Build Versus Buy with Brannon Poe

Hello, and welcome to the Big Four Transparency podcast. I'm joined today by Brandon Poe, founder of Poe Group Advisors and Accounting Practice Academy as well. Welcome to the pod, Brandon. Thank you, Dom. Nice to be here. Yeah, my pleasure. We met recently, I kind of had done some outreach to some people at your firm and got to talk to them. They're a great bunch and had some really interesting conversations with you. So I'm really happy to be able to kind of share that and bring it on air for everyone. Yeah, that was a good conversation we had on our podcast. So it is nice to be a guest on yours. Yeah, I'll make sure I link that, assuming it's kind of live when this one goes live here. Yeah, I've really enjoyed getting to know you and just for the audience to kind of kick things off. Do you want to tell us a little bit about what you've got going on over at Poe Group Advisors? So we are a brokerage firm specializing just in the sale of accounting and tax and CPA practices. We sell firms all over the US and Canada. So we have presence all over North America, well, in the US and Canada, not in Mexico. And we launched a workshop called the Accounting Practice Academy in 2020 to help firm owners better manage their practices. A little bit about my background, I'm a CPA as well. I started my career at E&Y and started brokering firms in 2003. So been at it for a little while. Yeah. And I mean, that's like quite a transition from like working in the business to kind of like making all those connections happen. So I'd be curious to know what, I mean, maybe first of all, what was the decision to leave public accounting as a practitioner? So I left public, I spent about five years total in public. And you know, I went into accounting, I became a CPA so I could learn about business. That was my original goal from like high school. I bumped into an entrepreneur that I really admired in town and I was sort of thinking about what I wanted to focus on when I went to school. And he advised me, he said, hey, go and become a CPA, if you want to learn about business, go and become a CPA, you'll learn how people do things. And I did not have a business background at all. Actually, my parents were both teachers. My father taught art and photography, so I had no idea what I was getting myself into. And I enjoyed accounting and then came out of school, went to E&Y, and I was an auditor and I immediately realized I had kind of made a little bit of a mistake, like it wasn't quite what I thought it was going to be like. I enjoyed the school, you know, the school, I didn't enjoy the... Back then we worked, you know, very long hours and it was very monotonous, tedious work. And so then I went to work for a regional firm called Elliott Davis, which gave me a little bit more variety, which I liked. And I kind of felt like I had accomplished that overview, you know, five years of public was a good amount to kind of understand a lot of the learnings that you get from working in public practice, which I value greatly. And I left public to go and work in a small business with a friend of mine from high school, actually. And the reason I left public was it was a father-son business and they were going to give me the opportunity to do some sales work, which I had wanted to do. I always thought I would enjoy that and turns out I did and I called on plumbers and builders and contractors and they're a hard group to call on. But I enjoyed it. I enjoyed, I mean, I was out on the road and, you know, coming up to job sites and talking to contractors and I became a partner in that business. And I really enjoyed the sales piece. I was also doing some of the financial stuff for the company. And then we did a startup that kind of was a spinoff of that. So I just enjoyed that entrepreneurial journey, starting a company, driving sales. And then I exited that business. I was working as a controller for a few years after I moved to Charleston. And how I got into brokerage is really interesting because I tell people, like, I called the wrong guy. That was how I got into brokerage. So a friend of mine bought a CPA practice in Columbia, South Carolina, and we were together for a CPE conference and we went out afterwards and we were shooting pool that evening after the conference. And he's like, you should call this guy, all he does is broker CPA firms. Maybe you could find a firm for sale in Charleston. So I said, okay. So I go home the next day, totally forgot who the guy's name was that he told me, looked up somebody and I called Howard Holmes instead. I just, actually, I didn't call him, I went online and filled out a form and he had just started his brokerage as a startup and that's how I got into it. And so long story short, Howard kind of showed me the ropes of brokerage and I worked with him for a few years and then he sold the company, his company, to his brother and I negotiated an exit shortly thereafter from that company. So I started Poe Group. Right on. And when you kind of like decided to get into all of that, was it like you already like knew everyone, had the connections and all that and like had kind of inbound deal flow or it was really like you kind of built it up from that point? I started from scratch. So I started out in South Carolina and North Carolina was the only states that I focused on initially. And I just loved the sales work and I just hustled and, you know, I started kind of very slowly and kind of built it up over time. It takes a, it takes a long time to get it going, but. Yeah. Well, you're talking to someone who's, you know, a few years into being like, oh, I got to be plugged into all these firms and everyone and, you know, it, yeah, it very obviously takes a long time to form those kind of like real, real trusted relationships. So what was most effective for you, like in terms of what you were doing? I just did everything. I just worked hard. Like it was really, I was very scrappy. You know, I was 33 years old when I started the business and I had three children and my wife was not working. So I had a lot of, I had a sword hanging over my head, so to speak. And so I went to my wife and I said, look, I really want to start this business. She couldn't see any holes in it. She thought I would do well with it. I said, it's going to take a sacrifice from both of us because I'm going to have to really dedicate myself to working at least for a year or two. And yeah, that's going to put more on her. And she was all for it. She was like, let's do it. Let's go for it. And that's kind of how it worked out. I was working from six in the morning, sometimes till 10, 11 o'clock at night, just grinding and trying to make connections and trying to do the things that you're probably doing right now, Dom. It's like, you just have to do everything that you can think of. Of course, now I think there are a lot of different strategies to do that. Podcasting wasn't a thing, for example, in 2003, 2004. But what I find is these are all small communities. The community of CPAs in each community is a relatively small community. A lot of them know each other. So it's just putting yourself out there and working hard. And then that ended while we went on a vacation and my wife, I wrote about this little story in the book we wrote called The Unplugged Vacation. My wife and I took a trip. Do you have that? Ah, I'll write on. There it is. I got it right here. You told me about it and I went ahead and kind of checked it out before a vacation of my own. That's a good book. Yeah. So I tell this story in the book. We took a cruise with our children, first time ever we had taken a cruise. And I had taken my computer on that cruise. And back then, you had to go to these little internet cafes on the boat in order to get any kind of connection. And so I would say, hey, I need to go work for a little bit. As we were leaving the boat, she's like, if you ever bring your computer on another vacation, I'm going to throw it overboard. So I was like, okay, point taken. Well, that's good, right? Like she'd supported you that far and had been all in on you doing this thing and then kind of put up some boundaries. And I think sometimes, as the person who's heads down and entirely focused on it, sometimes you do need to be called into reality a little bit. Absolutely. I'm grateful for that. Very grateful for that. Yeah, right on. Yeah, it's a good read for people. I'm going to actually make sure I link it in the Amazon. It's a quick kind of like, you know, handbook, quick guide on it all. One of the things you mentioned kind of early in your story that I want to circle back on, you talked about how you just wanted to be in business and be involved and people had told you, you know, go into accounting for that. And you're not the first person to say that. I've actually gotten a little bit of that advice given to me and a lot of other people that I talk to, some of the very recent episodes, people say the same story. Is that still the advice you would give to anyone? Like, do you think it's kind of like the best place to go to learn about general business? I think it's good. I think the way I pursued it was probably a good way to do it, where I wasn't in public for too long. I think at that five-year point, you either love public and you should stay in it and make a go of it long-term or, you know, it's, hey, I've learned enough and I'm going to do something else. I think for someone who really wants to learn about entrepreneurship, I don't know. I really don't know if my answer would be the same or not. I am grateful for learning how to work really hard. When I was in public, you know, at E&Y, we worked sometimes seven days a week. Sometimes we worked till 10, 11 o'clock at night. And as horrible as that might sound, it's good to have that experience at some point in your career. Because then you know, hey, if I get into a crunch and I have to turn it on, I can turn it on. You've proven to yourself that you can make it happen kind of no matter what, right? I agree with that, yeah. And not that you want to do that. I mean, like, we don't have that hard-working culture at Pogue Group Advisors. We're actually, you know, we take a good amount of days off. We don't really work on weekends and, you know, when we're off, we're off. But it's just good experience. I mean, I think starting this business might not have gotten off the ground had I not had that sort of ability to work hard. And what I will say is nice, too, is that it's an avenue to learn about business and entrepreneurship kind of by proxy, while yourself having job security and like a bit of like a financial kind of cover, which is great versus, you know, putting more money into a degree in entrepreneurship or a degree, which I think is a bit of an oxymoron, but anyways, or a degree, you know, doing an MBA or something like that and not having a plan for it. Here, it's like, well, you have this really concrete, kind of pretty solid fallback. Yeah. And you're gonna learn. I think the danger is in accounting, you can lose the bigger picture if you're not careful because it's such a detailed profession. So what I'm grateful for, too, is I understand how cash works in a company. I'm amazed at entrepreneurs that I know that don't have any accounting background is just how much challenge like a lot of entrepreneurs have with cash flow. And to me, you know, you kind of think through projections differently than someone who hasn't been involved with numbers a lot. You know, there is a very strong financial, that very strong financial background can serve you well as a business owner. Yeah. Yeah, absolutely. So you've been kind of in the accounting, you know, acquisition, brokerage game for a long time. This has become very top of mind the last, what, three-ish years or something like that with the kind of sudden move to private equity. But for you, having been in the industry for kind of, you know, since well before then, is there, you know, have there been cycles like this before or are we in kind of totally uncharted territory here? You know, it's interesting. Most people that are listening to this probably don't remember, but back in the 1990s or as I just heard it as referred to as the late 1900s, which it actually is, but it's kind of funny to hear about it that way. Anyway, there was American Express was doing a bunch of acquisitions back then and they were trying to do these big roll-ups. So I think roll-up strategies have happened, you know, have occurred in this industry in waves before. I've never seen anything quite like it is right now. I think it's a little bit of the Wild West, but it's not just in the accounting industry. It's in so many different spaces. It kind of gives me a little bit of like, I wonder what that's going to do to like just the small business culture, which has historically been the backbone of I think the business community. You know, there's that small business. Some people say it's the backbone of the country, but so I kind of wonder what that's going to do. But the reality is, is there's some really smart PE firms out there that are doing a great job rolling these firms up and they are accelerating some of the changes in the industry that probably need to happen. And accountants historically have been really slow to change and how now you've got this outside force that's coming in and really disrupting the industry. But I think we're in for a period of high disruption over the next three to five years. Yeah. Yeah. And I talk about that a lot where I'm like, I don't think it's entirely negative, like, you know, some private equity firms will for sure just kind of like squeeze the life out of everything and kind of bleed them dry. But I did a lot of kind of looking at private equity firms and job satisfaction. I actually did like a very in-depth kind of analysis of the data collected on Big Four Transparency. And it's like, yeah, you know, some of the lowest job satisfaction firms like, you know, are public or PE backed, like Citron Cooperman was really, really low. I think Cherry Beckert was very low. CBiz which is public, but was the lowest two years running. But then there are these kind of other standouts where it's like Aprio, for example, had higher job satisfaction than like the average firm, let alone private equity backed. I think Crow was doing pretty OK. You know, I think Baker Tilly is kind of in the middle of the pack. So it's not everyone where it's like not going well for the employees either. Again, time will tell where exactly that trends to, but it is like not all deals are created equal. I spoke to the people at Ascend and I really like what kind of some of their mentality and some of the stuff they're preaching to. So I mean, yeah, it's not all evil, right? Yeah, you definitely can't put them all in one bucket. There are multiple buckets that you can put them into. We have kind of our favorites that we've got a couple of PE firms that have bought multiple firms from us. But there are some, it really is the Wild West. Like some of these PE firms don't understand the industry very well. I think they're going to, I predict that there will be some very high profile failures in the industry. Yeah, no, I definitely agree on that front. And that kind of brings me, I wanted to ask you, like, who's your typical buyer? Like, is it overwhelmingly private equity or is there like a pretty good mix in there? Because I've had two people that I've been inclined to send your way and one's, you know, an accounting firm who's pivoted, you know, into being like, OK, we actually want to instead of investing in creating technology and selling it out, we want to instead acquire a bunch of firms and just grow that way. And just like an individual who is kind of looking to maybe wander out on their own from like a big firm. So like, that's who's coming to me and who I know. But like, I don't know what you're actually seeing from a bigger sample size. We're seeing a variety of different buyer types. We kind of put them in four, you know, four quadrants. And you have the individual buyer, like you mentioned, you have the PE firm buyers. And then there's also some larger firms, I mean, we've sold to KPMG. And then you've got just sort of other firms acquiring in order to scale. You know, some of the best, I guess, in my mind, the best deals we've seen are when firms acquire to achieve a certain amount of scale. One thing that's interesting about accounting practices is, or any business really, is like scaling, scaling is really challenging at certain points. Like, you know, it comes in spurts, you get to a certain level and you feel stuck. And then you have to kind of break through that stuck place and get to the next level. And yeah, there's some really real points where, you know, I see it common for firms to get stuck. A lot of times firms get stuck between eight and 10 employees. Going from eight to 10 to say 20 to 25 employees is a really tough road. And so an acquisition can often expedite that and, you know, transform the firm pretty quickly. Yeah, I hear people talk about that a lot of like kind of the no man's land of sizing of like, okay, like you're going to run into this kind of set of issues here and this set of issues at that next kind of roadblock level. Which kind of like makes me want to ask, what's the buy versus build decision like? Like I don't know if you're privy to some of those conversations, but like all of these firms who are putting forward this capital are obviously going through the thought process of like, okay, should I put up the money to acquire or should we instead kind of put a fraction of that into kind of marketing budget, kind of grow, try to grow organically into that? Like, what does that discussion usually look like? Well, I think it has a lot to do with the skill set of whoever's running those firms, right? It takes two skill sets to grow. It takes, you got to be sales and marketing focused enough to grow your revenue base, right? You need to have someone on the team that's operationally strong so that you can support and keep the quality as you grow. And I think that's what's challenging is you've got these two big areas that you have to kind of be good at both in order to scale. Scaling is difficult. Scaling is not impossible. Obviously scale quite well, but I feel like you've got to have those two things covered and you either, you know, I think it's rare for one single owner or one managing partner to have both of those skill sets. They're usually one or the other. So you've either got to have a partner that can fill that need or you hire someone that can fill that need. But yeah, that's tricky. It's just tricky. So acquisitions can make sense for a variety of different reasons. It could be to kind of rapidly get through those ceilings and acquire the talent. Maybe you acquire the missing pieces as you go along. But if you've got internally someone that knows how to grow a firm revenue and someone who knows how to keep up with that growth and maintain the quality of the operations, then maybe it makes sense to just grow organically. And then like on the sell side, what's the kind of mentality and point in time at which people are usually kind of getting involved with you? Because there's the obvious scenario of someone just turned 60, they don't have like a real succession plan going on and they go, all right, I think it's time to kind of call it in. But I know that there's a lot of other sellers who are not that kind of archetype. And so what's their usual like kind of point in time where they decide that, okay, I'm going to go work with a brokerage to sell? Yeah, I mean, we invite those conversations as early as people want to have them. It's funny because Accounting Practice Academy was born from someone who was really wanting to plan ahead. And it wasn't, we did not build Academy just to get a firm ready for exit. But I got a call one day from actually from a couple of partners in the Toronto area. And they called and they said, yeah, we want to sell our firm. I said, okay, what's your timeframe? They said, 10 years. I was like, oh, wow, you guys are really planning ahead. I said, I've actually been thinking about this, creating this workshop. Maybe you'd like to be my guinea pig client. And so, because I'd already kind of had the plans and we kind of needed a test version of it. And they went through that program. We kind of sprinted out over a full year. But I'd say the most people when they were thinking about selling, yeah, it's not uncommon for three years, five years for them to reach out to us and have a conversation. That's the more common timeframe. But we do have those people that call and say, I'm ready to go. Get me out. Yeah. Yeah. I've spoken to some people kind of in the industry who work in that area as well. And the advice is really, yeah, go in ahead of time, at least a year or two, because these little things might make the difference between your life's work selling at one X revenue or your life's work selling at one and a half times revenue. Which when you think of the marginal one or two years of cleanup you're putting in versus the 30 years you may have put in to get to this point, that could be a whole lot of difference for you. Yeah. And that's why I say, you should always be thinking about that exit. There's nothing better than the perspective of getting ready for an exit to get your practice in top shape. And maybe you want to keep that practice for another 20 years, but make it attractive to the market and it'll be attractive to you. Yeah. What are a few of the key changes people are typically making when you talk about getting it into top shape? Well, I think the number one thing that we see is people are just overworked. They're overwhelmed and it feels chaotic and often they are kind of, you know... chain to the treadmill, and the treadmill seems to keep speeding up. And, you know, it's the result of just a practice growing through organically and growing naturally. And every once in a while, an owner needs to step back and really assess their strategy and think about pruning to kind of free up capacity. So the first thing we usually have to do for a client is to realize, like, hey, you really need capacity. And then you can implement some of the stuff that will actually make your firm more profitable and more enjoyable. And that's counterintuitive to most people who are like, you mean I need to cut things? I need to eliminate things? And it varies, but I mean, it might be an elimination of really low paying clients. It might be a elimination of entire segments of the business. You know, I find that often accounting is one of those things where it's very easy to spread yourself too thinly in too many different areas of focus. And so you get these firms that are sort of the jack of all trades, but the master of none. It's easy to have, you see how it happens, like if a client says, hey, I need this done. Or maybe it's a valuation or maybe it's a, you know, maybe it'd be great if you did wealth management or whatever, whatever it is. And you know, it's easy to kind of have multiple segments. If you step back and you like do some analysis on those segments, you realize like, oh, this is taking up a lot of time. And if I killed off this segment and just focused it all on this segment, you know, I'd be way better off. And so, yeah, I think that's, I don't know if I answered your question very succinctly. No, it's good. Yeah. It's a variety of different cases, I guess is my point. Yeah. And at the time of that sale where they're kind of looking to list, like, are you usually involved in like setting the price or helping them set the price and or like what the valuation is or do they often kind of have a number in mind and how often is that correct? We do help with that and they do usually have a number in mind. And I'd say, you know, it's usually, you know, there are outliers there, but most people are in the ballpark. You know, we do have occasions where people want way too much for the firm and, you know, that's a challenge. And then you have people on the other end of the spectrum who don't realize that they have something more valuable than they actually think it is. And like in terms of valuations and whatnot, like we're often kind of seeing things pushing up into the like one and a half X revenues ish is kind of what I'm hearing a lot of, whereas not that long ago it was maybe more closer to the kind of one X revenue point. Is this kind of valuation that we're at unusual in your experience or was the one X maybe a little bit suppressed or both? I think the valuations over the last few years have definitely been kind of pushing upward. We saw it first with cloud firms. We've probably sold more virtual firms than anyone and we really just saw the demand. And so we kept pushing the prices up and sometimes the banks haven't caught up with those valuations. So, you know, it's not uncommon for us to have buyers willing to pay a certain price and then it's hard for them to get the financing that they need to make the acquisition. You also have to bring in the discussion of terms when you're talking about price. Like people say, oh, I got one and a half. Well, really, did you get one and a half? Was it heavily weighted towards an earn out component and what are you actually going to receive for the practice when it's all said and done? I think that's one of the things that PE firms, private equity is notorious for is they, you know, oh yeah, I can give you this high multiple or this high price, but then you read the fine print on how you actually receive that money and the odds of you receiving all that money are not as good as maybe you had hoped when you first got the offer kind of thing. Yeah. So, you know, finance, contingent fees, this, that, right? Yeah. And the contingencies are maybe not really fair to the seller. You know, maybe there's high growth rates in there. And so, you've really got to read the fine print to talk about valuations. I'm always hesitant to talk about just multiples when you're not talking about terms. Our firm, you know, we feel like the appropriate place for risk, generally speaking, this is very generally speaking, but it should be on the buyer. The buyer should be at risk for the purchase because they're in charge of the service and all the decisions of the business after the sale. And when you look at most sales of most businesses, the mentality around terms is, you know, you pay a cash price and you move on. So, you know, a multiple at all cash is very different than a multiple with contingent pricing. Yeah. Yeah. Yeah. That makes a lot of sense. There's like a saying that I'd heard somewhere of like, yeah, you pick the price, I'll pick the terms or whatever. Right. Yeah. Something to be careful of for sure, rather than kind of chasing the headline news pricing. It's like, right. Okay. What does this actually look like? Yeah. I used to work at the acquiring firm for three years after and all of that. Okay. Well, really interesting stuff. I want to touch a little bit more on Accounting Practice Academy. What are kind of like some of the, you know, the key teachings kind of in that? So it's like, it's an eight week course is my understanding. Like how intensive is that? And what are kind of some of the main objectives that it touches? Sure. So we just have been working on documenting kind of the journey that people will go through with Academy. And we've broken it down into like five steps, if you will. And the first step is just understanding what you've got, right? Analyzing your existing business. And I would say Accounting Practice Academy is very much about mindsets and, you know, there's a goal setting module in there. So once you kind of analyze what you have, and then you determine what it is that you're after, what do you really want? Because, you know, for your life, you want the business to do things for you, right? It's not what can I do for my business? What can my business do for me? Sort of mentality. And then once that's determined, then there's a gap, right? And then you start looking at, okay, staffing model, pricing model, marketing and communications. What Academy is not is like, it's not about growing top line, like bringing on new clients. As I said, most of our clients have to prune. And so what they find is if they make qualitative improvements, make better service, better service for your better clients, the business takes off. So it's not about getting more clients, although some people can get the information they need to build a bigger practice. The other thing that's kind of key is we like to say time off is the catalyst. So if you want capacity, you have to just start creating capacity. And sometimes like, I think vacations, especially longer than a week can be a real catalyst for improvement in your firm. Because detachment from the business is important. And you don't know what kind of team you've got until you let them be and let them work. And so a vacation can very much be a catalyst. Time off can be a catalyst to making some real improvements in your practice. And then pricing obviously is a big lever. A lot of accountants don't price their service as well. So we have this very kind of test, test, test, test mentality around pricing. So we don't recommend massive price increases all at once, but the truth is every practice is different. And so what we created was a workshop that allows you to create your own strategic plan based on your wants and based on your current practice. So it's not a one-size-fits-all sort of program. Yeah, and the vacation thing, I've heard a lot of that vacation thing being like a super important thing. Like, you know, Scotty Scorano, who I'm kind of buddies with now, he, you know, a big thing for him figuring out his firm was like he'd gone to Mexico and I think it was like in the early days of COVID and ended up staying there for like a long time and realized he was kind of getting almost in the way of some of his firm and that things were just kind of running better. And then, you know, on the tail end of that, he took a huge step back and kind of has really been enjoying it a lot more. And the firm's been doing, you know, been doing well kind of without involvement in every little bit. So that's interesting. And as far as taking your medicine goes, you know, having to take a three-week vacation, while I'm sure many of us don't actually want to do that because you're so all in, you know, it's like, it's an okay medicine to take, right? Like it's probably a lot of personal growth in there too. Exactly. I mean, it takes a while, you know, when you're on vacation like that and truly unplugged, you know, not just working somewhere remotely in a resort, like that's not a vacation. But like, if you're working, if you're not working rather, it takes about three days to, I don't know, to get your mind to wind down and where you're not just like habitually checking email on your phone or whatever. Yeah. Oh yeah. For sure. Yeah. Yeah. Well, thanks a ton for coming on, Brandon. I really appreciate you kind of sharing all of this. I'm going to stay tuned on what you're up to. I find that sort of side of the accounting world incredibly fascinating and I'll make sure I kind of link all your socials and what you've got going on for listeners who want to check you out. Thank you, Dom. Really appreciate you having me on.