What's the SECRET to Successful Accounting Practice Acquisitions?

 Summary

In this conversation, Patrick Dichter shares his journey of acquiring Apple Tree Business Services, an accounting and bookkeeping service for small to medium-sized businesses. He discusses his background in international business and finance, his experiences in digital marketing and consulting, and how these led him to the decision to buy a business. Patrick elaborates on the challenges he faced in finding the right business, navigating the financing process, and implementing growth strategies post-acquisition. He also shares insights on the importance of recurring revenue in the accounting industry and his plans for future expansions.

Takeaways

Patrick's background in finance and consulting shaped his business acquisition journey.
Recurring revenue is a key characteristic of successful bookkeeping businesses.
Finding the right business often requires proactive outreach and marketing efforts.
SBA loans can be a viable financing option for business acquisitions.
Growth strategies include expanding service offerings and targeting new markets.
Change management is crucial when integrating new employees and processes.
Consulting services can complement traditional accounting services effectively.
Networking and mentorship play a significant role in entrepreneurial success.
Understanding the unique challenges of the accounting industry is essential for growth.
Acquiring existing businesses can be a lower-risk strategy compared to starting from scratch.

 Watch the Interview:

Transcript:

Jon Stoddard (00:05.71)
Welcome to the top &A entrepreneurs. Today my guest is Patrick Dichter. Patrick is out of the Midwest and over a year ago, he acquired Apple Tree Business Services. It's an accounting bookkeeping service for SMBs. And he's actually got two LOIs out right now on the same type of business. Welcome Patrick to the show. Thanks for having me. I'm excited to be here and share my story. So yeah, this is where I want to start because what?

were you doing before you decided to buy a small bookkeeping service? Yes, I'll give you the long answer. I am not an accountant by trade. So my undergrad was international business and finance. And I got my MBA. I always enjoyed accounting classes. And then for seven years, I worked for a digital marketing startup serving small businesses. And I led sales teams there all over the country.

And then for three years, I was doing small business consulting and we would help, you know, Main Street businesses grow their business faster. And most new clients who came in had terrible bookkeeping. And that's kind of where the Genesis started. and I was always referring the bookkeeping out and I just saw how transformative it was to get good clean books. I had the, I had the itch to go do my own thing and, you know, heard about people buying businesses and

the more I explored buying a bookkeeping firm, the more excited I got. Let me ask you a question. When you first got this little seed of buying a business, where did you head? I mean, there's a lot of coaches out there, a lot of directions, a lot of books. Where did you start digging into to find out, hey, this is a good viable option to go? There were a few conversations that came together. I had a friend who

told me about this idea of search funds. And I had never heard that term. And he said, there's a website called Search Funder. It's a concept of people that go looking for one business to acquire. And it's a lot of MBAs and investment bankers and former private equity guys. And so I started to stumble into that community. And then during COVID, I kind of found Small Business Twitter. And there's a lot of people in there who go after small businesses.

Jon Stoddard (02:22.766)
I got to tell you, that's actually the second time I heard that because Michael Girdley uses that down out of Texas. Yeah. Girdley's great and he's got a huge following on there. So yeah, he does. Yeah. And then there was a couple of conversations that struck me when I was doing consulting and a guy came in who owned an accounting firm and he had bought a book of business. And he told me just how many accounting firms are stuck in between this like

you know, 400 K to 750 K in revenue. And, you know, there's just thousands of those all over the country because they can't, they can't, you know, the scale and higher. Yeah. What, what is it? What is it? The owner doesn't know how it doesn't know marketing doesn't know what, why, why are they the the classic E myth story, you know, where like they're a technician, they're not a business owner or operator. Right. So like,

they might not be good at delegating or they might not be good at hiring or they might not be good at marketing or creating systems beyond, you know, Bob the CPA, right? They're still doing books for businesses. Yeah. Yeah. And you know, still doing the books. Yeah. So, you know, Bob or Barb or whoever it is makes, you know, 75 to 200 grand and like, they just don't get beyond that. Yeah. That was one conversation that opened my eyes. Another one that really got my wheels turning.

I had a consulting client who owned a drywall business and I was living in Denver at the time. And he bought this like expensive lot side on scene in Denver because he knew that he could scrape the house and build a house. And his, his unfair advantage was his ability to bring in other contractors and leverage his own drywall business, you know? And so he had this beautiful home like in Wash Park in Denver. And I was like, gosh, like,

I wish I had some sort of advantage like that with real estate. And then this light bulb went off and I was like, well, I have a unfair advantage in that like, I know small business really well and I know sales. And so that was the other thing is like, okay, where can I go leverage that so that I, you know, have my own unfair advantage. Yeah. And it's, that's reinforcing your, the QuickBooks or they have small business accounting, but

Jon Stoddard (04:46.734)
When you started investigating this over all the other business models, you know, I talked to business guys, acquisition entrepreneurs every day, like they want to buy a laundromat or they want to buy a landscape in business, you know, because it's reoccurring revenue. What are the characteristics of you know, bookkeeping accounting business that you liked? Yeah, there's, there's a recurring revenue, right? Cause you're the books every month. It's a sticky.

Once you're with one account, the switching costs are kind of high. It's a pain to go watch what you can switch over. There's pretty solid margin there. What kind of margins are we talking about? What does solid mean to you? Bookkeeping, you're making anywhere from a 40 to 60 % gross margin. Yeah, that's awesome.

We don't bill hourly, but an easy, easy example would be right. Like you, you charge somebody $60 an hour and you pay your team member $30 an hour. Right. So it's like 50 % margin. The other, the other things that I liked was you have this platform of businesses who trust you. So you can add additional services or you can, you know, create more offerings for those small business clients.

Yeah. That attracted me to it. the other was the existing operators, which we talked about a little bit, right? Like most accounting firm owners just aren't great operators. And I had a background in marketing agencies. And when I compare marketing agencies, I feel like those owners are sharper. The customer lifetime value isn't as long. The margin isn't as good.

your talent turns over more in marketing. And so when I compared that to an accounting firm, just kept coming back to an accounting firm. Yeah. Let me ask you about this. I can confirm the fact that it's very sticky because I used to work for Intuit myself. And when somebody bought QuickBooks, they just didn't leave QuickBooks. know, they just, you know, fresh books could come out. Hey, we're better than QuickBooks. Yeah. But the switching costs are too painful to do that. Yeah. But

Jon Stoddard (07:14.101)
Let me ask you, how do you, now that you're bringing your digital agency skills to market new business, it's then you're running up against people like, well, I, you know, I've got this one account in here that I already use. How do, why would I want to go to you? Right. Or do you go into new business or, or existing? That's not my job. Right. The thing I've noticed in the sales cycle is they're either in two buckets. They're like.

hair is on fire, they're like, please help me. I hate my current account in there. I got this letter from the IRS, like I'm ready to move now. Like they're not price sensitive, right? That's bucket one. Bucket two is somebody who's like, okay, I kind of wanted to check you out. You know, I kind of like my tax guy, but I might need new bookkeeping. And they're just, they don't have a sense of urgency or, you know, they're not ready to move, but they usually end up moving into the first category.

over time. So you have to stay in front of them, right? So you're either looking for somebody that's like ready to make a move quickly and you have to decide like how much of a mess you want to deal with. you, you know, try to nurture those other prospects. And then inevitably when, you know, I just had this today, a person who said their taxes still weren't done. And they're just like, I'm just tired of hearing about my extension not being finished. I'm ready to switch. Right.

And somebody at our firm had talked to him two years ago and he remembered who we were and now he's ready to make a move. Do you charge kind of like crisis PR? No. Cases where someone's like, hey man, it's on fire. I got the IRS calling me. Like you charge surge pricing for someone that's in trouble? We don't. Maybe we should. We do a fixed monthly fee. So we do a fixed monthly fee that includes their bookkeeping, their business taxes and their personal taxes.

Uh-huh. Might be anywhere from like 500 to 1500 per month. Now, if there's a good amount of cleanup or back work, you know, we'll have like a fee for that, but we don't, yeah, we're not really like chasing somebody that's like under audit or like needs IRS representation. there, there you go. You're just curious. Like a Bill Clinton comes in and goes like, you know, got Monica Lewinsky.

Jon Stoddard (09:38.231)
problems like, well, you should have come to me yesterday. No, no, we're not on that level. So fast forward, you decide to buy this business. Like where did you find it? That's another kind of hilarious story. I tried to work through the brokers and the accounting space and they just wouldn't, they wouldn't take me seriously or they wouldn't put me in front of their clients because I'm not a CPA. So.

As much as I tried to explain, you know, my business acumen and that I could grow a business and that I can replace the owner's billable time, you know, there's a few brokers that control the space and there's only one that would kind of like be open-minded with me and the others just wouldn't. So I ended up having to do my own outreach. So I had a list of 500 firms that felt like a fit and I created my own email marketing campaign and 500 emails turned into 20 phone calls, turned into six letters of intent that I sent.

And ultimately that's how I found the one that I closed. So it's easy to get the addresses of those. How did you get the emails of those individuals? a virtual assistant that I knew from prior projects that is good at list building like that. he has a... You're a digital marketing agency guy anyway, so you know how to do that. Yeah. And when you started that outreach, how...

What was the letter like? I mean, it was very simple. We're interested in buying. We're interested. It's short. You know, the subject line said, John, are you ready to retire? Or no, I said, John, are you retiring? And I think that got enough people curious to open the email. And then I said, John, I've been looking for a firm to acquire and you your firm looks like a good potential fit. If you have any interest in selling in the next

you know, year or two, I'd love a chat. Let's set up a call. And that was it. It was short and sweet, you know? What was the criteria, you know, 500 to a million dollars in bookings or? I don't think he had revenue per se. So he was looking on headcount. So I said, try to find somebody with at least five team members, you know? And you estimate that to be what revenue? I mean, you might see like a hundred

Jon Stoddard (12:04.205)
per team member. Yeah. Okay. I told him the states, the team members, kind of the parameters and not everything was a perfect fit, but it worked well enough to, you know. Yeah. have to, the reason I'm bringing this in is so questioning because a lot of people get stuck on this part right here where you're talking about. Like, okay, who do I go after? And how do I create a list of these people that I can go after?

And how do I outreach to them? Is it email? Is it mail? Do I gotta drive by and talk to them? Do I hit them on LinkedIn? What do I do? And then they just, get overwhelmed and don't do anything. Yes. Yeah. I think that's part of it is you just have to start somewhere and tinker. And there are some people that write handwritten letters and that works for them. That's pretty time intensive, know? There's some people that, you know, might.

do in-person stops. frankly like, I know some email gets ignored, but it seemed the most time efficient. Yeah. Yeah. Did you do any direct mailing? Just a physical letters? I did not. know some people didn't need to. Yeah. So how many, people responded as in the twenties, then you had how many LOIs? So it was funny because the first send

I'll get into the technical details, but the first send I got like five responses and I was like, holy, holy shit, this is easy. You know? and then my next end of about 50 people, like one person flagged it as spam. my, email open rates and like my drop. the IP started blogging. And so then for like a couple of months, I couldn't figure it out. And I like hired somebody that helped me with cold email and

I created another domain, I created another email, I warmed up that email, that's what it's called, you warm it up so that the deliverability goes back up. But all in all, I usually get like a 20 % open rate and I think like a 5 % reply rate. And how many, you set that to 500, how many conversations did you have? About 20 phone calls. About 20 phone calls. And what did that kind of...

Jon Stoddard (14:22.925)
phone call look like? Was it asking you about, or you started talking to them, hey, we're just looking for a business to acquire. And then you. My goal on that was to really just let them know that I'm serious and that I am a, you know, a decent person. And so it was usually, you know, 10, 15 minute phone call. I've just, they'd be like, all right, well you reach out to me and like tell me your story. And, and so I'd say like, you know, I'd

Say some of I've been working in consulting and I've seen how important quality bookkeeping is and your firm looked like a good firm. So I'm looking for an accounting firm to purchase and my plan is to grow it and I know how to run professional service firms. And then I just say like, tell me a little bit about your company. And I would have read their bio and their website and I try to...

some people would open up more and some people would say like revenue numbers on that initial call. And if I couldn't get that, I'd try to get, you know, team count. So I'd say like, how many team members you have? And if they said two, I knew that it was too small, you know, but if they said anywhere from five to 15, like, okay. So then after that, I would, I would have a short initial call and, and then I was trying to set up a zoom call next. Yeah.

to look at financials. So phone call first and then zoom. Yeah. Okay. And after that initial phone call, I'd also send them an email that reiterated the points I said of why I'm being a good buyer. And I tell them this on the phone, I'd say, I'm serious. have the financials to close and I'll leave your team in place and take care of your clients. know? So, let's go back to this. You have financing place. What did you have in place? Was you a search fund?

No, was my own money and SBA, right? And I knew that with my own cash and SBA, I can buy up to like probably 2 million comfortably, you know, by putting in 10 % of my own money down. didn't think about bringing either in any investors in this 10 % that it was? No, I wanted it to be my own for the first one. And I was like, maybe if

Jon Stoddard (16:44.429)
I get good at this and I want to acquire more. I might raise investor money later. And honestly, that would just really stress me out to take friends and family money. It's got an NFL club, no friends, no family left. Yeah. So, yeah, I wanted to kind of just be me and control my own destiny, you will. I know there's a lot of people that feel differently or they'd rather go out for a bigger deal with investors, but.

Yeah, so this SBA bank, did you go with some kind of national SBA or was it a local?

The one deal that I had that fell apart, it fell apart at the very end because the SBA lender. So then when I had Apple Tree on the line, I courted five banks and I was just like, I'm not going to make the mistake again of like having financing fall through. With just one SBA guy said, hey, we'll- Yeah, yeah. So I had five commitment letters and then I narrowed it down to two. And then I went with BankProv, who's a New England bank. I know that, yeah, I've heard of them.

Yeah. And they seemed like they would move quickly. They seemed like they would close and they offered me a bigger line of credit than the other banks. So it's been a good. What was the, what did they like about the business versus the others that didn't want to do it? so the other, I got five. you got five commitment letters. Yeah. You had the money, you had a good credit score, you had a personal guarantee in place.

The business looked good cashflow wise, How many members, people on the Apple Tree services? When I bought it, there were probably 12 team members. 12. So you're looking at a million, if it was a hundred thousand, you're looking at a top line at 1.2 million, sorta. Yes. Yeah. got it. Yeah. It was doing 1.2 the year before. Yeah. Okay. And they like that. Every bank liked that. And the seller was, what was the reason for selling?

Jon Stoddard (18:49.227)
He was, he's still part of our team, but he was tired of being the owner. So he was like getting close to retirement and he was like, I want to sell to maybe retire or maybe just to work less and not have to have. So, so he's an employee now. Yeah. So our purchase agreement, we closed in December. Our purchase agreement was that he was down through May, basically through the tax season and we get along well and

He adds a lot of value and he enjoys the work. He's healthy. And so we said we'd reevaluate in May. And so we're taking it year to year. So he's staying on another year. and, know, Yeah. We didn't know that it would go that way. We were both like, we'll see if we'll just, I'm like, you don't know what's going to happen. We'll reevaluate it. Like that's what I tell her. Why not sign for a year contract? Well, I don't know what's going to happen in 98. I don't even know if you're going to like me.

Yeah. How did the SBA bank process when you said it was timely? What do mean by like it usually it's 90 to 120 days? Let's see. I probably waited like four or five weeks for commitment letters. then we had

think, you know, we were basically on the same page with like purchase agreement and everything, like eight weeks before close, but he wanted to close December 31st. So the bank actually had a good amount of like lead time, whereas I wanted to close in November just to like, you know, get it done and like have some time before the busy season. So all in all, think most SBA lenders, I think they want like 90 or hundred, they probably want 120 days from like,

you know, when they start to work on the deal to when it closes. Yeah. So, you had to borrow right around $900,000, 80 % of 1.2. and the business definitely could support a, was the interest rate at that is like 6 % over a 10 year long. Yeah. Okay. Yeah. So I did 10 % seller note. Okay. 10, 15 % seller note.

Jon Stoddard (21:15.085)
10 % down and then 75%. Okay, cool. Yeah. the business on the 1.2 million was doing about 330,000 in, know, cashflow to the owner. That's pretty nice. Yeah. You can see what happens to owners when they, happens like, Hey man, this is a great lifestyle. Why would I want to do anything else? You just, you stay on the merry-go-round until someone wants to sell the business to Patrick Dichter.

So how is it going? It's gone well. At the end of the day, I feel like I bought a very solid business. we've had, we've had challenges with, know, being a little understaffed and like some change management, revenue is up 25 % year over year. EBITDA is up probably 30%. Where's the staff now? And you are, you brought your digital marketing skills.

to the business and what did you change about that? Did you change anything in the business for 90, a hundred days or did you wait or did you start immediately? I didn't change anything early on. We closed and went right into tax season. So that kind of forced me to just like sit there and not change anything, right? Yeah. So after that,

You know, I just updated the branding a little bit. I changed our sales process to move a little faster. I also was willing to take on clients in other States outside of just the one state that we serve. Yeah. Previously. And I added consulting services and then, you know, we

we staffed up properly. So we've hired five people since. What was the consulting services that you added on? I love these, like, can we add on additional upsell, cross-sell, down-sell products? Yeah. So there's three of us now who do the consulting services. And, you know, it might be like a little bit of like what a fractional CFO might do or like a fractional VP of sales, right? So we'll help with like sales and marketing.

Jon Stoddard (23:36.407)
Strategy will help with improving profitability forecasting budgeting like overall business strategy And typically they paid, you know, fifteen hundred to two thousand per month. No, that's nice. Yeah. Yeah. Yeah Did you have to have a CPA accreditation or was it a bookkeeping service or you know in the you know State of New Hampshire where I bought it

it wasn't like branded and a CPA firm, right? So that would have made it different in some states, but- You would have had to have the new owner had to be accredited. Yeah, or like a partial owner, I think wouldn't have to be a CPA, but because it's just business services, and he is very intentional about that. I didn't have to have a CPA.

So you had this almost a year. you enjoying it? Doing what you expected, thought it was going to be like? Yes, pretty much so. I'm happy that I did it. I enjoy all the challenges that I'm working on. I feel like there are a lot of people that really criticized some of my plan or thought I was crazy. And I'm just like, you know, like,

told you so, you know, like, yeah. What were these anonymous voices that were saying, you guys plan's crazy. Yeah. I mean, even some of the brokers, right. In the accounting space, they're like, you can't do this on your own. Like you need to go partner with the CPA. That's not true. I know that's not true because you can buy a book. Yeah. Or there were, there were, know, there were even like accountants in the space that were like, do not buy an accounting firm. You don't want to be in this industry or

What would they say in the reasons for don't buy an accounting firm? I mean, why is that? Stress. Stress? Yes. Are you legally bound to have perfect tax returns and you're responsible for them if that happens or what? I don't think that's what they're stressed about. I think they're just like working and working too much. Yeah. You know, the other criticism I heard from some people was like, why would you

Jon Stoddard (26:01.133)
add on consulting services like that should be a separate business. Why wouldn't you? What do you think Deloitte does and all the other big guys? Like KPMG, why wouldn't you? Yeah, it's going well and there's definitely, I still have days where I'm like just totally exhausted or I think every...

every night at 330 or 4am my brain turns on and thinks about all the stuff that I got to get done or things you should do. Yeah, that idea. Yeah. There's there's times where I feel like we're not hitting our goals fast enough, right? No, don't have enough resources. that's every order and every order thinks like to be growing faster. More people should respond to that email, blah, blah. Yes. No, no, I'm I'm happy that I did it. then. Yeah.

I mean, I do anything about that. How's your wife been with this journey? I see you're married, but how's your wife been with the journey? She encouraged you? She was frightened or she was what? She's great. She's supportive. You know, she told me, she said, once we started dating, you always struck me as somebody that would own their own business and like do their own thing. And I think, so my wife is a veterinarian. She's like, she's

brilliant and like works really hard and like very medical minded. But when it comes to like business or numbers, that's just not, that's just not her thing. Do you do the books for business? She doesn't own yet. like, okay. She's an employee at a practice. But as we got towards the end of like closing, I was like, you should really understand what, what is going on here. Cause I'm, I'm signing our life away, you know, like if this, if this doesn't go well, like we're, you know,

we're screwed, we're, we have this debt that, you know, will follow us for a very long time. Did you weigh those risks of how often a CPA or a accounting firm goes out of business and that personal guarantee and say, I, know, I, I didn't, I didn't try to look at the data on like how often CPA firms go out of business, but I did think about like, okay, what is the worst case scenario here?

Jon Stoddard (28:22.957)
And so the way I structured the deal, think mitigated that. you know, the seller note is tied to retention. like, if, if the revenue dropped, you know, past a certain point, the seller note would go away. So let's just say, for example, hypothetically, I totally messed it up and the business catered from like 1.2 million to like. 500,000. Yeah. 500 K. Right. And I can't pay back the SBA right on that.

Right. So, so I know, goes away, but I could still, I could still sell that accounting firm, right. It'd be a shell of its former self, but I could still sell it. And then maybe I have like two or 300 K to pay back to the SBA still. I was like, that would suck. That would take a long time to pay that back, I can do it. You know, it's not going to like, you know, totally ruin our lives. So, yeah.

And I'm, you know, I'm just like, I think the other thing that's important when you're going to go acquire a business, you gotta have a little bit of crazy in you or like, a little bit of like, I'm going to go prove people wrong. And like, I was hell bent on finding a deal and closing it and growing the business. And I just like, I just like, there's no question in my mind that I'm going to like, go do this and make it happen and grow it, you know? And I think

My wife knows when I get that look in my eye, it's like, all right. What is it? The crazy look? Yeah. So what is it? Let me ask you about the employees. Do you have employees or are they now people prefer to be contract? They're all employees. Yeah. That's been a big calendar. Interesting to me is like leading accountants because like

If I change the color of a pen, they're you know, uneasy. Something changed in the office, right? So I definitely got this is who brought the wrong coffee in. I have to be very mindful of like the way I communicate and give them a heads up on things and like try not to make them feel like I'm rocking the boat in their world too much. know, so how do you like being

Jon Stoddard (30:50.681)
schooled or learning those new schools. because these people, they're different. Maybe they're like engineers and then you need to be transparent and, you know, tell people about what's going to happen, what they may expect, et cetera. Yeah. It's been a big learning curve for me. I'm used to leading like sales teams, right? So it's like, okay, we're going to go run up that hill and sales reps are just like, all right, let's see who can do the fastest. What's the commission on that? Yeah. What's the commission who can do the fastest, right? And then Kevin is like, well, did you.

you know, measure the slope of the hill and like, what's the, you know, what's the moisture on the grass, right? It's like, okay. Like, okay. Are we going to deliberate this for the next week or what? Yeah. Yes. So, but I, I, I do feel like we have a very good team and they, they love the small businesses that we serve and they do a great job. And, you know, I take ownership that maybe sometimes I like, I need to include them more and communicate why we're doing certain things.

to make sure that I have their buy-in, know? it's on me. So we talked about in the, when I first introduced you, you have LOIs on two more businesses. Are those accounting firms? Correct, yeah. So one's kind of a smaller accounting firm and then one's maybe like 80 % of our size. And those deals, here we are kind of late August-ish, those should close within the next four to six weeks. Yeah.

And are those deals in New Hampshire? Are you going to roll those into, are you going to keep those separate? I'd roll them in. One is nearby and then the other one is a virtual firm. you know, staff works remotely, the clients are nationwide. Yeah. And so it's got a big online presence. Yeah. They have a niche in industry and they've done well in that niche.

So that's a little bit of a different business model because the year New Hampshire is kind of addressing local businesses there, but what is that? Well, yes. So even before these acquisitions, I started to change the types of clients that we bring on. I've started to, you know, just say like we'll service clients nationwide versus only catering to New Hampshire. Right. So initially some of the team was like, unsure about that, but I think people have come around more to the idea.

Jon Stoddard (33:13.697)
and then this acquisition will definitely accelerate that as we, you know, pick up more clients nationwide. What was the resistance to picking up somebody that's in California and, know, getting on a zoom and talking about their. Yeah, don't, I don't think it was the communication as much as their thought was like, okay, we don't know the states and like tax codes. What if we make a mistake? Which is a fair concern, right? So for.

three or four months, I talked to a lot of other accounting firm owners who served other states. I'm like, okay, what's your thought on this? How do you approach it? And they said, well, we have, you know, software that helps us. have research schools. And if you're serving service based companies, you're okay. You know, like once you learn a new state, it's, it's fine. Where it can get hairy is if you, you know, get into like, sales tax and all these different States, right? If you're serving like,

e-commerce or retail. and I frankly, think that's just the way the world is going is like, more and more companies become remote or people create nexus and all these different states where they, you know, operate. I don't think that those walls are, or walls are definitely coming down. Yeah. Yeah. And I think the other thing was that New Hampshire is a very unique state with tax.

And so they were used to looking at it through the lens of like, well, all these other people come to us with like Massachusetts strategy that doesn't work. so they, you know, because we'd always served this like kind of quirky state, they thought all the other states were going to be, you know, similarly weird to learn. it's, it's not like that. know, let me ask you about the

how you're going to pay for the other two acquisitions. I assume those are SBA loans also or from cashflow from the business or the? Both. So a smaller one is just like, you know, cash and seller note. Okay, cash and seller note, right? And then the other one is yet another mix of SBA loans and cash. And what's the, is there any restrictions on having a couple of SBA loans?

Jon Stoddard (35:32.845)
No, it's through the same bank. You can borrow up to five million with the SBA. So whether you do that through one big deal or through multiple deals, but that's the legal limit. And so after your first one, there's some banks that won't lend you again for a year. They'll say like, okay, you have to. Right. That's what I've said. But my bank was willing to lend again. And so they reevaluate each deal.

and then, you know, it's collateralized. The second acquisition is collateralized with the assets of the first business. Yeah. What did they, after what you've done to the business, what did they value that at? Just 30 % higher or? They didn't run a value on the, you know, original business, but they asked for, you know, our up to date financials and you know, he liked it. It's healthy. Yeah. Yeah. That's good for you. So what's the plan? What do you, what do you want to grow this to?

So my midterm goal is to grow to 5 million within five years and really get to know like a few industries well, and then start to acquire other types of small businesses. So we'd have this accounting firm that like gives us cashflow and know-how and relationships. And then if we want to go buy a HVAC company over here or an e-commerce company over there, or like a commercial maintenance company there, then

you know, the, the accounting firm kind of serves as like the mothership and like the whole thing. you would be doing their books for them and just kind of insert in their head. It's at some point, would you like to sell? Let me know. You got it. Yeah. Yeah. Very interesting plan there. What's kind of, what's like, what's next for the, for next year? You know, I think the big thing is next year is

continuing to improve our in-house technology. So we have a practice management software that's okay right now. We probably need to replace that next year. Why is that? what's the, I got to tell you, it's systems in place. People tell you, talk about the operational excellence and the only way you can grow is because you have that operational and great systems in place. Right. Yeah. Yeah. You know, it's just to be the next level of like tracking client communications and

Jon Stoddard (37:59.753)
automating some of the admin and chasing that we have to do with clients. So that's a big thing. I'd probably hire somebody to do sales. I do sales now, so I'd probably hire somebody else to do that. And then just continuing to pour more marketing in and add capacity with our team. So help me on this. What is the multiple

How does multiple sell for accounting firms? Is it like a one-time sale? You got it. Yeah. So the most most trade for between 0.9 and 1.5 times annual revenue. Annual revenue. Right. So a million dollar revenue firm generally is going to trade for one time. Right. I have I got a CPA buddy. Why did they do that versus even? I don't know. I truly don't know. I don't know if it's because like

Accounting is accounting. I don't know. It doesn't make sense to me because like every other service business is on a multiple profit, which is fair. But where it can get bigger, the virtual bookkeeping firms, they'll trade for like a 2X sometimes. 2X sales. Yeah, because they're very transportable and they tend to be more scalable and just

you know, more. Yeah, there you go. So 10 million is your number. Well, I don't want to sell the original firm. That's not my plan right now. Yeah. The plan is to keep it and, you know, have it for Intel and cashflow and kind of a base. And then I'm just guessing, but I think that because accounting firms are so consistent from one firm to the next on their profits, they just do it on sales. Yeah, could be. Yeah.

Yeah, because everybody other business you say, Hey, what's the retail or what's this business? And it's a, you know, 10 % margin or it's a 20 % margin inconsistent. Right. Interesting. Well, man, I, I, I wish you the best of success in the future. mean, this is great detailed information because people get started. What, what do you recommend? Let me go back to this. I didn't ask this. Do you have any mentors or you join any masterminds to keep the big ideas coming?

Jon Stoddard (40:18.219)
Yeah, I, you know, there's a lot of people I connect with on Twitter and look up to. And I went to a conference, the hold co-conference earlier this year. What's it Holdco. So holdco. Okay. Yeah. People who are aspiring to build holding companies. So that, you know, helps me think bigger. I'm in an association for our industry. there's an association for accounting firms that serve small business. And I'm in that.

Yeah. Some bigger practices in there that. Are you a quick fix solutions provider? What a quick book solutions provider? Yes. Yeah. They say quick fix. I was like, I don't know what quick fixes. And mentor. mean, there's there's definitely people that I've connected with that I kind of consider informal mentors. That keeps you going. That's great.

Yeah. Patrick, I look, we're almost 45 minutes, but I really, really appreciate the time with this because, know, I like to hear your story. So other people can hear and go, Hey man, let's go buy a business. There's, know, baby boomers are retiring and they're looking for somebody to take it over. Yes. Yeah. I think, you know, it's a, it's a great strategy to go do your own thing and it's lower risk and you don't need to create the next Instagram or.

WhatsApp, can go buy a very profitable Main Street business. That's already flying. That's already cashflow positive. Yeah. Yeah. Lovely. Patrick, thank you so much for the time today and happy Friday. Enjoy the weekend. You too. Cheers.