Ep. 13 | Buy vs. Build A Successful Tax Practice
Download MP3Welcome to the Mr. R Show, presented by the MRR Institute. This podcast is designed specifically for tax professionals industry. Whether you're aiming grow your business or enhance your client experience, you're in the right place. Now let's get to the show and transform your practice together.
John Tripolsky:Hey, everybody, and welcome back to the mister r show here Presented, brought to you, edited, and I guess hosted by the Monthly Recurring Revenue Institute. If you're not familiar with who mister r is, go back to a couple episodes. We actually take a little time and describe that. But I promise you, mister r has more hair than my cohost on this show, Chris Pacquero. What's happening, Chris?
John Tripolsky:How are you, man?
Chris Picciurro:Fine. Thank you for the hair joke. It's always a must, and let's just mention pickleball right now and get that out of the way for this episode. Alright?
John Tripolsky:We we got all of the we got all the boilerplate stuff completely out of the way. So
Chris Picciurro:And then our way and then we can bitch about how oh,
John Tripolsky:it's okay. We could beep that loud. I don't know
Chris Picciurro:if I've ever sworn it. We can complain about how high the taxes are California.
John Tripolsky:Of course. Of course. We have we have to poke fun at California. And I know for a fact that we do have some listeners out there, so we do not apologize for that because by choice, you probably live there. And there's there's, you know, 49, technically, 50 other places you could move to.
John Tripolsky:So let's just throw that out there. Anyways, so on this topic, speaking of making decisions, right, on where to live, today's topic we're gonna dive into, we are gonna really look and kinda compare and contrast and and kinda walk the path, if we will, on buy versus build a tax practice. So, Chris, I'm really interested in this one. Obviously, sitting on the we call it riding the pine. You know, knowing you for so long, I see you guys go through a massive acquisition period where you guys were basically buying practices like candy bars at a grocery store checkout aisle.
John Tripolsky:So I'm I'm super excited to get into this one, and I know we brought on a great guest. And, Chris, I'll actually I'll let you introduce our guest on today's show.
Chris Picciurro:Absolutely. Well, I'm very honored, both John and I, to have Matt Kidd with us today. Matt and I have known each other for a very long time in the Michigan Association of CPAs. Unlike myself, he also and and like Johnny has a great head of hair for those that are that are listening. Matt, it Did you say gray grayed or grayed head of hair?
Chris Picciurro:Oh, I think it's gray.
Matt Kidd:Sure which one. But
Chris Picciurro:You could fix gray, because you but Matt is a CPA, but he's also a PFS like myself, personal financial specialist. He has an awesome journey into becoming a CPA, and he's the first person I thought of when inquiring about having a guest about this topic. Myself personally, and we'll we'll start talking about this over the course of my 22 year of being a a practitioner. I just added them up and bought 6 tax practices over that time. I'll talk to I'll talk about what we did with them in the future here, but I know that that's a classic debate when you're a tax or an accounting professional.
Chris Picciurro:Should you, you know, should you buy a practice, or should you build a practice? And what what makes sense? So I'm excited to have Matt. Matt, tell us a little bit more about yourself, and welcome to the mister r show.
Matt Kidd:Yeah. Thanks for having me. I mean, you did did a pretty good job covering things, but, like, a little more background. I'm the I am the son of a CPA. So my dad was a a partner in a large local firm for most of his career.
Matt Kidd:I lived lived what I would call the traditional public accounting life. So very, very heavy tax seasons, worked hard, and they also did throughout his tenure as managing partner. I think they did 5 or 6 acquisitions as well. So that was kind of the environment that I grew up in. Then for some insane to be determined reason, I decided to come to CPA as well.
Matt Kidd:I think I think it's actually because I I enjoy the boats too much. So I send you the way to fund the boats and spend time on them.
Chris Picciurro:But Okay. Yeah. You wanna be on the water
Matt Kidd:in the summer. So became a CPA. Bounced around to a couple of small firms after college, and then kind of hit the point that I was banging my head against the wall saying there's got to got to be a better way to do things than some of these traditional firms were doing so. So that was when I, I hit the point that my, my two options were, I was either going to find a firm to buy or I was going to go on on my own, start from scratch, see if I get some part time contract work to pay the bills while I built up a practice, Ended up having a firm that came up for sale that was a one owner at one long time accountant that worked worked with him and ended up buying that firm in 2017. That's where the fun began.
Matt Kidd:So you bought so let I'm gonna take you back to you know, we're both all 3 of us actually grew up in in Michigan.
Chris Picciurro:When did you obviously, you grew up in a household with your dad being a managing partner of a firm doing a lot of acquisitions. Did you feel the pressure to become a CPA? Did you or or what was your dad, like, oh, don't do this. You know, what what was the what got you thinking that you wanted to get into the Spiegel?
Matt Kidd:No. And, actually, interesting, I've got 2 2 older brothers, and we're all CPAs as well. And I'd say there there was no pressure to become CPAs whatsoever. I wouldn't say there was a push for us not to do it either. I think we had very honest and open conversations about what the, the good and the bad of it was when I've even, I mean, early teenage years, all through high school.
Matt Kidd:I mean, that was our much to my mother's dismay. That's what we talked about almost every night.
Chris Picciurro:You can talk about the Detroit Tigers. Cool. I mean, in
Matt Kidd:in that era, they were actually they were on the upswing. So we did talk about, though, the last 10 years or so. Not so much unless And we could talk about pitching, but we're not gonna dive into the hitting.
Chris Picciurro:No. Like, we can't we can't score, I always often say that we Tiger skiing score in a brothel with a fistful of 100 right now. I'm not sure how I
Matt Kidd:was supposed to follow-up with that one.
John Tripolsky:Yeah. See, leave leave it to a leave it to a tax guy or just a financial guy at all to come up with a joke like that. But it's I you know what? I won't say we can all relate to that, but we can understand that.
Matt Kidd:Well, I mean, it's somewhat somewhat related, which I mean is a dangerous road to go down being related to that story. But by, the office the desk that I have in my office, it actually came from the ex wife of a CPA who lost it in the middle of taxis and and ran off to Florida with
Chris Picciurro:a stripper. Wow. That desk, I mean, good thing good thing adults listen to this podcast, and lord knows what else has transpired on that desk. But Yeah.
Matt Kidd:So I think I've got a little bad juju going with that desk, but
John Tripolsky:got a good story behind it. So when you're Oh, no.
Matt Kidd:No. I I never thought about that. Come on.
Chris Picciurro:Oh, I'm talking about I'm talking about the I was just thinking about the dust being eligible for bonus depreciation. I don't know what you guys are talking about.
Matt Kidd:Alright. So back to accounting.
Chris Picciurro:Now interestingly, I know you have 2 like you mentioned, you have 2 brothers. I've gotten to know one of them. They're both CPAs. Are both of them in public accounting, or where what are they up to?
Matt Kidd:Yeah. Yep. So we each have our own separate small firms. There was a a period when we first bought them, we were all 1 corporation. Because we were able to save money on the software and insurance being the main things.
Matt Kidd:So it saved us quite a bit of overhead when the cash flow was tight for everybody. What's kind of got to the point that the cashflow was solid. It was more headache than it was worth all being in 1 corporation. And we always ran basically separate firms despite being 1 Corp. So we split it apart probably 3, 4 years ago.
Matt Kidd:I'd say it was during COVID, so whenever that 5 year stretch happened.
Chris Picciurro:Yeah. The 5 year. Well, Yeah. That was that was interesting. That's for sure.
Chris Picciurro:Although, I I I think that in my 22 years, other than obviously people getting sick from a business perspective, it's probably one of the best things because it for a lot of practitioners that force them, push them, shove them into the 21st century, where some of them don't like to don't like to, step foot in. But well, that's what so did you have any jobs previous to, you know, going to school for accounting that you feel like you've got to learn some entrepreneurship or anything about tax finance?
Matt Kidd:Well, my my first job and I don't know. Don't don't report me to the the ethics committee. But my my first small business was I ran, and say a term in brackets in grade school. And it was back back before the days of ESPN dotcom, so you had to hand grade the paper brackets. So I took a commission of the, the pool that I ran.
Matt Kidd:And then the 2nd year that
Chris Picciurro:What high school did you go did you go to?
Matt Kidd:Oh, this was, starting in 6th grade. I was doing this.
Chris Picciurro:Oh, in 6th grade?
Matt Kidd:Yeah. At a Lutheran school, I was. And, and you ought to talk that was a lesson in disrupting, business models because by the time we hit high school, electronic brackets were a thing, and I could no longer take my commission because you could just have it graded online.
John Tripolsky:You were you were like a lunch table bookie.
Chris Picciurro:My first real job was a Detroit newspaper boy, and that has been completely disrupted. I'm older than both of you, so I would drive my bike around like the video game and have to go to strangers' houses to collect money. I mean, I had my own I had to buy the papers wholesale, so we I had a whole business My my business was legit. Although, you know, I I I don't know if all my income was reported properly as a 12, 13, 14 year old kid, but we'll move on from that.
Matt Kidd:I I did legitimately work as a as a lifeguard and bar cook
Chris Picciurro:Nice.
Matt Kidd:For a while as well.
Chris Picciurro:And were you in the Detroit area growing up or outside outside of Detroit?
Matt Kidd:So I actually grew up in Frankenmuth. Obviously, you're familiar with it, but for those of the you're not from Michigan, little German tourist town that's Christmas 365 days a year, and you can get fried chicken for breakfast, lunch, and dinner.
Chris Picciurro:You can go to Bronner's and get a Christmas ornament anytime. I know. It's it's it's a lot of fun. We stop up there when the family's up for, once in a while because the kids the kids enjoy it. So here's another thing I just picked I did pick up on is your you didn't work at your dad's firm then when you first did your dad say, look.
Chris Picciurro:You gotta go out, get your CPA license, work at other places first, then we could talk. Or
Matt Kidd:So I did. I worked part time there when they were, getting, I mean, business models evolving when they were, scanning all of their old paper files. So I was 14 or 15 when they were doing that. So I'd ride into the office of my dad, and I'd scam me and the other partner's kids would scan the old paper documents in the file cabinet at the time for 10 hours. Wow.
Matt Kidd:Go home and do it again. But then didn't didn't work there after graduation.
Chris Picciurro:And does your dad does your dad re is he still practicing, or is he is he turned in his mouse and keypad?
Matt Kidd:Yeah. So he is still he's still very part time working. So he spends January February in Florida, comes back to Michigan in in March and works March, April with basically the old is his old long time clients that he's kind of slowly retiring as they also retire and die. But no, he had died. I refer to it as 1st career and second career because part of the, the go on the small firm route was he hit 55 and he was burned out.
Matt Kidd:Okay. Yeah. So he took a, a early buyout from the firm at, I don't know, he was 55, 56 years old, worked part time for him for a couple of years. And then it was actually my oldest brother was at the time working for a school district, but he was doing taxes seasonally for a firm out of Saginaw. And he was the only, only other CPA that was at that firm besides the owner owner approached him about buying the firm original thought was it be a normal internal transition where it would take a 5 year transition period.
Matt Kidd:But it just so happened that at the same time, my dad was getting a little tired of being an employee after being a partner for 35 years. So he said, well, if you want to make this go a little faster, we can. So then he worked, he went in with my brother to buy his first firm probably 8 years ago.
Chris Picciurro:Okay.
Matt Kidd:I would say. And then that was when he went from, and that was a high volume 10 40 firm. Okay. So he went from working on larger complex businesses to learning how to do a 310 forties on the tax season. So then that's basically the last it's been.
Matt Kidd:Yeah. So 8, 9 years now. I recall him a consulting role in our firms. But he let he lets us screw up, but then he's there to, help us figure out how to fix it.
Chris Picciurro:Oh, that's cool. Man. So then so, obviously, you you you it's similar to myself. Like, what I I was working in at larger CPA firms, went to corporate America for a little bit because they were nice to have to pay for my MBA, then just kinda was like, I just wanna do my own deal. So I started my own practice.
Chris Picciurro:My parents thought I was nuts, in my spare bedroom. I made sure I bought a condo and a car first because I knew I wouldn't get any credit for, like, 3 years. In August, I started a practice, and then in November, I ended up buying a practice. So tell me about the that first acquisition, and and then I wanna talk through you know? Yeah.
Chris Picciurro:Tell me about the first acquisition, then I wanna talk talk through just as we talk about buying versus building, the the advantages and disadvantages of buying a a practice.
Matt Kidd:Yeah. So the first first acquisition I mean, one of the big key things was I needed somewhat of a long term transition because at the time, I was 26 when I closed on that first practice.
Chris Picciurro:Uh-huh.
Matt Kidd:So I I may have thought I knew what I was doing. It was true as it is. I know what the hell I was doing. Right. So we're we were looking for a firm that, you know, the seller was looking for at least a 2 year transition.
Matt Kidd:Found one that he was actually looking to do a a 5 year transition that we did had set hours each year, and it was a stepped out of hours.
Chris Picciurro:Okay.
Matt Kidd:So started out with 1200 hours, 1,008 100. He comes in and does tax prep and tax season.
Chris Picciurro:Oh, so it's a success story. Nice. Well, it's funny. I was 27 when I started my bought my started and bought my first practice, and I agree. I didn't know, but I kinda just figured it out in in some ways.
Chris Picciurro:And not not the most efficient. That's for sure. But and so do you still have a lot of those clients now? I mean, just I mean, that was
Matt Kidd:Yeah. We do. So we're now at point that, I mean, we're con considering the possibility of starting to deconstruct some of the firm kind of to to be determined, but we're looking at selling off some of some of the old model potentially, or just referring them out to other CPAs that they're now ideal clients for that they aren't necessarily for us anymore.
Chris Picciurro:I'm gonna steal the deconstruct term because I I love that term. I I use the term so we divested about 96% of our clients and and at at a crossroads, and this was about 8 years ago, something like that. We kinda started on our membership based model 12 years ago, and it ran parallel for a little bit. Let people, opt into it and then eventually divested it out. So I don't know.
Chris Picciurro:It's a toughie. I think if I had to do it all over again, it's tough to say. It's I I I don't but I I would consider and and we did this a little bit, but I would consider even if it's within the own same entity, I would consider creating a separate brand that's the new clients come into. And then the the the what we call legacy clients are in the other brand, and they can jump into that the the the new brand or the new way that let's say if it's subscription or let's say it's, you know, you have to you're only gonna do tax prep for clients that you do planning for, either tax planning or financial planning, or it could be that you're sing you're significantly pivoting and increasing the minimum fee that you charge. But you get certain other things.
Chris Picciurro:You you could do that just like I mean, we've all probably know someone or been a part of something where you're in a you're in some type of membership. It could be a time share. It could be something, and they realize, like, this is not very profitable. So we're gonna create a
Matt Kidd:premium product that you can trade into or you can Please. Please never compare us to timeshare again. What's your favorite patient gloves? Add any anything else. Well, my
Chris Picciurro:the reason I and you know what? I know. I don't like congruent after that. But I
Matt Kidd:don't think I've ever met someone who has tried to stay in a timeshare.
Chris Picciurro:You know, but, you know, there's a lot of parallels. So that's a that's a you know? Because then those come out and just say, so look at think about, like, when Marriott bought Sheridan or something. They have to grandfather people into one of the memberships. So or whenever you have whenever you're trying to create a premium service or you're trying to get your service when you're changing your model, sometimes, yeah, it's easier just to start fresh and then you know, either deconstruct or ship those people and pivot those people into the new model.
Chris Picciurro:So so that's challenging, though, because, I mean, I could just tell you emotionally for me, that was it's it was it was very, very challenging because at 27 years old, for someone to put their faith in me that to prepare their returns and you know, we weren't doing a lot of the ancillary services that we do now. And, again, that was 22 years ago. I felt such a a gratitude towards them. And it took me, you know, a long time to convince myself that I'm doing them a disservice by by really running my business one way and having all these outliers or exceptions the other way. And they deserve to have someone that's better aligned with what their needs are because my heart really wasn't in it at that point.
Chris Picciurro:And that's hard. I don't know if you're going through any of that.
Matt Kidd:Yeah. I mean, to to a certain degree, where I think one of the best and worst things about buying versus building your own is you're forced to manage a lot of staff with clients, because generally, especially if you're buying a firm on the open market, it's usually getting sold because they couldn't find anyone else to buy it. They're on a legacy software. That's about to end support. I mean, that was ours.
Matt Kidd:They were on CSA, Bill Thompson, Reuters that support was on D and so I've had from the day of closing, I think I had 60 days to convert all of the clients out of CSA, which is generally like a 1 to 2 year transition. Wow. So it is absolutely drinking from a firehouse that I say it's good and bad because I absolutely learned a ton. I would absolutely do it all over again because of the what I learned. Right?
Matt Kidd:So I mean, now when issues come up, it's pretty darn easy to deal with them because they're easy compared to what you had to deal with upfront. Now that said, I mean, it was a wild amount of stress and anxiety when it occurred. But I think the the perspective helps a ton now where, I mean Right. I think we just we implemented sure prep this year. We didn't start implementation until about January.
Matt Kidd:So we got sure prep up and running in about a 3 to 4 week span. Again, I don't recommend it. It wasn't an insurmountable lift because of what we had to previously do.
Chris Picciurro:Yeah. You had to do it. And you and so you made a great point that I want the listeners to understand. And and I know we're talking and having fun, but, you know, when you're thinking about buying a practice, our niche and our private CPA practice are real estate investors. And real estate investors understand that they make money when they buy a property.
Chris Picciurro:When they sell it, it's just a transaction. They also understand and if you have clients that are real estate investors, real estate investors that don't buy things off MLS. Okay? So when you're they buy things wholesale, They buy things from distressed situations. They buy things from other people in their network or previous relationships.
Chris Picciurro:So if you're buying or selling a practice that's listed publicly, then you're buying it's let's put it aside. It's getting listed for retail. That doesn't mean that's the price, and there are a lot of considerations. I have some strong opinions about buy versus build at this point, which I'll talk about later. But the thing is, you know, it you're you're you've gotta understand that.
Chris Picciurro:Right? And you put it perfectly. There there's a reason that someone internally didn't buy the practice. I my personal opinion is I think an internal transition is probably the best option by far for clients, for for for the people involved. And and that's ultimately what you you did with the I mean, with the first practice, the person stayed on and was retained, and that person is still part of your team.
Chris Picciurro:So, obviously, it was a very I don't want nothing's ever smooth, we'll say, but it was a very good situation if he's still retained. Have you purchased any other practices since then?
Matt Kidd:No. Because I what I'll say to that is that it's smooth now, the 1st year or 2, I mean, you particularly when you're dealing with self proprietors that have been doing it for 20, 30 plus years, we've got an I'm included. We've got strong personalities. I mean, there's, there's generally a reason we don't have partners. So you're, you're going to have clashes if you're buying out a sole owner and you're going to be the sole owner, there's gonna be clashes.
Matt Kidd:Because if you've been doing something one way for 30 years Is this? You're dead set that that's the right way to do it. Well, let
Chris Picciurro:me ask this question about and we don't need to use numbers here. But when we're talking about your how many years ago did you buy? Was that 2017 when you purchased the practice or my Yep. Okay.
Matt Kidd:So we're 1, 2017. Okay. So we're about 7 years in.
Chris Picciurro:If you looked at your per not percent of revenue, but percent of clients, what percent of clients do you think were are were part of that practice versus new clients? I mean, 30,000 for for you, would you say? So I would say
Matt Kidd:we probably have of those original clients, we probably retained, I would say, 60%
Chris Picciurro:at this point. Wow. That's a a nominal.
Matt Kidd:And I'd say most of those who have left were retirements on the business side of things. Because I knew it was an older client base, which, I mean, we were we were turning out the last few years, somewhere between 3 6 business clients a year that retired. Then on the 10 40 side, I don't track that quite as well because I look I look more at the total number and the average revenue. So we're down about a 110 forties from what we were when we purchased it. But the average revenue on those 10 forties has gone from try try to keep your draw off the floor.
Matt Kidd:It was a $170 for 10.40.
Chris Picciurro:That's right.
Matt Kidd:We've now got it out to about 350. Mhmm.
Chris Picciurro:That I mean, that's phenomenal. Think about you you've been able to basically double the average price of your 10 forties, and you're doing a lot less. You know, I think that we all agree you know, most people agree at this point that the 10 40 turn and burn model is not sustainable. You're going to have to do other things. That's you're gonna it's like being in a street gang.
Chris Picciurro:You're gonna end up in in instead of in jail, you're gonna end up in in the hospital or dead. You know, that that's just one of those things that you can't sustain. It's just it's like a bridge that's gonna break at some point. It could cost you relationships. It could cost you health.
Chris Picciurro:It could it's gonna cost you something. And, unfortunately, I was down that train for the first, you know, solid 5, 6 years of my practice, and, yeah, it's it get it gets scary. So con congrats to you. Now what? The the 10 40 mil,
Matt Kidd:I refer to it as a drug addiction. Because like you, you start out and like, you're, if it's just you, if you're the one doing the 10.40, you're like, man, I'll do a 10.40 for $200. It takes me 10 minutes to do like, this is easy. It's free money.
Chris Picciurro:And then
Matt Kidd:you're, you know, you get busy and you're just like, oh man, this is killing me. I'm going to raise, I would have raised the price. I want to say 3, $300. No idea. It's going to pay me $300 to do their 10.40.
Matt Kidd:Then all of a sudden you do it. You just kind of took a step up from marijuana to, you know, you just kinda took a little snort of cocaine at the $300 And then next thing you know, you say you're gonna do a 10.40 for $600 and you're just mainlining heroin working 85 hours a week, cranking out little old ladies' 10 forties.
Chris Picciurro:Absolutely. Yeah. It it is kind of like a drug too because, Matt, for me, I was only 27 when I started year 26. Tell it even I mean, I know things are ridiculously not priced now. But, you know, for me, 22 years ago, for you 7 years ago, to sell someone, I'll give you a 100, you know, $150.
Chris Picciurro:And they come in to do a 15 minute appointment, and they're signing on their 8879 and out the door. And, that's you know, and you're thinking to yourself, okay. Well, 4 of those could pay for my car a month. You know, you're just in your mind. You're kinda doing that and and but that's how a lot of us start.
Chris Picciurro:I mean, that's
Matt Kidd:And that's where I think I mean, a big thing is that, I mean, you not not all of your clients are growing going to grow with your practice. Hey. And it's okay to what used to be a great client for you may likely become not a great client, but they're gonna be a great client for somebody else.
Chris Picciurro:Absolutely. And another thing to consider and I've done a lot of breaking up with clients either one way or another in in what I feel is, like, I I feel like they're getting left better than we found them, and there is someone for them. And guess what? If you think you're not the best fit for them, they probably feel the same way too, but it's scarier for them. So if you can find like, as you deconstruct, Matt, your if you do decide to deconstruct part of your practice, you're not gonna leave these people high and dry.
Chris Picciurro:You're gonna find someone that can really fit their needs. But the you know, we have, as as you well know, such a pipeline issue in our industry, it it's it's gonna be challenging. You know? It's it's challenging to find the right the right people. But well, so talking just let's talk to buying a CPA firm or buying a tax firm, accounting firm.
Chris Picciurro:I mean, the advantages are obviously the biggest advantage is you have a revenue stream. And you might not like that revenue stream, but you have one. Potentially, you have an established brand. You might not like that brand, but some, you know, some in some places that might have some value. I I kinda think the value of a firm has been unless you're has been decreased significantly, unless you're on some type of value price or subscription model, yes, I'm biased.
Chris Picciurro:But that's just to me, the number one advantage on top of the revenue, because I don't think revenue is that hard to find, is does it come with someone that can you can add to your team? I think the human capital is the most precious resource right now out there. Yeah. An advantage could come with operational systems, but as you, like, alluded to, if you're buying a practice from someone that's, let's say, 65 years old, let's say they've owned it for 40 years, typically no way their operational systems are going to evolve over the next 40 years. Right?
Chris Picciurro:We that that's probably not gonna happen. So it might take some tweaking, and it might take some shifting over, especially if your firm is acquiring a larger firm, meaning numb not necessarily revenue, but number of clients. So that's something to consider. And what kind of what pivots have you made to any type of operational systems that you you you kinda with the old firm? What's, like, 1 or 2 major things that you you tweak that were big game changers?
Matt Kidd:Yeah. So, I mean, I'd I'd say I was very fortunate in that the firm already did monthly or quarterly bookkeeping for the vast majority of the business clients. So it was a I've, I've always got. Back and forth debate on whether CAS is a real thing or whether it's just rebranded bookkeeping. Right.
Matt Kidd:If I got book, we've been doing bookkeeping bill pay since the beginning of time. So for us, it was a, when I bought it, the bills were going out when the work was completed. So one of the first shifts that we did was just switching that to a recurring billing, which was a fairly easy transition because right. You always have a little bit of pushback for the most part. People liked it because it was consistent.
Matt Kidd:And then we recently last year, we finally got we finally forced everybody on the ACH, before we had them voluntary. So we finally forced them all on the ACH.
Chris Picciurro:I love it.
Matt Kidd:Couple of them said no, and we said, well, you can either go on or go off. So it's your choice.
Chris Picciurro:You know what? Usually, when that happened at the top, we've been on ACH also for quite a few years. And the 30 secret is, like, if you're a practitioner and you wanna implement something and the client's not willing, 99% of the time, they're kind of the people you don't want anyway. It's like it solves a problem potentially. Didn't mean to interrupt, but that's just what I'm thinking.
Matt Kidd:Yep. Yeah. Then I'd say, I mean, the other things we we've we've done these slow incremental price increases. So we've never done the double double the prices
Chris Picciurro:Is it?
Matt Kidd:Anything like that. We've done basically 10 to 20% a year. But then the recent pivot that we've done is, we opened up an RA to offer a finished planning and wealth management to the existing client base. So we're not marketing it outside of the existing base at all. That's just a new new service offering that we're we're reaching out and talking with all of our 10 to 40 clients about.
Chris Picciurro:Well, I that's what I want. A great segue to my next thing is we're kinda talking through the the disadvantages of buying a practice. You know, obviously, the cost. Right? So there's gonna be a note.
Chris Picciurro:Typically, you're gonna either get an SBA loan or it's because it's gonna be some type of seller financing or it could be, it could be an earn out contingency. But you're gonna you're ultimately, you're paying for that book of business. So you've got to if you buy a book of business, in my opinion, you you either have to raise your rates significantly, which hurts retention and could actually hurt your contingency costs if if it's based on a contingency, or you need to introduce extra lines of services, which I wanna I'm gonna circle back, but you've done a brilliant job of. Again, every every practice has its own culture, and that could be a good thing or bad thing. It's just like, look.
Chris Picciurro:We've got leaders. You know? Every team has a leader. Leadership isn't always good. It could be a bad leader.
Chris Picciurro:So the firm culture is gonna be set by either either the the core of the the team or it's gonna be set by the clients or someone that's unhappy. Obviously, there's a retention risk. In my opinion, in buying all these practices and I'm gonna now I'm gonna just use it, deconstructing them. Clients in general I mean, think about if your dentist emailed you or call and said, hey. I'm retiring.
Chris Picciurro:The the the dentist, you know, is is taking over the practice. You're not gonna just change unless you had a reason to change. You're probably gonna go there and see how it goes. So I think the retention risk if you do a good job is going to be high. Your retention at 60% after 7 years is very, very high.
Chris Picciurro:Obviously, there's hidden liabilities. Now typically when you buy a book of business, you're buying you're making an asset purchase, you're not buying their entity, but hidden liabilities are and, man, I'm sure you ran into this. Well, you know, and you had, well, you had the person that sold the practice on your team, but let's say you bought a practice from a guy named Joe. Well, Joe, you know, Joe did all my IRS notices and didn't didn't, didn't charge me. Joe met me on Sunday and had 2 cups of coffee with me so I can give him my w two and 11099.
Chris Picciurro:You know? It so there's there's those when I say hidden liabilities, there's the there's some maybe some what we call scope creep out there. I don't know for certain clients. Do you run into that?
Matt Kidd:And I would say so my argument is actually it's more difficult if the seller is sticking around
Chris Picciurro:I love it. K.
Matt Kidd:With those liabilities Because he'll continue to do those things unless you decide it is a it's a battle worth fighting. And that's where I mean, with with that, I mean, you've got to you have to pick and choose the battles on which ones are worth it. It's your line in the sand. Sure. Which ones don't really matter because it's not you that's meeting with them on a Sunday that if they're willing to do it, they
John Tripolsky:can do it.
Matt Kidd:And I've I've been very clear that I won't do that sort of thing. And I've gotten more and more. I used to do right. I used to be willing to do it. Absolutely.
Matt Kidd:As I pretty much everyone is when they start. I mean, you you do stuff that you look back and you're like, me?
Chris Picciurro:Yeah. No. I know you're meaning we were for me, if if it was legal and they'd pay me, I would do it. Yeah. Yeah.
Matt Kidd:If they wanted me to wash their car after I did their 10.40 for $7.50, I was out there shining
Chris Picciurro:that, baby. I probably do.
Matt Kidd:But then, I mean, I think as as you all I mean, you just learn to set more and more boundaries. Whereas the last 2 years, this year, even more so, I had in pretty heavy time blocks in tax season where I wasn't available for appointments at all. It was just time time to work on specific things. Because I'm before I'd open it up all day. And I mean, you know, so you've got an appointment at 9, you get it done in 45 minutes, then you've got a half hour to the next appointment.
Matt Kidd:You can't do anything. Yep. No. I mean, that's maybe answer some emails, but then you're twiddling your thumbs because the next meeting shows up 5 minutes late. So that was a big thing for me is, I mean, we just putting in those time blocks so that all those appointments are running back to back to back.
Chris Picciurro:John's getting excited over there because, you know, I shameless plug that Matt's in our in our mister r tax pro 2.0, mastermind group and time blocking is, you gotta say no to say yes. Like, time time blocking is one of the biggest hacks us tax pros need to use. Because as entrepreneurs, we think in our mind, like, I don't wanna block time because I I wanna be able to be free. When you when you block time, you actually free yourself up. That it's it's a hidden secret that's very wise of you.
Chris Picciurro:You know? I I used to do it man, I had no control over my calendar. It was people were booking stuff and I'd and now I you know, with some technology, with some with some work, you can really look at your calendar and may remember, you need to manage your practice. You don't want your practice managing you, and that comes down to anything outwardly facing and you having control of it. Well, let's talk about building a firm.
Chris Picciurro:No.
Matt Kidd:I was on on the scheduling. I'm glad you caught my, Calendly link when you went to go book this, and I was available on Saturdays. Thankfully thankfully, no clients had taken up that option since I forgot to change it after tax season.
Chris Picciurro:But I should've sent it to John. He likes to make fake meetings on calendars and test them, and and he'll have, like, the Jerky Boys or some random, fictitional character in on a
John Tripolsky:I get pretty creative with the names. Right? Now now I just need to to step my game up and get creative on the topics.
Chris Picciurro:So here's the advantages of building a firm. And, obviously, I think a lot of times, again, it depends on your age. It depends on a lot of factors, but you can really build it in your own image. We talk about a lot in that the in as practitioners that your practice is gonna run exactly how you designed it. So if you don't like something, you might take this the wrong way, but that's your problem.
Chris Picciurro:You designed it. If you're allowing clients to do certain things and you've designed your firm to allow for that, so you've gotta pivot that. So it's easier way, way easier, and you kinda talked about that if someone does stay around and that buys a that sells a practice. If you have a vision, you can build it in that vision because it's gonna be almost impossible to take someone that was some something else someone else's vision and get it into your vision. And that that's very challenging.
Chris Picciurro:I mean, obviously, building you know, becoming a CPA firm, tax firm, whatever, accounting firm, really doesn't have a ton of cost. It's not like you have to go buy a manufacturing facility. So low initial cost. You can grow at your own pace, which is nice. And if you design it right, you could you could have a lot of flexibility.
Chris Picciurro:And you can, you know, quickly implement the any type of practice management changes and yet and you remember that your clients chose you. You chose your clients. It wasn't an arranged marriage. Because when you buy a practice, it's an no. Arranged marriages work out sometimes, but sometimes they they don't.
Chris Picciurro:Obviously, the disadvantage, a lot of time consuming figuring processes and structure and technology out. Now again, if you if you're buying a firm or buying into a firm that already has that established, that's great, but most of them are very antiquated. I create you know, whenever we come to our go to our conferences, it shocks me how many people, like, don't have any of their apps on the cloud. You know? It's just scary.
Chris Picciurro:It's a little higher risk, I guess. I don't really think there's a big as much of a risk because I think there's so many potential clients out there. You might not have a brand, and there's a little more uncertainty. But, I mean, the building so I'm gonna talk about kinda tie in building because, man, you bought a practice, but you also built a practice to a tool in a in a way too. Right?
Chris Picciurro:You've got your clients that you've you've brought on. And you mentioned like, what are some of the the differences in dealing with those clients versus clients that were part of the practice that you purchased?
Matt Kidd:So you've got again, on my practice purchase, I was very fortunate in that a lot of the clients were already bookkeeping clients. The accountant who handled all of that bookkeeping is still with us. So I say that relatively runs on autopilot. I deal with the tax side, but she does great. Great with the accounting side.
Matt Kidd:I know the financials are right. So all I've gotta do is glance at them to see if there's any tax tax planning issues that I need to be aware of. But it is kind of out of sight, out of mind. The the new clients, I would say I'm more involved in. So I'd say probably half of them, we have some form of advisory built into the monthly agreement beyond just the, the accounting and tax plan.
Matt Kidd:So I'm interacting with them much more. It is more active. Now the flip side is those new clients. They're at about 2 and a half to 3 times the revenue of what the per client legacy is.
Chris Picciurro:And that's a point when thinking about buying for in the value of a practice, you know, the the more sticky your services are, bookkeeping, payroll processing, those are pretty sticky. Memberships, like, where you're integrating tax planning and strategy or financial planning are super sticky, where a 10 40 only practice is is, you know, really a commodity, ultimately. And then you were able to increase the price points for those newer clients you brought in versus the leg what we call legacy clients. We talk let's talk a little bit as we wrap up. Let's just talk a little bit about, you know, if you're going to buy a practice, and I mentioned this.
Chris Picciurro:I just don't wanna forget, and I don't want to upset anyone, but just my personal opinion where I'm in in my life and where all my practice is, I would not buy a practice, and I would not take one for free. No offense. Unless it came with, like,
Matt Kidd:10 a plus team members. I just wouldn't do it. So I'll I'll cross you off my potential sale partners. But,
Chris Picciurro:Yeah. Probably. Probably. But but we can make it look really pretty for someone else to sell it to buy it.
Matt Kidd:And I think, I mean, it's all I think it's important to acknowledge that we're in a very different environment than we have traditionally been as tax and accounting professionals Mhmm. Where there's not enough supply of us that traditionally that hasn't been the case. And I mean, the advent of social media and online learning, you can now follow a bunch of people and learn how to build your firm from scratch, how to do online marketing, that even 7 years ago, those resources weren't readily available. If they were, it was through a consulting organization, you had to pay 10,000 plus a year to get to that you couldn't afford as a startup. So I think, I mean, by in the buy versus build question in the current environment, I think building is a more viable
Chris Picciurro:option I I would agree.
Matt Kidd:Than buying. 7 years ago, I would say buying was a better option.
Chris Picciurro:And I agree, and I think that, you know, my one the one asterisk I might put in there is if you are already your organization and you have emerged in the leadership, buying into the business, buying in as a partner, I think is very viable. I look at that as not really a you're not really buying a practice. You're really more coming into a partnership, if that makes sense. So I don't want anyone to think, like, that you should never buy or sell. It's just that's just for me.
Chris Picciurro:I we're we're trying to what we wanna do in our practice is layer leadership and and have people come through that could be equity partners down the road. So one more thing I wanna touch on is as we wrap up is if you do buy a practice, you you can't just stay status quo. You're going because the numbers just aren't gonna work, really, because you're gonna have to service debt. You've gotta probably either have the capacity to bring on new clients or be able to implement new services. And, Matt, I know you meant you're a PFS, personal personal financial specialist.
Chris Picciurro:Right? Yeah. Yes. And I should know that. You have to implement that.
Chris Picciurro:So in general for you, has it been easier to implement new services to the legacy clients or to the clients that you've already the newer clients? Because a a legacy client might be excited by it. Like, oh, gosh. I've been doing this for 30 years this way, and now they have this. Check back with me
Matt Kidd:in 3 months after I'm done reaching out to all of the legacy clients on financial planning.
Chris Picciurro:Alright. Sounds good. That would be a good follow-up.
Matt Kidd:I mean, I'd say for definitely from the the new clients, and I'd say more so it's not the I say it's easier on the new client side because the new things we've implemented, they don't have the option of the old way. When they come on, they're doing it the new way. I mean, we don't have you. You can't drop your documents off. Right.
Matt Kidd:You can't come in and sit down and watch me do your 10:40. Like, you're gonna upload it to our portal. We're gonna do it electronically. I'm gonna send you a Loom video review. And if you wanna meet beyond that, we can set up a consulting meeting after taxes.
Chris Picciurro:Love hearing about Loom. I've been advocating that for a long time. But, yeah, that is great advice, and and we need definitely, I wish we had more people like yourself in our industry right now. And I love love what you're doing. I really enjoyed getting to know you even more.
Chris Picciurro:And you've not only, you know, with your clients taking on leadership, you've taken on leadership positions within our industry too. So that's very refreshing.
John Tripolsky:And, Matt and Chris, I got I have to almost be the grim reaper of timekeeping here. I know this is a topic we can go on forever about, and I'm look I'm looking here again as I'm over here scratching down notes on my little fancy blue stick it notes and, you know, I stick them up on
Matt Kidd:my wall every once in
John Tripolsky:a while about things. And and, honestly, to wrap this up, one thing, I do apologize, but I do have to cut you off because we can go down a whole rabbit hole here in comparing them. So
Matt Kidd:I mean, I I was trying to run extra so we could cut out that brownie. No. We're leaving
Chris Picciurro:it. We can't.
John Tripolsky:We are we are leaving it. That that is fantastic. And, honestly, I mean, from from the outside looking at it and Chris is always hearing me talk about this. Right? Like, me not being a tax pro, but through the, professional osmosis, we call it.
John Tripolsky:You know, I love hearing everything that goes on in y'all's world. Some of it, I do not envy. Let's just be clear about that. Some of it's pretty interesting, and it's it's very interesting to me to see the divide between those that are very, very pro buy and those that are very, very pro build. And I would say almost again, outside looking in, it's almost, I wouldn't say the drive, the motivation behind the individual, but just the personality.
John Tripolsky:Right? Some people like the idea of going in buying a book of business and building on that verse putting it all on the table, building it. It's more of a gamble, more of a risk, and doing it from scratch. So on that note, Matt, we're gonna have to have you back, man. It's not up to you.
John Tripolsky:We're gonna have we're gonna have to have you back on the show and dive into this.
Matt Kidd:I mean, that's we didn't even go down the rabbit trail of, buying and building for the sale of the TE, which is a whole new entrant that I mean, they're getting in this whole merger.
John Tripolsky:What I'm talking about. Right? So we got
Chris Picciurro:so we will go we're gonna come back and revisit this. And, actually, it'd be great too, especially let's let's get some more data points with your your practice. We got a whole you know, anyone listening, there's no right answer for everybody, but I I I I do like the idea of at least building the start. You know? Just try it for a
John Tripolsky:few months and and then see. Because you could always buy, but it's very difficult to unbuy. Very expensive to unbuy. They but thank you both gentlemen. I know your your experience in in this on both sides of the fence.
John Tripolsky:And, obviously, yes, all being associated by being Michiganders always helps out. Maybe makes us a little crazier than most, which is fine, which is great. Awesome, gentlemen. Well, I well, I appreciate both of your time on this. Chris, obviously, you're you're here by obligation.
John Tripolsky:I do not let you off the hook ever on this show, but, Matt, thank you so much for for carving the time out
Matt Kidd:of your day. I know we're post
John Tripolsky:the tax deadline, so it's a little bit easier
Matt Kidd:to get you on the show. We appreciate it. Appreciate I had fun, unless it's cold and cloudy today, so I'm not going on the boat.
John Tripolsky:That's a good it's a good reason, and and we'll take it. So that's alright.
Chris Picciurro:Yeah. Next episode's gonna be vote, in in voting versus pickleball. Better hobby. Lovely. Oh,
Matt Kidd:one of those I can drink beer during. So have have a good old We
Chris Picciurro:have a beer league on pickleball, so we and then I know we we ran over on time, but we have once a month, we do beer league where it's a round robin. It's for fun, and you have to play with a beer in one hand and a pickleball paddle on the other. If you you play the 1st game if you spill the if you spill the beer, you've gotta chug it, and you lose a point. And then you do this, and by the end of the round robin, it's pretty interesting.
Matt Kidd:That is my kind of pickleball as long as I'm playing with other amateurs. Otherwise, it's just gonna end very poorly for me.
John Tripolsky:And, hopefully, at the end of that match, you're not trying to decide whether you're buying or building a tax breakers because it's all downhill.
Matt Kidd:Well, by by the end of that match, it'll probably seem like buying was a good idea.
John Tripolsky:Right. Yeah. Exactly. Alright. You guys in your boating and pickleball references.
Matt Kidd:Street fair.
John Tripolsky:I'm out of here. Thank you guys again for your time, and thank you for everybody who's listening to this here on the Mr. R Show. Be sure to hop on, get your CPE. This is gonna be posted on earmark as well as across the board.
John Tripolsky:We put the links directly in the show notes, as well as a link to some of Matt's profiles as well so you can harass him on some of his references. So that being said, we will see everybody back here next time on the mister arsh.
Outro:You've been listening to the mister r show presented by the MRR Institute. For more content like this, be sure to check us out on YouTube for weekly expert tips. And don't forget to subscribe to this podcast to stay updated on the latest strategies for scaling and modernizing your tax practice. Looking for more? Contact us at mrrinstitute.com for practice resources, coaching opportunities, and a peer to peer mastermind group.
Outro:Thanks for joining us and we'll see you next time.
Disclaimer:The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum and you should carefully examine the risk factors and other information contained
Disclaimer:in the memorandum.
Disclaimer:The content provided is for educational purposes only. We encourage you to seek personalized investment advice from your financial professional. For all tax and legal advice, please consult your CPA or attorney. Investment advisory services are offered through Cabin Advisors, a registered investment adviser. Securities are offered through Cabin Securities, a registered broker dealer.
