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All right.

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So yeah, it'd be great if you could just start by introducing yourself and giving me a bit
of background on your career thus far.

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Excellent.

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My name is John Hannam.

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I run PPS Solutions, which is a fractional finance firm.

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run fractional CFO services and due diligence services for both buyers and sellers in the
marketplace.

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Okay.

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And how did you get into that?

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How did you...

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Well, sure, my background is actually operational finance.

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came up through a tire company for 17 years from staff accountant all the way to
controller of the retail division, which was a larger division.

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over a thousand stores, largest independent tire retailer in North America when I left.

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it's kind of fun because there was only one sales tax return for the state of Florida when
I first got there.

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seeing that kind of growth really set me on a trajectory for liking chaos and kind of
taming chaos.

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So post that career of 17 years, I've been kind chief financial person for a bunch of
different businesses, bought and sold some businesses, took our little division of

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publicly held company and sold it to

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Depot, so worked on that integration for a year.

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know, been with some really large and kind of monstrous companies and those that really
grow.

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Early in the pandemic, I found myself leaving a construction company that we took public
in 2018 and started looking at helping some friends of friends with small businesses and

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realized very quickly that small business needs finance probably more than Google and
General Electric do.

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Yeah.

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So at what point do you get involved with your clients now?

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So the two services that we really offer, the CFO service, we become involved normally
when somebody has a difficulty, nobody just wakes up in the morning and thinks I need a

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CFO today.

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normally they're faced with some kind of challenge, some kind of financial thing that they
can't quite handle themselves.

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So they realize, there's this service that we can hire for that.

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And so we get involved usually in a cleanup situation or something like that.

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through the &A side of things, we normally get involved in the same way, but for a
different purpose.

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So somebody...

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broker or business advisors looking at something in the finance and realize it's not quite
right.

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So they would call us in to either do a cleanup, get it ready for SIM, get something, get
a little bit more polished off before it goes to sale.

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On the opposite side, I get referred to lot of from SBA lenders and other lenders who want
to do a deal but can't quite get the financials right on the buy side.

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So I represent a lot of buyers.

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in buying businesses, both through the modeling and kind of being the CFO of themselves
while they're buying a company and doing some of the diligence work like quality of

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earnings or diligence reporting.

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So talk me through the SBA loan situation, because I know in the UK, we don't have
anything like that.

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So it's unique to the US, as far as I know.

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There probably are other places in the world that have similar arrangements.

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But I was quite interested in it when I was living in the US.

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But not being a citizen meant that I didn't have access to any of that lending.

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But yeah, it would be useful to hear your take on it.

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Well, it's definitely a growing area.

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There's a lot of SBA money right now.

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So think most of the deals, fact, most of the deals that I've seen are SBA kind of funded
because it's the easiest to get.

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If you can clear that hurdle on requirements for the SBA, the bank likes it as well
because they're going to get a certain portion of that loan guaranteed by the government.

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So even if you default, the government's going to pay for it.

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There are lot of restrictions about who can buy and what they need to have, but it is a
fairly low entry point.

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So you might only have to put 10 % or so in.

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In some cases, nothing.

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If you're buying an expansion for your same industry code, you might actually be qualified
to do that with a really, really small cash infusion.

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So it's very attractive for that reason.

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There's a lot of good lenders in the US that do it as well.

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It's the vehicle for most of the acquisitions that I see these days.

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Interesting.

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How do you think it affects the kind of deal structures that you see as a result of having
access to this type of capital?

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There are a couple of peculiarities to them that make them interesting.

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One of the things that we can do is have seller financing actually count towards your
equity injection.

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So as long as that seller financing meets some criteria like it's not forgivable for some
reason, it puts off payments, can accrue interest, but it doesn't have payments for the

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first two years.

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The SBA says you can actually use that as part of your equity injection.

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So you can actually finance 90 % of your total project and have 10 % seller financing and
really just cover closing costs or those types of fees, put some working capital into the

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business for your own injection.

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That's the structure that I see most often is a mix of kind of mostly SBA and then some
seller financing.

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And of course, on the seller financing side, you can get creative with it, have a few more
notes, you know, structure an earn out or an evaporating note in case something goes

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sideways in the business.

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So can get a little bit of skin in the game from your seller using that seller financing
and still make the qualifications for it to be an SBA loan.

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Do you think, I'm kind of interested in the impact that this has on the types of people
that go out looking for acquisitions and the types of deals they end up doing.

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Because if, you know, if essentially you're kind of playing with someone else's money,
does that kind of lead people to make poorer decisions?

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Do you think?

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I think that's always easier to spend someone else's money than yours, but most of the
loans come with the personal guarantee.

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Most of the ones that I see, especially newer entrepreneurs, they're actually putting
their house up for it.

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So fairly serious in that regard because if the business fails, they're significantly
personally influenced by that.

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I would say it's probably less of an issue in certain cases because of, you know, that
there is that gravitas of it.

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But it makes it nice because people that can't necessarily, couldn't afford to buy a
business with their cash infusion really do have access to do that.

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So people that want to go out on a kind of a limb and take that risk and become
entrepreneurs, it's a really good vehicle for that.

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I think people make bad decisions every day.

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you know, I've seen, yeah, you know.

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It's still early here, so I haven't made all of mine yet today.

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people make bad decisions every day.

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So one of the things I really like to do is make sure that we're thinking about things
kind of thoroughly, making the model so that it's actually conservative.

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One of the notes that I get back from SBA lenders all the time is, you didn't forecast a
20 % increase in sales in year one, because that's unreasonable unless it's kind of in the

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pipeline already.

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You know, we always look at it and say, no, there's probably going to be a little bit of
hurt to this business short term and what can we do with it to make it good.

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Looking at it from that lens and making sure that you're making great decisions with the
capital that you do have, to me is key to making that decision more solid.

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If it looks risky from the beginning and you're betting on a lot of things happening in
that business, it's probably a little bit risky and you're making a, not a bad decision,

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but a more risky decision.

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Do you think, are there, are there kind of stats on how, how successful the SBA program
has been in terms of kind of, you know, stimulating the economy and, generating jobs and

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growth?

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I'm certain there are.

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don't necessarily know them.

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can just, you from my anecdotal side, I know that a lot of people are using it and that
most of the loans are getting approved.

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Most of the ones that have valid business behind them and a decent buyer credential are
getting approved.

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So I'm absolutely certain that it is impacting the economy to some point.

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Where this is going to become really interesting and I think across the world, but the US
specifically because of the SBA, is in the transfer of boomer businesses.

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People that are retiring and getting out.

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Right now in my field, the CPA field, all the old accountants who are really tired of
doing tax returns are also in their practices.

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So there's a huge transfer of that and there's not enough accountants to kind of pick up
those practices and do it.

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I think there has to be a whole other generation of entrepreneurs stepping up in that
space to buy these businesses and it's going to kind of transform the world economy

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really.

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It's going to transfer a lot of wealth from those people that have earned it across their
lives to now somebody that's going to come in and rock the world going forward.

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So are you seeing that in practice that there are, for example, know, CPA practices that
are on the market that are unable to find a buyer?

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The buyers, my view, the buyers are actually coming to consolidate.

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So it's people with one firm that want to get two and three and four.

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But yes, I think there are less people going into the CPA field.

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One of the accounting professor, friend of ours that asked me every year to come out and
talk to the advanced accounting students at Cal State Fullerton specifically is trying to

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market CPA.

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He wants me to rah rah the go be a CPA thing.

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I actually go in and guess lecture on the difference between CPA, CFO, all of the
different positions and the fact that a CPA can actually do something other than audit or

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tax.

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So hopefully I'm doing my little part to, maybe I'm running people out of the industry,
but hopefully I'm doing my part to add one or two extra CPAs here.

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Yeah.

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So what kind of deals are you working on at the moment?

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Well, so a lot of smaller deals.

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So sub 5 million, obviously the SBA, since that's kind of the primary focus out there is 5
million.

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Hopefully they get that change to a larger cap, which would be great.

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And then we can start seeing that loan infiltrate a little bit higher position in the
market.

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or revenue?

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Five million total loan.

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So the maximum that the loan under the program is five million dollars.

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So if you buy a six million dollar business, you'd have to find a million dollars
elsewhere to finance that deal.

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So a lot of the things that we're doing are in the two to five million dollar space.

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Pretty simple Q of E, but very entrepreneurial on the seller side.

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So we have difficulty getting data to do the Q of E.

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There's some risk because the accounting's a little messy.

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And obviously they're by having a CFO in that transfer process We're making it a lot
cleaner for the new business to start so there's some value there But what I'm seeing is a

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lot of entrepreneurs who've done their thing for you know, 20 years or so You know want to
go and buy the RV and and travel across the US and not run their business anymore.

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So

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There's manufacturing companies, construction companies, advertising and marketing
agencies.

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A couple of those we're working with right now.

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So all types of businesses.

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there's a huge need for it, too.

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There's a bunch of people out there searching, search funders, and people looking for
businesses.

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It's almost become a full -time job of some repute.

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Yes.

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Tell me a bit about the quality of earnings work that you do, because my experience of
this was years ago, we were looking to buy a video production company in the US, I got a

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quote from an accountancy firm to do a quality of earnings report, I think it was 30k,
they quoted.

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And ultimately, with video production, which is almost entirely project based, there's
this sort of, well, my view on it anyway, was like,

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very little point doing doing a quality of earnings on it because the quality of the
earnings are is poor.

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And you know that, you know?

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Yeah, yeah, that's the model, you know?

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Yeah, yeah.

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So so yeah, what's your what's your kind of view on that?

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Well, so it is interesting because you talked about the kind of fee being in that 30k
range and I believe it has gone up since you looked at that video production company.

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In general, a lot of firms, a lot of the bigger firms are charging 40 and 50k kind of as
an entry fee into those spaces, which makes sense when you're talking about a $50 million

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business, maybe.

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You want to make sure that it's solid.

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What we're trying to do is actually position a product in the market that's somewhere
below that.

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It's a level of assurance by looking at things and making sure that we get the right
report out, but it's also not super exhaustive for the level of business that we're

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looking at.

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we're definitely sub that 30 range, but it's meaningful enough that we have decent CFOs
and people that have been in those industries actually working on the reports.

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To me, that's very important.

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I don't want to...

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So just talk me through just sort of, you know, assume no knowledge at all.

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Like what, what would you look at for a quality of earnings report?

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So we're going to look at, first of all, the revenue, right?

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So we look at the pieces of the income statement, and we're going to validate that,
usually, some tools like proof of cash, understanding whether the revenue is BS or not.

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And then we look at the character and.

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sorry, the proof of cash within the business that you're doing the, I see.

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And are you interrogating the clients as well and what their credit scores are?

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We do work with the clients to understand their operations.

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So we ask them how they do things, what the magic is, kind of get this sense of how they
run their business, and then look at the numbers that kind of support that.

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If they say some assertion on revenue or some assertion on payroll, some assertion on kind
of their expense structure, we would actually try and find that trend within the P &L and

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make sure that what they've said is true.

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we would validate all of the assertions in the SIM or in whatever documents have been
provided.

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If they have add backs or adjustments for non -recurring items, we would actually go and
look in the accounting records and try and validate those things.

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If they said officer salary was X, we'd go to the payroll records and make sure it's X.

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If they say, know,

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you know, some expenses personal, we're going to try and look at that expense and see if
it really validly looks like a business expense or not.

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So really what we're doing is just kind of validating the assumptions about how the
business operates and then presenting that information.

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There is a certain portion of that information that's just accounting stuff, right?

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If we have a revenue adjustment, if we're taking a lot of companies in this space, for
example, when they take customer deposits,

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for work that hasn't been done yet.

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And I see this in manufacturing, construction, everywhere.

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They take a customer deposit, it goes to income.

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Kind of a tax -based approach, right?

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Cash basis.

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When that really is a liability until you perform that action that got you that income.

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you know, just adjusting, trying to get the estimated gap accruals and deferrals in to
make sure that the books are solid.

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You'll see that as kind of the primary part of the quality of earnings.

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This is what they said, here's what it is adjusted, and here's why the adjustments are.

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Yeah, I mean, that, that, yeah, that kind of, you've got deferred income and that being a
liability, remember kind of finding out that it was a liability and that was a real like

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light bulb moment.

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Cause we'd always kind of thought, Hey, this is great.

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We've got cash, right?

185
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And you're like, sure.

186
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Yeah.

187
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Take the money, correct accounting would be that you don't actually take that to income
until you somehow earn it.

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And there used to be a nice accounting pronouncement on that, and both IFRS and US GAAP.

189
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And the new accounting standard is so convoluted, I can't even read it.

190
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But the point is, you

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when you earn something, you get to record it in revenue until then it's a liability.

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Yeah, yeah.

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How many of the businesses that you work with, how many do you see that kind of use cash
accounting and need to move to accrual accounting?

194
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Because I see that with lots of small businesses.

195
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Most, yeah.

196
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So when you start a business and when you grow the business, unless you have a CFO kind of
there with you or somebody or you're doing something financial and you understand

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accounting, it's not your nature, right?

198
00:17:10,738 --> 00:17:20,793
The only purpose for those numbers in an entrepreneur's mind is to call the accountant at
the end of the year and to put in the tax return or, you know, to maybe get a bank loan.

199
00:17:20,793 --> 00:17:22,644
They need a, you know, some financials or whatever.

200
00:17:22,644 --> 00:17:27,187
It's not until you actually need the numbers that you actually use the numbers or even get
the numbers ready.

201
00:17:27,305 --> 00:17:29,316
So for me, it's backwards.

202
00:17:29,477 --> 00:17:39,665
We want to have a focus in the numbers, and we want them to come out correct and quickly
so that we can actually make good information and good decisions on that information.

203
00:17:39,665 --> 00:17:47,532
So having accrual accounting means that you're going to look at your margins correctly and
understand exactly what you're making.

204
00:17:47,532 --> 00:17:49,183
This is super important with construction.

205
00:17:49,183 --> 00:17:52,055
work with a lot of construction companies and subcontractors.

206
00:17:52,748 --> 00:18:01,468
you if you don't know what your job margin is, if you if you're buying materials one
period and then building the customer the next, you have 100 % cost or 100 % profit and

207
00:18:01,468 --> 00:18:09,748
it's, it's a mess to look at unless you know, I'm going to match those things up and and
you know, have a proper accrual, then you can actually make decisions.

208
00:18:09,748 --> 00:18:15,648
I've never been able to look at a cash basis set of books and make a decision financially
for a company so

209
00:18:16,012 --> 00:18:17,223
Yeah, absolutely.

210
00:18:17,223 --> 00:18:18,914
It's a nightmare.

211
00:18:18,914 --> 00:18:28,410
you know, often when I look at, you know, accounts for an acquisition target, they will
have switched from cash to accrual sort of halfway through.

212
00:18:28,410 --> 00:18:34,646
So you've got two years of cash accounting and two years of, you know, it's so hard to
make sense of the numbers in that case.

213
00:18:34,646 --> 00:18:45,029
But I'll bet they made better decisions just in general in the two years after the switch
because just having your numbers and using your numbers is a really powerful tool.

214
00:18:45,130 --> 00:18:46,771
I preach that all day long.

215
00:18:46,934 --> 00:18:47,814
Yeah.

216
00:18:47,955 --> 00:18:53,962
So I'm always just kind of interested to hear like tales from the trenches.

217
00:18:53,962 --> 00:19:04,524
So have you got any stories of deals that have gone awry or, you know, things that have
happened, stuff to learn from?

218
00:19:05,334 --> 00:19:11,148
You know, a lot of deals do kind of fall apart within the stages they're supposed to fall
apart at, right?

219
00:19:11,148 --> 00:19:17,992
The purpose of looking at something and giving an LOI before you actually look at the
diligence and all of that.

220
00:19:17,992 --> 00:19:22,335
You know, there's a point at which you kind of become committed to it and start spending
money.

221
00:19:24,256 --> 00:19:26,348
I think the deal should fall apart before that, right?

222
00:19:26,348 --> 00:19:27,589
You should have a decent idea.

223
00:19:27,589 --> 00:19:29,590
And that's why we like the abbreviated equality of earnings.

224
00:19:29,590 --> 00:19:32,693
We can put it forward and say, no, here's some red flags, right?

225
00:19:32,693 --> 00:19:40,489
Here's something you need to consider before you start sending off hundreds of thousands
of dollars in deposits to the escrow company.

226
00:19:41,130 --> 00:19:43,111
It's good for a deal to fall apart.

227
00:19:44,393 --> 00:19:48,356
There's always squirreliness with sellers and buyers, though.

228
00:19:48,356 --> 00:19:52,278
Everybody has a different idea of what they want out of something.

229
00:19:54,506 --> 00:19:56,447
different things they get upset or not upset about.

230
00:19:56,447 --> 00:20:05,160
I've seen things that I would consider difficult things to overcome and buyers and sellers
are, okay, no difficulty.

231
00:20:05,321 --> 00:20:12,204
And then some things that seem to be relatively minor.

232
00:20:13,036 --> 00:20:17,942
you know, there's an asset purchaser working on and so there's a new corporation involved.

233
00:20:17,942 --> 00:20:27,953
The new corporation has the same names as the old corporations, kind of, but some mail
arrived at the office and the sellers, you know, previous to anybody knowing it at the

234
00:20:27,953 --> 00:20:33,950
business, sellers got a piece of mail with the corporation name kind of spelled
differently and weirdly.

235
00:20:34,100 --> 00:20:36,183
no purchase or names or anything.

236
00:20:36,183 --> 00:20:37,925
They really took exception to that.

237
00:20:37,925 --> 00:20:40,008
And there's a lot of upsetness on every side.

238
00:20:40,008 --> 00:20:44,313
had to kind of smooth over egos and difficulties when that was a simple thing.

239
00:20:44,313 --> 00:20:46,927
We could have just said, hey, we're doing some restructuring.

240
00:20:46,927 --> 00:20:48,308
Yeah, this is our mail.

241
00:20:48,308 --> 00:20:49,660
Don't worry about it.

242
00:20:49,660 --> 00:20:50,681
It's fine.

243
00:20:51,663 --> 00:20:52,803
But they're.

244
00:20:53,086 --> 00:21:00,917
on edge that somebody has breached confidence and now we have a rep and warranty issue
when so easy to overcome.

245
00:21:00,917 --> 00:21:07,894
So the personalities to me are harder to navigate than the deals themselves.

246
00:21:07,894 --> 00:21:09,815
Yes, yeah, absolutely.

247
00:21:10,276 --> 00:21:19,341
So you were mentioning just before we came on here that you were working on a deal which
is a switch from an asset purchase to a share purchase.

248
00:21:19,601 --> 00:21:20,141
Is that right?

249
00:21:20,141 --> 00:21:21,482
Or was it the other way around?

250
00:21:22,284 --> 00:21:26,346
In this case, it was an asset purchase to share purchase, and this was a licensing
consideration.

251
00:21:26,346 --> 00:21:32,828
So I've had them switch back and forth over the time.

252
00:21:32,828 --> 00:21:42,191
And there's an interesting analysis to do with trying to get to an equalized cash version
because there's a different taxability here in the States between asset and.

253
00:21:44,112 --> 00:21:52,359
stock purchase and you know there's obviously some some risk associated with stock
purchase since you're taking over the the company with its liabilities and if something

254
00:21:52,359 --> 00:21:59,165
happened the day before you purchased it you know unless you have a really good iron
curtain clause you're kind of liable for that liability so you know there's some

255
00:21:59,165 --> 00:22:00,586
additional risk but

256
00:22:02,760 --> 00:22:05,323
In this case, there was a licensing issue.

257
00:22:05,323 --> 00:22:08,055
It would have been very difficult because it's a construction company.

258
00:22:08,055 --> 00:22:09,226
It's in California.

259
00:22:09,226 --> 00:22:17,233
And the licensing board absolutely requires the person that owns the majority of the
company be licensed as that type of contractor.

260
00:22:17,233 --> 00:22:19,495
The buyer doesn't have that type of experience.

261
00:22:19,495 --> 00:22:30,064
So we have to have some type of stock purchase and the ability for the former owner to
stay on as the license holder until that license can be transferred.

262
00:22:30,505 --> 00:22:36,614
So it almost was forced into that and then we had to educate people on what the tax
ramifications are.

263
00:22:36,614 --> 00:22:38,029
The seller is going to save it.

264
00:22:38,029 --> 00:22:44,582
what, what for the seller it's less generally less favorable for it to be a share
purchase.

265
00:22:45,445 --> 00:22:46,316
Is that right?

266
00:22:46,316 --> 00:22:57,482
it is more favorable for it to be a share purchase because they're going to pay less in
tax generally than they would as an asset purchase.

267
00:22:57,882 --> 00:23:01,244
Also, the buyer doesn't get to claim.

268
00:23:03,148 --> 00:23:07,408
depreciation on the assets or amortization on the goodwill that they bought.

269
00:23:07,408 --> 00:23:10,468
So when you buy the shares, you're just buying basis in the shares.

270
00:23:10,468 --> 00:23:19,287
And ultimately, you kind of lose the ability to take that purchase price as a reduction of
your taxable income going forward for 15 years.

271
00:23:19,287 --> 00:23:27,988
So there's kind of a present value of that that we put into an analysis that says, okay,
the seller is going to pay less tax, the buyer is going to lose a tax benefit.

272
00:23:27,988 --> 00:23:29,628
Those two things are bookends.

273
00:23:29,628 --> 00:23:33,140
we kind of come to the middle of that and say,

274
00:23:33,140 --> 00:23:39,912
what would the purchase price adjustment be so that the seller nets the same net cash
after tax?

275
00:23:39,912 --> 00:23:41,875
And that's how we split that baby.

276
00:23:42,732 --> 00:23:46,572
Okay, and is that what you had to do in this case that you're working on recently?

277
00:23:46,572 --> 00:23:47,483
It is, yeah.

278
00:23:47,483 --> 00:23:53,355
And I would normally present that information for the seller and buyer to negotiate.

279
00:23:53,635 --> 00:24:00,828
But it is kind of funny because everybody has a dog in the race at that point.

280
00:24:00,828 --> 00:24:03,939
And I'm just trying to explain to the two parties what the impacts are.

281
00:24:04,740 --> 00:24:14,024
Then, of course, nobody believes the impacts because my analysis doesn't have all of the
facts of everybody's individual tax circumstances, which are rather complex.

282
00:24:14,296 --> 00:24:18,809
But it's a general analysis and they put it forward and they say, those aren't the numbers
and they take them to their independent accountants.

283
00:24:18,809 --> 00:24:20,881
And in the end, those are the numbers.

284
00:24:20,881 --> 00:24:26,825
And we come up with a nice clean way of making sure that the deal can still go forward and
everybody gets what they want out of it.

285
00:24:26,825 --> 00:24:39,134
I actually like that process, but it is kind of important to go into your sale knowing
whether you want an asset or stock purchase and all the risks and everything associated.

286
00:24:39,134 --> 00:24:42,610
But when you switch, I think is a good time to talk about the

287
00:24:42,610 --> 00:24:44,903
purchase price difference and have that conversation.

288
00:24:44,903 --> 00:24:55,728
You want somebody to prepare that analysis that says here's the tax benefit to A and
here's the tax detriment to B and you know some information that can help you negotiate

289
00:24:55,728 --> 00:24:57,579
the price in between.

290
00:24:57,848 --> 00:25:01,994
So how often are you representing the seller versus the buyer?

291
00:25:01,994 --> 00:25:03,946
What's the mix for you?

292
00:25:03,980 --> 00:25:09,810
So for our firm right now, just based on the people that are calling us, it's mostly buy
-side.

293
00:25:09,810 --> 00:25:13,200
So I'm probably 90 % buy -side, 10 % sell -side.

294
00:25:13,200 --> 00:25:18,280
Sell -side usually comes from the broker saying, your books are a mess.

295
00:25:18,280 --> 00:25:19,880
You need to hire somebody.

296
00:25:19,880 --> 00:25:23,160
Here's a person that is recommended.

297
00:25:23,160 --> 00:25:29,660
And then on the buy -side, it's usually the SBA lender that's coming in and saying, I need
help.

298
00:25:29,660 --> 00:25:32,420
These people need help getting me to give them money.

299
00:25:32,854 --> 00:25:33,395
Right.

300
00:25:33,395 --> 00:25:37,731
And do you do any of the sort of search aspects?

301
00:25:37,731 --> 00:25:43,700
Like if someone's looking for a target to require, do you help them go out and find one?

302
00:25:44,897 --> 00:25:48,278
I do help them evaluate the process.

303
00:25:48,278 --> 00:25:51,051
not necessarily a broker and don't do anything in that space.

304
00:25:51,051 --> 00:25:53,343
We're trying to read a bunch of Sims.

305
00:25:53,343 --> 00:25:55,124
I work with a couple of private equity companies.

306
00:25:55,124 --> 00:25:58,146
So we do look at companies all the time.

307
00:25:58,146 --> 00:26:03,510
So that's one thing that I can do with people that I work with in that space.

308
00:26:08,224 --> 00:26:17,469
The interesting thing would be if we had one fall through, so one of the ones that we're
probably going to close in the next few weeks, this is our third business we've looked at

309
00:26:17,469 --> 00:26:18,089
together.

310
00:26:18,089 --> 00:26:22,412
So he was already in LOI the first time we talked.

311
00:26:22,412 --> 00:26:24,673
That deal fell apart.

312
00:26:24,673 --> 00:26:27,184
We looked at something else, so he actually asked me to look at that with him.

313
00:26:27,184 --> 00:26:33,138
It wasn't something that we were interested really in going forward with, but we did some
analysis on it, and I worked up a model for him.

314
00:26:33,138 --> 00:26:37,536
And then obviously the third time, hopefully, is a charm, because we really found
something.

315
00:26:37,536 --> 00:26:43,880
We've been under LOI for almost five months and it's been difficult to get information.

316
00:26:43,880 --> 00:26:48,132
So we've had to extend and the sell side is a little bit messy.

317
00:26:48,132 --> 00:26:55,427
So we're having to organize it into something that's able to be financed and they're
really slow in responding.

318
00:26:55,427 --> 00:26:58,789
that's dragged it out past the normal deadline.

319
00:26:58,789 --> 00:27:00,540
But that's one of the ways that we kind of get in.

320
00:27:00,540 --> 00:27:03,772
I don't think that that client would.

321
00:27:03,860 --> 00:27:07,764
even look at another business unless we were kind of there with him doing that.

322
00:27:08,145 --> 00:27:17,085
And it is interesting because all of the people that we've done diligence for this year,
anybody that's actually purchased a company, we've become the incumbent CFO.

323
00:27:17,085 --> 00:27:20,639
So every one of them so far has signed up for CFO service.

324
00:27:20,694 --> 00:27:21,686
Okay, that's great.

325
00:27:21,686 --> 00:27:22,437
That's great.

326
00:27:22,437 --> 00:27:33,004
Have you you seen any sort of successful examples of like, of buy and build strategies
where someone's built built a group and and and successfully sold it at the end?

327
00:27:33,886 --> 00:27:36,678
In my corporate career, I've seen more of that because of the longevity of it.

328
00:27:36,678 --> 00:27:45,005
I've been doing this CFO work for four years, and most of the companies that I work with
have doubled and tripled in size.

329
00:27:45,005 --> 00:27:47,687
Couple have done acquisitions.

330
00:27:48,548 --> 00:27:51,771
But it's relatively shorter.

331
00:27:51,771 --> 00:27:58,136
Where I've seen roll -up strategy work and where we buy and build is in my corporate
world.

332
00:27:58,136 --> 00:28:02,580
So the construction company, for example, that we worked with when I first got there,

333
00:28:02,636 --> 00:28:04,976
We were California only.

334
00:28:05,136 --> 00:28:13,776
I had one showroom in Reno, but it was relatively small and super simple business, but in
the number one housing market in the US.

335
00:28:13,776 --> 00:28:21,316
We were doing flooring, cabinets, and countertops in Southern California, which is 20
million people live in the same place.

336
00:28:21,516 --> 00:28:24,256
So if you can do it here, you can do it anywhere.

337
00:28:24,684 --> 00:28:25,904
No, this is Los Angeles.

338
00:28:25,904 --> 00:28:28,034
So it's the greater Los Angeles area.

339
00:28:28,034 --> 00:28:33,124
There was a small thing just outside of California, but all of our other operations were
California only.

340
00:28:33,144 --> 00:28:48,584
When I left that company two years later, two and a half years later, we were 14 states,
had done four separate kind of roll up strategy acquisitions, but multiple companies per

341
00:28:48,584 --> 00:28:49,244
acquisition.

342
00:28:49,244 --> 00:28:51,308
So we were really building a...

343
00:28:51,308 --> 00:28:53,778
It was about 200 million in revenue when I first got there.

344
00:28:53,778 --> 00:28:56,348
was over 400 when I left.

345
00:28:56,348 --> 00:29:01,948
And we had taken it public in the same time, along with another company that was a sister
company of ours.

346
00:29:01,948 --> 00:29:07,828
So put us together into a holding company, took us public at the same time, and built this
huge thing.

347
00:29:07,828 --> 00:29:08,384
So.

348
00:29:08,384 --> 00:29:19,429
Where I see that's really interesting is, you if you have a flooring company and a cabinet
company in Southern California, and you buy a cabinet company in, you know, another state

349
00:29:19,429 --> 00:29:23,721
in Arizona, you can add the flooring because now you have the flooring expertise.

350
00:29:23,721 --> 00:29:31,705
So kind of buy and build for us was taking those lines that we were really good at, buying
a company that had one of them and expanding into multiple areas.

351
00:29:31,705 --> 00:29:34,526
You know, this is geographic expansion.

352
00:29:34,526 --> 00:29:38,280
We bought a company in Virginia that was starting to do some work, you

353
00:29:38,280 --> 00:29:40,842
kind of in lower Virginia, North Carolina.

354
00:29:40,842 --> 00:29:44,234
So, you know, just adding that extra office was really great for us.

355
00:29:44,234 --> 00:29:47,496
We were able to staff it and move people around appropriately.

356
00:29:47,496 --> 00:29:54,341
And this is what I love about being in finance with a company like that is all the things
I'm talking about are operational, right?

357
00:29:54,341 --> 00:30:03,607
We got the money, we bought the companies, we were able to execute the strategy, but the
magic is in the operations and where operations and finance come together, you know, is

358
00:30:03,607 --> 00:30:05,167
how you grow companies.

359
00:30:05,976 --> 00:30:19,198
So a lot of the listeners to this podcast are creative agency owners who are on their
journey of thinking about preparing their agency for sale.

360
00:30:19,278 --> 00:30:27,936
Do you have any advice for someone with a small business that they're looking to sell?

361
00:30:28,854 --> 00:30:32,555
So first of all, valuing the financials to me is key, right?

362
00:30:32,555 --> 00:30:40,768
So if you are just in that cash basis world and thinking about your tax return and don't
really know your numbers really well, I would change that right away, whether you're gonna

363
00:30:40,768 --> 00:30:43,009
sell next year or not.

364
00:30:43,489 --> 00:30:50,781
It certainly is gonna help you if you sell within the next X months or X years, but it's
good for your whole lifetime of your business.

365
00:30:50,781 --> 00:30:52,932
Your business will be much more successful.

366
00:30:52,999 --> 00:31:02,281
If you do that every year and execute a plan every year, make a budget every year, work
with your financial strategist being a fractional CFO or somebody else to help you grow,

367
00:31:02,281 --> 00:31:07,501
even if it's your CPA, looking at the numbers will help you run a more successful
business.

368
00:31:07,702 --> 00:31:13,743
If you're getting ready to sell, the cleanliness of those numbers is going to help in many
ways.

369
00:31:13,963 --> 00:31:21,224
It'll help you build your SIEM and get it out in front of somebody that can help you
market it and do that.

370
00:31:21,960 --> 00:31:23,551
activity of getting it onto the market.

371
00:31:23,551 --> 00:31:27,343
And then it's also going to help in the diligence.

372
00:31:27,784 --> 00:31:37,971
When a buyer sees a competent set of books and when their accountants and their QV person
doesn't have a lot of adjustments, they have more of confidence in the business and they

373
00:31:37,971 --> 00:31:40,993
might be willing to pay a higher multiple for it.

374
00:31:40,993 --> 00:31:44,776
You know, when I work, especially in the buy side,

375
00:31:45,672 --> 00:31:50,447
when we see messy books, I'll explain that, but I'll also explain it as an opportunity,
right?

376
00:31:50,447 --> 00:31:52,489
If you run this company differently, right?

377
00:31:52,489 --> 00:31:53,600
We can't tell what it's making.

378
00:31:53,600 --> 00:32:01,107
I know that they got cash and they got, know, I can validate that their revenue is correct
because I did the proof of cash.

379
00:32:01,152 --> 00:32:08,839
But I can't necessarily look at all the trends and all of the information about that
company because it's just messy.

380
00:32:08,839 --> 00:32:15,246
So when we set up the accounting for the new company, it's going to be a lot less messy
and we'll know and we can run it much better.

381
00:32:15,246 --> 00:32:16,937
Hopefully that means you make more money.

382
00:32:16,937 --> 00:32:20,831
So yeah, would say just having a clean set of books is the next key.

383
00:32:20,831 --> 00:32:25,896
And intentionally going into that process of understanding your numbers, being able to...

384
00:32:25,962 --> 00:32:32,758
confidently talk to the broker, the buyers, anybody that's gonna look at your business.

385
00:32:33,078 --> 00:32:39,283
The more you know your numbers, the more confident you are in your numbers, the better
it's gonna come off throughout that whole process.

386
00:32:39,414 --> 00:32:49,467
Yeah, it's always the same always comes back to clean, clean books is a key cornerstone
thing that needs to be put in place.

387
00:32:50,709 --> 00:32:51,160
Lovely.

388
00:32:51,160 --> 00:32:54,675
Well, I think that's, you know, good, good place to wrap it up there.

389
00:32:54,675 --> 00:32:56,977
So thank you very much for joining.

390
00:32:58,934 --> 00:32:59,812
Thank you very much, Barnaby.

391
00:32:59,812 --> 00:33:01,058
It's been a pleasure.

392
00:33:02,592 --> 00:33:05,300
All righty, let's press.