one thing we were trying to do was be able to grant some of the leaders in our business, small portions of ownership out of the gate to kind of honor the structure that was in place. Okay. We wanted to be able to do that in a structure that they could stay W2 employees and we're like a multi-member LLC, not an S corp or not an LLC elected as an S corp. So there's some comp some complications we had to do there. Like setting up sort of a side management entity. Yeah.

That's one thing. think another thing, you know, more between the seller and I, the, I would say like most, not really contentious, but back and forth on the purchase agreement was around, like reps and warranties. you know, in both his mind and my mind, like we're talking about super hypothetical tax liabilities that he knows are never going to be a problem because he's run the business, but Hey, I'm

Jon Stoddard (30:11.553)
really putting in place institutional protections for ourselves as a buyer of like, these are all the things that if they happen post-close, like we get to reduce your seller note if they happen. And I think that was, know, there's, was some deficit back and forth there. little bit of, do you think it was overcomplicating a little bit? Yeah, probably. mean, perhaps. But you never know. Yeah. I think you, you probably feel like every purchase agreement is overcomplicated until the one out of 20.

is actually needed. And then you're really thankful that you had that contingency in place. Yeah. Yeah. So it's like, there are definitely buyers. Like I recognize there's buyers out there that are like, dude, this is way too complicated. Like, let's just do a 20 page purchase agreement. Let's get the deal done and move forward. And I think, you know, I'd probably move a little bit towards that direction after my first deal, right? That's the first deal. Yeah. What's was the handoff? I mean, did he,

tell everybody on email or did you bring you in, stand you by his side, you're a new owner or what? Super smooth, know, and this is testament to his understanding of his business and something I've tried to adopt post-close, which is really focused on team. Like team is number one for us. You know, we're nothing without, especially in a professional service business, you're nothing, nothing without sort of satisfied, happy team members. So it was very important to him. He like told all his team.

in the month leading up to it, you know, down to the most recent hire. He actually, there was a team retreat a couple of weeks before we closed on the acquisition. And I came out and met a bunch of people. I had met with the management team early post LOI because actually pre-signing the LOI, cause he was like, if, if my management team doesn't give you the green light, we're not going to do a deal. you know, he wanted them to be excited and bought in. So from a transition period.

I joined some leadership meetings before the deal closed. Everybody knew it was coming. I I'd literally met a bunch of people, like 70 % of the company before we closed. when it actually closed, an email went out like, hey, is officially joining us, but everybody knew it was happening before that. Yeah, that's cool. Did you lose anybody? We had somebody lead. mean, our first person left.

Jon Stoddard (32:37.389)
in like January, February. you know, is that because of the acquisition or is that they got a different, they got a different. They were already going to leave with or without you. Yeah. Yeah. Hard to say, but like, nobody like rage quit or anything like that. Yeah. Yeah. So now you're in it. Yeah. If you've been in a over a year, do you like it? I love it. I mean, I wake up. Look, there are roller coasters, right? There's

even if the business is doing like, we're doing pretty well on paper, you know, there's tons of opportunity I'm excited about. It doesn't mean that like, there's not stress on the team because we're growing faster. It doesn't mean there's not like stress on me. And I think any small business owner who says it's like smooth sailing is probably like, you know, they're, really got to figure it out and kudos to them, or they're just not being pragmatic. But like, what I really care about is, am I fired up about where we can go in the next five or 10 years and like what I'm building?

And that's like a screaming yes. And that's what gets you energized and motivated to like, yeah, you know, I'm still doing a lot of pretty manual work related to sales because I'm a salesperson and I'd like, love to get out of that, to be able to focus a bit more on strategic hiring. Like there's things that I don't love, but like, I think you have to, that's the reality of every day to day. Hey, are you excited about building something?

and motivated for the next five to 10 years, like yes, and that's what keeps you going. Yeah. So obviously you've done some good things because on LinkedIn, it says now you're at 30 place. You've added 12 and say an average, I'm just guessing a couple hundred thousand dollars per average per employee for a CPA firm. I don't know what the number is, but you've definitely added revenue to the top line and to the bottom line. Suspect. What did you do? Yeah. So I mean, we, so like

high level numbers, we grew revenue by about 30 % in the first year. We grew EBITDA by about 10 % because we're basically, we're hiring faster and we're investing more to hire those people, recruiting costs. So What did you do? Yeah, I mean, what kind of marketing and then- So on the marketing side, one, basically it was like more-

Jon Stoddard (34:56.557)
more focused on growth than Jeremy. He was at a position of life in the business where he was kind of, I think, running it for cash flow. And I'm right now focused on running it for growth. So I mean, some of it candidly is like more responsiveness. We have never really spent marketing dollars and we're not doing that today, like from an SEO or advertising or anything like that. One place of growth, the business was growing 20 % a year when I bought it. So it's not like we drastically changed the growth, but

I have gone to a few sort of acquisition conferences. a new source of our revenue growth is people buying businesses, search funds, et cetera. So that is like, I guess, my network and me going to a couple of conferences and trying to get my brand out there of, we serve entrepreneurial business buyers. That is on the sales side, probably the biggest thing that's different. It's a new channel for us.

but other than that, the revenue growth has been coming from, you know, referrals and we show up pretty high on, Google and Seattle where we were started. So we still get about half of our leads from Google, but they're not as good quality. the rest are just referrals. Hey, you know, my CPA sent sent me your way or my friend uses you guys and you know, I need help. so the, the one thing I would say for us is that as we are serving more

businesses that are getting acquired sort of search fund, ETA, whatever you want to call it, ecosystem. They are bigger businesses. So we're getting like higher average contract values per customer. So on a number of new customers, it's not 30 % higher than it was last year, but because it's bigger customers. So that's one thing that's a bit different. Yeah. Interesting. How have you changed from, you know, working for a private equity firm, doing your search, independence?

or whatever you call it to now you're a CEO of a 30 employee company growing looking for other acquisitions. Yeah. think that, I mean, the first thing that I've, really changed on is like, you used to like the first, like when we had it, we had an important team member, you know, she's great team member and went on to a pretty exciting opportunity. But like when she left in February, I was like, my gosh, this is going to break us. You know, it's the first sort of serious road bump.

Jon Stoddard (37:21.805)
and then you realize like, Hey, yeah, it was a little disruptive, but we are still growing, you know, our team is much bigger than it was at that point. So I think I've gotten a lot more comfortable with the road bumps that like inevitably happened. mean, said more simply, like, know, you get punched in the face for the first time and the next time you like deal with it a little bit better. Yeah. Practice stoicism a little more. Yeah. And I think that's, that's important, right? Because like, as the leader,

even if other people in the team are worried about something or think it's going to be super disruptive, if you can be reassuring and calm. That's the type of thing that you can't be until it happens. Coming from finance, you're not in the weeds like that. you just need to experience that. And then the next time it happens, it's a little bit less. It's like something they teach in military. you turn around look at the captain and he's panicking, you're going to lose the ship. Yeah.

You know, I'd say that's a, that's been a big change for me is just like, okay, yeah, like every day there are things that could be a little bit better, but I just view them as like less of a worry than perhaps I would have, you know, in my first couple of months. And that's just maturing, I think as an operator, you know, one thing that I think, so a lot of, a lot of people on our, on our team work like 30 to 35 hours a week.

And I came in and was like, awesome. Like we're going to add customers and get you up to 40 hours a week. And you know, what I've realized is like, that's actually what a lot of our team wants is they want flexibility. They want an awesome place to work, but they also want to be able to balance it with the rest of their life, especially in an industry that sometimes, you know, traditional accounting firms, especially in busy season can be 50, 60, 70 hours. So I've definitely shifted my mindset on our business to.

hey, instead of like trying to get people's utilization higher, like let's meet them where they are and let's provide an awesome work experience for them in what they're looking for. And I really like we talk about, we want this to be the best place to work in cloud accounting. We want this to be your dream accounting job. And I think that has been definitely a mindset shift for me of like, let's really figure out what our team wants and deliver that to them because.

Jon Stoddard (39:37.077)
in a people service business, you're nothing without them. And it's just so clear to me that focusing, think really on building a great place to work is the first thing. And that's something I really only appreciated when I got in the door and realized like, how happy a lot of our team was. And it's because of that flexibility. Jeremy's building that culture. That's awesome. So where do you want to go with this? System six.

Yeah, so we talked about internally about getting to 100 people. You know, that's our that's our medium term ambitious goal. And I think it's important that we talk about it, you know, as people first, right? That's our culture. It's people first. So let's talk about building a team and not necessarily focus on just a revenue goal. Like, obviously, we're not going to go to 100 people if we don't grow revenue. But that is the medium term goal. And that will come with organic growth and acquisitions. mean, the reality is like we're in a

Massive industry that's growing with a ton of fragmentation. So there's a lot of room for organic growth. There's also a lot of room for acquisitions and I want to do both. you know, and like, okay, well, why do you want to get to a hundred people? It's because I want to evolve as a person. mean, a lot of the reason I did search in general was I want to grow and mature and you get a lot of that from running a business. And, you know, if I just ran a 30 person business forever,

my learning would eventually start to slow down, my growth would slow down, right? Like my position wouldn't be changing. So I want the experience right now of being in the weeds, but at a hundred people, like you're a real CEO at that point, you you're managing a management team, you're carrying culture, you're out really focused on vision and hiring probably, and that's it. And not any of the work that I'm doing today. And so I want to have that evolution for me, cause I've

want to learn and get better like we all do every day. So that's probably part of the why behind that, financial ambitions too, of course. But I really want the experience. I love- Yeah, you're curious. You're having inspiration to learn. Yeah. Yeah. I love that we've got 12 people we brought on board who are super happy with their new jobs. I'm like, let's do that for another 50 people. That's probably the most fulfilling thing I get is obviously great customer reviews, but when I have it,

Jon Stoddard (41:54.573)
new team member who's like, my gosh, this is the best job. This has been such an improvement for me. know, you're, that's like at the end of the day, that's, that's like helping people, which feels really, really good. And if you don't want to do that, like, know, man, that's the endless running a source of energy. you start helping or giving to others. Yeah. And I mean, obviously look, I'm not running a nonprofit. Like it's not done without financial ambition, but

building an awesome work environment, I think is a pretty fulfilling goal. In my case, really, I don't wanna take credit for it. It's carrying it forward and scaling it. So, the people sort of Jeremy and others who built system six, I'm really appreciative to them for kind of identifying that was their winning formula. Like, hey, let's focus on really workplace culture and kind of everything else comes. And their profits will take care of themselves. Yeah, mean, like we...

focused on profit and it's a relatively profitable business in the industry. And I think part of that is like, let's choose to be pretty open with our customers of work high price point because we want to pay our team well, because we want to have high team retention. so they're all, you know, they're all in the core values. They're all right next to each other. But if I had to pick one true North star, it's like, let's build the best place to work in cloud accounting. Cause you're, I just, you're nothing without team, especially any people service business.

Chris, we're approaching the hour and I wanna thank you so much for time and sharing your journey, That's I'm talking to you. Anything you wanted to cover that we haven't hit on? No, no, that's it. I mean, that's the process. Cause a lot of people that watch my show are new entrepreneurs. They're working on their first. They wanna understand, hey, so who's got the flashlight? Who's walking through the woods and who's encountered this hole or this log or this...

branch and you know, yeah, I think, you know, I guess my reflection on that a little bit is like, you don't have to have it all on a PowerPoint or a Word document at day zero, at day one, you know, at it, like, I'm still evolving what my next five years will look like. My thinking on that is changing, partner with people you trust and like, and want to be together in whatever form that looks like for a long time.

Jon Stoddard (44:21.741)
And like buy a solid business and a solid industry. Like I really believe being in a good industry is really, really important. Not rocket science, like lots of investors take that stance, but I take a lot of comfort from knowing, hey, even if I like screw up big time as an operator, which I have and which I will continue to do, the fact that we're in a big market with growing demand, it like gives us a lot of safety at night. And I think for a new person,

getting into that type of industry is like, that's a really important decision. You can change the people on your team, you can change your strategy, but you of can't change the industry you're in. So you gotta call that right. And you can't change the people you partner with. Like if you're taking investors or however your partnership may play out in your business ventures, like get that right too. Great advice. Yeah, I mean.

Don't don't it's all right. You know, I'm only one day. Well, you're humble about it. So that's also a good thing. Yeah, I think that's that's paramount, especially when you come into a business where as much as you think, you know, like, you know, you don't know. So you got to come in ready to learn. Yeah, yeah, yeah. And the opposite when arrogance comes before reality. Yeah. Yeah. And then what's going to happen? You're going to piss off your team and it's snowballing and they start quitting and then you

get more stressed because you've got people quitting and then you become even. Yeah. It's, your team is like, has a lot of power and leverage over you. They may not act on it, but like you treat them that way because you're nothing without your team. That's Chris. appreciate it, man. This is great. John, thanks for the time. appreciate it. Thank you. All right, man. Have a great day. Great week. Yeah. I love what you're doing for the space. Thanks for your welcome messages out there.

Yeah, thank you. Thanks. I hope this video has inspired you. If you need help buying your first billion dollar business, make sure to visit me at DealFlowSystem.net. If you like this video, make sure you subscribe down below. Comment on it, share it, tell everyone about it. And thanks for watching.