Accounting Show LA 2019 - Interview Pack

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Creation Date December 28th, 2019
Updated Date Updated May 7th, 2020
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All the interview episodes of the Cloud Accounting Podcast recorded LIVE at Accounting Show LA 2019 #AccountingShow
  1. SponsorAccounting & Finance Show LA: Episode Notes  01:17 – The Cloud Accounting Podcast is gonna smoke Marijuana Daily in the iTunes charts, after this episode!  01:44 – A blunt history – how Bruce and Tom got started in the cannabis-accounting realm  02:50 – Bruce speaks to some of the challenges cannabis businesses face, when it comes to accounting  03:37 – The tables have turned when it comes to the types of clients served in a cannabis accounting firm  04:28 – How can accountants use cloud technology to help cannabis clients?   04:46 – Come hail or high water, Tom prefers hosted (cloud) solutions, such as QuickBooks Online and QuickBooks Enterprise  to keep client data safe.   06:00 – One way to store your cannabis currency – PotCoin? | Vox    06:16 – Bruce explains some of the many layers involved with reporting for cannabis clients.    08:26 – Since every move you make, as a cannabis business, needs to be tracked, the most efficient way to do so is with specialized seed-to-sale or track-and-trace software  09:18 – How to get your Metrc on … | SoftwareConnect  11:10 – Is there a QuickBooks Cannabis Edition out there?    11:16 – A few of the front runners in the seed-to-sale software space:  Proteus 420, BioTrackTHC, and LeafLogix  12:38 – There are separate licensing requirements for each phase of the cannabis industry, from cultivation to distribution  13:19 – Cannabis taxation - harshing your accounting and bookkeeping mellow, from the municipal to the state level.   14:46 – The full operation - seed to sale - has the most tax benefit for local agencies in California.   15:33 – If you want to set up shop in L.A, the city's Department of Cannabis Regulation Pre-app instructions and zoning tool will give you some direction  16:02 – One retail roadblock could get in the way - LA DCR only has another 150 retail licenses to offer, all with a preference toward social equity ...   16:27 – Another huge downside in the LA cannabis market is fierce and seemingly unfettered, or at least unlicensed,  competition   17:07 – Is California's black-market cannabis winning the race?   17:32 – California takes a nearly 50-percent cut for assorted cannabis-related taxes, hanging cannabis businesses out to dry   19:10 – The CDTFA is more than happy to guide you through all the ways they'll take a hit off your revenues as a cannabis business owner    19:43 – Bruce breaks down the taxation and reporting process - from distribution to retail  21:06 – There's zero method to California's cannabis tax reporting madness, and no official guidance, either  22:22 – Cannabis users take note! If you're using for medicinal purposes, be sure to bring proof when you visit a retail cannabis store   25:23 – Accountants, do your cannabis clients a favor - learn, understand, and offer the tax piece, too! | Cannabis Industry Journal  26:14  -- Get some help - with the constant changes in the cannabis industry, with laws, regulations, taxes, and requirements, you need qualified, competent support for your cannabis accounting  28:32 – Cannabis accounting and bookkeeping skills are probably not as portable as other types.    30:14 – Who needs Starbucks, when there are pot brownies to be had? Connect with Our GuestsBruce Andersen, CPA: Websites - and  LinkedIn - Thomas Andersen: Twitter - @TheOfficialTomA LinkedIn - Get in TouchThanks for listening and for the great reviews! We appreciate you! Follow and tweet @BlakeTOliver and @DavidLeary. Find us on Facebook and, if you like what you hear, please do us a favor and write a review on iTunes, or Podchaser. Interested in sponsoring the Cloud Accounting Podcast? For details, read the prospectus. Subscribe Apple Podcasts: Spotify: Google Play: Stitcher: Overcast: TranscriptBruce Andersen: Now, what happens is, once a quarter, now you have cannabis tax reporting. What's interesting is you think you're done because you have the two pieces - you have a cultivation side and you have a retail side. Oh, but there's more. What happens is that, when you do the reporting, they also wanna know how much is for medical use and how much is for adult use. You think to yourself, "How in the world do I get that information?" Because [00:00:30] the cultivator has no clue, when he sells that product, okay? Blake Oliver: Welcome to the Cloud Accounting Podcast. I'm Blake Oliver. David Leary: I'm David Leary. Tom Andersen: I am Tom Andersen. Bruce Andersen: I'm Bruce Andersen. Blake Oliver: We are live at the Accounting & Finance Show Los Angeles at the L.A. Convention Center. David Leary: When in L.A., or when in California, what better topic other than cannabis to speak about? Blake Oliver: Yeah. Thanks, Bruce; Thanks, Thomas, for joining us. This is my very [00:01:00] first cannabis experience in terms of podcasting. I know nothing- like almost nothing about it, from the CPA perspective, from the accounting world. So, I'm eager to hear from you everything I need to know in the next 30 minutes. David Leary: The only thing I know is-  Blake Oliver: No pressure ...  David Leary: -on the iTunes top podcast charts for business news is us and Marijuana Daily keep exchanging who's the best - 40, 41, 42 - they're right there, neck and neck. So, hopefully with this episode, we'll pass [00:01:30] Marijuana Daily in the iTunes charts. Blake Oliver: Yeah, maybe we could do a crossover episode at some point. This'll get their attention. David Leary: Yeah, that's possible.  Blake Oliver: So, Bruce, why does it, here on your business card, say What was the deal with going all in on cannabis? Bruce Andersen: The situation that presented itself was that Tom had been involved in the cannabis space since 2005, 2006, 2007. The laws changed in 2017, so in 2018, [00:02:00] he came to me and said, "Are you in?" We then started thinking about the positioning of the business. If you notice, our business cards actually have two sides to them- Blake Oliver: Oh, okay ...  Bruce Andersen: We have one, which is a traditional card, and then we have specialized with a practice area specifically for cannabis. That way, it identifies that we're basically in it from a standpoint of specializing in and providing services in that area. David Leary: Niche ...   Blake Oliver: Niche. Yeah, and David, of course, has been telling [00:02:30] people for years that if you wanna be successful as an accountant these days, you really need to find a ... Well, I like to say "nitch" ... But we can agree to disagree on that.  Bruce Andersen: Niche. Boutique, maybe.  Blake Oliver: Yeah, boutique. What are the biggest challenges that cannabis businesses face, and how are you helping them solve those challenges? Bruce Andersen: I think the interesting part about it is that this is a new industry for legalized cannabis. Therefore, there's a lot of really good operators [00:03:00] that have been in the business for years, and years, and years. Yet, them to be now faced with taxation is a huge, big thing. You also have those that have come in from just the investment standpoint or other industries, and they're coming in and saying, "Wow, this is a really cool thing. I'm gonna make my gazillion dollars at it," and it's a situation where, if they're not schooled well and managed properly, they're gonna really fall on their face. The biggest thing is - and I'll leave this to Tom - really the [00:03:30] local municipal tax is such a huge thing, and the licensing. If you don't have local licensing, you're not in business. Tom Andersen: Also, I would like to add that in 2005, '06, '07, 90 percent of the people I was dealing with were street gangsters, mafioso types, organized crime syndicate types. If you fast forward to current time, there's maybe five percent of those types of folks in the business; the other 95 percent are advanced-degree holders - chemists, [00:04:00] PhD holders, MBA holders - folks that have been given higher education, so they really know what they're doing. They're not just winging it. They're the ones that have the business acumen to acquire those licenses, where some of these street guys just don't know how to do it. Blake Oliver: This is a podcast about cloud accounting ... How do you do cloud- How do you do technology [00:04:30] in an environment where I understand banking is very difficult to come by, and it's still very cash-based, or is that different? Tom Andersen: Well, that's two questions, if I understand it. One is how do we do the accounting-  Blake Oliver: Yeah, how do I do the accounting? Tom Andersen: -and the second half is what do we do with money now that we've accounted it? The first part is simply ... I prefer hosted. I don't prefer having servers onsite. Fire, flood, theft; great, whatever, but, for example, with QuickBooks Online, or a hosted [00:05:00] QuickBooks Enterprise are my two preferred go-tos, provided the client goes along. As far as what happens with the cash, now there are third-party ... What was the specific term, again?  Bruce Andersen: Non-bank financial institutions. Tom Andersen: Thank you. Nonbank-financial institutions. It's like PayPal-esque type operations with little quirks for each one. Effectively, [00:05:30] that way, you can convert your money into that currency, if you wanna use the term 'currency,' purchased from the vendor. Then, at that point, that vendor now has it has it in their account. They transfer it to their standard bank account. Blake Oliver: Sorry, are we talking about cryptocurrency in this situation, or are these just like Venmos, or what?  Tom Andersen: Mostly Venmos, but you mentioned crypto. I smile, because I think of Dennis Rodman flying to North Korea on all his [00:06:00] money he made from crypto, from PotCoin.  Blake Oliver: I must have missed that one- Tom Andersen: Yeah, he went and met with-  Blake Oliver: I didn't know that was crypto. Tom Andersen: Yeah, he funded that expedition on crypto. Blake Oliver: Wow. That's amazing. Bruce Andersen: I think if you go back to your issue about cloud accounting, it's a very important feature that you understand the layers associated with the cannabis space. So, with the permanent licensing that now is in place in some [00:06:30] of the clients within California and some of the license holders, now there is Metrc to report to, which basically has about 18 touches to it. It starts with cultivation and goes completely through to retail and includes waste. Therefore, it's 18 touches to report. So, anytime the product moves in the cannabis space, it has to report. The problem is, though, that if you're not a permanent license holder, then you don't have to report yet, but that'll change as we go [00:07:00] down the line. The second layer down, then, is what we call seed to sale, or cannabis software layer. The important feature there is that really is the operational piece of software that's involved. It just depends if you're micro, or if you have a particular vertical. If you're a dispensary, maybe you're a point of sale only; if you're cultivation through distribution, then you're gonna have those components that are part of your currency-to-sale software. The important thing is that operators [00:07:30] of literally any size need to have that seed-to-sale software, because there's gonna be ongoing auditing that will occur. If you don't have a nice seed to sale, then what's gonna happen is you're going to be defending yourself against records you don't have, because the state's gonna come in, and have reports, and you won't have the associated amounts. Blake Oliver: I wanna make sure I understand this. When you say 'seed the sale,' you're saying every time the product is ... It's like tracking [00:08:00] inventory through a manufacturing process?  Bruce Andersen: It's inventory control.  Blake Oliver: That sorta thing? Okay. I remember that from my cost accounting class. Every time we move inventory, we add to it, we have to track that. So, we're doing that with the cannabis products. Tom Andersen: Four points. If you create a product, modify product, move a product physically from one bin or location to another and then to store.  Blake Oliver: Got it. So, there's specialized software that has been developed for this industry? Tom Andersen: Yes. There are approximately 60 or 70 programs [00:08:30] called seed-to-sale, or track-and-trace programs. I went through quarter three last year, and literally called every single one of them up, surveyed them with a 119-question survey and a few open-ended questions just to see how they fielded them. Immediately off the bat, I knocked anybody off who did not have ... I'm gonna rephrase that. I removed from my list anybody who did not have an API connection. David Leary: I was thinking that myself, as you described this. If [00:09:00] a grower's using App A, and a seller's using App B, but you have to track that data moving across, then you have to have API, so I was thinking that-  Tom Andersen: The API is the best way to go. The reason I say that is that Metrc is notoriously slow. I'm attributing it to bandwidth-  David Leary: Can you define Metrc?  Tom Andersen: Metrc is a program produced by Franwell Incorporated. Franwell made their bones by tracking and tracking blueberries, and E. coli, and other agricultural [00:09:30] bacteria, so on, so forth. Franwell then also produced Metrc, which is- it's an acronym for marijuana enforcement tracking reporting compliance. Now, that is the government side of the software. . There are three layers of software. You've got, let's say, your QuickBooks or financial-accounting layer. Then, you've got your seed to sale, which some folks will refer to as manufacturing [00:10:00] program or whatever. That, in turn, reports to the state. Blake Oliver: The API will allow it to report ... Integrate- Tom Andersen: That's right. Blake Oliver: Oh ... wow.  Tom Andersen: Now, I've personally experienced a 10-hour latency putting in a single sheet of 50 transactions into Metrc before. So, the reason I mentioned that, that's the horror stories that you'll hear from other operators. Now, in this [00:10:30] instance, this was about a year, year-and-a-half ago, when some of these programs were still, I would say, in puberty; not quite fully grown up. At this juncture, however, I would not try doing any manual Metrc entries at all. I would just use API and let it go. Blake Oliver: You mentioned there's like 60 or 70 of these programs out there, but you've narrowed down the list because you eliminated anyone without an API. Tom Andersen: I didn't wanna put my name behind a recommendations [00:11:00] and have a potential multi-million dollar client fall on their face. Blake Oliver: Is it one app that has risen to the top for you guys that you recommend that you use? David Leary: Is there a QuickBooks of the cannabis world? Blake Oliver: Yes, or is it a handful, or ... What's it look like? Tom Andersen: Good call. It depends on the vertical. If you're looking at a full microbusiness, meaning cultivation all the way through sales, then there are, I would say, three or four that I would point out. One would be BioTrackTHC. One would be Proteus [00:11:30] 420. Another one will be LeafLogix. Then, if you're talking-  David Leary: Those would be for growers that they grow, and they sell their own product [cross talk]  Tom Andersen: This actually would go through all three stages of agricultural accounting, manufacturing accounting, and then sales accounting. It would track and trace the seed, to the yield, to the conversions; if it's made into an extract, that tracking, as well. Everything has a UID, or a unique [00:12:00] identifier, which is a 26- or 28-digit identifier. Therefore, everything gets traced all the way to the point of sale to the consumer. Blake Oliver: Those apps will do it all?  Tom Andersen: Those apps will do it all, yes.  Blake Oliver: You were gonna continue with a different ... There's more than one type, right, or [cross talk] one vertical? Tom Andersen: -my focus has always been, until the last two years, in distribution and retail. I've always looked those programs. However, now, the [00:12:30] shift seems to be going towards the whole microbusiness model, where they have three or four licenses, from cultivation through distribution. Blake Oliver: Oh, and those are separate licenses that you have to have ... Okay.  Tom Andersen: They are all separate licenses. Yes, sir. Blake Oliver: Wow. Do you help your clients apply for those licenses and get those licenses? Is that part of what you do?  Tom Andersen: In the past? Yes. But in more common times, I've been advised that it's probably best to have an attorney do that. Simply so, it's not like your practicing [to have a] license. Blake Oliver: Right. Got it.  David Leary: Bruce, if [00:13:00] you could speak to this, obviously, because dot-tax is your domain name now, the reason all these states are legalizing cannabis is the taxes. They wanna collect taxes. Bruce Andersen: Yes.  David Leary: Is that a simple ... How is this taxed? How are they gonna collect the taxes? How does this all break down? Bruce Andersen: It's an interesting area, because, first of all, you start with municipal taxes, and you have to have a municipal license before you can move upstream to get your state license. At [00:13:30] the state level- sorry, at the local level, you're gonna have different prices, or costs associated with each of the licenses, based upon the prevailing local area that you're in. For example, in Long Beach, if you're cultivator, it's done by square foot. If you're in Los Angeles, then it's based upon a percentage of the overall sales associated with that [00:14:00] particular area. The other interesting thing about local taxes is that if you have a micro, then you're taxed at the last touch point of that business entity. For example, if you only are cultivating, and you invoice there, then you're gonna have a cultivation tax. If you have cultivation to distribution, then the cultivation has nothing, and distribution gets taxed. If you go right through to retail, then you escape all taxes until you get to [00:14:30] retail, and then you get popped with taxes at the retail level. Blake Oliver: If I do the whole thing, soup to nuts, or- Bruce Andersen: Seed to sale?  Blake Oliver: Seed to sale ...  Bruce Andersen: Good one.  Blake Oliver: If I do the whole thing, seed the sale, then is there a tax benefit to doing that, or is it [cross talk]  Bruce Andersen: It's a tax benefit to the local agency because a local agency is gonna be taxed either five or 10 percent at the retail level, or it's one or two percent at the earlier levels. Blake Oliver: So, I live in the San Fernando Valley, and I understand that [00:15:00] we have a lot of empty warehouse space in the Valley, and that's part of the reason why we have lower taxes on cultivation. Is that correct? Have I heard right? I'm just curious ...  Tom Andersen: I guess that might be by default, not by design. However, that being said, the issue is not necessarily that the empty warehouse space is as a result of this industry. It could be simply zoning. Zoning is a huge issue. [00:15:30] There are certain areas in ... I shoulda brought a map for you. There's a map - L.A. City DCR - Department of Cannabis Regulations - has put out that would show areas that have bubbles, which are basically like here's a school, here's a church; can't have a dispensary nearby, versus, for example, industrial parks, where you might have a cluster. Then, there's the other rule, which is they have to be 650 feet apart, I believe? It fluctuated- [00:16:00] Blake Oliver: Each one has to be 650 feet apart from the other-  Tom Andersen: That's right, so there's no oversaturation. There are two other parts I wanna mention. One is that the L.A. City DCR only wants to issue another 150 retail licenses, and those are all going to have preference toward social equity. That's gonna take a little while because city council's dragged it out til November. So, right now, it's almost a freeze on retail.  Then, in closing on that, you have [00:16:30] a drive- a shift of folks who wanna stay in the industry, but they can't make any money on retail. Too many competitors, and too many, as I call, black ops or fly-by-night ops, which are basically unlicensed shops that look licensed, but they're not. Those are the guys that are undercutting because they're not paying any taxes. It creates quite a conundrum and quite a lot of confusion. Blake Oliver: Do you have an [00:17:00] idea as to how much of the business is legitimate versus black market? Tom Andersen: The statistics I continue to hear, it's 88- to 90-percent black market. Blake Oliver: Really? David Leary: Wow!  Blake Oliver: That's because of the ... Well, it sounds like there's a lot of complexity in the [cross talk] and the expense-  Tom Andersen: I call it the Italy model. See, in Italy, they have some of the highest tax rates in the world, but they also have the highest black-market activity in the world.  Blake Oliver: Right.  Tom Andersen: If you look at that model, and you find other countries with high tax [00:17:30] rates, it's the same. So, now here we have California, which is almost its own country at this point, and they're talking about what was it? 49 or 47 ... 49-percent total, after you've paid corporate tax, sales tax, excise tax, local tax, everything ... Half your money is gone. Some operators who are not as savvy are getting washed out of the industry; others are holding on, but ... I hope that gives [00:18:00] you a little perspective. Blake Oliver: Being a Californian, it doesn't surprise me that we would legalize an industry, but then make the cost of compliance so high as to drive the legal operators out of business. That's essentially what seems to be happening here, right? Tom Andersen: Yes. There was a motion in the assembly, in the lower house, in the assembly ... Five assemblymen, two from L.A., had actually proposed that we drop the excise tax from 15 to 11 percent. [00:18:30] I thought that was great; a wonderful way to stimulate the legal economy, but that got shut down. So, we'll see what's the next piece of legislation that comes through. David Leary: The legislation is the local cities, right? Municipalities-  Bruce Andersen: Local.  David Leary: Then you've got the counties, and then you've got the states.  Bruce Andersen: Counties are not involved in the process. David Leary: Counties are no, okay.  Bruce Andersen: At the state [00:19:00] level, then, you have an interesting series of splits, where there's actually three different taxes paid at the state level. All are through CDTFA, which is the old Board of Equalization group, which now has a fancier title, which then is split into two pieces. One is a traditional sales tax you pay on anything, and then, for the other part, they call it cannabis tax. But then, because [00:19:30] of the misunderstanding about how that's defined, then they actually have two pieces of excise tax. One is on the cultivation side, and one is on the distribution side. What happens is cultivation has three splits to it, and it's paid by the ounce of product. Just think about that - by the ounce of the products that are being put into the market. That's on the cultivation side, and that [00:20:00] is when products are being sold from cultivator to distributor. Who is the remitter of that tax is the distributor. What happens is when the cultivator's selling the product, he also has to pass along- he or she has to pass along the tax, because the cultivator can't remit the tax. He's not does not have a license just for that. That's on half of the state cannabis tax, as they call it. Now, what happens is the product is repackaged; [00:20:30] may go through manufacturing; other situations; then it goes from the distributor to a retailer. That's another excise tax. Now that tax is at 24 percent of the wholesale price or 15 percent of the retail price, which is a ratio that the state selects. Now, what happens is, once a once a quarter, now you have cannabis tax reporting. What's interesting is you think you're done, [00:21:00] because you have the two pieces. You have a cultivation side, and you have a retail side. Oh, but there's more. What happens is that when you do the reporting, they also want to know how much is for medical use and how much is for adult use. Now you think to yourself, "How in the world do I get that information?" Because the cultivator has no clue when he sells that product, okay?  Blake Oliver: That makes no sense. Bruce Andersen: It makes no [00:21:30] sense. Absolutely no sense at all. Then, when you go to even the last step, which is the distributor to the retailer, it's the same product. There's no packaging differential at all with that. So, basically what happens is you have this goofy component to the tax reporting, which basically makes no sense, and there's no guidance for that. Blake Oliver: How do you advise your clients on reporting that ...? [00:22:00] Bruce Andersen: You have to just be consistent in the way you do that. If you're a micro, then what I use sometimes as a guide is what was a ratio in which the retailer sold the product between medical and adult use? Then I just push it back through the system- Blake Oliver: You just push it back through the system. Bruce Andersen: Yeah.  Blake Oliver: Got it.  Bruce Andersen: There's no clarity on that at all. Tom Andersen: Also, one other thing to note is that when you walk into a retail establishment now - brick and mortar retail, not delivery - they [00:22:30] will generally just assume that you're rec, and you have to bring out your paperwork and show that you are medicinal, and you're registered with the state agency, so on and so forth. Blake Oliver: Oh, so the same retail establishment will sell both adult use and medically- Tom Andersen: Yes, that's correct.  Blake Oliver: Okay, I wasn't [cross talk]  Tom Andersen: -they pair the licenses. See, this all comes back to that whole slippery slope argument, but it's pairing licenses and eventually merging. Blake Oliver: So, you get a different price if it's medical versus adult? Tom Andersen: Five percent less tax. [00:23:00] Blake Oliver: Okay, got it. That's like my Costco card or something. Bruce Andersen: They don't sell yet.  Blake Oliver: Not yet.  Bruce Andersen: Yeah. We're waiting for the Walmart of Weed. That's all ...  David Leary: How does the average accountant, or bookkeeper that has a client come in that's in the cannabis industry, and they're gonna engage that client ... Is this something they should do? Should they punt them? Should they go find you? What's somebody supposed to do, because this sounds so overly-complicated, and it's changing. It's probably not [00:23:30] even the same environment it was 18 months ago. Tom Andersen: It wasn't.  Bruce Andersen: I have news feeds which basically show articles ... Like you guys are recapping the news ... If everybody doesn't know that, you guys recap the news once a week- Blake Oliver: Hopefully. Bruce Andersen: I have news feeds; Tom has news feeds which are basically stuff coming in every day. David Leary: It's the Marijuana Daily podcast ...  Bruce Andersen: New stuff every day. Tom Andersen: I'll give you an example. What I do is whatever jurisdiction my current active client is in, I'll go subscribe to [00:24:00] the city council feeds, get the minutes, find out when they're having their agendas, what they're discussing, who is voting on what. Call this stalker-ish, if you will, but I'll find out who the city council people are - their religion, their race, do they have a family, do they not? Are they conservative? Are they liberal? So on and so on and so forth ... And build profiles such that we can then lobby. Bruce Andersen: Back to your question about what does the new person entering the market as an accountant that wants to be in this space ... I [00:24:30] think they have to really contemplate how they want to proceed in the area. If you talk about just doing accounting work, bookkeeping work, it can be comfortable, and it can be maybe not overwhelming. At 4:00 today, we have a cannabis accounting session, and we talk about some of the uniqueness of the area. There does not appear to be a lot [00:25:00] of activity with regards to a book you can go to get this kind of information, at this stage. I think that the other part of it, which is absolutely critical, is I think that you're gonna do a disservice to your client, if you're looking at accounting without tax. If you don't understand the tax piece, that's such a significant component to booking entries in the accounting books. For example, excise tax to a retailer is a cost of goods sold deductible item, [00:25:30] where typically you think of all taxes and licenses as other administrative expenses, which in the cannabis space, 280E ends up being a situation where those tax and license activities would generally be non-deductible. Therefore, now you have a situation where that excise tax is not only deductible, but it also is a reduction from gross sales. Therefore, there's some very interesting adjustments that you have to make with your thinking about how you want to be able to [00:26:00] enter the market providing services to this space. Blake Oliver: If I'm a bookkeeper or an accountant who just provides accounting services and not tax, I should definitely pair up with a tax expert in this space, such as yourself. Bruce Andersen: It makes a lot of sense that way. The other thing that I encourage our clients, generally, to do is to have some bookkeeping support themselves- Tom Andersen: On-site. Bruce Andersen: On-site because there's just so ... This is an extremely dynamic industry. There's [00:26:30] so many things that are going on, day by day by day, whether it's creating manifests, which is a whole new term for accountants, which is actually a traveler that says product is moving. That's a whole new thing that should be done. There's things happening every day, and to outsource the bookkeeping well, it's hard to do in a cannabis environment, is my opinion. Tom Andersen: What I find that's best is that the on-site bookkeeper will have a [inaudible] desktop connection [00:27:00] to the program that they're working in, such that they can then do their duties, but with minimal risk of errors, omissions, so on and so forth. David Leary: How portable is skill set? What I mean by that is Illinois just passed legalization. Can you just fold up shop here and go open there, or do you have to start from scratch, because the laws - the way they're going to treat [00:27:30] it, and handle it, and track it - is gonna be so far from what California is doing?  Tom Andersen: The latter, not the former. It will be a lot more difficult to go into a new territory. I have a map of L.A. County, what areas we service and what areas we can't service. When I say, "Why can't we service them?" It's because there's already somebody firmly in place there, or people that are firmly in place there providing that service. To be a switcher and try to switch their services to ours would be near impossible. [00:28:00] However, the areas that we do target, they are areas where there are higher net income individuals and higher net income demographics, so those folks are willing to shop two, three, four, five accountants and then pick. Our number-one source is those folks will go to their attorney, and their attorney is their greatest advisor, who will then say, "Talk to these folks right here." More often than [00:28:30] not, we close those deals. Bruce Andersen: From the portability, state by state, I think it's a very difficult task because, as I've mentioned, the taxation is rooted at the local level. Also, the way in which micros are defined in California is different than the way micros are defined in other states and so forth. So, therefore, you have to have somebody that really is well entrenched for the local kinds of activities, from [00:29:00] a standpoint of a general setup of an accounting system, compliance with 280E, which is what's deductible/what's not. Those kinds of things are somewhat transportable from state to state, but again, to do a complete job, you really have to have a good understanding of whatever is going on locally. David Leary: That's interesting, because a lot of cloud accountants, one of the benefits is if I wanna only do bike shops, I can take bike shops all over the country, all over the world, and there's not a problem. But it sounds like this, it's very localized. [00:29:30] You can't build that same kind of business model. Tom Andersen: It was intentionally built that way, I believe, on the simple basis of keeping big pharma out for a good what's been now 20-some-odd years.  David Leary: Interesting. Tom Andersen: The reason being, if you follow from 1996, the Conditional Use Act, through 2003, it was patients. The way you "paid" was donations. 2003 came around [00:30:00] and opened up the doors for more retail storefronts. That's where you kind of saw that explosion. I don't know if you followed in the news, in 2007, there were more pot shops than Starbucks. Blake Oliver: Well, definitely on my street. I live on Ventura Boulevard in the San Fernando Valley. It used to be a Starbucks every block, and now it's a pot shop every block or two, yeah ... Tom Andersen: Interesting stuff. Blake Oliver: Well, Thomas [00:30:30] and Bruce, thank you so much for joining us today. It was really great to have you on the show. I learned a lot. I think David did, too.  David Leary: I had a really good time, absolutely.  Blake Oliver: If people want to reach out to you, and connect with you, and learn more about what you're up to, where's the best place for them to do that online? Tom Andersen: Well, I would say the best thing to do is to email me either at:, or Bruce. Bruce is at: [00:31:00] Bruce Andersen: Yeah, we'll be filling out through the social media areas, as well. Our website is up right now, so that's a good place to start. Blake Oliver: All right. Sounds great. David Leary: Perfect.  Blake Oliver: And as always, you can follow me on Twitter. I'm @BlakeTOliver. How about you, David? David Leary: I'm @DavidLeary. Blake Oliver: We'll see you again another time. Thanks. Thanks, everyone. Tom Andersen: Thank you, guys. Appreciate the opportunity.
  2. SponsorAccounting & Finance Show:  Show Notes 00:32 -- Greetings from sunny L.A. and the Accounting and Finance Show!   01:33 -- Podcasting - Blake's gift to the world!  01:49 -- Meet Shannon Hay, VP at Live Oak Bank  02:44 -- Meet Dr. Curtis Cochran,  President/CEO of Cochran Consulting  03:42 -- Why Cochran gives every new client a thorough exam   05:45 -- What are the key considerations for selling your accounting firm?   06:44 -- Are you worth less if you don't have your head, or your book of business in the cloud?   07:09 -- Shannon talks valuation and the many variables involved   09:27 -- Evaluating an accounting or bookkeeping firm's worth is an art, not a science  10:37 -- It's a numbers game. The gentlemen discuss multiples  11:55 -- Curtis argues that annual cash flow is a better determinant of value than gross revenue  13:26 -- Why sell? Shannon talks about the various reasons firm owners want out   15:59 -- One-stop shopping is not just for Amazon. Accounting and bookkeeping clients want more than just the basics  17:37 -- Want to start your own accounting firm? Odds are stacked in your favor, if you have the right combination of knowledge, tech, and exceptional customer service  18:25 -- Buyer's market or seller's market? Our guests have differing points of view  19:33 -- Shannon believes many boomer firm owners still haven't decided to take their leave yet  20:26 -- The young guns aren't buying up accounting  firms. A growing consensus of younger accountants thinks it's easier to just steal clients away  22:25 -- Don't wait til it's too late. Even if you didn't start your firm with the finish line in mind, now is the time to get that exit plan in place!   24:21 -- Buyers need to see the potential, not the past  27:01 -- If you are sans exit plan, you're not alone. A fair number of large and small companies don't have one either Connect with Our Panelists Dr. Curtis Cochran (President/CEO of Cochran Consulting): Shannon Hay (Vice President, Accounting and Tax at Live Oak Bank): Get in TouchThanks for listening and for the great reviews! We appreciate you! Follow and tweet @BlakeTOliver and @DavidLeary. Find us on Facebook and, if you like what you hear, please do us a favor and write a review on iTunes, or Podchaser. Interested in sponsoring the Cloud Accounting Podcast? For details, read the prospectus. Subscribe Apple Podcasts: Spotify: Google Play: Stitcher: Overcast: TranscriptShannon Hay: My personal opinion, we're in the midst of a shift right now. Currently, I would still say it's a seller's market. I do think that there's still a pent-up demand for people that want to acquire, and want to own, want to buy, want to merge up, but I do believe ... We jokingly refer to it as the silver tsunami. When is it coming? When's it going to occur? I still don't believe it's here yet. I still don't believe the boomers have made a decision to exit. The ones that don't have a plan, they're almost holding on rather than executing on a plan. Blake Oliver: Welcome [00:00:30] to The Cloud Accounting Podcast. I'm Blake Oliver. David Leary: I'm David Leary. Curtis Cochran: I'm Curtis Cochran. Shannon Hay: And I'm Shannon Hay. David Leary: Hey, thanks, guys! We're here ... This is the third or fourth interview we've done today. We are at the Accounting and Finance Show in Los Angeles. Blake Oliver: Accounting and Finance Show Los Angeles. David Leary: I went through all the speakers and panelists. A couple caught my eye; both of you gentlemen, have to do with selling your firm. You each did a talk regarding selling your firm. Then this morning it hit me, Blake has sold a firm, [00:01:00] so I'm like, "This'll be a great podcast!" Blake Oliver: Yeah. I knew nothing going into it. I probably should have talked to one of you guys. Shannon Hay: Maybe. Blake Oliver: Yeah. But maybe I'll think, "Oh, I was smart, and I did the right thing," or maybe I'll learn that I could have done better. Shannon Hay: So, Blake, were you 12 when you sold your accounting firm? Blake Oliver: I know. I know, right? [cross talk] I'm 35, and it was in 2015. Shannon Hay: Okay. Wow. So recent. Blake Oliver: Yeah. It was very ... It was quick. Curtis Cochran: Excellent. David Leary: And Blake retired. Shannon Hay: Yeah. Went back to school. Blake Oliver: Well, unfortunately, [00:01:30] I didn't make enough money to keep- to do that, but ... Shannon Hay: Retired to the world of podcasts. Blake Oliver: That's right. Yeah. This is my gift to the world- Shannon Hay: Excellent. Blake Oliver: -shall we say. My legacy. Shannon Hay: Yes. Curtis Cochran: Absolutely.  Blake Oliver: So, David ... David Leary: You want to do introductions. Shannon, you want to start with you? Shannon Hay: Sure. Wonderful. I'm Shannon Hay. I work for Live Oak Bank. We are actually the nation's largest SBA lender by volume. All I do, all day, every day, is finance the acquisition [00:02:00] of accounting and tax practices, bookkeeping, payroll, enrolled agents, CPAs. Working with a lot of centers of influence. The brokerage world, basically. I don't want to plug names, but there's a large network of brokers that specialize in selling, helping sell accounting firms, and that's really my source of primary business, but then, obviously, we come to trade shows and set up a booth and try to find acquisitions that we can get in the middle of. Blake Oliver: So, I want to buy [00:02:30] a firm- Shannon Hay: Yes. Blake Oliver: I come to you and I say, "Hey, help me finance this deal, so that I ..." because I don't have the capital myself to just buy them out, outright.  Shannon Hay: Correct. That's correct. Blake Oliver: I get the loan- Shannon Hay: Yep. Blake Oliver: -and you underwrite that whole thing. Shannon Hay: That's correct. Blake Oliver: Okay, got it. Cool. How about you, Curtis? Curtis Cochran: My name's Curtis Cochran. I own Cochran Consulting, and Mergers & Acquisitions, as well. I started back when I was eight, to be honest with you. Back when I was eight, I worked in the oil field with my dad back in Wyoming. I [00:03:00] was always curious as to what made businesses successful. Is it a mathematical formula? I majored in math when I was a kid; college; and through this process ... On the back of my card, you have that in front of you, it's called "The Four E's," whether you're entering, a first time buyer, or whether or not you eventually want to exit your business, we have a system. It's four E's - entering, enhancing, evaluating, and exiting your business. For the past [00:03:30] 30 years, I've been doing it, and loved every minute of it.  Blake Oliver: Got it. I want to sell my firm. I could come to you, and you could help me figure out- find a buyer, or ...? Curtis Cochran: The very first thing that we do is we would do an evaluation. We want to find out what it's worth. We do everything; look at the numbers; we look at your people - how many people you have; is there a correlation there? We [00:04:00] do the whole ball of wax. I call myself a primary business consultant, but, actually, I took it from the physicians, doing a physical. I do a physical, from front door to the back door, of the whole business, so that way we know exactly how much your business is really going to come to the market. David Leary: How soon should I be having that discussion? Should I be having that five years before I plan to sell my firm? Should I be having it six months before I plan to sell my firm? When should we have that?  Curtis Cochran: That's a great question. If you open [00:04:30] your business today, you have an exit strategy, today. You don't wait at all. You do it right now. You want to find out when you want a buyer to come in. When you're tired ... You do want to wait until the last minute and say, "Okay. I want to sell my business," because there are so many moving parts; there are so many variables in selling your business, as you know, and as you know. Shannon Hay: Mm-hmm.  Curtis Cochran: You have to be aware of all those things. Shannon Hay: I've always heard it stated, "Begin with [00:05:00] the ending in mind." Curtis Cochran: Absolutely. Absolutely. Perfect. Blake Oliver: Let's pretend that I am going to start my own firm, again. I do have the entrepreneurial bug in me. I fantasize about it every now and then, because I feel I've done it once, I could do it again, and do it the right way, and get more. David Leary: Do it better Blake Oliver: Do it better every time, right? Shannon Hay: Of course. Blake Oliver: Do you have a top one thing, or a few things that I can do to make [00:05:30] sure that I do get the most out of my firm when I sell; that I do find that buyer and get the top valuation? Curtis Cochran: When you sell, or when you start? There's a big difference between. Shannon Hay: Gap in between. Blake Oliver: You're telling me that I need to think about the exit from the beginning? Curtis Cochran: Correct. Correct. Blake Oliver: What do I need to be thinking about? Curtis Cochran: You have to be thinking about ... First of all, whatever you're gonna start with, if you think you need a 500K, triple that. You want 1.5 million. You have to find ... If you think 500K? Nah, you [00:06:00] triple that. Blake Oliver: Okay. Curtis Cochran: That's the first thing. The second thing is you have to build systems that keep you, the owner, away from the house- excuse me, away from the business, and into your house - your relationships, your family. You've even mentioned that on your talk up there about the family and so forth. That's the big one. The big one is to create the systems that will allow buyers to come in, and look, and say, "Hey, this guy has a system. We can buy him out, and the [00:06:30] system runs itself." That's what you do from the beginning. Blake Oliver: Got it. Curtis Cochran: From the beginning. Blake Oliver: I am not in my business. Curtis Cochran: Right. Blake Oliver: It will function without me. Curtis Cochran: Absolutely. Absolutely. Blake Oliver: Awesome.  David Leary: That makes sense. One thing we've had a discussion around - I think we've talked about it on the podcast before, and it's always hot on Twitter - is this concept of if you have just desktop clients; your clients are not in the cloud, people will pay you less for your firm. Is this true, or is [00:07:00] this something that we're just making up and arguing on Twitter? Do you guys actually see this in numbers of offers? Like, a client's less valuable, if they're still stuck in the desktop world, and they're not migrated to the cloud? Shannon Hay: I think there's so many variables that come into valuing a firm that ... That's always the number-one question everyone always asks: "What's the multiple? What's my firm worth?" It's such a complex answer. There's generalities. You could set a general number and say it's a certain number of times gross revenues, but really, it comes [00:07:30] down to appeal. If you're in Nowhere, Wyoming, your firm's not gonna be worth the same as if it was in downtown Los Angeles. If you don't have cloud-based accounting, your firm is gonna be worth less than a firm that does have cloud-based accounting. If you have a seasoned staff, that's gonna make your firm worth more. If you have systematic approaches, like if you're using modern technology, artificial intelligence, or bot-keeping, or things along those lines, that's gonna create more value, because it's separating ... The [00:08:00] practice starts to manage itself through those systematic ... Talking about getting away from that, getting to the house. That creates a greater value, obviously; a greater appeal, because, as a buyer, I want something to be as smooth as possible for me, so I don't have to implement those things. If they're already implemented, they're in place, that creates great value for me. Blake Oliver: I hear you saying that it does have an impact, but it's part of a overall assessment. That you couldn't really say ... Maybe [00:08:30] I could put this to you - it's a tough question to ask - let's say you have two firms, all things being equal, but one has modern technology. They've moved into the latest tech. The other one is still using 20-year-old tech. They're still on on-prem desktop systems that don't allow for remote access, that sorta thing. Can you tell me what the penalty is if I didn't move? Curtis Cochran: I can answer this. No [00:09:00] two firms are alike, period. Whether tech, or no tech, it's about culture. It's what you bring to the table. You might have somebody that's just tech-driven, and they're a poor culture. But then you have someone that's not, and they have an excellent culture. People wanna come and work for their firm. Two businesses are never alike, and when it comes to an evaluation, it's [00:09:30] an art; it's not a science.  As Shannon mentioned, there's just so many variables. There's moving parts to it. You might have 10 moving parts in one business and only six in another; doesn't make one more valuable than another. It just means that you have more moving parts. It's really fascinating, and that's why I've done this for 30 years. I'm sure Shannon's been there, too. There's just no way to create some kind of a science. I call [00:10:00] my own business E4 Math-losophy, because it's just a philosophy. There's math in there, but it's a philosophy.  Blake Oliver: Let's talk about the numbers, because I think a lot of firm owners- Shannon Hay: Care about the numbers. Blake Oliver: -care about, like, what is the multiple?  Shannon Hay: Sure. Yeah. What is the multiple? Blake Oliver: What's the multiple? Shannon Hay: What's the multiple; that's right.  David Leary: Not in this industry? Not the accountants. Blake Oliver: These days, what is the range of ... I understand that most firms are valued based on multiple of gross revenue-  [00:10:30] Shannon Hay: Typically, yes. That's correct. Blake Oliver: Typically, right? Which is how we did it for mine. Let's say I've got a $ 1 million firm, just for simplicity. What is the range of multiples that you're seeing? What's the lowest I might get, and what is the most I might get? Shannon Hay: Circumstantial, I would say that the lowest you would get ... What are the variables that's creating that low quality, that low offering, that low price? Usually, it's gonna be rural. Usually it's going to be where is the seller at? Are they selling because [00:11:00] they're ill? Are they retiring? Are they gonna be involved in the transition? What's their engagement, post-transaction? Again, I could go on, and on, and on with all the variables. If I'm gonna shoot a number out there, I'm gonna say anywhere from 0.8, 0.7 all the way up to 1.3.  Blake Oliver: That's a pretty big spread. Shannon Hay: It's a broad spread. For example, Nowhere, Wyoming, again, that probably is gonna be less than a one multiple; wherein, San Francisco, for example, you're probably gonna get a 1.3, 1.2 multiple, [00:11:30] just because the demand. I was gonna make the analogy of what is your home worth? Zillow's gonna tell you one thing; your realtor's gonna tell you another; and then, the appraisal is gonna come along, and they're gonna say a third thing. Really, what it comes down to, at the end of the day, is how much is someone willing to pay for it? Blake Oliver: That's interesting. It sounds the market for accounting firms  is still very local, right?  Curtis Cochran: I wanted to touch on what you were talking about, too, Blake. You have a gross revenue [00:12:00] of a million. Two companies - gross, $1 million - but what's their annual cash flow? That's a big [cross talk] Blake Oliver: The profitability. Curtis Cochran: Absolutely. Shannon Hay: That's gonna drive the multiple.  Curtis Cochran: One business might have a cash flow of 300K. Another one, 100. Well, there is a big difference between what you're doing inside the walls of that business, through your company, and your culture, and all of that stuff, so the annual cash flow is huge. Shannon Hay: At the end of [00:12:30] the day, that's gonna drive deal structure. Curtis Cochran: Absolutely. Shannon Hay: As a bank, I'm not gonna be willing to finance the 100K bottom line, because there's not enough left over, today, to service the debt that you're gonna take on to buy the business, as well as pay yourself as an owner. If you were buying a firm, I would want to know, as a bank, that I'm supporting you in a endeavor that's going to be beneficial to you. I don't wanna put you in a situation that's gonna be a hardship for you. I wanna know, at the end of the day, the net income is there to support the debt, [00:13:00] and then support you, personally, as an owner. Curtis Cochran: That is so good, because that's why you'd call us first, because then you know what buyers are looking for through the years. You're looking for net income. Shannon Hay: Yeah. Curtis Cochran: You're definitely looking for that. Blake Oliver: That makes sense. Curtis Cochran: Yeah, absolutely.  David Leary: Who's selling firms? Is it the majority is people that want to retire, or get out of their firm, or is it young startups, like Blake, who grew his firm and sold his firm? Shannon Hay: I would say the majority of the sellers I see, retirement is the primary reason. [00:13:30] A lot of times, though, you're also seeing where it's a change of lifestyle. They're wanting to go from no longer being the manager, or firm owner; maybe they're wanting to ... Maybe they've done some consulting in their practice, and they only wanna focus on consulting now. Or maybe they really like the audit side of their business, and they only wanna do audits, so they wanna sell everything else that's non-audit. It varies greatly, but I would say the majority are baby boomers looking to retire; making [00:14:00] their exit strategy. That's the majority of the sellers. David Leary: Who's buying these firms? Curtis Cochran: That's a great question, because I don't know if it's the millennials that are buying those firms. And I'm just saying [crosstalk]  Shannon Hay: No. I wouldn't argue that. Blake Oliver: We've got too much student debt- Shannon Hay: Yeah, that's true. Blake Oliver: -and then, we're trying to buy houses. Shannon Hay: That's right.  Curtis Cochran: Absolutely true. A lot of it is someone, another company, that's trying to grow their business. That's really who's buying these businesses. [00:14:30] Shannon Hay: Yeah. My best transaction is an existing firm growing through acquisition- Curtis Cochran: Absolutely. Shannon Hay: -because they have the wherewithal to offset any attrition risk that could happen. There's also a large efficiencies of scale that starts to occur, because, generally, you're not gonna have two rent payments; you're not gonna have two software payments. You're gonna have these ... You're gonna minimize; you're gonna take away a certain level of expenses, which increases the bottom-line benefit [cross talk]  Mergers, really, honestly, [00:15:00] tends to be the ideal transaction. Curtis Cochran: Absolutely. Blake Oliver: My most recent gig in public accounting was at Armanino, which is the fastest-growing accounting firm in the country. The way that it's growing is a lot through acquisition; rolling up 50-person firms into the 1,000-staff firm that it now is. It's probably even bigger than it was a few years ago, when I left. Shannon Hay: You've seen the same with alliances, too, like the BDO and the RSMs of the world. They're folding [00:15:30] those firms in and creating efficiencies that wouldn't exist otherwise and bringing benefit to their owners and partners that are involved. Blake Oliver: The big benefit that we saw at Armanino is the ability to sell additional services- Shannon Hay: That's right. Blake Oliver: -to a captive audience. Shannon Hay: That's right. Blake Oliver: You bring in a small firm that was only doing tax; not even doing audit, a lot of them, right?  Shannon Hay: Yeah. Blake Oliver: Now, suddenly, you've got consulting, technology, outsourced accounting- Shannon Hay: Investment advisory. Blake Oliver: -investment. We had a wealth management division. Now, the whole menu is there, and the clients are like- Shannon Hay: I [00:16:00] would say that the industry is starting to demand that, where you're having more of an Amazon mentality, where it's "I want to be able to one-stop shop everything,. Blake Oliver: One-stop shop, yeah.  Shannon Hay:  I don't wanna have to go to three different people for three different levels of service. I want-  David Leary: That's QuickBooks Live [cross talk] all at once. Shannon Hay: All at the once. That's right. Blake Oliver: Do you guys see the future being more mid-sized firms, and the smaller firms, or less small firms, given that trend, or do you think there'll still be ..." Do you see the mix changing [00:16:30] at all? Curtis Cochran: I don't see it here in America. I think that Land of the Freedom and capitalization ... People are starting up businesses left and right, still to this day. Shannon Hay: Yeah. Curtis Cochran: It's a little harder, maybe, but yet you have some angel investors out there, investment groups, that have lots of cash that are willing to put it back into America. You really do. Shannon Hay: I'm starting to see a lot of entrepreneurial-spirited [00:17:00] individuals that recognize consolidation as a method to wealth building. You have an individual that might have a small firm; say that it's only doing $200,000 a year, and they leverage that equity into another purchase of another book of business that's doing $200,000 a year, and they're duplicating that process over, and over, and over again; implementing systems, adding technology, managing staff accordingly. Then what started as a $200,000 practice is now a $2 million practice going to $4 million practice. Blake Oliver: And if you do it right- [00:17:30] Shannon Hay: That's right. Blake Oliver: -you can finance the whole thing out of the current cash flow. Shannon Hay: That's correct. Curtis Cochran: Yes. Yes. Yes.  Blake Oliver: That's the beautiful thing- Shannon Hay: Leveraged capital. Curtis Cochran: Leverage capital, yep. Blake Oliver: If you wanna start a business in this country, everyone is focusing on those 10X, 100X tech-startup exits. That's a one-in-a-100 kinda thing, but-  Curtis Cochran: Yeah. Shannon Hay: Unicorn. Isn't that the proper term [cross talk] Blake Oliver: Yeah. There's not a lot of outcomes. I'm in the tech world now, so I'm very aware of the probabilities of that, as is David. But an accounting [00:18:00] firm, man, it's almost like you have to try to screw it up. If you have a knack for customer service, and you know what you're doing above a certain baseline, there's so much demand for this. Curtis Cochran: Yes. Shannon Hay: Agreed. Then you couple that with adding additional services, as you're talking about, suddenly, you bring wealth management into an accounting firm, or you bring an audit, or a consulting side of that business. It's a game-changer. Blake Oliver: Would you say it is a seller's market or a buyer's market these days, if [00:18:30] I made you choose? Curtis Cochran: Get that ... If I had to choose one or the other? Blake Oliver: Yeah. Curtis Cochran: I'd say a buyer's market, if I had to say one. Shannon Hay: Really? Curtis Cochran: Only because you have some baby boomers ready to retire and get out of the market. That means that there will be a flood of businesses available, which might give you an opportunity for the market to drop a little bit [cross talk] for the sellers to actually get in. That's just my opinion-  Blake Oliver: Supply and demand, right? Curtis Cochran: -yeah, supply and demand. It's very simple. I [00:19:00] would say buyers, but, of course, just like economics, I've got another 50 percent that'd disagree with me. Blake Oliver: Well, and like you said, it's local, right? It depends on where you are in the country. Curtis Cochran: Absolutely. Shannon Hay: My personal opinion - we're in the midst of a shift right now. Currently, I would still say it's a seller's market. Not to argue or disagree [cross talk] but I do think that there's still a pent-up demand for people that wanna acquire, wanna own, wanna buy, wanna merge up. But I do believe ... We jokingly refer to it as the silver tsunami. When [00:19:30] is it coming? When's it going to occur? I still don't believe it's here yet. I still don't believe the boomers have made a decision to exit. The ones that don't have a plan, they're almost holding on rather than executing on a plan. Blake Oliver: Right. Curtis Cochran: Oh, that's so true. Blake Oliver: Well, that could just delay this for a long time, until we've run off a cliff, right? Because people aren't selling, because they're holding on, thinking "I can get more," but they're not-. Shannon Hay: They're not. Blake Oliver: Eventually, they're not. It's just like with a house. Eventually, if the market's, you can't wait [00:20:00] any longer. You gotta sell. You gotta move, right?  Shannon Hay: I would say the majority of why a lot of them held on was probably post-'08. Maybe they were gonna sell in '13, but they lost so much in '08 that they're not in a position where they're ready to go yet. So, now they're holding on, and it's '19. Curtis Cochran: Good point. Shannon Hay: It's time to make a decision. David Leary: I think those people that are stuck, if you wanna call it that, they're just kinda stuck ... I've talked to younger accountants who think it's cheaper for them to just market at their clients and steal their clients without buying the firm. Blake Oliver: Yeah, we actually have talked with a number of folks, like myself, who are millennials, [00:20:30] who started their own firms ... They've never acquired anyone. They're not at that point, but they've gotten big. I said, "Hey, would you think about acquiring some firms from some retiring CPAs and just integrating that book of business into your practice?" The answer that they give me is, "Hell, no! I'd rather just steal their clients ..." [cross talk]  David Leary: -just steal their A clients. Just handpick them. Shannon Hay: Look at search engine optimization, technology; but then, [00:21:00] you've got on top of that, now let's couple it with Facebook marketing, LinkedIn, Instagram - all the technology bases that are ... It's basically, in a sense, free advertising, if you just hit them in a place where they're not being hit. I'm surprised, still, at the number of selling firms that have weak website presence, or even weak web presence to begin with like [crosstalk] Blake Oliver: -or no website at all. There's a stat - I can't remember the number, but there's a shocking number of firms ... Actually, just a shocking number of businesses, in general, in this country- Shannon Hay: That don't have websites. Blake Oliver: -that don't even have a website, and [00:21:30] that- Curtis Cochran: Baby boomers. Blake Oliver: -Yelp is their website. Shannon Hay: Yeah. Blake Oliver: It would be interesting to see a demographic survey of that [crosstalk]  Shannon Hay: What the age group is of those that don't and those that do. Blake Oliver: I feel we do a lot of baby-boomer bashing, and millennial bashing, but I think a lot of this is not as stark as it seems. Shannon Hay: It's so good to be Gen X. I don't have to ... I just fall right in the middle of all [crosstalk]  Blake Oliver: We just ignore you. We're like, "Who is this guy?" Shannon Hay: Gen What?  David Leary: What do I do if I have not been thinking about this for 30 years in [00:22:00] my career? I'm now at some crossover. I'm thinking of retiring soon. Maybe my firm ... I'm only getting $100,000 of revenue [cross talk] cash flow-   Blake Oliver: Yeah. Curtis, we didn't- I didn't come to you at the beginning. I come into you closer to the end. David Leary: Yeah. What do I do? What's my emergency plan? Is there like a, "Hey, do these three things, and you might be able to turn a corner ..."? Curtis Cochran: I get that all the time. All the time. By then, it's almost too late, because [00:22:30] your market share's dropped. Revenue might have dropped. But the biggest thing is - that I talk to anybody that wants to exit - the psychology of it. Because, they've opened up this business. They've been working 30-40 years. "What am I gonna do?" They'll say, "Yeah. I'm gonna retire on the beach ..." No, because you've been growing this thing for 30-40 years, but when it starts to dip a little bit, you [00:23:00] have to get out. They just don't know when to get out, if they don't have an exit strategy. If they haven't talked to me, or Shannon, or anybody that specializes in this kinda thing, they have to think psychologically to exit. If they haven't spoken with Shannon, or myself, or somebody that's in exit planning, they need to immediately. Shannon Hay: I would echo that. If [00:23:30] you don't have a plan now, seek the advice of a professional. There are a number of wonderful professionals out there that this is all they do, all day, every day. I would encourage you ... Even on the banking side, I'm more than happy to have that conversation of what's that look for you? How do you position yourself to be ideal for acquisition or merger? Again, echoing the growth model, you never want to wait til your revenues are dropping. It's that's too late at that point, because then [00:24:00] you become unattractive, unfinanceable, or even ... If I'm a buyer, what am I buying? Am I buying something that's dying? It's not gonna make any sense to me as a buyer. I wanna look at something and see year-over-year growth; it doesn't have to be major growth; minimal growth; just some growth, and year-over-year revenue. Curtis Cochran: Buyers look for not what you did yesterday. They wanna know what they can do tomorrow. That's really [00:24:30] the essence of it. When they look at it, they say, "Can I take this company from $2 million revenue to $4 million revenue? Is it possible?" So, if you're dropping in revenue, it doesn't look good for you. David Leary: There's no signs of that, yeah.  Curtis Cochran: There's no signs. In the laws of physics, a body in motion stays in motion. It's as simple as that. They have to seek expert advice, like you mentioned, Shannon [cross talk]  David Leary: Early as possible, it sounds like. Curtis Cochran: Absolutely. David Leary: It sounds like if it's too late, that's a heartbreaking conversation [cross talk]  Shannon Hay: It is. Curtis Cochran: It's [00:25:00] painful. It's a fire sale. What do you do? You tell them, "Hey ..."  Shannon Hay: As a lender, it's impossible to tell a seller that their business isn't even a financeable transaction. How painful is that? "I'm not even worthy of being [what I call] a bankable trade." Curtis Cochran: Right, and they really think it's the bank's fault. Really, they really do. They think, "Oh, you ..." It's ... No. Shannon Hay: "They're picking on me, or they just don't like me," or what have you. No. Curtis Cochran: Exactly, and it' not even the case. Not even the case. Shannon Hay: No. No. David Leary: That's interesting, because there's tons of blog [00:25:30] posts you see out there, like "How to Start a Bookkeeping Practice in Five Steps." Nobody ever mentions, "Start planning your exit strategy," or, "Talk to experts ..." [crosstalk] ... Blake Oliver: No. No one ever talks about that. Curtis Cochran: Not even; not even.  Blake Oliver: I haven't been doing this for that long, but 10 years is a long time for me to go and really hear very little discussion whatsoever in the small-business/small-firm space about exit strategy.  Curtis Cochran: It's like when you're 21. When you're 21 or 22, you get outta college, and now we're gonna talk about going [00:26:00] to the grave. Well, you're young. That's not gonna happen!  Shannon Hay: Yeah. You don't wanna hear that. Curtis Cochran: "I don't wanna hear that. Exit strategy? What are you talking about?" It's the same principle. That's when they should, because then they understand all the variables, all the moving parts coming to the exit and what a buyer really is looking for. That's the key is what a buyer's looking for.  Shannon Hay: I think one thing that we haven't really talked about is partners, or colleagues, or who are you mentoring to be your succession-  Blake Oliver: Succession planning? [00:26:30] Yeah. Shannon Hay: We're really talking about- Blake Oliver: I read a lot about the lack of it. Shannon Hay: A lot of excuses are, "Well, the talent doesn't exist." I think that's more of a you're looking out the window and not in the mirror kind of factor. Are you judging that, or is that a truth? Again, even if that's not the case, there's still a whole acquisition market out there that's biting to take advantage, and give you a good value for your firm, as long as [00:27:00] it's in the right position. Curtis Cochran: Those that are listening to this podcast, Wall Street Journal, probably about two or three years ago, mentioned that less than 25 percent of all companies - major players, too - have an exit strategy. Don't be alarmed- Shannon Hay: Beat yourself up. Curtis Cochran: -yeah, and beat yourself up, because even your major players, they don't think of exits. They're trying to grow the business. They're not thinking about buyers, and even partners. They're just thinking about [00:27:30] growing the business. So, don't beat yourself up if you don't have an exit strategy, but I would actually seek one, ASAP.  Shannon Hay: That's right. Blake Oliver: Is there anything else you guys would like to discuss before I wrap things up? Anything I missed?  Shannon Hay: This was great. Again, I just encourage everyone to seek advice; seek the help of experts. They're out there. We're willing to help. I know Curtis is. Curtis Cochran: Absolutely. Shannon Hay: I'm willing to help. I don't know if you're gonna give our contact information, but more than happy to take a phone call, take an email, schedule some time, talk about [00:28:00] what that looks like, whether you're a seller or whether you're a buyer - interested on both sides of the coin. Curtis Cochran: The education part, Blake, is ... That's what we're here for. Free consultation. It's not gonna cost you a dime to talk to us about these things. Just like this podcast, it's excellent. Blake Oliver: Speaking of your contact information, Curtis, what's the best way for people who are interested in your services - you could remind us again what your specialty is here - What do you do? How can people reach [00:28:30] you, if they're interested in talking to you? Curtis Cochran: Again, I specialize in the four E's, which is, it doesn't matter if you're entering or whether you're gonna exit, you can call me; email me. The best contact is Cochran, my last name, consulting at ( You can email me, and then I can give you a call, and we can have a free consultation over the phone wherever you're at. Blake Oliver: We'll have your contact information in the show notes. How about you, Shannon? Shannon Hay: Again, all I do, all day, every day, is finance the acquisition [00:29:00] of accounting firms. If you're on either side of that transaction, I'm more than happy to have a conversation. Best way to reach me is via email. Shannon.Hay - H-A-Y - You can always reach me on my cell at 614-648-9199. But, email first, and then we can set up a time to talk. Blake Oliver: Do you do you finance acquisitions all over the country or ...? Shannon Hay: I do. All 50 states. Blake Oliver: All right, Great.  Shannon Hay: Yeah. Blake Oliver: And as always, you can reach me on Twitter. I am @BlakeTOliver. And [00:29:30] how about you, David? David Leary: I'm @DavidLeary. Shannon Hay: I forgot my Twitter. Blake Oliver: Oh, yeah, well, tell us. Shannon Hay: It's @ShannonHayLOB. Blake Oliver: @ShannonHayLOB. All right, I'm gonna follow you on Twitter. Shannon Hay: Thanks. Likewise. Blake Oliver: Thank you guys both so much. Thank you, Curtis. Thank you, Shannon. Shannon Hay: Appreciate it. Curtis Cochran: Appreciate it. Thank you. David Leary: I'm thinking about selling my firm. Blake Oliver: You gotta build one first [cross talk] David Leary: -but I know what that first step is - to think about selling the firm. Shannon Hay: There you go.  Blake Oliver: There you go. 

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