Jonathan Hawkins: [00:00:00] So to maybe an, analogy would be you’re buying real estate for the capital appreciation, not for the cash, not for increased cash flows. Although, I mean, you wanted cash flow positive, so it’s paying for itself.

Brad Dower: Correct.

Jonathan Hawkins: But you’re really the end game is the appreciation exit event, not.

Brad Dower: Right. Yeah. Exactly. That’s a great example with the real estate. Yeah. As you know, it’s servicing your debt for you, so you’re paying down your debt, so you’re getting equity there, and then at the end of it you know, it’s appreciating. And then it’s, like I said, with that multiple arbitrage, when we’re buying Two to Three X and selling hopefully Eight to Twelve, I mean, there’s huge spread there.

Jonathan Hawkins: All right, so you find your million dollar deal, you go close it. What are you looking for in terms of how long to sort of pay it off? I mean, is it 3 years, 10 years? Are you refinancing these things and trying to pay it down or what your thoughts press there?

Brad Dower: the bank terms are tenure. And then they have prepayment penalties on ’em [00:01:00] for the 1st 2 years and then it goes down after the, well, you know, starting year 3 and then no prepayment penalty after five years on the bank side. On the seller carry side, those are typically 3-5 years depending on what it is. So we will not pay any of ’em off early for, ’cause we have that callback at least for the 1st year.

So we’ll do a true up after the first year. And sometimes, you know, some smaller ones, like the last one we just did was really small too. It was 400,000. But it was a buddy that goes, I don’t wanna be CPA anymore. You know, and so he is like, you’d buy my practice, I’ll make sure whatever, more of a favor. Right?

It’s really too small for us, but you know, had a good client base and so that one after the year, we’ll probably pay it off just ’cause it’s so small and not have another owner note going out. Right. But it’s kind of all over the place far as what cashflow looks like or if we’re gonna invest in a new deal.

Welcome to the Founding Partner Podcast. Join your host, Jonathan Hawkins, as we explore the fascinating stories of successful law firm founders. We’ll uncover their beginnings, triumph over challenges, and practice growth. [00:02:00] Whether you aspire to launch your own firm, have an entrepreneurial spirit, or are just curious about the legal business, you’re in the right place.

Let’s dive in.

Jonathan Hawkins: Welcome to Founding Partner podcast. I’m your host, Jonathan Hawkins. This episode, we’re gonna do things a little bit differently. Usually for those that listen, I interview founding partners of law firms. But today I’m gonna interview a founding partner of an accounting firm. Today’s guest is Brad Dower.

He is a CPA, owns a firm, Dower and Associates. He’s based in Texas, but they’ve got offices around the country and they are adding offices, which is part of the reason I wanted to get him on. I heard Brad on another podcast, and he is a, growing his firm through acquisition. And more and more I’m getting these questions from lawyers about acquiring firms and maybe being acquired.

So, Brad has done it a bunch now, and I wanted personally just to get his insights into it, [00:03:00] but then also share it with the audience. So with that intro, Brad, welcome to the show. I thank you for being here.

Brad Dower: Yeah, Thanks for the introduction. Looking forward to.

Jonathan Hawkins: So, so maybe give a, a brief background introduction of, of, you know, who you are when you started your firm, sort of, you know, what your firm looks like now, and, and maybe how, we’ll start to go the path of how you got to where you are now, but maybe what started you on your entrepreneurial journey.

Brad Dower: Okay. For sure. Yeah, so I was in public accounting before I had my own firm as most CPAs do or attorneys. They get burned out, you know, working for somebody else, crazy hours. So I went to go work in what’s called Industry in Art Profession. So I went to go work out of public accounting for USAA but then I missed helping people.

Best part of my job is sitting down and everybody freaks out about their taxes, right? So it started as my side hustle back in 2019. You know, friends, families, neighbors, kind of all of that, doing their tax and accounting work. And then slowly started growing year over year. So I had to convince my wife [00:04:00] that I needed to quit my six figure job at USAA to go you know, do my own thing, right?

And so she stays at home with our two boys. So she has the hard job, right? So we’re a single income household and told my wife, I’m quitting my job. So it’s a big leap of faith. Worked a lot of hours to get to that initial point. And then kind of what really sprung me forward on that is I, my first acquisition was just a small practice, about 140 grand in revenue.

But that was kind of like, well, if I do this, then I at least have some more guaranteed revenue. So that kind of started me on the M&A type journey. And then 2021 went full-time into the firm. And then since then we have completed six major acquisitions everywhere from New Jersey to Seattle you know, and a couple in Texas, like you mentioned.

Jonathan Hawkins: So I want to dive into all of that stuff for sure. But before we do that, so, so your firm as it sits now you know, CPAs do a lot of different things. So what sort of services does your firm provide, and then are there any [00:05:00] particular niche industries or areas you focus on?

Brad Dower: Yeah, so we are a full service accounting firm. We’ll do everything except for audits. We, you know, if you don’t have a huge audit practice you know, it’s hard to make money at it. And so we are mainly tax and compliance heavy. And then we do outsource CFO and monthly accounting work is kind of our backbone of what we do.

And as far as niches we do a lot for the trades and professional services doctors, and then quite a bit of real estate work as well.

Jonathan Hawkins: You represent any, any law firms you have, any law firm clients. we have a couple of law firms and we’re very familiar with IOLTA accounts and all that kind of stuff and all that. And, you know, I wish every, you know, profession could be like, I don’t wanna recognize revenue yet. I’m just gonna leave it in this account, and then wait until January 1st. And then to recognize revenue right now there’s a little bit of gray area in that, as you well know.

Oh, yeah, yeah, I know, I know what, the rules say and what the regulators say, and then what sometimes people do. So, but yeah, for those out there that might, you know, be looking for an accountant you know, maybe [00:06:00] we call Brad when this is over. Okay. So let’s, let’s start diving into your acquisition journey.

So it, so it sounded like you were, you had sort of, you were doing this as a side hustle. You started your own shop, and then you made your first acquisition. And was that in the same town or, or tell me about that. How did you find it? How did you say, all right, I’m doing it.

Brad Dower: So, yeah, I was in the same town locally. So Bernie, Texas area was a longtime CPA in the area and it was just a referral from a friend of mine that had been in the accounting space for like 40 years ago. Hey, I’ve got another CPA that wants to retire, looking to get out. And what’s funny about that whole initial transaction is that CPA still works for me today.

’cause we took over all of the administrative backend burden. Allows her to just focus on, you know, talking to clients and doing some work, which, so she’s happier and she was supposed to retire, but hasn’t, and we’re glad to have her, right? She has a wealth of knowledge and as long as she wants to keep working, we’ll keep her. So that’s kind of just referral sources. I mean, to get out there and say, Hey, this is what I’m looking to [00:07:00] do. And now that we’ve completed a few transactions, even larger ones, you know, the brokers call us now.

Jonathan Hawkins: And so let’s, let’s, I want to, you know, this is, you know, in the accounting space, acquisitions is a little more common, I think, than in the law firm space, although that’s starting to change. I’m seeing a lot more of it. People are interested in this. The boomers retiring, so a lot of people are interested in this, and, and accounting is different, but it’s close enough that I think there are gonna be a lot of common elements.

But let’s talk, let’s go back to that very first one. How big of a practice was it and how did you figure it out? How did you structure the deal? Did you cut a check? Did you borrow some money? Was it some sort of earnout? How did you make that one work?

Brad Dower: The first deal, it was small, was only 140,000 150, something like that. I can’t remember exactly. And there was a pure earnout type structure with a deposit down. I think I put 10% down and it’s a very minor. And then from there it was a three year earnout. I mean, that’s kind of the preferred way in my opinion.

You know, no cash, no banks but as you do larger deals, right? That’s kind of where the bank [00:08:00] starts getting involved.

Jonathan Hawkins: Okay, so you did the small one and then I guess you caught, caught the bug or it went well, so you said, let’s try this again. Or did you start to actively look for another, or was this another just random, organic, Hey, this fill in my lap, let’s do it again, kind of thing.

Brad Dower: It was a little bit of both. I mean, I was browsing all the broker websites and then our next one was larger. It was about 350,000 in revenue. And it was a mutual client, it was a bookkeeping firm. We’re always struggling to find good bookkeepers, so it was very advantageous. And I actually had reached out to that bookkeeper, so there’s another practice for sale in that area. And I said, Hey, what’d you think about going on this together? And she goes, I’m actually selling mine. I’m like, oh, okay. And so I ended up buying that one. So that one was kind of purely organic just from knowing. Kind of talking to people, like I said, as soon as you get in the space. And so it did go well.

The first one. Like definitely lessons learned. Pricing is a big one for us. And so, I mean, I would say I’ve learned a lot through all of this. But I don’t necessarily necessarily get discouraged if pricing’s not where it should [00:09:00] be. ’cause after two years we got the pricing where we wanted, right?

You can’t just rip off the bandaid and double the fees. You can, but you’re gonna lose a lot of clients. And so we’ve slowly transitioned them, you know, they were paying a lower fee and then it just kind of slowly, or, you know, and not organically. We very purposefully on ours, we’ve basically have doubled their fees in the last two to four years, depending on what the fee was.

Jonathan Hawkins: So you, you basically acquire the book. And then slowly start turning up the fee structure.

Brad Dower: Correct? Yeah. So the, to minimize, I mean, the name of the game is client retention at end of the day, right? Especially when you’re buying a book. We’re not like some CPA firms that go in and just want the top 10%. We want really want to, I mean, ’cause typically it’s, we do in the smaller space, so it’s not, you know, our largest to date was 2 million in revenue, but they still have a lot of small mom and pop clients and lease CPAs.

It’s been their business for the last 20 to 40 years, you know, and so they want to take care of their clients and they wanna take care of their people. And so we go in [00:10:00] with a very culture heavy firm, you know, or we try to minimize hours outside of busy season, the 36 hours, you know, Monday through Thursday, Fridays off.

‘Cause I mean, we do work a lot of hours during tax season for sure.

Jonathan Hawkins: So another question that I have is how, how did you learn this? I mean, obviously you’ve done six of these deals now, so you are learning every time you do it. But early on, did you have advisors help you? Or did you just fumble around in the dark and figure it out yourself?

Brad Dower: I just fumbled around in the dark and, you know, definitely probably didn’t do things as efficiently. You know, now we have a couple hundred, you know, checklist that anytime we’re doing everything from when the LOI goes out to let’s, you know, six months past the acquisition date, you know, or here’s it systems coming online and when offer letters get sent out to the employees.

I mean, everything, right? We’ve got a fairly well documented you know, I’m sure it’ll shock you that I’m very detail oriented as a CPA but, and so, you know, but I definitely, I miss [00:11:00] things and client communication and when you do things, I mean, you know, it’s, I don’t, I don’t have say there’s not necessarily a right way to do it, but definitely some lessons learned for sure.

Jonathan Hawkins: And so, and you mentioned too, you know, your first deal was pretty small, but you’ve been getting bigger along the way. How are you sourcing your deals now? Do you probably play in a, a certain, you know, EBITDA range, I guess, you know, everybody hears about the pe PE firms looking for the bigger whatever.

You’re probably not playing with

Brad Dower: Well, yeah, we try to stay away from the bigger ones. Once you cross over, kind of like the 2 million in EBITDA threshold, we, we minimum really want a million in ebitda. ’cause that then it’s not just, you know, a CPA and their spouse or an admin or something running it. There’s actually a team and there’s a business at that level, right.

So that, you know, they’re typically operating around 50% margin. And so, I mean, you’re typically like $2 million practice, million dollars in ebitda. So once we lever with debt ’cause we’re gonna, we are highly levered. I mean, but [00:12:00] thankfully. These businesses cash flow really well, so not as worried about it.

But you know, once we lever with debt, I mean, we’re still producing, you know, 30% margin. You know, in some of the lower ones it’s like 15 to 20. But,

Jonathan Hawkins: And so how are you finding the deals?

Brad Dower: Sue Brokers mainly. And so there’s a ton of brokers for the CPA space and like I said, we’re definitely trying to standard that PE area. Although we are trying to take down one that’s 2 million in EBITDA, roughly and a $9 million purchase price. And so we’re kind of starting to play around a little higher.

I mean, the ultimate end game is that 10 million in EBITDA and potentially look at an exit or worst case scenario, you know, we have a business picking off 10 million a year. You know, there’s worse problems to have.

Jonathan Hawkins: Yeah, so talk through again, most lawyers are. I mean, they’re deal lawyers that deal with private equity. But in terms of most law firms, small law firm owners their private equity is, you know, it’s brand new. It’s barely on their radar. Maybe explain the play. So you’re gonna roll [00:13:00] up smaller shops, hopefully to create a bigger shop to X and then you would sell it to a bigger firm or a private equity firm.

Maybe take me through sort the strategy there.

Brad Dower: Correct. Yeah. I mean, so we’re, our main goal is multiple arbitrage, and so as we go through and integrate all these firms that are smaller, we’re buying them a 2 to 3x Anytime we bolt ’em on the platform now, just due to our size, we could turn around and sell it the next day for 6x And then our ultimate goal, if we can hit 10 million in EBITDA, we should be trading anywhere from a minimum of 8 to hopefully to 12, depending on, you know, where the market sits and where, how hungry PE, and how much capital is sitting out in the market.

You know, no one ever thought that, you know, CPA firms would be the new sexy space or PE, right? I mean, and so.

Jonathan Hawkins: Well, they were there first and now it’s becoming law firms, so let’s talk about the multiples. Now the, you know, one big difference with a firm like yours and most law firms are you have the recurring client bases, recurring revenue [00:14:00] versus one-offs. A lot of one-offs with law firms. And so I would imagine that the multiples would be bigger in a business like that versus one-offs probably first off.

But then, you know, why are the multiples lower for the smaller shops versus bigger?

Brad Dower: Because there’s no, typically the systems aren’t as good in those smaller shops, right? And they’re more people oriented. I mean, the ultimate goal is for any business as an owner is for you not to be in the day-to-day operations and just really guiding strategic kind of decisions and where we’re going, make the million dollar decisions instead of doing, you know, the $5,000 work, right?

That’s where the values add. And if you can basically, Hey, I don’t work in this business at all, you actually move your multiple up even more. So that means hiring the right people, you know, they always say hire people smarter than you. And I try to do that and have a great team.

Jonathan Hawkins: So what you’re saying, the owner producer shops, because you’re in the weeds on everything. It’s you’re buying a job versus a business and then as and as almost as a proxy for the [00:15:00] owner being removed from being in the day to day or everything is, if it’s big enough, he or she has to be removed.

So it’s a little bit of a safer bet, I would think, in terms of buying the business. Is that part of the reasoning

Brad Dower: That is part of the, I mean, we’re in a relationship business and we just happen. Do tax and accounting all just happen to do law? Right. And so at the end of the day, like it’s definitely a relationship driven, but, so we’re trying to change the model in the cpa. A space is our main goal. The kind of partner led model is dying.

It’s not really a business ever. You know, you can only have, you know, they typically say a partner can manage a book of, you know, two to three, 4 million depending on profitability, right? So you get capped at that level. So as large as we are, I’m the only partner in the business and the only owner in the business.

We have some partner in title, but they’re not equity. But then we’re really, we’re creating a team approach and so we’re pushing down that communication to the lowest level possible to that staff level. Not only does it push kind of their, how they’re gonna grow ’cause as we all know, [00:16:00] AI is gonna change our industries a little bit.

How that changes, we’ll have to see. But there’s gonna be a huge knowledge gap in that ai, you know, ’cause everybody, you know, but for yourself, you know, or anybody that’s been in the business for a while, you can plug into something in AI and it’ll spit out and be like, oh, that’s completely wrong. But you’ve got the junior, you know, staff member that’s like, oh, well this is what AI said it must be, right?

But how do you train that, you know, 20 years of experience? And I feel like that’s what we’re gonna get is all that low level work’s gonna get. We’re not gonna have to do it anymore. But then you’re gonna have to interpret whether AI is spitting out bs.

Jonathan Hawkins: Huge problem, huge problem. We’ll see if, we’ll see where that

Brad Dower: Yeah, I’m sure y’all see all kinds of legal docs, you know, by chat GPT and you’re like, oh, this is totally ChatGPT.

Jonathan Hawkins: Well, it’s cra well, I say number one, there are still people, still lawyers filing fake cases, which is crazy in briefs and, and people have been sanctioned all over the country, but they’re still doing it, which is crazy. But you know, more and more the clients are coming, Hey, here’s this thing. Why don’t you just, just, just look at it, make sure it’s okay, [00:17:00] and it’s clearly ChatGPT, and it’s like it’s easier to just throw that in the trash and start.

Fresh then, then try it or you know, fix that thing.

Brad Dower: Yeah. And so like, we’re pushing that down to the staff level, right? So they’re interacting with clients and then when the client interacts with us, they have a whole team approach, typically. So we have a junior staff member who really is kind of running point and a larger client.

We have a client success manager role, and so their main objective is to make sure that client’s happy, right? And getting the client work in. That’s half of our battle is, you know, getting tax documents or monthly finance, you know, bank statements, all that loan statements so we can actually do our work.

So then they have the, that’s their role. Then we have the producer. That’s talking actually to the client as well. It’s actually doing all the work and then there’s the senior member or CPA or just somebody who’s been an accountant for 20 years, right? Or an enrolled agent or depending on what their level is and what they’re doing, we typically try to have two to three team members on every account.

And so that way you’re not bottlenecked at the top by the founder, [00:18:00] right? It’s like, okay, well I can only talk to X amount of clients a day. Then it basically funnels through them and they can hopefully answer 80% of the questions. And you know, that’s why we’re there just to develop those team members.

And so not only we’re developing at the same time, but then you’re also now we can do, you know, 10 x the amount of work.

Jonathan Hawkins: So it sounds like, so part of what you’re doing is you’re building a platform, sort of a, a, a business model, so to speak, that can scale and then you’re using the acquisition to really juice the growth, instead of trying to do it organically, you’re like, just come into our system that we are building and have built, and then boom, boom, boom, boom, boom.

That’s, that’s the play.

Brad Dower: Correct. Exactly.

Jonathan Hawkins: Alright, so let’s talk about you. You’ve got a broker or brokers and people are bringing you deals. Now, how do you analyze and vet the deals? I bet you, you know, let’s say you see 10 deals, how many would be something you’d be interested in?

Brad Dower: Probably zero. I mean, I would probably say we’re probably looking at 20 to 30 deals and picking one. So,

Jonathan Hawkins: Good answer. Good answer. So how, what are you looking for? I mean, don’t gimme your [00:19:00] secrets, but how do you vet these things? How do you know? And I’m, and I’m trying to put myself in a, in a, a law firm owner’s head and they’re like, Hey, I’ve got this opportunity. What sorts of things should, should that owner be looking at to say, this might be a good deal or, or run.

Run as fast as you can.

Brad Dower: A good place to start is gonna be with your lender. ‘ cause they’re gonna, for one, especially if they’re gonna be going putting debt on it. You know, what are they gonna be looking at? ’cause then you should probably be looking at it too. That’s, I mean, that’s kind of how I learned is basically reaching out to my banker and be like, Hey, what, you know, because when I first started I didn’t know anything, you know, minus what I could Google.

Of course, now AI is, you know, from 10 years ago is totally different. If I had it then I probably would’ve done a better job, but at least gone the right direction. But I worked with my lender directly and they’re like, okay, well let’s look at client concentration. You know, you don’t want any more than 10%, you know, the kind of stuff everybody knows.

But until you start thinking about it, look at pricing. I mean, because it, it’s key. If you’re trying to, like, we have turned away CPAs that said, well just come in and just pay what you get from [00:20:00] me. I’m like, I don’t want your clients ’cause you know, they’re charging like $150 ’cause for their tax return.

I’m like we start at, you know, seven 50 minimum now. So like, there’s this, that huge, and if you try to bring those clients and be like, Hey, even if you, it’ll take, you know, 20 years to get ’em to your price level. And so they may not be a good fit. And then like if it’s an industry you don’t know, I mean obviously stay away. I’m trying to, what else do we look at? Staff staff tenure for us and probably law firms as well, a strong office manager can run the whole place. And so if you have a good one that’s gonna at least gonna be around for a few years, great. And then just having team members in place. ‘Cause we look at ton of mom and pop type CPA firms, you know, they’re doing one to 2 million you know, in revenue and it’s just them.

And they may have some part-time staff, but you know, then they’re basically, Hey, we’re writing off into the sunset ’cause we’re selling the firm. Especially when it’s like the founder and their spouse, right? It’s just like, okay, you just lost 90% of your capacity. How do you replace that? I mean, if you have capacity, right?

You can take it on pretty easy. But that’s probably all of our industries is trying to find the right [00:21:00] people. It can be difficult at times.

Jonathan Hawkins: Yeah, so you have sort of minimum economic benchmarks. You’re looking at, you’ve got capacity issues and people, team member issues. When does culture and culture fit come into the mix?

Brad Dower: Right from day one, like, I won’t do a deal unless I’ve been on site. And so there’s some people like, oh, you wanna fly out? And I’m like, yes, I’m gonna fly. You know, especially if I’m spending, you know, a couple million dollars, I’m gonna come out and see you. Right. So, it’s, yeah. And to see, because. You know, everybody presents really well online typically, but then you get in person in the office, it’s just a mess. Or just like the way they interact with their employees or putting ’em down or something. Like, I mean, that’s just not a good culture fit whatsoever. And we, when we come in too, like our benefit package is basically Fortune 100, you know, medical, dental, vision 401k match.

It’s kind of all a 100k life insurance for all of our employees. And then we actually come in and reduce their work and typically raise their pay so everybody’s happy. And so it’s a little different when we come in as we [00:22:00] are trying to sell. I mean, we’re selling ourselves too, but, and so most of the employees tend to be happy.

Everybody. Comp structures change a little bit and we try to get out of hourly folks. I mean, there’s a couple of things just to make our lives easier as we’re trying to maintain the platform. ’cause I mean, I think at one point we were running like five different payroll cycles and everybody had some hourly folks and salary and commissioned and I mean, it was, you talk about trying to HR nightmare.

Jonathan Hawkins: Yeah, that sounds awful. So how do you from, gimme an idea of from the minute you a broker puts, puts this opportunity on your desk to close. What’s a typical timeframe to get one of these things done?

Brad Dower: to 45 days.

Jonathan Hawkins: Wow, that’s fast.

Brad Dower: So yeah, we, we can turn around pretty quick. Now. I would say when we first started it was probably three to six months. But we’ve streamlined the whole process and you know, as far then we will actually go through a full QOE. So quality of earnings report third party at, at this stage [00:23:00] now.

That just kind of gives us a better warm and fuzzy of, hey, this firm is real revenue’s, real clients are real. You know, ’cause they’re tying out the bank statements and tax returns and making sure all the transactions and client level and kinda like a mini audit, but they mainly more focused around the revenue.

Right. For those who don’t know what it is. mean, you said most of these attorneys are m and a, so they should hopefully know what it is.

Jonathan Hawkins: And so you mentioned you’ve talked a little bit about the structuring. It probably has changed over the years as you’ve done these deals, but what’s a typical, how do you structure these things in finance? I mean, is it bank loans, SBA, is it owner finance or seller financed earnouts? Combination of all the above.

How? How are you typically trying to structure these things?

Brad Dower: It’s a combination of all the above. I mean, a slam dunk for us is the bank will do, provide 60% financing. And if I can get a 40% owner carry, I’ve bought multiple businesses, you know, mil million dollar business or zero down, which everybody’s like, there’s no way. I’m like, well, you just gotta get creative.

It makes cashflow very tight. [00:24:00] And I’ll be the first, you know, my goal is basically not to make money two to three years post transaction. But I’m in this for the long term. Right. Or for that multiple arbitrage on the backend. You know, I, I don’t really care about the little cashflow and interim as long as we’re servicing the debt, building the portfolio.

’cause soon as we acquire a company, we’re typically. Our minimum goal is to increase it by 20% year one. And that’s, you know, through pricing levers or adding value, reducing hours. I mean, there’s all different kinds of ways to increase profitability depending on your industry. Or just actually having some kind of marketing behind it.

And so reaching out to the client base, asking for referrals, you know, ’cause we can typically say we have expanded capabilities now that we have a larger team. And so that moves us into, you know, potentially different verticals that they were not doing initially right. Or they last 40 years may have, may only be doing tax work and you know, we’ll go in and bifurcate kind of the client base and be, oh, we could potentially upsell this or that product, right.

Or service line. And so, and as, as you’re going through your whole deal and managing and kind of like, you should be able [00:25:00] to ground running day one with these are the clients I’m gonna be reaching out to. Like, once you get through that whole LOI phase and then you’re in due diligence they should be able to disclose the client base or at least, you know, high level of, you know, first initial.

Or your last name, something like that. Right? So you, or at least someone will put identifiers on the client numbers or something and kind of what that client base is made up of. And then, so you should be able to identify, you know, so if you’re a good operator, you should be able, able to go in and upsell within the first 90 days.

That’s our goal. At least

Jonathan Hawkins: So, so you, you wanna buy it, increase the, the profitability quickly, et cetera. But so let’s go back to, you said 60 40. So you go to a bank let’s just say you’re buying a, a firm for a million dollars and you and the bank will give you 600 to pay. And then you said there’s 400 for owner carry.

Is that right? And so how and how does that work? How, how do you structure that?

Brad Dower: so those are typically some, depending on the deal, they’re either gonna be interest only for the first year. [00:26:00] Those would be like in a longer term amortization typically five year or if we’re gonna be principal on interest it’ll be three year. And we are paying ’em interest on some deals they like, Hey, just it’s a pure earnout versus kind of a note.

Which is great because then there’s no interest. It really depends on how sophisticated the seller is. Some of these sellers aren’t very sophisticated, even though they’re CPAs. That kind of blows my mind that like, y’all should know some of this stuff, but they really don’t.

Jonathan Hawkins: And so when you say, when you say owner carry, and this is from the audience too, is you mean it’s you’re signing a note to them for the, for the remainder of it that’s payable over some period of time. Are there, do you include some sort of benchmarks? So let’s say half the clients leave in the first year.

Are you still on the hook for the, the 400 or, or does it get adjusted down?

Brad Dower: No, we also include callbacks in our contracts and promissory notes. So in our APA and the promise, really the APA is where it lives. But yeah, so it’s, I always ask for 95, but I’m happy if I can get [00:27:00] 90 from year one. And then kind of past year one, some, some of ’em have three year clawbacks, but it progressively goes down.

So we’ll start at, you know, 90, 80, 70. So they’re basically saying guaranteeing. And then we also, which is key to note, is if the seller wants to leave immediately, we will not do the deal. So we want them to work for us for at least a year to help maintain client retention,

Jonathan Hawkins: So let’s talk about that. When you say work for year, are they doing client work or is it mainly just we’re transitioning? What do you view the work to be?

Brad Dower: mainly transition work. But they, a lot of them like doing the client work, they just don’t like it doing the firm administration, I mean, as we all know, firm administration takes almost as much time, if not more than actually client work. But then you’re not getting any money from it, especially the larger you grow.

The firm administration takes up more and more time. And so once you take the firm administration off, a lot of ’em, like I said, the one I initially did, when was that 20? 20 20, 20 21, I can’t remember, whatever. But she still works for me now ’cause she likes doing all the client work, but she didn’t like doing the firm [00:28:00] administration and so, but, and then that ha helps the client transition.

’cause then with what’s good we, best case scenario, we have a two year transition strategy is kind of year one. You know, they’re working on our office or we combine offices. And then we, they’re like, oh yeah, we combine firms with Tower and Associates. Hey, that’s Brad over there, you know, he is gonna be helping out in his team.

And then so there’s kind of just initial introduction and we’ll be, Hey, how you doing? You know. Then year two we will kind of be involved in all those meetings. And then, so by year three, like if that CPA wants to retire or, you know, you can basically say they’ll be like, you know, you worked with Brad last year, we all worked jointly together.

You know, Brad’s got you and most clients are comfortable after that. Right. It’s kind of a staggered approach to it.

Jonathan Hawkins: And so if is, do you ever have to put any money down

Brad Dower: Yes. I mean, we’ll put, depending on the deal, we’ll put money down.

Jonathan Hawkins: and is that just from your, your own cash flow or is that, do you go raise money

Brad Dower: We’ve done a the bank finance part of that too?

Yeah, the yeah, I mean, [00:29:00] I took a personal loan out for my first one, right? Well, not the first one. It would probably be, that would be probably the second one, second or third one. You know, I took out a personal loan so you, you know, take leverage and then leverage even more.

So if you have trouble sleeping at night, you’re gonna have trouble sleeping when you’re highly levered. But but just it, you know, it makes, you wanna make it work, right. And so I’ve done everything from taking out a personal loan to fund the down payment to really just the bank covers the 40% or to where?

Yeah, or the, the company. I mean, I pretty much roll all of our proceeds back into the company at this point. And so yeah, we had partnered with a small jv PE shop. They were trying to get into the space and I was just basically putting them to work. For every million of revenue they brought in from an acquisition, they get 0.8 ownership.

I would say that did not go well. They just totally screwed up the fundraise. And they like try to like preferred return, not preferred return turned to a giant nightmare and I was basically like, because they were gonna promise like a 25% return a year. I’m like, we can’t do that. All the [00:30:00] money’s going back into it.

Like, well, that’s what we told investors. I’m like, well, we need to recap ’em out and move on. And that pissed out a lot of people off, right? But I was like, that’s not how, you know, our end game. We’re not worried about cash flow, which is what you’d be if you’re trying to do a 25% return or worried about, you know, the multiple arbitrage at the end.

It’s like, do you want me to take your money and 10 to 15 exit here in the next few years? Like, that’s what it’s really gonna matter.

Jonathan Hawkins: So to maybe an analogy would be you’re buying real estate for the capital appreciation, not for the cash, not for increased cash flows. Although, I mean, you wanted cash flow positive, so it’s paying for itself.

Brad Dower: Correct.

Jonathan Hawkins: But you’re really end game is the appreciation exit event, not.

Brad Dower: Right. Yeah exactly. That’s a great example with the real estate. Yeah. As you know, it’s servicing your debt for you, so you’re paying down your debt, so you’re getting equity there, and then at the end of it you know, it’s appreciating. And then it’s, like I said, with that multiple arbitrage, when we’re buying Two to Three X and selling hopefully Eight to Twelve, I mean, there’s huge spread there.

Jonathan Hawkins: All right, so you [00:31:00] find million dollar deal, you go close it. What are you looking for in terms of how long to sort of pay it off? I mean, is it 3 years, 10 years? Are you refinancing these things and trying to pay it down or what your thoughts press there?

Brad Dower: The bank terms are tenure. And then they have prepayment penalties on ’em for the 1st 2 years and then it goes down after the, well, you know, starting year 3 and then no prepayment penalty after five years. On the bank side on the seller carry side, those are typically 3-5 years depending on what it is. So we will not pay any of ’em off early for, ’cause we have that callback at least for the 1st year.

So we’ll do a true up after the first year. And sometimes, you know, some smaller ones, like the last one we just did was really small too. It was 400,000. But it was a buddy that goes, I don’t wanna be CPA anymore. You know, and so he is like, you’d buy my practice, I’ll make sure whatever, more of a favor. Right?

It’s really too small for us, but you know, had a good client base and so that one after the year, we’ll probably pay it off just ’cause it’s so small and [00:32:00] not have another owner note going out. Right. But yeah, it’s kind of all over the place. far as what cashflow looks like or if we’re gonna invest in a new deal.

We typically kind of roll it in. But as years have gone by, having all the debt go out and just kind of gets like, well if I can clean this up, you know, look at a percentage of it right. And interest rates and all that, it’s like not having an $11,000 payment this month. That would be great.

Okay. Let me pay off 200 grand, right?

I guess you’re just, you’re sort of used to carrying dead at this point, right?

I am. Yeah. Yeah. I had somebody that was gonna bring on as a partner into the business and I said, well, I need you to personally guarantee 10 million in debt. He goes, I won’t do it. I

Jonathan Hawkins: Exactly

Brad Dower: a partner.

Jonathan Hawkins: there, yeah. Oh yeah. Oh yeah. I can, I can understand that conversation.

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The law firm lifecycle is available on Amazon. Now, back to the show.

Jonathan Hawkins: So let’s circle back, back to the banks. How do, how do you find the lenders? I mean, is it SBO type stuff? Is it these deals probably too big for that now. I don’t know.

Brad Dower: Yeah, they’re too big now. And so we Oak Street Financial, which is a arm of First financial bank, or First Bank, or I forgot exactly what it is. They specialize in professional service loans. And so they actually do space, and Adam Frag is my banker there with Oak Street Financial. And so they’ll do law firms, CPA firms, insurance companies, and a lot of medical practices is kind of their big space.

And so it’s basically their professional practice lending arm of the bank. And you know, he could tell you all about it, but they’ve done, you know, a few billion in deals or something over, over the last 20, 30 years. And so, I mean, they’re kind of an unknown in this space, but they are heavily lending in it,

Jonathan Hawkins: and so they, they’ve done this for so long that it’s, [00:34:00] that’s comfortable to them. It’s not like you’re going to your local bank that’s never done a deal like this,

Brad Dower: correct? Yeah, they do all m and a partner buyouts. So even just, you’re just trying to buy out your partner in your business, right? They’ll, they can handle that. So.

Jonathan Hawkins: So let’s move on. So you, you close the deal and you’re bringing in this new practice with a new team and clients you’ve never serviced before. And so let’s talk about the onboarding process, which again, I’m sure that’s something you have, you’re continually refining every time you do one of these deals.

What are some of the challenges on the onboarding side?

Brad Dower: Problem from an accounting side is every client’s different. And so we have a, like a semi standard checklist, but you know, they may have two bank accounts or two credit cards. I mean, you have these journal entries or they have, you know, this client has an internal CFO. I mean, so we get into not necessarily documenting every little thing for an SOP ’cause SOPs change just as rapidly as AI is changing at this point, it seems like.

So, but kind of the bare [00:35:00] bones of here’s what it is, here’s what this client needs. And then we have our internal system that where those high level tasks are documented. And what we do a lot of is we’ll create videos and we use Microsoft Streams since we’re a Microsoft shop, and it’ll automatically transcribe and do everything.

And then you can plug that into an AI tool and then say, Hey, give me an SOP and it can spit it out and, you know, five minutes. Versus you sitting there trying to do everything. And so whenever the transitioning ones are going out, we sit down and show ’em this is what we expect. You know, and this just give us a high level overview of this client.

You know, okay, well this client’s an aesthetician and has two beauty shops, you know, across the Seattle area, but you know, whatever the client details are and they have this many bank accounts and oh, this client has this, that happens a little funny. And has, we have that video. And then so, and then inside our internal CRM that tracks all their tasks and employee time billing, like everything happens inside there.

There’s an AI tool. So you can basically plug it into that and you get a client summary really quick from it too.

Jonathan Hawkins: So you, so let’s talk about that. The technology. So [00:36:00] you’re buying a practice, hopefully they’re on some technology and not just paper, but then you have to onboard the team members and the clients into your tech stack.

Brad Dower: Yeah, you make that happen seamlessly? If, if that’s possible?

Yeah. ’cause we use Carbon, which is a kind of professional service firm, CPA firm tech stack that does all the back office and client communication all in one. And it’s can be, so we, and you’d be shocked, you are like they have some technology.

No, we’ve been doing like a due diligence and like, what do you use for workflow management? And they point to their conference room table. I’m like, well that’s not workflow management at all. So, a lot of the older CPAs don’t really have a huge tech stack. And so we were able to go in and typically eliminate 20 to 40% of the administrative burden. You know, ’cause our system will automatically send reminders to the clients, you know, Hey, we’re sending each your W2 to do your tax return or whatever the item is we’re missing. Right? Whereas like when, if you’re used to dealing with CPAs and [00:37:00] accountants for your monthly bookkeeping, you know, beginning of the month they send your email, Hey, we need your bank statement.

And you’re like, I know I need, but you know, most business owners select their reminder. All that gets automated through our system, right? We don’t have to do anything anymore. And so that it takes some time for them to learn, but we stagger our tech stack in for example, like tax software is one of our biggest softwares that we use.

So if they’re not currently on our tax software, we will not change it year one. So it’s got, it is a duplicative cost, but it’s kind of a cost of doing an acquisition. That way we can, ’cause typically we’re trying to close these end of the year where a lot of ’em happen. Or post tax season, you know, CPAs wanna make all the money and then run off and leave, you know, I think any business owner would, right?

You know, hear me make all my money in a few months and then you can, then it’s your business. And so we have that timeline, but then we wait that first year, keep ’em on their tech stack and, you know, first thing we’ll do is like implement time tracking so we can keep track of their time better. And capacity management, since we actively work to have them [00:38:00] work less hours, which is not normal for professional service firms, but that’s, you know, our, if somebody’s going over 36 hours outside of busy season, they’re like, Hey, what’s going on? And then we try to max out at 50 hours during busy season, and so somebody’s going over that. Then we have a, you know, essentially culture issue or what’s going on at that location. We need to hire somebody or what does that look like? But so we just stagger the technology and slowly. We’ll start with time tracking inside.

So they get used to logging into the system, recording their time, getting, you know, how do they get clients? How do they add a client in? Okay. Then we flow the, put the workflow management piece on, right? Okay, well here’s the client project and okay, let’s build out task lists for it. And then it just slowly staggers into, and then, you know, whether it’s gonna be changing tax softwares or accounting platforms that they’re used to or kind of consolidate.

I mean, our ultimate goal is to consolidate it down. ’cause typically when we do an acquisition we can save roughly five to 10% in technology costs by just bolting onto our platform

Jonathan Hawkins: So change management, even in your own organization is very challenging. And so you’re bringing [00:39:00] in a team that has been used to doing it a certain way for maybe decades, and then all of a sudden you’re like, okay, you’re gonna start doing it our way. What kind of pushback do you encounter?

Brad Dower: I would say the worst pushback we have is people just quit. Which has happened. And so, but then. Really, it’s just, and we tell ’em like, Hey, our, our goal is not to make this harder, to make it better, right. Or, so you can focus on client focused work versus, you know, sitting, they’re doing administrative burden on the backend.

And so everything, we really try to take the time to show them. And then we have open office hours on Fridays. Like, you can come in and one of our tech leads will sit there and, you know, oh, you have a question on this, and they just sit there and help ’em. Right? And then as far as onboarding, like we sit there and we show ’em and, and all, we have a fully blown out knowledge base too, you know, which, you know, most employees never, ever look at, but it’s there.

And so that’s why I would say don’t worry about SOPs so much sometimes, because you’ll spend all this time doing it and then you hand it over and then no one ever looks at it again. Right. Yeah, change management is huge. And like [00:40:00] we just tell them like, if you can’t get it, that’s fine. We’re here to help.

And what’s just been great since we are a bigger team now, like we have people that are somebody who matter experts, right? Or the local SE on, you know, the carbon or the local or the tax software or for QuickBooks Online or whatever the software package that we’re using, we’re actively trying to go in and eliminate. And so we will set sunset dates and say, Hey, by this date we are no longer using the software. We’ve gotta convert from that. You know, what do you need from us to help with that? And it’s really just proactive communication with your employees.

Jonathan Hawkins: So at this point in time have you created internally just like an onboarding team

that you

Brad Dower: We have what we call the A team,

and then it has includes internal and external. So our MSP is part of that. So we’ll bring them in, they’ll come in and do basically an IT audit see what issues they have because a lot of these older CPA firms. They have, you don’t have firewalls set up or anything.

I mean, it’s, it’s crazy. And you’re like, thank God you never got hacked. But, and [00:41:00] so we’ll come and do that and typically replace the equipment, kind of they, their initial site visit after the acquisition closes, that’s when we’ll go and replace the IT equipment, change passwords, kind of do all of that aspect.

And then we also have our like all go out as a CEO, you know, and make sure we’re talking to everybody and sit down one-on-one with all the employees. And then we have been bringing our COO and then our internal IT guy as well. ’cause he is kind of the subject matter expert in all of our tech stack.

And you know, how do I do this for that? And he is basically our tier one level technology support. Everything from software to actual the physical laptops,

Jonathan Hawkins: And so I imagine these are all asset. is Right. You’re not buying

the, the, APAs okay. everything.

And so how do you deal with the branding and the name change and how, how do you roll that out when you’re buying, you know, a, b, c accounting firm and then rolling under Dower and Associates? How do you roll that out to [00:42:00] clients and to

the market?

Brad Dower: It really depends on how established the firm is and how if the owner is gonna, how long the previous owner is gonna stay on. I would say typically it’s better to rip off the bandaid right off the bat, change the name. That way when the previous owner is still there, then be like, yep, we’re up operating under Dower.

I’m still here. Nothing’s really changed. Name change on the door. You write check to different person. All good. Versus we’ve tried to do a staggered approach. And that can be more difficult where it’s like, okay, we kept the name and then we then kind of year one. Then year two we rolled into, hey, it’s, you know, owned by Dower and Associates.

You’re kind of working with that team. Then year three changed the name. You know, depending on what the client base looks like, I would lean more towards after doing a few of these, change the name day one and move on.

Jonathan Hawkins: interesting. That’s interesting. That’s a good insight

Brad Dower: And then from a resale perspective, or if you’re trying to actually exit on the back end of this, you know, a house of brands is not gonna sell for as much as a single brand.

Jonathan Hawkins: [00:43:00] That’s, that’s really, that’s good stuff there. Alright, so let’s talk about client retention. So, obviously we talked about accounting, it’s, it’s, you’re buying hopefully a recurring revenue stream. Clients are gonna come back, but I imagine you know, maybe some clients you don’t want, but if you’re buying a hundred clients, you’re gonna get some sort of churn.

How, how do you factor in the retention of clients, both in the, how you approach the deals, how you price ’em, and all that?

Brad Dower: Yeah, so our goal is to minimize churn because like I said, it’s a lot of these clients seem to be best friends of CPAs that, you know, could’ve been working for 30, 40 years, whatever it is. And so our goal is kind of year one, really just maintain a hundred percent, not push pricing too much, at least to, typically we’re doing a five to 10% price increase, and we try to do that every year at a minimum.

I mean, we’re just trying to keep up with inflation. If somebody asks, Hey, you did this last year, I’m like, well, we do it every year. We give our employees raises, our rent goes up, you know, like all of our costs. I mean, and like, you know, how much does the carton of eggs cost, you know? You know, I have no idea.

’cause we have chickens, but you know, it’s kind of, [00:44:00] so, but they, so we are always pushing pricing up. Right? And so even at a bare minimum, that initial, but our goal is to, is to maintain a hundred percent of clients never happens. Like I said, the callbacks are in there for 90 to 95%, where we get a dollar for dollar reduction on the, the seller carry piece. So if it goes below that threshold.

Jonathan Hawkins: And then part of it, do you have, I imagine, some sort of system or systems to really blitz the clients and really try to transfer the relationship, establish in a relationship with Dower & Associates all the sweet stuff you send them. I don’t know what, what, what do you do on that front beyond just, Hey, we’re servicing your, your file.

Brad Dower: I mean for just the like tax, like smaller tax returns. I mean, there’s not whole much activity. You know, they get a letter or an email that says, Hey, you know, so and so is retiring. I mean, we typically, it, it gets pitched as a merger, which it kind of is a merger, you know? ‘Cause they work for us for the first year at least.

And so we pitch it as a merger. You know, John Smith’s still gonna be here, you know, he is been [00:45:00] your CPA for 40 years. Oh, by the way, here’s Brad, and here’s a, you know, typically we will, we’ll try to replace that other. The seller with a new CPA to be on site to kinda help run that office. And so we also have, you know, the new CPA, you know, he is got 20 years experience, kind of give ’em a little bio of who they are.

Right. And so, you know, we look forward to serving you, you know, your platform is gonna change a little bit. You should be looking for a client portal from this system. You know, kinda give ’em a high level overview to whenever we like a high touch client for MRR type where it’s a CFO or bookkeeping.

I mean, we basically set up meetings day one, you know, or released in that first week to month. Try to get through all of that kind of reoccurring client base that we’re have more than just an annual touch point with. So, and you know, it’s really, there is a client communication aspect to it. ’cause we really try to start, basically it’s very low pressure, you know, Hey, this is who we are.

Do you have any questions? Right? Kind of the initial contact, you know, then we say, we, you know, kind of into [00:46:00] that as like we’re gonna have some additional resources if you have any questions. Any business owner, I always like to ask ’em what keeps ’em up at night. ’cause typically it’s something revolving around their business.

Then we try to get an early win and kind of so we can show our value, whether that’s cashflow planning or payroll management. I mean, there’s all kinds of different issues business owners have, right? And so if we can get an early win, that’s our goal. Isn’t they? Kind of remember you? Oh yeah. They came in to solve my problem that the other CPA hadn’t done for 15 years.

Jonathan Hawkins: Yeah, that’s, that’s a good approach. Okay, so we talked about you, you’ve done six acquisitions and some of them are out of state, far away, not even just across the border. What are some of the challenges of integrating and managing these, I’ll call ’em far-flung offices, particularly in areas where, you know, you’re not familiar with the local stuff.

Tell me, talk me through some of that. How do you, how have you gotten past some of those challenges? What are the challenges and how have you gotten past them?

Brad Dower: I would say that this kind of local. Culture is gonna be very different. I mean, we’re Texas. So Texas has a totally different [00:47:00] culture than like, so then our, and then we have as far as apart as you can get, so we have Bunton, New Jersey, and then we have durian in Seattle area, right? So in even the east coast versus the West Coast, just how people talk and communicate mannerisms.

I would say that’s been a learning kind of curve. My family’s from the Northeast. So like, I was kind of familiar, not so much with the Jersey area, but Baltimore area. That was where my dad grew up. And so we saw a family up there, but then like, Seattle’s a totally different culture than, you know, Texas or Jersey.

And so really just kind have to jump in and dive in. I mean, I tell everybody, I’m honest to a fault. I’ll, you ask a question, I’ll give you an answer whether it’s probably good or bad. So I just, I, that’s just how I like to do business. And a lot of people value that and respect that. And so you just kinda have a commonality across different cultural groups and just, you know, I treat everybody as they should be treated.

Right. And that, and they just care. Am I gonna get my financials on time, my tax return’s gonna be [00:48:00] right. I mean, if you can deliver that and, you know, basically produce that you’re confident in what you’re doing, you know, you have to believe in yourself before your client’s gonna believe in you, right?

Jonathan Hawkins: You know, it’s funny you, you mentioned the culture differences in, in Seattle. So a lawyer that’s been on this podcast, Elise Bowie, she’s, she grew up in New Orleans and she lives in Seattle now. And she said, you know, if she get on the elevator and start talking to people and they’re like, no, no, no, we don’t do that over here.

We don’t do that around here.

Brad Dower: Yeah. But everybody, like in Seattle is super nice for, you know, like they just open the doors and do everything versus like, Jersey people just ignore you, right? And you’re like, oh, well, yeah. You know, but,

Jonathan Hawkins: Yeah.

Brad Dower: Texas you were like New Orleans, right? Like, everybody wants to talk to you. You’re, you know, on the elevator doing whatever.

but it’s, at the end of the day, we’re providing a service, right?

Jonathan Hawkins: So I imagine your offices are also growing organically, right? You see some organic growth. As you’ve done this now since, you know, what is it coming up on, I guess 7/8 years now? What do you, how do you see [00:49:00] advantages, disadvantages to organic growth versus growth back acquisition?

Brad Dower: We use both hand in hand, right? So we grow organically, like we act actively ask for referrals from our clients all the time. And then we make sure our Google profiles optimize and all of that is really, but we don’t do like Facebook ads and all that. We don’t spend a lot of money in advertising.

And if we do, it’s gonna be hyperlocal. What’s kinda weird about our business is it’s for like the smaller tax individuals. I mean, and we won’t we’ll do just like a simple 10/40. I mean, we will, but we can tell people it’s seven 50 bucks. We’re like, nevermind. Right. So that’s kind of a client selection, you know, like just price ’em out of what we want to do because we want ’em to have a rental property or a business or something.

Right. And, sorry, I lost track of what I was talking about.

Jonathan Hawkins: Just organic versus

Brad Dower: Oh, you organic. Yeah. And so organic growth happens, I mean, our industry overall like there’s not enough CPAs, 70 to 80% changes kinda year over year, but CPAs are retiring, no transition plan, [00:50:00] which just makes it great for organic growth and for m and a activity. And then acquisitions, you know, we can, we typically look for a different geographic area. Because if you move a practice basically every mile, you move a practice, you’re losing five or 10% of your client base because they wanna work locally at a lot of the, for like the smaller tax work, like when we’re doing big.

Corporate stuff. They, you know, work with clients all over. We have clients all over the world actually, but but as far as the smaller tax work, which is probably, you know, 40% of what we do, they don’t want to be with somebody local, meet local, meet person to person, or at least go in and sign and talk to the office managers that we try to push ’em to.

You know, we sit down like for an initial meeting with a new client and then from there if nothing changes, you know, we can send it for e-signature and then potentially never meet with ’em again or so. And then if it something changes year over year, we’ll do a little screen share and send it to, through our secure portal, Hey, this is what changed, you know, and kind of walk ’em through it and try, we try to focus on asynchronous communication quite a bit but still have those [00:51:00] touch points with the clients.

But then, so when we do that activity in a different geographic area, it gives us another area where we can kind of turn on. ’cause a lot of these firms aren’t optimizing their Google business profile. They’re, you know, just all the low hanging fruit. No local SEO, which we do through our website. And so that you just wanna show up right in the three pack on Google.

And if you can do that, you’re gonna grow organically all by itself. And so when you can come in and take over for these underperforming, some of ’em don’t even have websites. And so, I mean, it’s, it blows my mind when you’re talking to somebody and they’re like, oh yeah, you know, I don’t need a website. And you know, as we know, websites are really more of a recruiting tool than a client tool.

You know, a client goes, yep, you got a website, they must be real. You know, but then it’s really the, if you’re trying to recruit and get new employees, they’re the ones that are doing a deep dive. If you’ve ever used Hotjar on your website before, it’s interesting to see where people you, ’cause that does heatmaps of where everybody is looking and going.

Jonathan Hawkins: Interesting. So I know law firms are different than accounting firms, and [00:52:00] even within law firms there’s lots of different law firms. But if I’m in a law firm owner out there thinking about a growth by acquisition strategy, are there any high level pieces of advice you’d give pitfalls to look out for, things to stay away from.

Brad Dower: I mean from a law firm side would be liability, right? I mean, get in what you know and make sure, unless you’re trying to add a whole new, you know, division of type of different type of work. If you’re trying to move into trust law or something, I’ve never done it before and you wanna go buy a trust shop or something you know, but then you gotta make sure you’ve got the staff to do that.

A lot of what we do is a lot less liability on it than what y’all do, right? You’re especially M&A and different spaces of law. So just be really making sure you know what you’re getting into. It’s definitely not as much as fake it as you make it as we can in the accounting world. So

Jonathan Hawkins: And have you talked to many law firm owners that have done acquisitions?

Brad Dower: I’ve never, yeah, never ever talked to any that have done my issue. That have been in the acquisition space [00:53:00] for the law.

Jonathan Hawkins: But I’m sure you’ve talked to a lot of accounting firms that have done it.

Brad Dower: Yes. Yeah.

Jonathan Hawkins: Well, I think it’s gonna start coming. I don’t know. There are some, you know, again.

Brad Dower: You’ve gotta get out of the hourly billing rate cycle and move to value-based billing, which both of our professions are trying to push. Right. You know, ’cause you’re just capped and if you, but a lot of the old law firms and old CPA firms are, we’re just gonna bill by the hour. And you’re never gonna have a profitable business unless you’re, you know, for a law firm unless you’re on the, you know, Wall Street or something and you’re able to charge $2,000 an hour as an attorney

Jonathan Hawkins: so, well, Well, let me, lemme tell you this, lemme tell you this. So there’s a firm I, I read about. It’s based in Texas, actually, you know, Sussman Godfrey. So they’re primarily, they’re a boutique litigation. They do a lot of high-end business contingency work, but I think, I guess if they are gonna charge by the hour, they just came out with their rates.

I think there are a couple attorneys there. I think I read it was 4,000 an hour.[00:54:00]

Brad Dower: Right. So

if you can be the boutique firm, you’re in a great spot. But I would say, you know, 95% of firms out there are not boutique, well, they won’t call themselves boutique, but are not truly boutique and have the client following that’s gonna pay them the 4,000 an hour. Right.

Jonathan Hawkins: Yeah. So I guess one red flag is, is if, if I’m looking at a firm and, and the owner says I’m gone tomorrow, that might be something to work look out for in your mind.

Brad Dower: definitely, like I said, we won’t do a deal with somebody that will not work for us for at least a year. If nothing else, you’d be like, Hey, I want you to go out and wine and dine the clients, you know, and introduce the, you know, the new firm who we’re, and then, you know, you go out and wine and dine ’em too.

Like I said, we’re in a client relationship business, you know, we do accounting work and, and y’all do law, right? I mean, it’s, but at the end of the day, is there other attorneys, there are other CPAs out there that can work with, there are, I mean, you’re buying that goodwill of that practice, right? Of hopefully, yeah.

I mean, you may have done some business deal for this client down the road, but you’re, hopefully they’re gonna do more work with [00:55:00] you. And so it’s just that client relationship of, Hey, who am I gonna call? You know? Oh yeah. I’ve, we’ve got this firm that I worked for 20 years. Yeah, they did sell, but let me give ’em a call.

They said they could still help me out. Right.

Jonathan Hawkins: So another question I have, so you started in 2019 and you’ve had, you’ve done six acquisitions, you have tremendous growth in the last seven years or so. How do you manage the chaos? How has your role changed and how do you manage it all?

Brad Dower: I have three executive assistants.

Jonathan Hawkins: How does that work? Do they, do

Brad Dower: I have have different. does Email and and scheduling. And I have one that basically, you know, can be a DHD at times and all over the place. And sometimes her goal is just to reign me in for the day and be like, Brad, you need to do this. And so, I mean it’s, you know, it sounds funny when you tell people you have three executive assistants, but like, when you have basically six different firms and then the CPA world is not the only thing I do.

Part owner and for time fitness locations and we own commercial assets, real estate [00:56:00] assets, residential real estate assets RV parks, I mean, so all over the place, right. You know, I’m a serial entrepreneur, of course, now I’m trying to get out of all of that and focus on the cpa, a firm. That’s where the big money will be, hopefully down the road.

And so I have one EA that basically helped me wrangle all the other stuff I have going on. So,

Jonathan Hawkins: Wow. Yeah,

Brad Dower: and then I, I use monday.com. cause from my email, you can send over to a board. And so basically I have what’s the guy’s name? What’s the workflow productivity guy? I can’t remember who he is. Got his different buckets and you set up I’ve got the book somewhere.

Jonathan Hawkins: back to your time.

Brad Dower: Yeah. Yeah, Dan. Yeah. Buy back your time. I use that one instead of the different buckets. And so I have my assistant I hand email, say, these are the emails you need to respond to today. These one you get, you can get to by the end of the week. Right. And these, you can just ignore because you get so much stuff. Then like they handle all the scheduling and then we have automated tools that schedule too. But you know, half the people still email, Hey, I’m available, you know, Monday, Tuesday, these times. Right. So

Jonathan Hawkins: So do you [00:57:00] see a day where you’re not gonna need three executive assistance? Is that coming?

Brad Dower: hopefully,

like I said, trying to sell off all of our other assets right now minus CPA firms. Then from there, that should get rid of one and then really try to get out of email as much as possible. I mean, email just sucks you in. Next thing you know, you wasted an hour and you’re like, what did I actually do?

Is this, especially as far as like, if you’re in the CEO role, I mean, you’re supposed to be out there trying to get, you know, big deals and get new business in the door. It should be your main goal and you pivot it over to somebody to actually do the work, right? And so like, it’s much better service if I’m gonna go get a note, another client group for a hundred grand versus getting stuck an email or reviewing a tax return, which, you know, I still do during busy season.

But just tell, but then what, but allows me to shift offices to which a lot of them don’t. And so if one office is starting to get backed up, I’ll go and review a bunch of work really quick. And eventually if I can hire somebody to do that, then they’ll allow me to really get into only m and a type activity or managing those [00:58:00] key relationships, which is where I wanna be.

And then hopefully I won’t need all that.

Jonathan Hawkins: Yeah. You know, somebody like the listeners and me, you know, I want to grow a bigger firm and you know, you, you’re doing it, you’re in the middle of it. And I’m very curious about how my life might change through that process. So it sounds like I’m gonna need to get a couple more executive assistants.

Brad Dower: It’s a lot of sleepless nights too. So,

Jonathan Hawkins: Yeah.

Brad Dower: like I said, all we look for quality of life for our employees. I would say I do not have quality of life and a good work, you know, life balance by any means, which I don’t know if any founder ever can until you really hit that scale phase. Which the problem is that we keep trying to scale larger and larger.

Like if I was to stabilize kind of the current platform, I think I could definitely start shifting work and doing that. But the problem is we’re trying to actively grow even more. I mean, our, our goal is to have a three to five year target, the 10 million in ebitda. We’re currently only at two, so I mean, we should hopefully at 2.5 with no more acquisitions this year, but.

Jonathan Hawkins: Yeah, that was gonna [00:59:00] be my next question. I know, I know you want to grow. Do you have a certain size that once you hit it you’re like, okay, I’m done. Or you just wanna make sure you get at least there? And then what is the timeline? Is it, like you said, five years?

Brad Dower: Yeah, we’re looking at a three to five year timeline depending on how aggressive we get on our acquisitions. But because really then stabilize and once you stabilize, there’s, you know, we at least one a year probably operating the platform. But what’s crazy is you get big enough, they don’t even care if you’ve optimized the platform yet, that they’ll still pay you a good premium on it if you can get to a decent size.

And that’s kind of once you trigger over the 5 million and EBITDA perspective and you’re kind of multiple shifts and then kind of like eight to 10 at shifts. And then if you can get from there to 15 to 20, the problem is you move up those as your buyer pool starts shrinking drastically. And so kind of the sweet spot, I think is if you can hit 10 million in EBITDA and you’re getting anywhere between eight to 12 x, you know, my goal is to do a hundred million dollars transaction.

Jonathan Hawkins: Nice.

Brad Dower: So that’s that’s the goal, you know, which we’ll get there, doesn’t matter [01:00:00] how long it takes, I said, or worst case scenario, you have a business kicking off 10 million in EBITDA a year, and after you’ve serviced the debt for, you know, a few years, it’s kicking off tons of cash flow. You can either keep the cash flow or hire the right people and then, you know, I don’t think I’d ever be the person to go hang out on the beach.

I would get bored after probably half a day and want to, all right. What’s the next deal?

Jonathan Hawkins: Well, that, that was gonna be a question too. I mean, you’ve got all these other businesses you mentioned, and you’ve got this one, you’re gonna get bored on the other side. You’re gonna have to do something

Brad Dower: Yeah. And I have no idea what that is. So,

Jonathan Hawkins: and, and you don’t look too old. So you’ve got a long, long runway.

Brad Dower: yeah, I’m, I’m 40 and the goal is my youngest will graduate high school in six years and is to potentially be done at the same time he’s done. You know, at least with kind of day-to-day type stuff. So.

Jonathan Hawkins: Well, well, Brad, thanks for coming on. This has been really interesting. I, I’m, I learned a lot. I got, I took some good notes here. For anybody out there that wants to get in touch with you, what’s the best way?

Brad Dower: Yeah, just shoot me an email and I’ll give you my email. Like I said, it’ll go through my [01:01:00] ea but we’ll, we can get something scheduled. If they want more information, our, you know, our websites is dower associates.com.

Jonathan Hawkins: Awesome. Well, thanks again, Brad. This, this has been real cool.

OutroUpdatedWebsite-1: Thanks for listening to this episode of the founding partner podcast. Be sure to subscribe on Apple podcasts, Spotify, or wherever you get your podcasts to stay up to date on the latest episodes. You can also connect with Jonathan on LinkedIn and check out the show notes. With links to resources mentioned throughout our discussion by visiting www.lawfirmgc.com. We’ll see you next time for more origin stories and insights from successful law firm founders.