Track 2: Growth with and without merging

Phil Whitman, will share how you can take your firm on a multi-pronged accelerated growth journey. With the Whitman Transition Advisors GPS - Growth, Profitability & Succession, firms will be equipped with the knowledge needed to successfully execute a strategy of: M&A, lateral partner acquisition, niche building & advisory service offerings. Participants will leave with a roadmap to targeted growth. Whitman will share a no fail plan of how to take your firm from just surviving to thriving.

Transcription:

David Wolf Scale (00:11):

Welcome everybody. So excited to be here today and I hope we bring you value. We're going to continue that theme of talking about growth with and without mergers. And does anybody remember the story of the Native Americans and the settlers buying Manhattan for $24? Does anybody remember that story from elementary school? And if you think about that story, the theme, at least when I was in elementary school, was the settlers got the deal of a lifetime to buy Manhattan Island for $24. And when I think about that story, I think that is really reflective of many things that are going on in this marketplace. Because if you ask the Native Americans that day that they received $24, they would say, we got $24 for selling air. Something that doesn't exist, and that, so they actually thought that they won. And the point of this story is there's new players in the marketplace.

(01:21)

We all have heard about new things going on in the marketplace, and I believe they look at the world significantly different than many of the established players in the marketplace. And so today we're going to talk about mergers, we're going to talk about advisory services, and we're also going to talk about the differences from the more traditional to the new players in the marketplace. So my name's David Wolf Scale, and I'm very excited to be here today to talk about helping you think about why traditional firms merge that new paradigm. Because what the new players in the marketplace are looking for is different than what traditionally we've looked for. And what are those traditional viewpoints about advisory services And my definition of advisory services and many of the new players definitions of advisory services is significantly different than those traditional players. And so finally, I want to talk just for a second about Whitman Transition Advisors.

(02:34)

We are one of the only national firms that focus on A and A. We have 20 people, we've done over a thousand deals, and they're all very similar up until two and a half or three years ago. And then I'm wearing a C-Suite impact shirt, and we really started C-Suite to allow companies to add advisory services really, really quickly. Now, what actually happened is we got so busy dealing with advisory services that we really haven't brought them to CPA firms, but that was the goal. And on an advisory service basis, we've actually worked with large firms, P K F, O'Connor, Davies, Metis, Ansin, a hundred million dollar plus firms adding advisory services to their practice as joint ventures. So we know a whole bunch about m and a, we know a whole bunch about advisory services, and today I want to share some of those insights and those changes that we are seeing in the marketplace.

(03:45)

So everybody's talking about M and A. Anybody been approached yet? Right? And so many firms have been approached by private equity, by wealth management, by publicly held companies, by pension funds, by family offices. All of a sudden in the last two years, not only has everybody been talking about merging for probably the last five years as the demographics, as the baby boomers are starting to exit the profession, but now we have all these new players in the marketplace as well. So we know that merger activities increasing and increasing significantly, and every $5 million firm is looking for roll-ups. And when we look at those five and 10 and 15 million firms, we want to add more services we want to utilize. We now know when we get to a $10 million, we'll have a marketing coordinator or CMO, where now we don't. We'll have people who help us with recruiting.

(04:54)

And in fact, recruiting has been a huge driver of M and A. Many of the smaller firms have given up trying to recruit people and they feel the larger firms have better solutions. I haven't talked to any firms where they've said, we're big enough, we're the right size. It seems to be this growth mindset. Every $20 million firm is looking and on and on and on. And for the last, I don't know, five, seven years, there's been tremendous competition within CPA firms to do these roll-ups, to take these smaller firms and put them into our organization. But the competition has changed, the competition has changed. It was very odd for me who's not a CPA, and I've probably worked for the last seven years in CPAs, done a whole bunch of retreats, sat in on executive committee many, many times, and it was very odd in the beginning when people did mergers and nobody got a check. It was very strange as an outsider. Now as an insider, that's been what's going on for the last 30, 40, 50 years perhaps. But now cash on the table is a game changer, and you have tremendous new competition looking for those mergers. And the question is, what makes your platform so great? And the question is, what makes those private equity or wealth management firms platforms so great? The paradigms have changed. And this is not only for the larger firms. Everybody here I'm sure has heard about the Eisner and the six Cooperman and things of that nature at the very big level. But the reality is, and my partner Phil, he has probably spent hundreds of hours because when he heard about those larger firms, he thought it should be at every size firm. And now we're working with 5 million firms who are getting PE or wealth management money, $10 million firms, 15 and 20 million firms right now we have about eight signed lois that hopefully will close, and then probably another 10 or 15 lois that are coming down the pike and everywhere from that $150 million firm all the way down to or two or $3 million firm, some with the traditional players, some with the new players. But at the end of the day, it's the person who is looking to merge up or sell, yeah, I know that's kind of a dirty word, but merge up or sell. Who gets to decide where they want to go? And what we are seeing is more firms are moving into those new competitions and more and more firms are seeing those new competitors as valuable places to go.

(08:05)

So let's talk about why traditionally firms have merged. And I think these have really not changed over the last 30 years in many ways. Now it says cash out. What I really mean by cash out is oftentimes a smaller firm would look not see great internal succession, be concerned about their retirement, and decide we're going to go to a larger firm, will be more secure in our retirement. Diversification of practice niches, adding geographies, administration, these cross-selling opportunities. And these are all wonderful, wonderful reasons to merge. But again, the paradigm has shifted. And if this is what you're still looking for, I think of your competition might offer a better solution for those people who are looking to sell or merge. And so traditionally it's been about leveraging relationships. If we offered more services, we can take our current clients and sell more to them and really impact them more.

(09:20)

We want to service more substantial clients. And so do we want to be a sandwich truck? Do we want to be the windmill which is up by us, or do you want to be Nathan's? And many firms did mergers impartially to increase the size of clients that are attracted to them. Now, sometimes they've stayed true into where they were, but oftentimes we've seen them merge up and deal with larger clients. And sometimes that creates issues because I brought my practice into a larger firm, not to move it up, not to raise their rates, but I had my reasons which aren't always necessarily in alignment with why those folks are buying me. So we want to service more substantial clients. Clients, we want to get paid more and pay our people more. Again, if we can charge higher rates, we can pay higher for it. And again, we have found talent has been such a huge driver of so many things.

(10:28)

It was five years ago, more than likely we would hear about business development on a regular basis. We need to grow more clients. I bet you since the pandemic, I have not listened to one managing partner said, if only we could grow, we could make things happen. And in fact, I have heard many managing partners say things like this, we're going to check out our clients and decide which ones we're going to get rid of because I don't have enough staff. If I had enough staff, I could grow more. But the staff has become the limiting factor, not the business development. And to me, from a business development point of view, this in many ways has been the golden age, right? And we had PPP money, we have all this complexity in the world. And for the vast majority of firms, business development and bringing in new clients has gone down as a priority and has gone down significantly.

(11:30)

We want to use our tools more efficiently and effectively and we want to get better technology. And again, as a one or two or $5 million firm, every firm has that FOMO fear of missing out that maybe the larger firm has that better technology has that better platform, which will lead to better efficiencies and effectiveness. And all of these are really wonderful reasons to merge. But again, not sure they fit today's paradigm. Help with marketing. I can't tell you how many $5 million firms said we're going to get to 10 million. We'll have a marketing officer, we'll get to 15 million. We'll do internally internal recruiting and things of that nature. And is this in alignment with you and what you've been doing? And I think it is. And then leadership transition. Now oftentimes what we see or saw is we'd have two firms wanting to come together of equal size because that's the most comfortable. But at the end of the day, the results of coming together of equal size led us to have six partners now who all want to retire in the next five years instead of three partners who want to retire in the next five years. And oftentimes, mergers of equals didn't solve the core problems of leadership transition. And oftentimes in this room is very young in this room. But oftentimes when we see leaders of CPA firms, it's a lot of gray hair. And that's going to continue. And it's not only a lot of gray hair in CPA firms, every single niche in America is really baby boomer owners for the most part and poor internal transition.

(13:26)

And I don't believe the CPA world is significantly different than much of what we see. So leadership transition and really hard. I can't tell you how many younger partners and not the people in this room where I'll talk to a managing partner and they'll introduce me to young partner. And that young partner doesn't have business development skill and really was made a partner in the hopes of the future, but wouldn't have been made partner unless leadership transition was such a burning desire and such a burning need because I think most firms desire is to remain independent and to bring up that next generation to continue our legacy. And that's becoming more and more difficult. And again, a lot of this is just demographically driven. Same with social security. We have less young people who are paying for social security causing issues. And CPAs, that transition of going to the next generation worked as long as we kept on having more and more people.

(14:34)

But I forget the gentleman's name at lunch yesterday, he spoke about 9% less people graduating college with CPA degrees, who thinks it was a great idea to get the 150 credits to get graduate makes it a little bit less attractive. I think he said 300,000 people have left the industry in the last year. And yet our leadership transition has not changed, hasn't reduced an impact, and to develop new niches. So we merged together and all of a sudden we have valuation and we do enough valuation to support that and we're merging to bring more impact to our clients. And again, all wonderful, wonderful reasons to do the mergers. But I think the new paradigm, and let's talk about that again, we have new players in the marketplace in the last two years and they look at the CPA world significantly different than the established players.

(15:45)

Anybody here of Clayton Christensen? He was a Harvard business professor. He talked about in industries, and tell me if I'm paraphrasing this incorrectly, it's always an outsider who disrupts an industry. It's always the outsider because if you've been doing this for 30 years, you've built your practice, you've had success, you have wonderful retirement, you've gone on nice vacations, why should you change? Right? When I look at Bed Bath and Beyond, anybody get a 20% off coupon from Bed Bath and Beyond, right? Have you ever gotten one of them or 400 of them? And those 20% coupons, bed Bath and Beyond, at one point was a billion dollar organization. The world changed and Bed Bath and Beyond continue to send those 20% off coupons. And so it helped them grow to a billion dollars. And now they declared bankruptcy. And again, I believe a significant piece of that was that inability to change. Because if you grew a billion dollar company, why should you change? And I understand that, but they didn't embrace e-commerce, they didn't embrace a lot of things. They didn't embrace private branding. And this isn't about Bed Bath, but this is about if you don't change your strategy, if a billion dollar company can go under, you need to change strategy or at least be aware of it. So if you were selling a bottle of air, would you rather sell to a fish or an astronaut whose mask broke different values for each person? In fact, that bottle of air probably has no value to the fish and tremendous value to the astronaut. And that again, goes to that communication because I'm sure many of you have heard about some of the valuations, right? 10 times EBITDA, right? 12 times EBITDA, five times EBITDA. And in fact, I would say if we go back five years ago, our average valuation for firms was between a 0.7 and a 1.1 of revenue was. And even a 1.1 was one or two. Well, PE firms are generally paying significantly higher. Now they use EBITDA, not revenue. But if you do the math and everybody here is good at that math, I assume they're paying a premium to what the traditional payers play.

(18:41)

So multiple arbitrage. Most of you have had clients that have been part of a roll roll-up. So if I buy 10, 1 million firms at a three or a four multiple, and I can sell a $10 million firm at a six or eight multiple, I can double my business. I can double my take home just by that multiple arbitrage. And every time you get bigger, the multiple goes up to eventually I believe lots of IPOs. If we look at CBIS, every dollar of profit generates depending on the day, the week to month, anywhere from $16 to $22 of value. And so if I can buy 10 million firms or 10 million firms, the larger the firm, the greater the multiple. And so I can overpay because in five years I'm getting out and if I pay 1.2 instead of one, so instead of doubling our money, we'll make it 0.9 and that's still a pretty darn good day. And so when I'm looking at that and you're looking at the more traditional, the new players in the market are more than willing to overpay in your mind, overpay for practices where many of the older players and the more traditional players, they have great discipline, they know what the value is, but the value has changed because the new players see the world differently. So we buy 5 million firms, and this is a big part, and this is why PE firms oftentimes will have that three to five year timeframe, consolidate them, flip them. Now, not everybody in those new mark, the new players are looking for that three to five years. We have family offices that are looking to buy minority interest. We have wealth management and we'll talk this looking to buy minority interest interest. But many of the new players are willing to, and again, in quotes, overpay for these firms because they know the game.

(21:02)

One of the private equity firms, this is the fourth industry, they've done it, they've created 2 billion of value for their partners by really buying 80 firms in any industry, packaging together and selling them to somebody else. So that multiples arbitrage allows them to overpay and makes it harder for you to compete for those mergers. Client acquisition. So talking about wealth management, we have a firm that is approximately a $10 million firm that is going to sell 40% of their practice for a check for $10 million. Let me say that again. 10 million firm selling 40%. And that closing, they'll receive a check for I think $8 million in a one year term to get the extra $2 million and they'll still own 60%. Let's look at it from a wealth manager's perspective. A $10 million tax firm should bring in three to four to 5 million worth of wealth management. He's buying access to get in front of those clients.

(22:20)

And I'll spend $10 million and my return on investment is two or three years. And for me in my industry, my multiples are greater. So if we go back historically, c p a firm typically worth one times revenue wealth management firm, typically worth two times revenue. And again, this is before the world changed. So if I can grow three or $4 million worth of wealth management giving you a check for $10 million, really it's cheap. And yet it's mind blowing to hear that it's $10 million firm is going to get 10 million to sell 40%. But that's real in that wealth management firm, their response to us is, and who's next? We have a boatload of money and we want to continue to do this. And so again, how do you compete with that? Very, very difficult cash flow. So some of them will talk about return on invested capital. So I'm going to spend $10 million, what's my return on that $10 million. And so reducing cost is going to increase that cash flow. We have a well family office, private equity type of firm, they're their own money, but they behave more like a private equity than a wealth management. And so they told us they're in a LOI to buy a 25 million firm, and they told us the day we signed that deal, we want you to find us 10 tax, 10 auditors to offshore.

(24:14)

And we know that'll take us a while to build it up where those people are busy, but we'll make that investment day one and we want to start doing that. And they also brought in a CEO before they bought a firm because again, they have that cash and it makes it difficult for you to compete. So they're going to reduce costs by offshoring. And when they decide to offshore, and we do a lot of offshoring when we deal with the traditional CPA firm, we need to think about it. We're not sure we want to test the waters. We want to put our foot in the ocean. These guys, we want 10 of each and probably every three months because we're going to grow and we're going to reduce cost. And this isn't necessarily getting rid of staff. This is supplementing staff so that they can do higher value work so that they can grow faster.

(25:11)

So they're about that cash flow, and that's a very major thing to their mind. So they want to reduce cost and they want to increase sales. Now, some of the PE firms or wealth management or whatever it is, family office, they also have portfolio companies. So they know day one, we have a hundred other companies in our portfolio. We're going to change accountants really quick and we're going to start increasing sales. We're going to hire a CMO even though we're just a $20 million firm. And not just, I mean great success, but we're going to hire a CMO because we're planning to be a hundred million dollars firm and we're going to be aggressive about increasing sales. And again, aggressive in ways that traditionally I personally haven't seen. So cashflow is a big thing and reducing costs and increasing that sales. And when we say increasing sales, traditionally that's been selling more accounting services, sometimes it's accounting. And now we do cast services. Tom Angelo spoke about having an IT company a little while ago. Their model and their methodology of increasing sales is much different. And we'll talk about that a little bit on the advisory side.

(26:39)

So we talked about the wealth management having those low acquisition costs. In his mind, a $10 million check to them is a low cost of client acquisition and high profit. And so they're looking for those high profit additional services, compliance, high profit or low profit. And really it's a little bit in between. We can make good margins on that. But what they're going to do is add a huge number of services. And their definition of advisory services is both much more robust and much more aggressive about making that happen. And so although they're buying CPA firms, I truly believe what they're creating is an advisory practice that happens to do taxes, that happens to do compliance. The money is in the advisory for them, much less in the compliance. And I've talked to many of you who don't do compliance or some of you who don't even do compliance, and it seems like many of the new breed and the new generation of CPAs, compliance isn't their thing. Working 70 hours during tax season, right? Doesn't seem like a fun day for you. And so really these high profit services difficult to compete. Any questions or thoughts? Yes Sir.

Audience Member 1 (28:06):

Will they be able to execute on the CAS model?

David Wolf Scale (28:37):

So you're saying that they'll be able to execute on the CAS model? Absolutely, but they're going to be able to execute on a lot more than that, and we'll talk about that in a minute. So CAS a would be comfortable follow up question? Yep. Okay.

Audience Member 2 (28:55):

Inaudible

David Wolf Scale (28:55):

So my partner Phil, and so I generally run C-Suite, which is the advisory part of our practice. My partner Phil, who had a family emergency, he was supposed to be here, he runs the WTA side. He's probably met with 50 of these alternative type of investors, whether it's a wealth management, we've narrowed it down to 12 players that we think are real. There's tire kickers, there's people, and first of all, none of these entrants have any idea about CPA firms, none of them. But they all have confidence that they'll figure it out because they have figured it out in other industries. So we work with about 12 or 13 that we have contracts with. So the wealth management firm that is the 10 billion, I think they have 150 billion worth of assets under management and take that as number, not an exact number. So these aren't the 5 billion. This isn't certainly the two person firm that's super successful. These are big players in the marketplace. Again, they're willing to write a 10 million check and wait two years to get that back. So generally on the wealth management side, and generally the wealth management is willing to make minority investments. They all know how to run the CPA firm. And so generally they're looking to buy 20 or 40% because their goal isn't a CPA firm. Their goal is the clients and the wealth management and what they want is a seat at the table and they want to be an insider. One of the things that I've noticed with larger firms and with smaller firms, a lot of these advisory services, I call them stepchild. Oh, we're having a partner retreat, and you can come on Tuesday after lunch or maybe you can come for lunch and they don't have a seat. Nobody's on the executive committee from the advisory services. And we'll talk a little bit later about what we see as the future. And we've been talking about this for probably five years, but the reality's coming. So yes, sir.

(31:27)

So the audit practice. And so there's regulatory issues. They create an alternative practice structure where the CPA firm really stays in all the audit. There's a licensing agreement to bring out the revenue and the profits from that. And although it's a little bit complicated, it's doable and not an issue. So now we've also had some firms say, we'll sell the audit practice. And so we did a million dollar audit of, I forget the specialty. We helped that firm sell that because what they are, and I will say generally not excited about the audit practice. So if you're a 70% audit firm, perhaps less attractive. And then we also have private equity firms that are only audit firms, so all over the place. But generally, if you're looking to sell additional services, the audit practice is typically less attractive. And if it's too much, the firm becomes less attractive. But from regulatory issues, there's complications, it's doable. And staying within the confines of the rules and regulations is simple, if that makes sense to you.

(32:49)

So this is what our view of the alternative advisor service offerings they are all in. And what does that mean? So on C-Suite, we offer things like investment banking, strategic funding, fractional CFOs. We have this whole platform. And most of these people say a couple things to us, Hey, can we buy your firm? And almost every single one of them said, let's just buy you number two, they look at our services as a bridge because they say, we want to buy an investment bank. We have deal makers on the C-suite side. We're working with a $20 million payroll company. One of the P firms is the leader to buy that 20 million payroll company. They know when they get a CPA firm, bam. And again, they have the cash to buy that payroll company. We have an HR company that they're talking to. So when they're going after advisory services, it's not cash and it's not just CFOs and those are part of it, but as they've done roll-ups in the CPA marketplace, they're going to buy the things or hopefully use us for at least a little bit, but they're probably going to buy those other type of firms and buy them quickly.

(34:15)

So we used to think that buying CPA firms was about the four C's chemistry culture, core niches, client base. And I can't tell you how many times I've said, let's go through the four C's, but now the client base and the core niches for these new firms and for traditional firms, and again, we do a lot of work with traditional firms, this still fits, but that's not the new paradigm. New paradigm for buyers. Look, chemistry and culture remains important. And if somebody has a big check and you won't have a beer with that person, run as quickly as you can away. If it's not the right thing, it's not the right thing. But they think they care about chemistry and they care about culture. And some of these PE firms, they're all Excel people, and it is just the numbers and that's all they care about.

(35:11)

Others are much different. So there's a large difference even within that group. So they still believe in chemistry and culture, but they believe in cash flow, reducing costs. They believe in growth and they believe in succession from day one. So if you ask them, oftentimes they will tell you, we have a three to five year horizon. We have a seven to 10 year horizon. This is how we're going to end the day. Where many of our traditional players, 20 years ago, they started a firm. And if you started 20 years ago and you were building a family in a firm, I'm not sure you should have thought about secession, but the new players are thinking about that succession and now sellers, and this is the people in this room, oftentimes it is about chemistry and culture. I don't like that person. That person's not right fit for us.

(36:11)

And so that's continued cash on the table. Again, when I started in this industry and we would do mergers and nobody would get a check, didn't make sense to me. Now, the sellers, almost all of them, how much cash am I getting and how much longer till I get the rest of the cash? And oftentimes they're leaving between 20 and 40% for a second or third bite of the apple, or to allow the younger partners to have some investment. But cash on the table has become the norm. And again, we are seeing multiple million checks at closing. We never saw checks for a long time. What's my role? Many of these people, it's what am I going to do? How am I going to fit into your model? And that's been a huge conversation, comfort of your model and ability to execute. So we've had players who have no idea but checks.

(37:14)

We haven't really worked that much with them. We like people who have a model, a plan, and a history of executing. So if you've built three or four niches, my guess is if you figured out these industries that you knew nothing about, you can figure out CPA firms and others haven't. And then the firm's role in the rollup, am I going to be tucked in? Am I going to be a leader? Am I going to be, are you changing the name of all the firms or can I remain as my own firm until the day you do the second sell? And those things. And so the seller has also changed. And so if you want to do mergers and the seller's mindset has changed, you need to make sure that you're attractive to that seller. And that's critical.

(38:07)

And again, these five critical factors really have stayed compensation, equity, buyouts, governance, and the firm name. And still the firm name matters. And we have players who want one name and we're going to make everybody one name. And we have other people who we're going to have regions and the $15 million firm, we're going to keep their name again until we're ready for secession and we're going to build into those firms. Oops. And we know that compliance work is a challenge. It's a challenge on fees. New firms entering our niches. I know a wealth management, and this is a smaller wealth management. They'll buy small tax practices and they'll actually tell the clients, we're reducing your cost significantly. Why? Because they make their money on wealth management, not on the compliance work for them. The compliance work can almost be a loss leader for them. And talent awards, we talked about expansion of niches, and these are just some of the niches that you can expand into.

(39:22)

But again, we had one firm, and this is pre pandemic. They were a $14 million firm. And in one year they became a $13 million firm because their two biggest clients were bought by private equity. They had a nice due diligence and they made a little bit extra money. But the year after, they got to do the taxes of the owner who now had more zeros, but the private equity firm dealt with the big four, or they had their own players. So this firm got to do the due diligence, but the fees on those mergers might have been a million dollars, right? There's big fees and they didn't participate in that. And there is that opportunity because you are the trusted advisor. Your clients would like to work with you more if they could.

(40:15)

So we believe in advisory for CPAs, you get more wallet share, you can outsource much of that work. You strengthen relationships. I had one CPA firm, they added a mortgage company. The clients love that they had to give permission, but they could tell the the CPA firm give everything to the mortgage person who sits in that office. It was awesome. I don't know where my phone is, but anybody get a phone and then still bring a GPS and a Walkman with them? No, we got a phone. We want to deal with less things in our life and organizations. And McKinsey just came out with this book called The Ecosystem Economy, and they say clients and organizations want less vendors, not more. And so all of a sudden, the person who has the 401 K for that organization might be part of a CPA firm, and now you have an enemy in your midst and they bring the four, the CPA from then from the 401 K. So all of a sudden, there's all these other entry points for your competitors to get into your client, and they will or at least have those conversations.

(41:38)

Low risk. Low cost. So there's ways that you can do advisory that really has no cost and no risk. And again, this is why we set up C-Suite, because we know there's great opportunities with your clients, not with the compliance services. So we believe many firms, if you look at your firm, there's a lot of very close advisory firms that you might be able helping. You might already do, right? Cost segregation, R and D tax, legal help. So there's all kinds of things that you can do. But I see a lot of traditional CPA firms slow to move, slow to execute. But what if you could also add all kinds of additional services? What if you could add investment banking? What if you could add funding services? What if you could add offshoring for your clients? And you have that opportunity? And I will say, the new players in the marketplace, this is what they're creating. They're not looking to add cast services. And yes, they are looking to add cast services, but that's not success for them. That's one small piece of that puzzle.

(43:06)

And so with advisory services, again, you can add new services without adding staff. You can partner with somebody, you can create joint ventures. There's ways that you can do this. Your revenue per client increases tremendously and your stickiness with clients. Many CPAs I have found feel that every referral is a risk to screw something up and to lose a client. But if you're in wealth management, they've done statistics where if you have one item with a client, you do their personal things, you add a second item, now you add life insurance, you do their business 401 K, the longevity of having the relationship with the client increases substantially versus decrease. You become stickier to that client, it becomes harder to leave you than it was before because now I need to leave three things instead of one. So you can increase that revenue, increase that stickiness, and I know pretty much every CPA wants to increase the impact they have on their clients.

(44:16)

This is a way to increase that impact on those clients. And if you don't offer them, it's not like they're going to say, oh, well, I can't get a 401 K. You know, don't offer it. I can't find anybody. They're going to go find those services. And over time, some of those additional services are going to be attached to your competitors and those additional services, they will bring their CPA in as well, much easier to sell existing clients and finding new clients, I've heard almost five to one easier and cheaper to do that. And again, much easier, bigger impact increases the longevity. And we believe, and somebody talked about a test. So this is not a test, but we believe there's a dollar to $7 of additional revenue for every dollar of non attest work. I mean, think about 401 k health benefits is at the second or third largest expense, but you can offer health benefits, right?

(45:19)

Again, non attest. So there's huge dollars and there's huge opportunities to grow. And these new competitors, they're going to do it. Like I said, it's amazing. We want to buy a payroll company. We haven't even have a CPA firm yet, and we're willing to buy a $20 million payroll company. They will accomplish much of this. Now, with all that being said, h and r Block tried an American Express, tried it. We don't know what the future will be. We don't know if they're going to be successful, but whether they are successful or not, they're going to have a huge impact on this industry and already are.

(46:05)

So you can do lateral partners training and development. And again, these are things that you should and want to be doing. And mostly business development and soft skills is very big. My personal feeling is give me the best CPA business developer and then put him in a room of non CPA business developers. And that person's probably not the top of the skillset. So by adding these advisory services, you add this whole new sales channel who quite frankly is typically better than we are at sales. Because if you're a wealth manager, oftentimes you start it really as a sales person, not as a technical person. So a two year CPA, they're grinding numbers, a two year wealth management, they're picking up the phone doing social media, they're trying to get in front of people. And so it's just who they are and how they work.

(47:06)

And Motorola did a study, a dollar in training created $26 in revenue. Seems outrageous to me. Not sure that's accurate, although I'm sure for Motorola it was. But even if a dollar created $5, it probably more than paid for itself. So even if those statistics are overblown, training, development pays, and this is really what we think the firm of the future is going to be. Much less CPAs in a firm, much more non CPAs. And I believe we need non CPAs as part of that executive committee and part of leadership team. Traditionally, CPAs I feel have been rewarded to be slow to change. That's been a great strategy for a long time. I know one firm that literally spent three partner meetings to discuss genes on Friday. Yeah, this is five or six years ago. They didn't go like this. There was a lot of discussion and a lot of things are about let's get everybody on board.

(48:16)

And I think historically, obviously it's been a great strategy. Look at this industry, but the world is changing faster today. Things are moving. And so I think that strategy and that mindset actually has become a huge barrier. Colin Powell talks about the best time to make a decision is when you have between 40 and 70% of the information. If you make a decision before you have more than 40%, you're taking a guess. But he also thinks that if you wait till you have more than 70%, you risk losing opportunities. And I believe that wholeheartedly. So that's really the presentation. I think there's great opportunities for everybody in this room. I wanted to make sure though, that you understood, not only heard that there's new private equity or wealth management, but if you don't understand their mindset, I believe it becomes very, very difficult to compete just like the Native Americans and the settlers. The settlers knew what they wanted. The Native Americans did not. And they spoke a different language and they sold Manhattan for $24. But the reality is there was nothing to sell. Any questions? I do. Okay. All right. Yes, sir.

Audience Member 3 (49:46):

Inaudible.

David Wolf Scale (49:46):

I think in the future, one of the things that I would be worried about with compliance and what I'm worried about with these PE firms, what's going to happen when I can tell AI, look, I own a house and here's the taxes I own. Here's my W two, here's my K ones, and what do I owe in taxes? And we've all been hearing about artificial intelligence for a long time in this industry, and it's always been far away, right? Been hearing it for a long time. I believe that time is much closer. So I'm not sure these are smart people. They're going to look at the profitability of the client and to get in the door of that client. If they need to have a loss leader here to have a big profit there, they're going to do those things. So I'm not saying I don't know if it'll be cast or compliance, but I do know they have the ability to do that.

(51:25)

So my name's David Wolf Scale. I appreciate everybody's time coming. I hope you got some value or some additional thoughts. To me, it's been a wow time in this industry. Last two years have changed everything I thought about the last five years. There's great opportunities for all of you, whether you're looking to sell or add advisory services. The one push I would have is speed is becoming more and more important. I know it's time for us to wrap up. Thank you very much everybody. If you have any individual questions, I'm obviously going to be here. Have a great day, everybody.