Episode Transcript

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

[00:00:09] Meryl Intro: 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 talking with Sarah Parkinson, the owner of Diverse Business Consultants, a remote 25 person bookkeeping firm based in Australia.

Sarah lives on a farm with her husband and three children and their closest town has a population of 100 people. She's owned and operated businesses for the last 20 years and today we're talking with her about her experience in making three different acquisitions at Diverse and one of them was acquiring a portfolio fees from me at Bean Ninjas.

[00:00:56] Sarah Soundbyte: Uh, I think it was pretty apparent to me early on that it was. A good match. And of the three acquisitions that I have been through now, it's still the probably the smoothest because we were the closest aligned in that all of your clients were on fixed fees. That was easy. We could move them to onto our ignition proposals. They were on the same billing cycle.

[00:01:23] Meryl Intro: Today we're covering acquisitions in the bookkeeping firm space. We start by talking about Sarah's backstory of buying into a bookkeeping firm as an experienced small business owner, but she wasn't a bookkeeper at that point. Sarah shares why she became interested in acquisitions.

And then we do a breakdown of the three different acquisitions. The first, buying a book of these from Bean Ninjas. The second, which was through a broker. And so we discussed the pros and cons of that. And then the third, which was different again. And so Sarah compares and contrasts those three different acquisitions.

She also shares some lessons like why a retention clause is critical and how to negotiate that with a seller and when transitioning clients, something that came up for her, an unexpected factor that can make the transition quite difficult and how to avoid that. All that and more coming right up on the Lifestyle Accountant Show.

[00:03:10] Meryl Hey, Sarah, welcome to the show.

[00:03:12] Sarah: Thank you for having me.

[00:03:13] Meryl: And can you tell the listeners, where are you at the moment?

[00:03:17] Sarah: I am currently, uh, at our farm in Dalacca, which is about five hours from Brisbane.

[00:03:26] Meryl: I think that's such an incredible story that you can run a large bookkeeping business from the country, five hours from the nearest major city.

[00:03:35] Sarah: When did you move there? I moved here when I got married, so that was in about 2011. And It's been fantastic, but Covid really, uh, made it far more socially acceptable to, to work remotely because before that I was scurrying back to Brisbane, uh, frequently, and we did have a traditional office in Brisbane.

So it has, it's just so fantastic now that I can be so open and honest about where, where I work from and to be a country wife. With a kick ass awesome career is, you know, so fantastic.

[00:04:17] Meryl: Is there some pressure on you from the other women in your area that you should be, I don't know, baking scones or entertaining, I don't even know the terminology, the shearers?

[00:04:25] Sarah: Ha ha ha, um. It's, I am, I mean, it's a bit unusual what I do from out here and I still try and contribute as much as I can to the community and I'm on the local committees and like my friendship group out here is so diverse. Some women who don't work at all and are really, you know, supporting their, their families on the farm and then others that do other interesting things like interior design or whatever it might be.

So it's, it's a real mix, but I mean, not a lot of people, even in my local community would really know or understand what I actually do. And that's. kind of wonderful. And, and also sometimes you're a bit like, Hey, you know, I actually did this really cool thing and I'm working on this at the moment. So it's, it's really interesting and non traditional.

[00:05:19] Meryl: How many people are in your local community? What's the, the local town size? Uh,

[00:05:24] Sarah: Well, Dalacca is tiny, like there's one hot pink pub, if anybody's looking for a road trip. Um, and I think the population of Dalacca is say a hundred or something like that. There's a service station, a pub and, you know, a few houses and not much else.

So it's very, very small, but this is not really like, you know, your remote outback. Like you'd consider this quite metropolitan to only be five hours. from, from Brisbane. Wow.

[00:05:59] Meryl: I'm so curious about all of this. It's not like you can just pop down to get Thai takeaway if you don't feel like cooking or you can just pop, oh, you forgot the milk and you can just pop down to the local supermarket.

[00:06:09] Sarah: No. And that is the hardest. thing that just being completely honest that I've really struggled with in having a career and running the business and through such a high growth phase is you don't, if I was in the city, it's like, okay, I'm going to get somebody to help me with cleaning the house. I'm going to get a gardener.

I could get a nanny to help me or the kids could go to afterschool care or I could get, um, yeah, take away or. I, what's the, the meal, the hello fresh or something like that to help us out. Whereas out here you do not have that. The, the best thing that I've worked out is with the local supermarket. I can email in my orders and they'll, they will pack it up.

So, um, I can just pick it up instead of doing my groceries. But yes, it is totally different world and you've got to be. Super organized with all those things.

[00:07:01] Meryl: So let's get into a little more about your business. Can you talk about what diverse looks like now? And then a bit of the backstory of how you got into bookkeeping.

[00:07:09] Sarah: I would love to. Uh, so diverse today is a team of 25. Australian remote bookkeepers and we specialize in looking after service-based businesses where almost 100% zeros. So, uh, yeah, we're all about systemizing and automating your bookkeeping processes. So that's what it looks like today. We've got people across, uh, South Australia, Victoria, Queensland, New South Wales.

It's ended up being an all female team, which was, we've had a few men, but they've kind of come and gone. Um, and so I've, I've really had to build a business that works for me. So yes, it's obviously ultimately about the clients, but I've also made decisions along the way to create a company that works.

for me, my family and my lifestyle. Um, as far as how I got into bookkeeping, that is a bit of a random story. So I, when I left school, I obtained a marketing degree and I worked in marketing and PR for some time and then I've always been quite entrepreneurial, which sounds a bit crazy, but I, uh, so I worked in a marketing business that I created for a couple of years and then I created a food business, uh, which was like a, uh, gourmet deli style business, um, before.

Kohl's online and Woolworth's online, and, and we did home delivered fresh food in, in Brisbane and the surrounds and I, I grew that company and I ended up having a bookkeeper who worked with me for seven years and she, I was so lucky because she was, fantastic and Nolan industry figure, and she also worked for zero.

So I started to work with and learn from her. And then when I got married and was moving to Delacca and I sold my company in Brisbane, I was thinking, what on earth am I going to do? I can't go from being this busy to Making scones. So I said to Colleen, uh, like, Oh, you know, you have trouble finding great bookkeepers and people to work with you.

So I, I started working with Colleen and then we went into business together. And then over time I ended up, uh, purchasing the book. the business from, from her and we went our separate ways after a couple of years. And then it's kind of grown and evolved from there. So I think that was about, I started with Deverth in 2015 and it's probably been four years completely on my own.

[00:09:53] Meryl: That's so interesting. So don't come from an accounting or bookkeeping background and are running this big successful firm. I have to ask some questions about that transition. So because it's a really interesting story I've never heard of. this particular scenario before where the non accountant or bookkeeper joins forces with their, their accountant or bookkeeper and then ultimately ends up taking over the business.

So was that your plan going when you and Colleen started working together and you joined the business or how did that play out?

[00:10:21] Sarah: Absolutely not. So the plan was that I was PR skills and because I had that, that knowledge from being a business owner and. Being a client of a bookkeeping, a small bookkeeping firm, I was, so I was meant to be focused on the business development and providing some support from a bookkeeping sense.

Um, because I had picked up one of those really annoying clients. So it's like, I can do this myself. So I had picked up some skills along the way. And as I had a business degree, like I did have some key fundamentals there. And then over time, uh, as the business started to grow, I think Colleen realized that she wanted to enjoy more, you know, being a solo printer or whatever you say, whether, or a digital nomad.

So she loved working by herself and was less. keen on, on the people side of things as the business kind of grew. So it just became, I wanted to, to grow and see what we could achieve. And that wasn't her jam. So we went our separate ways, but it wasn't the intention from the beginning.

[00:11:32] Meryl: And so what was that negotiation? Like of the two of you deciding what to do with the business and how to transition it across to you and for her to move on. Were they tricky conversations? How long did it take you?

[00:11:45] Sarah: Yes, a deeply, deeply tricky because I think we both liked each other and we enjoyed working together, but then there were just components.

that weren't working and, and our aspirations were just so different. So, um, it was really tricky because you're trying to, to maintain the relationship and do the right thing by them and vice versa. But then you're trying to go after, you know, what you'd also want and get the best result. So I think we ended up, I...

I can't quite think what the split was, but I might have retained 70% and Colleen took 30% so that she still had, um, you know, uh, an income and, and a business for herself afterwards. Yeah. I'm not sure if it. There's no way beating around the bush. It's a very anxiety inducing time when you're trying to, to work out.

You can't see into the future and you don't know. And even when you're splitting, because it had started as Colleen's business, I was very nervous that people wouldn't stay with me. So I, I retained. The diverse name, because I felt that was very important. So the clients that stayed with me had, had the seamless branding and can stay with the diverse brand.

Whereas the people that went with Colleen, like had no one and worked with her for a long time.

[00:13:11] Meryl: I think that was a smart move. It sounds like the ones that moved to Colleen, it was about her, not so much the brand. Anyway, I can see how that would have helped with that

[00:13:20] Sarah: transition. Yeah. So I had to get my Baz agent license, like quick, smart, and I'd luckily I'd already done my cert for when I moved to DeLacroix, I just thought, Oh, I'd better actually, uh, get certified.

So luckily that was all in place. And, um, but I had to do the Baz agent process.

[00:13:42] Ad roll

Meryl: Well, let's transition the conversation now and we're going to talk about acquisitions. And you're starting to become quite experienced at acquisitions. Made a few, and I know firsthand because we actually sold a parcel of Bean Ninja's fees to you a number of years ago now, and I think there's some interesting lessons there, and then we'll talk about some of your other acquisitions too, but why don't we start with the Bean Ninja's acquisition and what's your recollection of how that started?

And, and why you were even considering acquisitions at that point?

[00:15:08] Sarah: Yes. Well, I had, so I had built diverse and the, the systems to be quite robust. And I was really confident in, or as confident as you can be in, in how things were working and I wanted to, to challenge that and to grow further. So the actual backstory is that I had run into on holidays.

Uh, a couple and a guy that I had known years and years ago that had become really successful. And I started asking him some questions around how he had done that and what he had done. And he explained to me, he was in financial planning and that they'd made a range of acquisitions and, and he explained what their strategy was and, and how they'd built this large company, which is.

All up the East Coast and enormous. So I started thinking, just challenging my thinking, well, why couldn't I do the same thing or a similar thing with bookkeeping? So that was where the concept came from. And then I think I had explored a few opportunities before we started talking. The, it hadn't executed until we.

until the Bean Ninjas opportunity. So it was really about looking for ways to grow the company further. I felt that we were under utilizing this, this structure that we had built.

[00:16:32] Meryl: So I'll give a little bit of context from the Bean Ninjas side. So this was around the time when Bean Ninjas had decided to go all in on e-commerce.

So we were ripping the bandaid off. We were changing the headline on our website to say e commerce growth accountants, and we'd realized, well, actually, yes, we do have a big portfolio of e commerce clients, but we have all of these other great clients in other industries and we need to find a new home for them so that we can focus our team's efforts on being great at e commerce.

I had reached out to some people and I'd also put a post in a. Facebook group for accounts and bookkeepers saying, hey, we've got this portfolio of great clients. They're on monthly retainers. They're on zero They're well trained to do cloud accounting and then had shared some more information about that and asked for people to get in contact As to who might be interested in buying this parcel of fees And I can't remember if you came across the facebook post or if it was through some other means?

[00:17:30] Sarah: No, it was the Facebook post.

I saw it and I pounced. Yeah, I connected with you. We'd already met, but yes, that was, it was from the Facebook post.

[00:17:43] Meryl: And so I remember that phase. So I created a form as part of that post for people to express their interest and to say, well, what kind of valuation would they give? Um, how would they structure the payment and also background about their firm because I try to find someone who operated a business in a similar way to Beaninger's where there would be a nice smooth transition for the clients and it would feel like a similar experience.

So I think I did something like 15 vetting calls with different firm owners, but most of them I didn't know. But we'd actually, we'd met in person, we'd stayed in touch after Zerocon many, many years ago. Yes. Yes. Yes. And so I think that was a big factor for me in actually that we, we knew each other and I felt confident that the clients would get a good experience and that Diverse was, operated in a similar way to, to how we operated.

Yes. What was it like for you when, when you were starting to think through, well, is this the right deal?

[00:18:38] Sarah: Uh, I think it was pretty apparent to me early on that it was a good match. And of the three acquisitions that I have been through now, it's still the probably the smoothest because we were the closest aligned in that all of your clients were on fixed fees.

That was easy. We could move them to onto our ignition proposals. They were on the same billing cycle. The, and the other important part was the, the service factor. So we were, I would. say that we, because we offer phone support and all of those things, it was like actually the clients were hopefully getting a slightly, um, even enhanced experience.

So that was a good thing because when you're going the other way, it's very, very difficult. Uh, So it was, it was very smooth in that we were able to negotiate that quite, uh, efficiently and, and quickly and very, um, clear cut, uh, in because of the way that you had structured being ninjas, it was very much like, okay, well, here's a, um, Spreadsheet of obviously you don't disclose initially who clients are, et cetera, but like, this is kind of ABCD their monthly fee, maybe their industry, what their services are.

Whereas once you go on and do other deals, you realize it's actually. Very difficult to get it articulated so clearly.

[00:20:07] Meryl: Yeah, it was, it was interesting. I was, before we started recording today, I was looking back over some of our emails, uh, where we were negotiating the contract and also working on the transition.

And for me, something that stood out, I think because we knew each other, we already had that level of trust. I remember one of my emails saying, Oh, look, I'm not going to bother with checking with the lawyer about this clause. Let's just move on and get this deal signed. And I think that both you and I had that attitude that we negotiated all of the key terms ourselves.

Yes, we both had lawyers representing us to make sure we didn't have anything stupid in the contract or do anything too drastic, but we were able to negotiate most of it ourselves. And I think it was within a couple of weeks that we were able to finalize deal terms, which I think is pretty fast. I've also been involved in.

other transactions and that was definitely the fastest that I've had because we were able to negotiate it ourselves mostly.

[00:20:59] Sarah: Absolutely. I mean, if it makes, just reach commercial agreement as quickly as you can without compromising, but it's got to be win win for both because it saves you a lot in the, in.

in that legal process?

[00:21:14] Meryl: Yes, both in legal fees and also just in time to get the deal done. I've been working on a different type of agreement just recently and we made the mistake of introducing lawyers too early. So, I think what we should have done is agreed all of the terms first and then drafted it with the help of lawyers.

So, just drafted in simple terms but instead the lawyers got involved right at the beginning with all the... Long lengthy clauses and so we had to keep redrafting it every time we were still negotiating the terms and so that would be a lesson from my perspective. Oh absolutely. So once we negotiated the deal terms then we started to, well actually I'll get your perspective, what were some of the key things you were looking for in the contract when you're from the acquirer side?

[00:21:58] Sarah: Yes, so I think retention is really critical. Uh, so having a retention clause is imperative. I mean, my thoughts would be not to do a deal without one, no matter how great you think it is, um, to always negotiate that. So that was important to me and I was funding it out of that particular deal out of cashflow.

So to have, to have the staggered payments was, was good. Uh, and I was really looking to, to ensure that we were receiving. uh, comprehensive information about the clients and, and the service, like, you know, the services that they need to be provided, how they'd been serviced, what the procedures were, like, that was really important to me.

So they were probably the two things. And obviously you're wanting to ensure that you're getting quality clients. And I mean, I now have a list. for any acquisition that I'm looking at, like specific things that I ask. I've become very systemized about it nowadays, uh, but those were some of the fundamentals for me at that time.

And I don't think if I, I mean, maybe being the first one, maybe I would have, um, pushed too hard and, Uh, you know, and gone without a retention, but now in hindsight, like, I think that's really important.

[00:23:23] Meryl: And from my perspective as the seller, I understand why an acquirer wants a retention clause. And so I've, I've done this quite a few times now and I've, I've always agreed to that, but I've also negotiated on the timeline of that because I felt like at some point the acquirer.

And so I think we. We were both pretty reasonable about that. I've had some, some people want to negotiate retention clauses where the client needs to stay for more than 12 months. Whereas my view is that the transition probably takes about three months and then you need maybe a little bit of extra time after that just to bed them down.

But then at a certain point, there's nothing more that I can do from my side to make sure that client stays. And so that's something to think about as either the acquirer or the seller as to, well, what's a reasonable time period for that retention clause or that claw back. Yeah. Was that six months in the end?

I can't actually remember. I think it was something like that. I felt like it was reasonable, but I can't actually remember exactly what it was.

[00:24:20] Sarah: Yeah. I think maybe all the. The three deals have all been six month retention. So I think if the person's not willing to, to offer some form of retention, I'd be, you'd be wondering why do they know that, um, there's a client that's, you know, building an in house.

finance department or, you know, something, um, on the radar that they're not going to be staying with you or whatever it is.

[00:24:45] Meryl: And I think it actually creates an incentive to have a smooth transition. And I know that's something that you and I collaborated on with the transition. Again, I was looking back at my old emails and I can see that I drafted something to send to our clients, but I was getting your input about, am I positioning diverse the right way?

Am I introducing the right people? You did a loom video to introduce diverse that I could. include when I was explaining how it all worked and we're very clear about, okay, this is the timeline. This is the impact to you. There's no fee increase. Uh, we're, we're sharing all of our files and we'll have a Slack channels.

So Beanage is going to communicate directly with the diverse team. There's not going to be extra questions. We're kind of trying to preempt all of the questions that the clients might have and communicate that and show you and your team in the best line. Yes.

[00:25:32] Sarah: Well, I learned a lot. From you during that process, as far as the, the depth that you went to, to, to work through just the construction of the email that, uh, to let them know what was happening, like, I think you even recorded individual loom videos for the clients and then, and then introducing me in a loom video.

It was, that was great. And I've actually now adapted that concept. Like when I let someone know about a price rise, it's. It's like, we'll record them in individual loom and, and, um, and thinking about, I think one of your, the questions right at the end was like, how does this impact you or what do you need to do next?

Like it was very clear and comprehensive. So, um, so that was great, but I think still it took, because, because we didn't obviously retain the Bean Ninjas branding, and this is what makes it different to other deals. So we actually have to get the clients to transition to diverse and to. sign the, the paperwork.

So, and I think most did, but then there were a few stragglers that we had to, uh, yeah, had to be followed up a little bit to, to make the move. And there were, and there were a couple lost in the process, I think, wasn't there?

[00:26:45] Meryl: There were, so we had. A few clients on there that weren't very responsive generally.

And then so they were, they weren't replying to us about sending information to complete their baths or the reports, but they also weren't replying about the proposals. And so I think we had to count a few Mark that's lost because I didn't sign with you within the timeframe that we were expecting. And then that's one of the downsides when they have to read when they have to take an action to move over.

It's different when you acquire the whole business or it's under the same branding.

[00:27:14] Sarah: Yeah, it's risky, as in, I think also somebody, you know, they ended up moving their bookkeeping to their accountant or whatever it may be, like you're just causing them to stop and pause and, and think about their, you know, how they're managing their accounts.

[00:27:29] Meryl: Yeah, I think if you could avoid doing that, um, it works better. But when we had Cloud Counting merged with Beanagers, which was another Australian e commerce firm about two or three years ago, uh, even though we changed the brand, we didn't have to change the proposals because the billing was still going through the same entity.

So the terms and conditions were the same. It was just the trading name that changed. And so that was very helpful with retention because it didn't really impact the clients. It was more just a name change. So before we move on to your next transition, are there, were there any other lessons coming out of that Bingengers transaction?

Uh,

[00:28:02] Sarah: I think it went as smoothly as it could really. Uh, no, I can't think of anything. I've got lots of the ones coming up though. All right.

[00:28:12] Meryl: Great. Let's, let's dive into the next one. So can you set the scene for, for the next one? Uh, how, how long after the Bingengers transaction was it? And was there anything different this time around?

[00:28:22] Sarah: Yes. Okay. So I think because of the ninjas, uh, transaction went so well, then I'm a bit buoyed and gung ho and ready to fire on all cylinders. So I, um, had been keeping an eye on the market for, for practices that are becoming available. And I, so this, So the second acquisition was through, through a business broker.

So it was a genuine, like business for sale listing, not just, you know, not through a Facebook post or knowing someone, not just a Facebook post.

[00:28:56] Sarah: So, um, and it was a larger firm based in, in Sydney. So a lot, you know, bookkeeping practices can be quite small so that, you know, this is. larger and turning over over say 500, 000 in fees and a small team of like four, I think, or something like that.

So, uh, it was completely different because you liaising with a broker through the process and you, uh, I didn't know the business owner. So that's a totally different dynamic and it was, because I'd known watching the market for a long time that the, that these practices of this size, uh, not very, um, frequently available.

There's like, you can find, you know, there's a hundred thousand dollar phase, 200, like quite small ones that generally that's what has been listed that I have seen. Um, so I was quite excited when this. Came up and, uh, started liaising with the broker and it's just different because they really, but I have come to decide this to be true, but they're really telling you that, oh, they're overwhelmed with inquiry and they can't, you know, get back to you and there's, you know, this is the most interest I've ever had in the business and all of this stuff, which I actually think at the time, perhaps like finance, you're And these types of businesses are becoming increasingly popular to acquire.

Um, but at, you're kind of like half believing it, half not, like, you know, do I need to, you know, put it, I haven't even spoken to the lady, do I need to put in an offer like this minute? You know, do I offer the listed price? Like, is that foolish? You know, you just have no idea. So you've just got to work through that whole process.

And I, um, insisted on. or requested a meeting with the owner, which seems to be quite unusual, which I find unbelievable, particularly if you're buying a service based business. But other brokers will tell you that no, you know, they've got offers. Uh, and, and a lady that I ended up going into another negotiation with about another acquisition, which didn't come together.

But she said to me that I was the only person that requested a zoom meeting. So I thought, wow, crazy. I find that incredible.

[00:31:22] Meryl: As the seller, I would want to meet everybody because that's going to impact the retention of, of, you can assess pretty quickly in 10 minutes whether you think it's going to, initially, whether it's going to be an absolute disaster or not.

[00:31:33] Sarah: I know, I know. It was, uh, yeah, it was a much longer process. So I think our, our opportunity would have been in, uh, mid 2021. So this... Would have been later that year and then we settled in February 20, uh, 2022. So, um, it's, oh, there's so much to say. It was like a much, uh, very complex deal. And also because I was.

dealing with somebody like the business owner still we work together today. So she has stayed with diverse and we have a fantastic working relationship. And that's been one of the best things to come out of the acquisition is meeting each other and working together. Um, cause we're, she was getting at selling her practice to, to get, you know, Um, and we've stayed working together because she likes, you know, she still wants to be doing something and utilizing her skills.

And so that's been fantastic. But I was, you know, I've been through several acquisitions and, uh, well, you know, my business partner and what I'd done with being ninjas and I'd experienced. the other opportunities that hadn't executed. So I, I was kind of, and also in my previous life in my food business, I had done two business acquisitions with that, which I should mention, but so it was interesting going through the process with somebody who like they're fundamentally the owner of a small business and they've only.

you know, this is their first time. And I think there was a lot that went on between the lawyers and it was a lot to negotiate the, the retention. It was just far more complex. And I think there have been a few key learnings not to jump the gun around. So while fundamentally we are a similar and have a.

Say a similar approach to running a business and, and our services and how we interact with our staff and, and our clients that were quite aligned in that regard. But then I was really buying a traditional bookkeeping practice that had while the majority of clients were on zero, not all the clients were on zero, you know, it was going, you know, completely different systems.

So I had to migrate. All of those clients on to XPM and, and the staff on to XPM and, you know, they'd never, there was no fixed or bare, like a few fixed fees. And if there were fixed fees and they've charged like on some random day of the month and no, they don't pay in advance, they pay in arrears and no, this one does pay in advance.

And it was like, just very different. And I think that there were. Like, I underestimated how much work it takes, like those things that you think when you're in the negotiation phase, like, Oh yeah, it takes five minutes. We'll show the staff how to do this. And we'll. Send the client's ignition proposals. It, it, those things are quite momentous when you're run, like you've, so at the same time that this deal went through, Diverse itself just seemed to explode.

So it was, you know, that was really busy. Then you're aligning, you know, bringing everything across and you've got clients that have never done an e signature. It was just. It's just a lot happening. And ultimately it's been successful, uh, and it's worked, but there, it was just a lot more complex than I anticipated.

So I just want to make sure that it's not all like glory days and that I can remember one day just sitting at my kitchen bench, like literally like shaking and crying, being like, Oh, I, I've bitten off more than I can chew. Like that. I am literally there and you've got nothing. You just have to keep going, like you've, and in this case, like I had a loan to, to fund the, the deal because it was, you know, significant.

So you, you've got no option, but you have to keep going and make it work. I know

[00:35:54] Ad roll:

Meryl: So many questions for you after hearing that, but well, let's start with the loan. So how did you go about getting the loan? And was that secured against anything? What? Because that would be interesting for other people, particularly who are interested in on the acquisition side.

[00:37:47] Sarah: Well, I am very fortunate in that I, uh, loaned the funds through my husband's family company.

So a bit, so it's like an internal loan that was through their business facility. So I, um, so I do, I repay the loan and I pay interest and all of those things, but I didn't literally have to go to the bank and do an application. Um, So, because that would have been difficult. Yeah, so I was fortunate in that regard.

[00:38:17] Meryl: Yeah, that's helpful. And you mentioned that there was complexities in this transaction. And then a little earlier, you mentioned that you now have a checklist. So you've systemized the acquisition process. Are there a couple of specific things that, particularly that you learnt from this transaction that you now have added to that checklist?

[00:38:34] Sarah: Uh, yes. Well, not necessarily from, from this acquisition, but things I learned along the way, like make sure you, uh, triple check there's no personal relationships between the, the business owner and staff and the, and the clients. Because sometimes you'll go quite far down a deal and you'll find out that, oh no, it's the guy's brother who owns the group of, you know, the largest clients.

So I'd watch out for personal relationships. You, there's so many things like I could talk all day, but you would make sure that like, look at the length of time the clients have been with. The, the companies, so like if they've been there a few years, well, that's great. They're less likely to change.

Whereas if they're new, then the relationship is still at risk in those, in the earlier days, looking at the stage that the businesses are at. Like, are they in growth phase? Are they in like sunset phase? Like, if this is a company that say the practice is being sold because the business owner's retiring, like other clients retiring.

So, uh, there's lots of different things to ask and, and look at and, and make sure that you're buying something that you couldn't just grow yourself in the same.

[00:39:53] Meryl: Yeah. How did you think about that? Because I know your marketing works really well and diverse is growing organically quickly too. So how were you thinking about those two different options?

[00:40:02] Sarah: I think, as I said earlier, I think I was just really looking at capitalizing on the structure that had been put in place. So I, you know, I had some great. Staff that I still do have a fantastic team, but that stuff, uh, up skilled trained, ready to go staff that it was like, okay, she's ready to elevate. Like if I can, you know, give her this opportunity or build this out, um, like move her up to run a team, they can look after this new client.

So for me, it was about, and it was just about capitalizing on what we'd already built, but then also considering like interest rates were low and also like you were paying for these key infrastructure, like, you know, the thing, going back to my friend, the financial planner, he was saying like, you know, you increase your turnover, but those overheads.

won't increase at the same rate. So, you know, that's where you build your bottom line. And that's what I was considering. So, like, running, um, a budget. If I plug this in, like, what does it look like? And, but, like, I'm still in that phase where you're, uh, I'm coming out of that because your costs do increase.

for a period of time and then you only achieve the efficiencies after a while because you kind of go through this time where if, you know, if you're acquiring stuff or they become more inefficient as they adapt to new systems and it costs you money, etc.

[00:41:32] Meryl: I actually wanted to ask about that because in, in the second, https: otter.ai the business owner, the partner moved over and it sounds like some of the staff. So, what was that like? I imagine there's more considerations when the team's coming over as well. Yes. So, how did you find that?

[00:41:58] Sarah: Uh, it, it's been complex. Uh, that's my answer for everything, isn't it? Um, so, the business owner was contracted, like that was part of the deal Um, she had to stay on, I can't remember the technical term for that, but yeah, she had to stay on for a period of time.

And that was all part of the agreement that she would work like this number of hours per week. And you know, this was the agreement. So I mean, that's. That's essential if you're, uh, acquiring the team. So the team will have to sign new employment agreements and come across. And I was softly introduced, so we did, um, Zoom sessions to meet them and introduce myself.

And the plan was for For that, I would go to Sydney and meet everybody in person. But I think that was waylaid due to, uh, must've been COVID or something around the, around the time. So, um, it was actually a little while until I, I got to meet everybody. And I like it's work, like the team members. The, the key core team members are all still on board and I have, we have a great working relationship with them.

And again, because the business owner and I are quite like aligned and, and similar in our approaches, uh, I think that's, that's worked well, but it's been difficult for some of the staff to adapt to the tech. That's another thing. Like when you're going through that process, you've got to think about that the person selling the business, it's in their vested interest for you to believe that this is the most tech savvy, you know, innovative, adoptive business going.

And I think like when that's conveyed through a business broker too, it was. Like, it's only now that I've got further into it, and I now, I've been running it for over a year that I think, oh, like, yeah, it's a, it was a bit different, a bit behind where Diverse was at. Um, and also they were going from the service difference, which was different from the deal with being ninjas was no, these are going, uh, go, the clients, were going from a firm where, You know that, that small firm size where the business owner speaks to everyone and you know their dog and cat's name and what happened to their son Bill and all of like that mental service where the, where the business owner has like worked.

Seven days a week and call me anytime and all of that. So that was like a massive adaption for those clients to then go to diverse where we provide you with a rock solid service, but we're not on tap. Like you can contact us during business hours and that's that. And there's a few other, yeah, like boundaries that we have in place that were a bit.

But overall, like, again, same thing, you must have a retention clause because there were clients lost in the, in the process because that, um, we merged that company's branding straight into Diverse. So I. Wasn't interested in operating two, you know, different branding, two different companies. Um, I was, you know, I just wanted to keep building the, the diverse train.

[00:45:19] Meryl: Yeah, that makes sense. I can relate to what you're talking about there. It was similar to when Cloud County merged with us. So that was a. Firm that was smaller than us and Tracy had a team, but the client relationships were still very oriented to her as the partner. And she's talked about this a little bit on, on her episode on, on this podcast, but it was very hard to untangle that to change the service level.

from the Binders service, we, same kind of thing, we do it, we provide a good service, but there's a lot of boundaries around when the team's available. No, you can't have anyone's mobile phone number. You actually have to schedule calls through calendar. Calendly can't just pick up the phone. So, it was quite hard to retrain.

In fact, there was a lot of resistance to training the clients around having less. Tracy time, which was one of my jobs was to put in systems and processes and reset boundaries around that so we could scale beyond without needing her to work more hours. So that was definitely challenging as part of our transition to reset those expectations.

[00:46:17] Sarah: That's a. That's the biggest thing. And, but I think you've just got to stage it over time. Like people can't deal with too much change at once. So like first change is same people, same price, same expectations, but now you're seeing a diverse logo on your billing. So we go through that for a couple of months and then, like, then we'll make another change and, uh, it's just been over time that you've built that, uh, alignment.

[00:46:44] Meryl: Yeah, yeah, great point about just staggering it. So you get used to this and then it'll be, yeah, gradually, gradually something different.

[00:46:53] Sarah: I just think I've made that mistake before when I was younger with, uh, in different industries, but with food, I would, I bought a business and then I thought, right, let's change this.

Let's change that. Let's like, and you've overhauled the whole business and you think it's all for the better, but I think it just puts at risk those fundamental relationships. So, and, and what was core to that business that you didn't even realize. So it's always like slowly. Slowly, but you'll get there in the end.

[00:47:23] Meryl: Got more patient as we've got on. All right, well, let's hear about the third transaction.

[00:47:29] Sarah: Okay, so now I've got so I uh, I ended up, this one was interesting and, and, and went really well. So I, uh. I must have done a Facebook post looking for a team leader for somebody. So at Diverse, the whole business is broken into these teams or pods.

And so we needed a fourth pod and I needed an experienced person to come aboard to run that. And it can be quite challenging to find people with the right experience level. To, to take that on and then, you know, you're going out to quite an introverted industry and say, okay, I need a people manager as well.

Someone that can do client relationships and manage the work. So I was on the hunt for someone in that regard. And then I became connected. with a lady who was look, had been running her own practice, a solo practice, and she, you know, was looking for a change from what she'd been doing. Um, so she took on the, the team leader role at Diverse and then at, and when we were negotiating around that role, she did ask, like, would I be interested in, in acquiring her client base?

If everything went well, so we, uh, commence working together and it, after a few months, it, it was going well. So then we commence negotiations around the acquisition or merging her clients into Diverse.

[00:49:06] Meryl: Interesting. So that one was less about. Acquiring more fees, but almost like an acqui hire of how do you get a great, talented person.

I will, she happens to own a business. And so that's a way to secure her long term role with Diverse. And so were there any lessons or challenges coming out of, of that one? Uh, well, she

[00:49:26] Sarah: was contracted. So after the acquisition and then the retention period, like she was contracted that she had to stay in that role for a certain period of time, which I think may have been six months.

[00:49:43] Meryl: And so she did resign from the role.

[00:49:47] Sarah: Um, she still works. So we have maintained a great working relationship and she's still part of the Diverse team. But she, I think what I understand is that like, so she was moving away from being a solo practitioner to get better work life boundaries and to be able to take holidays and to, you know, have space.

And then I think coming into Diverse, into the team leader role, which was high growth pretty hectic. A lot of change going on with, you know, merging these other clients in. And so she has changed to a bookkeeping role at Diverse now in that she, you know, just wants a lower stress position. So I think that was okay because Yes.

Ouch. But also you've got to be ready for these things and you've got to have pre planned it. And the whole, I mean, when like a size practice that we have now with, I think there's 25 staff and 300 and something clients or is I've, it cannot be dependent on one person. So because people, even though I want, uh, You know, and I have a great team that have stayed with me for a long time.

Nobody's going to stay forever. Things happen, things change. So, and this is why Diverse is built the way it is. So that even though she can step out of that role, like they're still emailing the same email address, they still phone the same phone number, like from their perspective, as long as they're receiving the same service.

It shouldn't change, but, and we, we haven't lost any, like 100% of the clients in that deal were retained, but it was again, better aligned in that it was 100% zero, all fixed fees. They were already on XPM, already charged on the first of the month in advance. Like, so there was a lot of alignment there, which made it.

easier.

[00:51:39] Meryl: I thought you meant she left the business entirely, um, after the six months, but that makes more sense that she still stayed, but just wanted to change role and not be in that leadership role. I actually noticed, so a lot of our team is in the Philippines, but we find that team leader role hard or much harder to fill than our senior or junior and senior.

accounting and bookkeeping roles that we've got a few people that are ambitious and want to grow into people management. And so then we train them up. Um, but we've definitely picked some people where they're great technically at some of our strongest technical staff, and then they think they want to do leadership and then they try it and, and very quickly decide that that's not for them.

I mean, have you got any tips about. how you find the people leaders or the team leaders in a bookkeeping firm?

[00:52:25] Sarah: It is, it is really challenging. So I've, I mean, two of my team leaders are, um, so we have, there's four. One was an external recruit through a recruitment agent and that took a long time to, to find her.

And then two are internal promotions, and the other was another external recruit. I think you do not hire just on technical skills. You, you cannot. So it's got to be in the soft people skills, how they're going to, so each of mine managed, say, a team of five or. So, um, and they've got to have those soft skills to just to be a safe space that the bookkeepers can come and ask their questions that they can, um, because, you know, that's how, you know, what's going wrong.

If people feel comfortable enough to ask questions, it's so, you know, they've got to have those people skill. Yeah, it is difficult. I would skill test and then personality test. And, and I still, even though I have a, we have a HR lady, um, as part of our team, I still personally interview because just after so much, you start to pick up on what is going to make a, a great team leader.

And for us, like that's the most critical thing because they have to. To ensure that team is hitting the KPIs and, uh, and that work isn't getting because we don't micromanage the work and I don't have a, you know, we're running everything off XPM. So I can't see that you process that payroll at that time or, you know, there's no.

Tick box. Um, so you're really relying on the team leader to, to have that oversight over what's going on and yeah.

[00:54:17] Meryl: Very important. Well, we're, we're coming up to the end of the conversation. Do you have any final thoughts around acquisitions and, and your experience now that, now that you've done a few, I mean, the, the next question for me is probably, When's the next one?

[00:54:32] Sarah: I'm having a breather at the moment. No, I, I feel like we've built a company that I, I love the size of it. And I, I don't, my aspiration is probably not to get any bigger. It's just to get better at what we do. And it. It's a great size. And you would appreciate this. Like I went from, and when I knew that I had reached the space that I wanted to be in, I had, I went from Delica, like, cause our team went from eight to 25 in like seven months or something crazy.

And then I went down to our team retreat. And I had to stand up and speak. And you don't think 25 people is that many people, but everybody looking at me, their life, depending on me, I was, I was like, okay, that's enough people. Um, so just going from, I'm normally, you know, working from DeLacqua talking to my computer and then just suddenly like.

See everybody in real life was a lot. So we're in a great sweet spot now and I love small business, so I don't, and I love knowing my team and, and, um, being as involved as I am. So I'm probably not one to aspire to like franchise into every state or I don't know, do all those kinds of things. And so I'd never say never about another acquisition.

'cause if the right opportunity came up, I would explore it. I mean, I'm all about, its. exploring every opportunity, pretty much. And then, you know, if, as the red flags come up, you know, knocking it out once, you know, and I, if I was doing it again, I would be really looking for complete alignment. So don't like when you.

Meet the business owner, you know, do you connect to that? Like, are you aligned in, in your approaches to business? Because you're not, it's not just a deal set and done and you never see them again. Like you, it's quite a prolonged process and you've got to work together. So if they're difficult in the leader, in the negotiation or signing the contract, like you're signing up for a world of pain afterwards.

So I bought, I just think, look. And don't get so enthusiastic about the opportunity that you can't see the signs. Like, don't overlook, um, the red flags as they come up. And I, I would be thinking about like, what's my business look like now? Where am I going? What do I want to achieve? Is this going to be easy to, to merge?

Well, it depends whether you're taking their branding or merging or acquiring or whatever it might be. Stay on, on that path and, and ensure that you're getting the, yeah, making the right decision for your life overall. Amazing.

[00:57:16] Meryl: Well, if anyone is interested or has a, maybe they've got a, an acquisition offer for you, um, what's the best way they can get in touch with you?

[00:57:22] Sarah: Probably via our website, which is diverse. That's d i v e r s e bc. com. au and you can, um, yeah, reach out through the contact page.

[00:57:34] Meryl: Amazing. Such a fun chat. Sarah, thanks so much for, for dropping by the podcast. Thank you.

I enjoyed my conversation with Sarah today and it was fun to reflect on the transaction that we did together with Diverse Bean Ninjas. It was also interesting to hear about Sarah's entrepreneurial journey, and I liked that not being an accountant or bookkeeper didn't stop her from buying into a bookkeeping business, and maybe it was even an advantage.

She did go on and get her bookkeeping qualification, but it sounds like it may have helped her to hire other bookkeepers and focus on the running of the business and things like marketing, processes, and people, the fact that she didn't originally come from that background. Sarah shared some tips about acquisitions and these are the ones that stood out to me.

Take the time to understand the incentives and the motivations of the seller. That can be important both in terms of what to focus on in the contract negotiation and also How to make sure the transition runs smoothly. Think about what era the firm that you're looking to acquire is in. Is the the owner retiring and do they have lots of clients who are also retiring from their business?

That might impact how long these clients may stick around with you if you acquire them, which out for personal relationships in the fee base is the largest. Client, actually the firm owner's brother, again, that can change how long you're going to retain these clients. And another question to ask is the length of time that the clients have been around at the firm.

Because if they've, if they're newer clients, then it's more likely that they may not stick around during the transition. So some really great tips from Sarah there and three different acquisitions with different outcomes and different challenges. If you've been enjoying the podcast, then it would be amazing if you could take the time to leave a five star review with a comment on Apple podcasts or wherever else you get your podcasts.

That's greatly appreciated.