Episode Transcript

Please note this transcript was generated by AI and contains errors including missing and misspelled words.

Meryl Intro: [00:00:09] Hi there and welcome to the podcast. I'm your host, Meryl Johnston. The Lifestyle Accountant Show exists to help today's accounting firm owners build successful firms while also living a healthy, happy life without sacrificing sleep, your weekends or time with loved ones. Today, I'm chatting with Jason Andrew.

I like to refer to Jason as the Warren Buffett of the accounting profession, but he tells me that Brett Kelly from Kelly Partners has a better claim to that title. Jason is a chartered accountant and founder of the Arbor Group, a hold co of financial services businesses ranging from accounting and tax services Funds management and corporate advisory.

His personal mission and passion is to [00:01:00] improve the financial literacy of entrepreneurs and executives, and to change the current worldview of the accounting profession. I have a wide ranging chat with Jason. We start with Jason's recommendation for graduate accountants to start at a small firm rather than a mid tier or big four firm.

What it was like starting SBO Financial and not paying himself much for the first couple of years. Hiring a CEO to run SBO Financial and what Jason's role looks like today, the structure of his holding company, the Arbor Group, and what he sees as the benefits of using a hold co structure. Incentivizing team members and why Jason prefers bonuses to equity.

Why SBO Financial started a tax division and the interesting structure they have in place with their head of tax. The pros and cons of roll ups in the accounting industry and why acquiring accounting firms can fail. All that and more coming right up on the Lifestyle Accountant Show.

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[00:03:00] Meryl: Hey Jason, great to be  chatting with you.

Jason: Likewise

Meryl: Meryl, always a pleasure. I actually was recording an interview earlier today. And one of the questions that was framed from one of the listeners was, would you recommend to an accounting graduate that they take their first role at a big four firm, mid-tier firm, or a small firm? And I'm interested in your take on that too.

Jason: Yeah, it's a really great question. I started my career in a smaller firm, a small boutique firm. So I'm probably a lot, very biased when I, when I, when I give you my perspective. At the same time, my wife who's also an accountant, um, she started her career at a big four.

Um, she was at WCA. until recently. So I guess there's two sides of the fence. My personal experience was, um, starting at a smaller firm had better for me. The reason why, because I enjoy diversity of work and I, the level of exposure you get in a smaller firm and the variety of clients, even just working with smaller businesses, you get exposed to so much more.

All the way from, you know, tax [00:04:00] compliance, which is where I started, but even just within tax, you get exposed to, you know, more medium sized businesses doing kind of 30, 40 million dollars, where they might be doing some, some CGT advice, all the way to, you know, sole traders and working with partnerships or different structures.

Um, and yeah, so my first job, I was working with ASIS listed companies doing like ESOP valuations and things, which is very uncommon for a small boutique firm. We're lucky to have a great partner. But on the other hand, my wife, who's a PwC, for most of her career, she was quite siloed into technical tax.

And she loves it. So she really enjoys technical tax. But when it came down to, um, you know, just general accounting or whatever, that was probably not a shadow. Didn't have a great deal of exposure in that area and had to learn it quickly. So, um, yeah, I think it really depends what you want.

Meryl: Yeah, that was a similar answer that the other lady had.

So I started at a mid tier. So I worked at BDO. But I turned down an offer at big four because I knew I always wanted to. run my own business and I thought I'd get more exposure to [00:05:00] diverse businesses if I went a little bit smaller. Whereas some of my friends, I was in audit, so some of my friends in audit, they were working on one finance business or bank for two or three months at a time.

As I was interested in a bit more exposure, I think you were pretty lucky, it sounds like, with the small firm you were at, too, if you were working on things for ASX listed companies and that kind of diverse, interesting work. So I think that might be a bit dependent on the firm as well.

Jason: A hundred percent. I think it all comes back to the partner you work for as well. Um, in the smaller firms, it's just typically a flatter structure. There's less kind of layers of. You know, from trainee, I was a trainee accountant all the way to, you know, there's middle management where they're in. Big four firms, there's, you know, there's tenured employees that have been there for a decade sometimes.

In the smaller firms, you'll find that, um, it's a flatter structure and you get more exposure working directly with the partner. And I was really lucky. The partner I worked for who's still a mentor to this day, he was XBY. Um, and so he, he brought a lot of his clients from, from big four firms. into a small firm [00:06:00] environment, which, which is how I got that exposure.

Um, so I think it's, if you're looking for that experience, you really want to find the firm and also look for the partner and make sure that they've, they've had, they've kind of at least done bigger, bigger end of town work if that's what you're interested in.

Meryl: And so what did the journey look like from working at that firm to where you are today?

We, you've got SBO Financial, but I believe that's only one business under the Ava group.

Jason: Yeah, so we set up, so I was, yeah, most of my career, I was in a mid tier accounting firm. So we were WHK Haworth or Crow Haworth, which, uh, which is now Findex. We, every, when I joined there, um, we seemed to change name every year because we seem to merge or get acquired by a group.

But essentially, WHK Haworth was a AXS listed roll up of accounting firms. And that I, I kind of joined that business as they were As they were buying and merging firms together. Um, so I was in Brisbane. Um, I was, I was in the business services team and then moving to corporate finance. Uh, and basically, it was a, it was a listed company, [00:07:00] uh, stock price wasn't performing well.

Um, I think what we learned from that experience, I had direct exposure to seeing how incentives may change or behaviors might change as soon as you get bought out, uh, from, from a bigger player, you cash out and all these accounting firm partners who once had equity. in their own shop, um, you know, had cash and maybe some stock also rolled into the bigger company, but the share price was not performing so well.

So a lot of them just disregarded their equity that they had in the listed company. Uh, but you could just see their just motivation kind of just fell off a cliff to an extent. They're like, ah, they're fat and happy. Mortgage paid off, kids are in private school, got some money in investments now, I can just kind of take the, take the pedal, uh, take my foot off the pedal for a bit.

And uh, yeah, so I wasn't, and then at the same time because the share price is falling, um, the company was actually taken private by a financial planning group called Findex. And so that was taken private and I was in the corporate advisory team at that stage. And it was clear that the corporate advisory team, the audit, and [00:08:00] even specialist tax, they weren't core to Findex's strategy.

Their strategy was more around financial planning and business services to really building that recurring revenue in the fee base and servicing high net worth people and upselling accounting clients as financial planners, where if you're in corporate advisory and audit and taxes, it's not really that.

You're dealing with like corporate businesses and so it didn't really fit this strategy for them. Thank Um, and so it was clear that there wasn't going to be a huge future in that division I was in. It's still around now, like those divisions, but they're not as big as I thought, I thought that would be.

Um, so I left and so I had a decision, a lot of my bosses quit and they went to another firm. And so I had a decision, do I join them and, you know, continue my career in this space or do I Pursue SBO or Smart Books Online, which was the time, which was a side hustle at the time. So my business partner and I, Rowan, set that company up probably 12 months before I had to make that decision and just kind of get the bones of it together, which was essentially a bookkeeping business.

And, um, yeah, so we decided to jump straight in and make that, make [00:09:00] that a full time gig.

Meryl: And then what was that like? Did you have any business experience? What was it like when you went from side hustle to all in, quit the job and going in head first?

Jason: I do remember the feeling walking out of. the corporate building of carrying my box of stuff, you know, leaving the office.

I thought, oh, this is such a new adventure. I was really excited. Um, but, you know, the following Monday when you'll start work, you're like, oh, God, I have no idea what I'm doing. So, um, I guess you know how to do the technical work. We read bookkeeping because bookkeeping, you know, should be fairly straightforward given that, you know, you know, Davidson credits.

But I was actually wrong about that. I didn't even know how to use Xero. So, I had to learn. How to do bookkeeping and, uh, you know, and I'm a quite big picture thinker so having to like get really granular in the details was a challenge for me at the beginning. But, um, yeah, suddenly switching from an employee to an owner mentality was a big learning curve.

You know, hitting the pavement every day trying to, um, meet clients, meet people to refer us clients. Um, the [00:10:00] first two or three years was a. It was a grind. I didn't pay myself for close to two years, um, because we just decided to invest everything back into hiring and trying to remove ourselves from the operations, which was very difficult and a period of my life which was very challenging and sucked a lot.

Meryl: I can relate to a lot of that. So I started a bookkeeping business and didn't know how to do bookkeeping as well. So same thing, I understood the mechanics of how the numbers work together and what you need to change to get to the end result that I had to learn zero and learn all about bookkeeping and thought, Oh, this is pretty a repeatable process, but there's more to it than that.

And same thing, the early couple of years, not getting paid much, working long hours, grinding away, thinking this is worth it.

Jason: Yeah, exactly. Yeah. A hundred percent.

Meryl: So, how did you afford not to pay yourself? Were you living off savings or what was your situation back then?

Jason: Yeah, that was exactly right. So, I was, I had a mortgage, was it like I had a mortgage for my house, but I [00:11:00] had about 25k of savings set aside, um, for, I just, I just like to keep cash money in my bank account just for rainy days.

I guess that was, that was my savings at the time. Um, so, I had to basically carefully manage and I'm not, I wasn't married at that stage. I didn't have any children. Um, my fiancée and I were living in a house. Um, so, I basically had to do really strict personal budgeting and realized that I had 18 months about, you know, it was about 19 months of runway to not pay myself and just live off the savings, um, to, to get the thing running and hopefully you're starting to draw something.

And even then, after that 18 month period, um, I think the wage that we drew was like, might be like two or three grand a month. It wasn't even a lot, but it covered the run, covered my run, my burn rate, sorry. We weren't making money, we weren't saving money, but we were just living, essentially. Um, yeah. Yeah.

And I was the lowest paid employee for a long time. Like, we hired an operations manager who is now our CEO, Vanessa, and she was our most expensive hire. And when you're, when you're [00:12:00] paying people more than you're getting paid, it's like, ah, it's, it's pretty, yeah, you bite your tongue. Like, oh, this is, this is what I'm signing up for.

And, and it's worked out well for us now, but at the time it was quite difficult.

Meryl: I can relate to that too, clicking on the fortnightly payroll and oh yeah, quite a few people getting more than I am.

Jason: Yeah, exactly.

Meryl: Let's go through that transition. I know we're skipping a few years here, but I know that Vanessa went on to become your CEO and you and Rowan gradually stepped out of the day today. How long did it take from?

Jason: Um, I'd say we're still transitioning to an extent, um, it's never when you're kind of handing over the reins to people in your business as you would, you know, you've done the same thing. It's, you're never fully out. It's not as if like one day you actually wake up like, cool, I have no duties today and everything is perfectly handed over.

It is a transition and. Um, yeah, we are still, I'm probably not in your operations, but I still have client relationships and I'm still sitting [00:13:00] in on meetings and things like that. For two reasons. One, I enjoy it. I still have a lot of clients we work with are, you know, peers of mine and I'm just genuinely personally interested in their growth and how they're going.

I mean, the second part of that is we are still form a little bit of a training slash coaching, um, hat that I wear within the business. And again, that's, um, yeah. Hopefully, that's not a transitory, but we'll, I think we've just hired a few, a couple people to add more senior experience to the team from that perspective.

But, um, yeah, it's a transition, but I would say in the last probably two years, we've, we've put a plan in place. And it was actually one of our strategic goals for FY22 was to remove myself from, as a key person in the business, which, um, which we achieved. So when

Meryl: you, when Vanessa was announced into that role, and I imagine there was a bit of a transition, what was the biggest weight off your shoulders having someone else in that position?

Jason: Um, I think  it's, I wouldn't, this is, uh, yeah, good question. I think the weight is not [00:14:00] necessarily about tasks. It was like, hey, I have to think about this task anymore. Like, Drew Benedetto was already taking, doing a lot of the heavy lifting operationally anyway, because that was by position description, that was her role.

Um, I think it was just knowing that we had someone else to lean on. Like, it's like, cool, there's another management, management executive person in, in, in the, in the tent, per se, who... You know, takes ownership, well, kind of, you know, own, you know, make things right. And if I don't, it's not going to be dependent on me to get things moving.

There's someone there and, um, and if something goes wrong, like there's someone there to handle it. There's some, there's a firefighter sort of having to fall on my plate. And of course, there are, have been moments where. You know, there are fires which you get escalated, um, or just workshop or need a brainstorm a second opinion and that's where they're, we're there to support.

But our view is that we're trying to, and have to an extent, but trying to position ourselves more as advisors or similar to what the board would do to. would be to a CEO. That's kind of how we are trying to see our [00:15:00] relationship in the business.

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[00:16:00] Meryl: I remember when I was going through my transition, so it was December 2021 for me that I stepped out as CEO. And by title, I was an advisor, but it definitely took longer than that to make that transition. And a mentor of mine was talking about his transition, a much bigger business than Bean Ninjas.

Meryl: But he said that the last 5% for him to get out of the last 5% of his business, it took three very expensive people to do that, the final bit of, not tasks, but the weight of responsibility for some of those things.

And so, for me, I still have some, if something goes wrong, that's still me on the hook as one of the major shareholders of the business that I, I care and I'm going to step back in if something happens or if something goes wrong and I still look at. Cash flow weekly and still click off on payables once a fortnight, you know, there's a few things that I still care about, even though it's not exactly in my position [00:17:00] description anymore.

And I don't know whether that's something I need to let go of, but at the moment I, I haven't.

Jason: Yeah, gotcha. Well, okay, I'm curious, what was that last 5% that your mentor mentioned?

Meryl: He didn't go into exactly what it was. I think some of it was finance related, uh, some of it was risk related, risk management.

So, he didn't exactly explain that, but when he was talking about what my role might be, maybe being in business isn't big enough for me to give up, you know, the final couple of percent.

Jason: Yeah, that makes sense. I think, I think that there is still a role, I mean, you know, you're a majority shareholder and, and I guess, founder, I guess, similar position to us.

There is still an element of, um, control. that you'd still like or even oversight and we have monthly board meetings where we get updates on how things are going. And again, I'm still, we're still small enough where I can check in with the team every now and again, like randomly just to see how things are going with them.

But so I feel like there's a bit of a pulse check that happens regularly. But yeah, there are certain things. You just can't help yourself. Like, I'm in my Xero file every [00:18:00] other day, like, just looking at this,

Meryl: you know. Yes. I still keep an eye on the bank balance, too. Yeah. Regularly. Regularly take a look.

Jason: Exactly, right. And I think that that will be the case for everything I do, like, even the businesses that we, we invest in or buy. I'm, I'm always, you know, out of the, outside the monthly report reports, like, I'm just, you know, I'm curious. I'm just kind of myself, you know, I'm an accountant, what can I say?

Meryl: So what does your role look like now? Where do you spend most of your time?

Jason: Uh, at the moment, right now, I'd say that if you look at, you know, percentages of the week, um, it's not, it's not as structured as I'd like it to be, uh, which is something I'm working on. I find myself, I'm not really a well structured person. Um, I'm kind of a little bit over the top.

Um, but at the moment right now, um, I'm working on the strategy, um, on, on like accounting partnerships, which we maybe talk about later, um, work on content creation. So, um, doing a lot of writing, uh, a few, uh, we started a podcast [00:19:00] recently. So, we're also building that up. So, I'd say probably a third of my time is content creation.

A third is kind of strategy, management of businesses and things, and a third is probably Um, yeah, just kind of checking in with people like BD, relationships, just seeing what's out there, meeting people, getting new ideas, and just chatting to people. And that, I guess that forms a broad business development bucket.

And that development bucket could relate to prospective clients for SBO, or it could be potential, um, you know, someone doing interesting things in investing or acquisitions or, you know, maybe the family office. That could be something to do with that, um, or it could be just something completely random like.

Um, me talking to a business broker about car washes or something like that.

Meryl: So, I think you've shared your group structure. I've seen it somewhere. Maybe it was on LinkedIn and you had the Arbor group and then you had... multiple other parts. There was a media, um, maybe you could [00:20:00] just describe that briefly just so the listeners can have a bit of an overview for those that aren't, they probably aren't mostly familiar with you, but it might be helpful.

Jason: Yeah. So we started, I mean, originally it was just SBO Financial or SBO was our bookkeeping company. Um, and then, and then after probably, like we, we had, we were in discussions with a bunch of people ranging from big four accounting firms to some private investors to say, hey, Um, love what you guys are building.

We'd love to, um, invest or maybe buy a chunk of your company. And like, oh, interesting because when we started the company, we always had this naive view that, hey, we could, we could scale it to X amount of revenue in five years and then sell it like a private equity firm. Because my background was corporate advisory, right?

So, we did this, you know, the roll up playbook or the growth playbook and then selling it was a... Very sexy things. And then we thought, oh, this would be a fun thing to do with bookkeeping. Realized it's very hard to grow a services business, um, organically to, to, from zero to 10 million a short amount of time.

So we didn't know, no one close to that, but, um, yeah, so we [00:21:00] were always in, in, in, in tasks or interested in the sale, you know, but, um, start from scratch, build and then sell. Uh, but then when we, uh, started to have conversations with these folks, um, particularly other accounting firms. Yeah, you realize that the terms of the structure weren't as interesting as I think it was.

It's like, hey, cool. We're going to buy all of you, and then there's going to be a three year earn out, and you're going to be paid X, and then you don't get the rest of your money until you hit these KPIs and thresholds. And so we thought, okay, that sounds cool. We might cash out, you know, maybe seven figures, but then you pay tax on the way out.

You pay your home loan and then he's like, Oh, crap. We need to get another job. And because I've got that entrepreneurial bug, I want to be an owner again. I can't visit myself working at another boring accounting firm, right? Which is the reason... One of the reasons why we got out to starting our own business is like, I just looked up the career path.

I'm like, I just can't. I can't visit myself working with these partners in these firms. So boring, stale. Very short time thinking. All that stuff. Probably very similar reasons to your journey, [00:22:00] Meryl. Um, but it just was interesting. So, we pictured, well, if we did sell the business, we did sell the business to these folks, we kind of like end back.

You end up like, yeah, you have some money, but you end up right at the beginning again, where you're just working at a big sale company, which you don't necessarily align your values with. So, like, okay, well, then, if that was an option, we thought, well, why don't we just... We never sell. Why don't we just hold the business?

And so we, that kind of trends, shifted our thinking into a buy and hold strategy where we should just hold great businesses, which is a very Warren Buffett, um, kind of mentality. So, so with that bigger picture in mind, we thought, cool, let's restructure our business. So, we inserted a holding company, which is called Arbor Group Holdings and that essentially is owned by my business partner and I.

And underneath Arbor Group Holdings is a group of different companies, which, which um, are different businesses in currently financial services. accounting, tax, um, we have a VC, private equity, and private equity business and a few others. But basically the idea is that we would [00:23:00] invest or, or buy great businesses and ideally just hold them forever.

So that's, that's the broader vision for the group.

Meryl: And just a quick question around. Equity and incentivizing team members because you've talked about buy and hold and you and Rowan are the owners of the overall group and then there's multiple different businesses involved. How do you think about, well, I imagine that a lot of accountants think that they're working their way up in a partnership model, eventually they might become a partner and then own part of that business.

So, how do you think about that and how do you structure things? at, at SBO.

Jason: Yeah, it's a great question. SBO specifically, um, we don't have an equity component for staff. The reason why is, so we, we consider doing an employee share scheme or an ESOP for, for our team in SBO, which we want to do. The issue with that is that I'll never be liquid.

So if we have no intention. attention to sell the business or [00:24:00] show the shares in this instance or raise capital or do an IPO or whatever. Really, you know, you're just giving people a piece of paper saying that, hey, you own 1% of SPO Financial, your job. And I don't think people would put as much weight on that, much value on that piece of paper than we would as shareholders, right?

Because we know how much. we think they're worth because we've given it to them, but that may not have the same incentive or weight of the incentive. So rather than doing an equity option, we have an employee pool, sorry, a profit share pool where every year we allocate 10% of our profit to a pool and then we pay that out to all the staff.

So everyone's included in that. With the exception of our CEO. So, Vanessa's on a separate KPI structure where, um, yeah, she's, she's got, uh, different metrics to achieve, but then gets a bonus basically at the end of the year. So, it's very much, both of them are STIs. We haven't yet figured out an LTI, a long term incentive [00:25:00] structure for SBO.

Something we're still figuring out, um, but we find that people are pretty happy with cash. Yeah.

Meryl: So, next up, I suppose we could take the conversation a couple of ways. So, one, I'm definitely interested in what you've been learning about with the roll up strategy and you've talked that, talked about that.

You've got some interest there and I know you also started a tax, I don't know if it's a division, entity, however you describe it, under the SBO. financial umbrella. And I don't know if that was a separate transaction or that kind of fits in with this roll up strategy. So maybe do you want to pick one of those and, and then we can follow up with the other.

Jason: Yeah. So one, one kind of leads into the other. So the tax, so for context, for who, for folks listening who don't know who, like our background, we're an accounting firm, but actually until 12 months ago, we didn't actually offer any tax services, any compliance services, like we did BAS. And we didn't actually do any income tax returns or advice around structuring, things like that.

And we grew the business organically to, you know, multiple seven [00:26:00] figures of turnover, not doing tax compliance, right? Which I think is, in hindsight, not a bad trajectory, but we thought, well, most firms are the opposite. Most accounting firms have all of their bread and butter in tax compliance, and we had none.

Um, so, we thought, and we're getting constant feedback from our clients that, Hey, can you just do my tax because we would rather use my tax agent. Can we just put it under the one roof? Um, additionally, we would actually lose potential engagements because prospective clients who wanted the sexy stuff in SBO Financial also wanted us to do their tax compliance and we just couldn't offer it.

And so, we're actually losing work because of that, which really sucks. Um, so, And even they, they knew that we're the better fit. They're like, listen, yeah, we want this stuff, but we just want everything done on the one roof because it saves money long term and whatever. So we're like, okay, there's a strategic reason to do this, even though that we, we were previously market ourselves as kind of accountants that don't do tax, that kind of worked for a bit.

It's like, oh, so. Raises a question if you don't do tax in your account, what do you actually do? And then you talk [00:27:00] opportunity to talk about all the other stuff. But, um, yeah, so we set up a tax practice. That's a, that's a subsidiary of SBO financial. So it's a subsidiary of this SBO financial wholly owns that company.

And we have a partnership arrangement with our head of tax, Andrew, who's a weapon based in Sydney. Um, yeah, so we've been working together for 18 months now and it's doing really well. Like, there's teething issues with every new service, um, and every new kind of cycle that you bring into the business, but, um, so far, I think we're pretty happy with the results.

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Meryl: I might just ask one follow up question. There's when you say a partnership arrangement with Andrew so does he have some? Decision making power does he is he the operator of that business is he I don't know how much he can share Does he feel like as an owner? How did you kind of structure things with him?

Jason: Yeah, so it's a partnership arrangement where we, we still own all the equity in that, in that company. It's a, uh, financially, it's a revenue share arrangement, so, um, 50 [00:29:00] 50 goes to bring in, obviously, bring in clients from SBO's perspective or existing clients moving to, looking to upsell, but also new clients.

Who, who just want tax services through, through the SBO on the brand. Um, and Andrew is the technician, um, and kind of the face of the tax side and also has his own staff that, that he pays out as P& L. Um, and then we just have our corporate share basically arrangement through that. Um, and yeah, we also then lean into our kind of infrastructure and our systems that we've built over kind of seven to eight years, which is, um, what this is really fantastic at.

Um, so leveraging that, that efficiency and process and scalability model, um, overlaid with the technician, the technical know how and expertise that Andrew brings. Yeah.

Meryl: I think that's a nice way of structuring it. I've spent a bit of time thinking about revenue share deals compared to other ways of structuring deals.

And I think one of the advantages is that then you don't have to. Have conversations or be [00:30:00] discussing the expense side of things that that's if he wants to hire someone, somebody, or he wants to use different software, then you don't have to be involved in all of that conversation because it's just based on a top line revenue number that's pretty easy to calculate and doesn't require a whole lot of negotiation.

I suppose pros and cons of every way to structure deals, but that was one of the things I'd thought about with doing a revenue deal.

Jason: Yeah, I just find it's really easy. It's a very simple 50 50. It just makes sense, it's easy to implement, and yeah, it takes a lot of the negotiating out of the the OPEX line item or the whole line item.

So, it's like, oh, the revenue is this, the fee is this, half is yours, half is mine, move on kind of thing. It works quite well.

Meryl: Yeah. So, how does that play into the, the roll up strategy that, that you're talking about? And where are you at with that? What's your thinking there?

Jason: Yeah. So we're not, um, I don't... Roll up is probably not the right term. Um, so a roll up so that there's probably like a partner strategy is probably the better term to describe [00:31:00] what we're exploring. But I might, I might take a step back and explain the difference between the two. So there's kind of when people talk about buying businesses or, you know, actually buying businesses, there's kind of different strategies within that overall strategy of buying a business.

Right. Um, so a roll up is... a term used by a lot of people when they used to describe buying many of the same type of business. So, for an example, an accounting firm roll up is that I would go and buy a lot of accounting firms. Um, and you'll commonly see this that I wouldn't say there are two. W. H. K.

Haworth was an accounting firm roll up like that's the place that I, I used to work at where they were literally buying small to medium sized accounting firms. Re badging them, like we would re rename them to WHK Haworth at that stage. We would, you know, change the letterheads, tell the clients, Hey, we've, we've been bought by WHK Haworth, do all that sort of stuff.

And the idea behind that is. You know, let's just say there's 50 accounting firms [00:32:00] that they bought. All those 50 accounting firms have their own people and culture or HR person. They all have their own finance team. They have their marketing and sales team. Um, they have lots of duplicate costs, right? Even then some of them have duplicate leases, right?

So if you're buying two firms in the same street in Brisbane, well, like, it makes sense to just have one office instead of two. So the idea behind a roll up. Is that rather than all these many businesses kind of duplicating all their fixed expenses or their kind of non revenue generating costs. The idea is that you centralize all those costs into a corporate model where you centralize all the costs and rather than having duplicate costs, you just have one cost shared amongst.

All of them, right? So, you have like a shared office, a shared services division, and that works in theory, um, because, you know, you've got a HR team servicing 50 accounting firms rather than, you know, a HR team for each, um, 50 HR firm, uh, people, you have one, well, maybe a handful for 50. So, there's, in theory, synergies with that model.

Um, the downside to that model is that [00:33:00] things, uh, more centralization you have typically Um, Incentive alignment you have typically the portfolio company level, like portfolio being the accounting firms, like the partners don't have, they have less agency because a lot of decisions have to be run by head office.

And I think that matters a lot when you're dealing with, uh, services businesses, particularly where you've got key people running the business, right? And so you still want that autonomy and, and, and pure incentive alignment. And back when, back when the thing of incentives is that. You know, once, once these partners were experienced firsthand, once they've cashed out, like there's no real incentive for them to drive performance in their business.

They've kind of made their money and they're happy just to coast where if I was a shareholder of the roll up corporate, I want, you know, I want to maximize my return as a shareholder. So I want to see growth. I want to see higher profits. I want to see all this. It's kind of operational leverage, but you may not get that from the people doing the actual work, right?

Because there's no incentive for them to do it. So, there are pros and cons of the, of the roll up model. Typically, roll up models, [00:34:00] you see it like another, a great example in Australia of a services business roll up. is Green Cross Vets. So, Glenn Richards, um, is a, is a tech, is a vet by trade, and he rolled up vet clinics across Australia and corporatized that.

Listed it on the ASX. That's been taken private again, by private equity, but anyway, um, so that's an example of like a roll up, um, versus what we're exploring. So, yeah, so I'll say it now. We are exploring a, a, a, a partnership model, um, one that it seems to be fairly successful. in the Australian market. Um, so Kelly and Partners is a ASS listed, uh, kind of aggregator of accounting firms and, you know, the model is that rather than buying 100% of the accounting firm, you would buy a chunk of their firm.

Um, usually 50% or, yeah, or maybe more than that, 50 or 60%. And the idea is... to retain a bunch of it. So, the key people within the business, within the firm, retain a bunch of the equity. So, that, um, see, and then the Kelly part as well is that you would then, yes, we'll centralize the [00:35:00] overhead costs. We rebrand the firm, which I don't necessarily agree with, but that's what they decide to do.

Um, and so, you get the upside of all the centralized. head office costs. Um, but you still have skin in the game for the partners who are actually doing the work, right? So, there's kind of aligned incentive. Um, and so, yeah, I think that model seems to be working. I mean, uh, the share price has done okay. I think that the business, the financials look pretty good as well.

So we're exploring a strategy in the similar structure.

Meryl Outro: We're gonna wrap up this episode here, but watch out for next week's episode where I continue the conversation with Jason. And in that episode we'll be talking about acquisition opportunities in the accounting space. What a great conversation with Jason today. It, it was interesting hearing the similarities and differences between, uh, Jason and, and [00:36:00] me, and how we replaced ourselves as c e O.

and the benefit was not so much handing over responsibility for tasks as in both of our cases that was already mostly handed over, but sharing the weight of responsibility and passing over some of that, that headspace to someone else in the business because that weight of responsibility can take up space in your head even if you don't have a big task list to tick off.

A few of Jason's other comments that stood out to me were his take on roll ups within the accounting industry and his first hand experience being at Findex and seeing the motivation levels of partners drop once they got their big payout. It was also interesting that he didn't pay himself for the first two years at SBO Financial so that he could focus on building a team and scaling the business.

That sounds like a painful path, but it also helped him to scale quickly and eventually replace himself as CEO. The way that he structured the [00:37:00] tax part, the tax division or tax business unit at SVF Financial as a revenue share, I thought that was interesting hearing his perspective on that too. So, watch out for next week's episode with Jason and he'll be diving into accounting firm acquisitions, including the financing options available.

If you're wanting to do an acquisition, he'll share the way he's planning to structure their deals at Arbor Group and whether it's better to grow your firm via acquisitions or through sales and marketing.