Welcome to The Upstream Leader. My name’s Jeremy Clopton. I am excited to be with you today because we get to talk about some of the change and excitement that’s happening in our profession right now, whether it’s mergers and acquisitions, private equity, ESOPs, fiercely independent firms, whatever it may be, we’re going to talk about that today. And for that conversation, I have with me the CEO of Koltin Consulting Group, Allan Koltin. Allan, welcome to the show.
Jeremy, thanks so much. So excited to be here with you.
Yeah, I think this is going to be a fun conversation. I know that in the firms that we talk with, whether they’re big firms, small firms, midsize firms, U.S. firms, or Canadian firms, everybody’s trying to figure out what is going on in the profession, what do they need to be thinking of as it relates to independence, private equity, or all these other options that are out there, and it seems like there’s a new one out there about every quarter. So I’m excited to have that conversation with you. Before we do, I know most people that are listening probably know who you are, but tell us a little bit about how you became the leader that you are today?
Well, you’re very kind, Jeremy. You know, what most no longer know about me, unless you’re probably north of age 55, is I was a practitioner. We started an accounting firm well before the internet, and grew it to be the 13th largest firm in the country by 1998. And it was that time we became the first or one of the first to go where no one had ever gone before, and that was selling the business to a non-CPA firm. In those days, it was H&R Block, American Express, and CBiz. And we chose H&R Block.
We had a second company, which we also sold in 2011 called PDI, eventually PDI Global. And that was a consultancy, publishing, and training company, which in its heyday, we probably had about a thousand CPA firms as clients. In 2011, I sold that company to Thompson, and for the last 14 years, under the banner of Koltin Consulting Group, I’ve been doing consulting, you know, the things you would guess: strategy, growth, compensation, governance, succession, partner stuff, leadership, and profitability to top 500 firms, and probably the most visible thing, only because press releases come out, is we have this side business, as I like to call it, that does M&A work for about the last decade. We’ve done about 200 M&A deals, or advised on 200 M&A deals.
And then in 2021, the last three years, a crazy thing happened. We got a phone call from a private equity group saying they wanted to enter the accounting profession. And we said, why would you want to do something so stupid? No, just kidding. And since that time, a whole other industry has evolved separate from what I would call traditional M&A, and that’s outside capital investment and all the derivatives that have followed that. So glad to be with you. Thank you.
Yeah, you’re welcome. And quite the side business there. Most people have a side hustle that stays pretty small. I think you might be as well known for your side hustle as you are the main business.
Thank you. Thank you.
There’ve been a lot of deals there. So as you’re, you know, as we think about this, let’s just start with maybe the old school, the traditional, you know, pre-2021 type of thing, which is M&A, right? What are you seeing right now in the profession as it relates to M&A? I know from my perspective, it seems like there’s still a lot of activity, but it’s shifted to where bigger firms are looking to merge or acquire with bigger firms. It’s almost like they’ve realized, man, it takes a lot of effort, whether it’s small or midsize or big, we might as well get more out of the effort. Is that consistent with what you’re seeing? And for firm leaders, what do they need to be thinking about as it relates to M&A specifically?
Yeah, and then maybe we’ll start with firm leaders, because this is a talk for firm leaders. You know, a very pointed comment that I put out there—there’s this tidal wave of private equity, almost suggesting that if you’re not doing it, you’re missing the boat or missing the opportunity. Nothing could be further from the truth. Many CPA firms have chosen not to do private equity deals or an ESOP or a merger of equals or being acquired by a wealth management firm or a family office. The issue is a strategic question, and the question is, how will we continue to grow, have the mousetrap to recruit, retain, and grow people, continue profitability, and deliver the kind of world-class service we’re accustomed to, to our clients.
What has changed, I think, starting five years ago, was the need for capital. And, you know, we talk in terms of the three T’s: talent, technology, transformation. Talent, you know what’s going on with that, the supply and demand is out of whack. We could spend an hour talking about the why, but let’s just accept it is, and you know, it’s not going to get better for the next five to 10 years. So as you know, that has caused other ways of looking at the talent equation: offshoring, deeper investments in technology, pulling the mundane away from the kids and what used to take 200 people hours, now doing it a flip of a switch.
Technology, I wish it was cheap. We as accountants love to do things on the cheap. You know, there’s an expensive marketing director, there’s a mid-range marketing director, and there’s a marketing coordinator we could steal. And the brain of an accountant wants to go for the deal. They want to spend the least amount of money on the business as humanly possible. And I think over the last decade or two, we’ve learned you get what you pay for. If you buy it on the cheap, if you dabble in a niche, you will never get the kind of results you should. So to me, it’s a, not a question of PE or not. It’s a strategic question of relevance and sustainability. What do we need to do today? And yes, the playing field, what got us to the dance won’t keep us at the dance, 100 percent accurate, but lots of different ways to approach that.
Yeah. So is that still thinking about the talent, the technology, the transformation, I guess then the question for firm leaders is what avenue allows us to retain the talent, implement the technology, and achieve the transformation in—is it a timeframe that we’re comfortable with? Is it to the level of degree that we’re comfortable with? Kind of, what’s the question there that you see leads a firm leader down the path of either M&A, private equity, or even, we’re good with the pace we’re going, we’re going to stay independent. Is it a pace issue? Is it a success issue? What do you see there, Allan?
It’s all of the above, Jeremy. I think it starts with a simple concept of getting the partners on the same page. If you don’t have that, you don’t have anything. So it’s a belief of where the business is going, it’s the wants and needs of the stakeholders, the shareholders. And it’s a consensus on the vision of giving all of these elements of change, what is the best strategy for us?
And, you know, as we talk about, we like to frame things in doors one, two, and three. The door number one to us, unfortunately, is the path of least resistance. I could call it many different things. I’ve labeled it as Groundhog Day. I today call it “grind until we can’t.” The issue we have is the accounting gods have blessed us with the best four-year run in the history of public accounting. If you couldn’t grow and raise rates and get rid of crappy clients and make a lot of money the last four years, you ought to look at a different profession. I don’t think this four-year window, and I’ve got 44 years in this industry, I don’t think it will ever be repeated again. And if I’ve learned one thing in 100,000 hours of time studying the brain of an accountant, how’s that for fun? What I’ve learned in accounting firms is change doesn’t happen when the change itself is deemed to be not as good as the status quo. And right now the status quo is pretty, pretty good.
So we have a situation where, I don’t want to say we’re blinded by our success, but the belief is let’s just keep doing what we’re doing year after year after year, continue double-digit growth, double-digit increase in profit, and you have to stop, and you almost have to hit them on the side of the head and say whoa, we’re not going to continue to get those rate increases, those synergistic things that fell from the heavens: PPP money, free money, the employment tax credits, which many firms made millions of dollars. The ability to do things, a lot of that has happened. And I think that there’s this mirage out there that a lot of firms believe they can do nothing. It doesn’t mean do a PE deal. It means look at ways to stay sustainable and relevant. And I think to do that, the business has to be transformed.
You talked about talent and technology. The last one, the transformation piece, is really moving from a compliance shop to a consulting advisory, outsourcing business, you know, going from this thing called the moniker, we’re “the most trusted advisor.” You know what, that’s just a given, like get past that. That’s like in the 90s, we’re a quality CPA firm. I used to say, that’s great. I would love to meet a non-quality CPA. We have to become that impact player, the most valuable player, advisor to our clients, and to deliver that, we have to transform into those value-added services. As you know, some firms are doing it, they don’t maybe show up as the highest earning firms, but we know it’s because they’re planting seeds today for a better tomorrow. So that’s my door number one firm. I worry about them.
Yeah.
The door number two is fiercely independent. That’s cool. But stay as a day one company. What got us to the dance won’t keep us at the dance. Continue to reinvent the business. Make it better. Don’t just make it bigger. Make it better. A lot of firms out there doing mergers bulking up. You know, they’re not creating greater depth of expertise, new industries, all those kinds of things.
Door number three is the one that is also a path of least resistance. It’s merging up, it’s combining with someone else and using their playbook.
Okay. So hearing you say door number two is fiercely independent, and I think it was a quote, like you said, lots of press releases, right? There was a quote, I think, attributed to you earlier in the year that said, the eventual consolidation of the industry, and I remember thinking, I don’t know that has to be true. I mean, the IPA top 500, as I was telling you before we went on recording, has 500 firms. And I bet next year it’s going to have 500 firms, and if I’m going out on a limb three or four years down the road, it’ll still have 500 firms. Otherwise it’s not the top 500, right?
So as you look at that, having door number two is the fiercely independent firm, do you see a path forward for independent firms, assuming that they are focusing on those three T’s? Is that what’s necessary to remain independent, making sure that you solve the talent, technology, and transformation challenges?
100%, Jeremy. We could have a friendly debate about there always being a top 500. Heck, there’s 45,000 of them, so we’ll never run out of them.
Exactly!
But, I would tell you that if you and I, five years from today, or for sure ten years from today, looked at the list, there would be a noticeable difference. Here’s how it goes: In 2000, the 100th largest CPA firm in America was six and a half million (dollars). You know today that number is $50 million. We say, what happened? Well, what happened is locals became regionals, became mega regionals, became national, and soon-to-be national firms will become global firms.
The last year or two, we’ve seen the first reversal, where it used to be every year the revenue cutoff kept going up and up. Now, one could say that’s just because of the abundance of the number of M&A deals that have happened with top 500 firms. I believe we are consolidating and we will have many more bigger firms so that it actually will begin reversing itself. It won’t be the 100th firm is $50 million to get in the list. At some point, I think it’ll be $40 million. The 200th largest firm is $25 million, I think at some point it’ll be $17 million.
So, yes, repopulating to always have a top 500, but, you know, the consolidation craze isn’t something that just the top 25 do. You and I work with firms that are $8 million and they’re acquiring $2 million firms. Or they’re 25 million and they’re acquiring $5 to 7 million firms. What has happened with M&A, separate from anything to do with PE, is firms have learned it’s a growth strategy. And it’s not like one is right or wrong or good or bad. There’s, you know, we call it the triangle offense. Organic growth, plus M&A, plus, call it stealing the stars: surgical strikes, lateral talent, lift-outs. So how we grow the business is those three points, plus continuing to add new products and services, industries, and geographies, all those things. And I think that has gone from a big firm strategy down to the world of a $5 million firm.
When I meet with $5 million firms, we talk about 5 years becoming a $10 million. We say, maybe we could do it just organic, but I can tell you when you get to be $100 million, it’s a lot harder. The bogey is bigger. And you know that $10 million is net growth. That’s net of clients that go elsewhere or sell their business.
Yeah, and the bigger you get, the harder it is to grow 6 percent because that 6 percent is a much bigger number, the bigger you get, and it’s easy to forget that.
Let me ask, before we get into the PE side of things, let me ask you this, because I’m often asked this question, and I have mixed feelings. It really depends on the situation, I think. But do you think a firm that, say, 18 million, in a geography that they’re happy with, highly profitable, doesn’t have a desire to become a $30 million firm. They just want to stay that $18 million firm, grow the right number of people to make that sustainable. Do you think that’s a business model that will work in our profession still, or do you think that’s one that it doesn’t have a place 10, 15 years down the road because of how much other growth there’s going to be happening?
Jeremy, you know, 60 years ago, my mom taught me a valuable lesson. I had to make my bed every morning. She said the way you make your bed is the way you’ll sleep in it. And here’s the reality for that $18 million firm. My belief is, if you want to be a best-in-class firm, if you don’t want to be, all bets are off. But if you do, in this business, it’s not an option whether to grow or not. You have to grow. Why do you have to grow? Because it’s not an accounting business, it’s a people business. And if you truly want to recruit, retain, and grow the best-in-class talent, you have to push them through the system quicker than the firm down the block. Otherwise, they’ll go to the other firm where they can advance quicker and make more money.
So the days of just simple rate increases as a way to grow a business, when you look at the cost of talent today, which is now approaching 50 percent all-in, and you look at where it’s projected, we’re going to have to raise the bar starting with entry level salaries, you have to be a double-digit grower if, it’s a big if, you want to stay best-in-class and create a legacy firm and have that next generation of stars to take over for the retiring ones someday. For many firms, a five-year strategy of getting from 18 to 23 or a 10-year strategy to $30 million, you can do it, but you may pay the price later on if you haven’t built the house the right way.
You know, I always think of the depth chart of an NFL football team and they’re deep in that second and third unit. They’ve got players. If player number one goes down, the next one steps up, and they can take a leadership role. If you just build a firm of workers, you’ll stay relevant as long as your A team continues to work and doesn’t retire. So it’s a more complicated question, I think, about sustainability. It really is. Before you go there, you have to say, well, what do you want to be? Cause you and I know a lot of firms that they’re milking it for everything they can, but there’s going to be a wake-up call in year three, five or seven.
You know, people say to me, like, you know, at that point, seven years later, we can’t find and keep talent. I go, well, let me ask you a question. Would you work at a firm like yours? Hell no. You know?
No, absolutely not.
Yeah. It’s a business. It’s a business. There’s no one right way to work it. But to come back to point number one, get consensus and support from the ownership group, what you’re willing and want to do and what’s the cost to do that.
I appreciate that, Allan. Thank you. So let’s shift gears just a little bit. We talked M&A as a strategy, as you said. About four years ago now, private equity has started to also come into play and that’s changing the strategic questions of firm leaders. So when you’re thinking about PE, and I know the first deals that we saw were the bigger deals, right? The Citrins, the Eisner Ampers, the big firms taking private equity. Now there are firms that are, you know, in that size range that we’ve been talking about that are in the middle teams that are taking private equity, becoming platform firms, and starting to, you know, build as well. So it’s not just a top 15, top 20 firm type of concept. Private equity is entering at all levels. Now, what a firm leaders need to be thinking about as they’re evaluating private equity, what it could mean? I know there’s a bunch of unknown because we haven’t seen what’s next, which seems to be everybody’s biggest question is what happens once the next sale happens, or the first sale, I guess. What do you see in there? What do leaders need to think about?
Well, I think they have to first figure out if they, using private equity, do they even have a need for capital? If they had capital, what could they achieve better, quicker, all of the above? Because, you know, there’s firms out there that never make decisions and because they never make decisions, they never make decisions to spend. It’s taking a model that was built in 1887 when the accounting profession started and continuing to run it. And, you know, the beauty of public accounting, Jeremy, as long as you don’t do a bad audit or tax return, you can stay in business forever. It’s just a question of whether you’re going to be best in class and have best in class people.
So I think it’s a discussion on, do we want to transform the business? If so, what’s the best way to do it? My only commentary right now is for every two firms I talked to, one of them has a blinder on, because the last four years has been off the charts, you know, and they can’t see that could ever change. So, you know, you mentioned the big firms in private equity—I was warned about this early on back in 2021. I said, my gosh, there’s so many firms that probably could go the way of private equity, but there’s so few private equity firms. And I’ll never forget the conversation they laughed at me and they said, oh, you obviously don’t know our industry. Once one cracks the code, they will come in, in masses. And, you know, I keep a running list of every time I get a call from a PE firm that wants to invest in the accounting profession, I’m up over 125 firms.
Wow.
Now, the interesting thing is you have, think of professional boxers. You have the heavyweights, you know, the top 25, they only want to talk to our top 25. You have the middleweights, you know, that would be the equivalency of our top 300 firms. You have their top 300, and then you have, I don’t want to call them lightweights, because that’d be insulting, we’ll call it the welterweights. We have firms, PE firms, looking to invest as little as $1, 2, 3 million.
What doesn’t get talked about is there have been a couple of these small platform deals that were done two years ago and they’re running incredibly. NDH here in Chicago, which was rebranded to Prosperity Partners two weeks ago was a $10 million tax only firm. And in 18 months, partnering with Unity Partners, they’re going to hit $36 million this year, with proportionate increases in EBITDA. Smith and Howard, an Atlanta, Georgia firm, $44 million of revenue November of ‘22. So we’re not two years in, that firm is on a run rate to do a hundred million dollars, and probably, you know, as you know, it was one of America’s most successful, both of those firms, most successful, most profitable CPA firms.
But we’ve had another element come into private equity, which we probably should talk about. When this started, it was all about the mothership: The big firm getting capital from PE and tucking in smaller firms. The great disruption in our industry has been what we call the roll ups. These roll ups basically acquire firms or an interest in a firm, and probably leave them alone up to a point. They keep their name, they keep their software, they keep their culture. It’s known in five to seven years they will sell the asset, and before five years, trust me, they will integrate them into one firm, but it’s a much softer landing than being part of, if you will, a big firm.
Sure.
And, you know, one of them is already approaching $400 million. The second one is approaching $200 million of revenue. And they’ve only been around one or two years. So you have these speed rockets out there. Consolidating those $5 to $50 million firms almost at an exponential rate. So the change in our profession is so different than what we knew of the late 90s when there were two or three players who maybe impacted 20 or 30 firms. But I want to come back to the opening point, Jeremy, just because you’re not doing private equity or ESOP or a merger of equals or being owned by a wealth management firm or whatever doesn’t mean you’re not going to be wildly successful. Grab your strategy and then execute the hell out of it.
You know, I’m a cheesehead in my background and my favorite football coach was Vince Lombardi, the Green Bay Packers, who used to say, “If somebody wants my playbook, I’ll give it to them because come Sunday, it’s all about execution.” Crystal clear strategy followed by laser focus on execution.
Yeah, no, that makes a lot of sense. I appreciate that. So these roll ups, let’s talk about that for just a second. You said that there’s a soft landing right now, five to seven years on at some point, there is that integration and bringing them together. You’ve been around the industry a long time, as you said. Does that cause you any concern, the fact that it’s a soft landing for now, but at some point there’s almost going to be an expedited integration to make sure that it is all together before that interest or that asset sells again? Does that concern you at all, or is it similar enough to M&A that you feel like, ah, firms have got this figured out, or do you see some risks with that? Because it sounds great today and perhaps terrifying it about your four and a half where it’s like, oh gosh, we got to make it happen. Kind of the way you talked about it there.
Yeah, so Jeremy, this is like, let’s lock in on the next couple minutes here, ‘cause this is like where the rubber meets the road. You know, I get asked the question every day, are they all going to be home runs? And I said, of course not. There’ll be some, there’ll be some that do okay, and there’ll be some big losers. And they look at me like in shock, like, well, how could that happen? I said, well, look here’s a theory. If you took an average to below average firm that got PE funding, and they told the PE firm that the only reason they haven’t been able to execute on this strategy is because they don’t have capital, and now they have capital, I’d say good luck with that. It’s still going to be an average firm the day after with capital, so their ability to get great firms, probably not going to happen. They’re going to get at best firms like them. So I am starting to see some private equity deals where you have to bite your tongue and say, I’m not so sure that one’s going to be the grand slam home run.
As it relates to the roll ups, you know, I always say, be careful what you wish for. Because if, you know, what’s the two big A’s, the goalposts, we call them autonomy and accountability. Why is it that the highest performing firms have accountability and the lowest performing firms have a lot of autonomy? If you’re left alone in a roll up, what happens is you don’t produce efficiency, the one right way. You know, we’re all cross trained, we know how to do it, I can bring work in Omaha, I can get it done in Seattle or Miami, because everybody follows the same playbook, we run the play that’s called. If you don’t have efficiency, you can’t improve profitability. If you can’t improve profitability, you can’t improve EBITDA. If you can’t improve EBITDA, you can’t improve the value of your other equity.
So everything’s connected at the hip, so what I’ve advised these roll ups is look, if you want year one to be a soft landing and leave them alone and let them do their thing, go do it. But starting in year two, you better find a common brand, the one right way to accept clients, the one right way to do a tax return and a financial statement, and bring it together in one. Because if you don’t, in year five, when you go sell it to a bigger firm, you know what that bigger PE firm is going to say to the smaller roll up PE firm? “So you chose not to integrate them and they’re happy. Now I got to be the jerk to play hardball and you know what that means? There’s going to be a lot of flight risks out there. I’m out.” Or, “You know what? I’ll take it at a 50 percent reduction because you didn’t do the dirty work. I got to do the dirty work.”
So these roll ups, it will be fascinating to watch the evolution of when integration happens and how hard it happens. But it is a different vibe. I mean, I have had, you know, I put this in the category, and I’ll shut up in a second, Jeremy. In the category, you can’t make this kind of crap up—I had a firm recently tell me that they were going with one of the roll ups because they felt that the leader of the rollup knew nothing about our industry, and because of that, that individual would remain very relevant in the organization going forward. I said, just for my notes, so I can write this down, you basically just told me that you had a choice between brands A, B, and C, and you chose D because of the four, they knew the least about the industry and where to go with it. And he said, “Yep, that’s right.” I’m like, okay, thank you!
So, every day I get out of bed, Jeremy, and I say to myself, either I didn’t see that coming or you can’t make this kind of stuff up. So the big ribbon on this, they’re not all going to be home runs. The big ribbon on this, if you don’t do a PE deal, you’re doomed? No. Coming back to the basics of business. Run your business. Decide what you want to do and then go do it.
No, I love that Allan. And I think that’s such a great point to make and one that I, you know, even though there are best practices out there and there are certain ways that you and I would recommend a firm run their business, you know, at the end of the day, it’s your firm, you figure out what do you want to be. And if you can get everybody in the leadership team and the partner group on board, and you can find a next generation of partner group that wants to also have a firm like that, you can be successful. But where you have that disunity, it doesn’t matter whether you take PE or go M&A, boy, it creates challenges.
Yeah. Jeremy, if I could take a minute, just because every change, every action has a reaction, and there are three reactions going on now in firms—it’s almost comical. The first one is, because PE has come in and said, you’re not worth two times your earnings, you’re worth seven, eight, 10, 12, 15 times your earnings, could you imagine the generation of partners that are age 55 to 65? They’re sitting there saying, okay, young partners, you don’t want to sell or do anything or bring in a PE partner, but couldn’t we at least all agree that the market has raised the bar on what this business is worth?
So I’m seeing more partnership agreements being rewritten with revised, deferred comp plans or, a phrase I never heard of, tag along privileges. And that means after I retire next year, over the next five years, if you choose to sell it, guess what? I get to walk back to today and be part of that. I’m seeing a second group, and I’m not proud of this group, and fortunately, it’s not many, but they’re out there, where they’re looking at the cap table of the ownership of the firms, and they realize that in two and a half years, 40 percent of the equity of the old people will move to the young people, and they sort of say, for today, I have zero interest in private equity. I’ve literally had them pull me aside and say, hey, it’s a lot better for us to do it in two or three years. Almost like let’s pay the old ones those crappy retirements and get more of the ownership. I mean, it’s a business, you can do whatever you want to do.
So valuations, external valuations have impacted internal valuations. There’s a little bit of gamesmanship going on between the old and the young, in terms of these things, but it’s the last one, and it is the piece that has been lost. I think in these PE discussions—our profession, I think we have some self esteem issues. We believe our businesses aren’t worth crap. You know, if you think about what we sell them for, we pass them very cheaply. We let you come in cheaply and we let you exit cheaply. The third party universe, whether we call it private equity, whether we call it vanilla accounting firms, whether we call it, you know, family office, sovereign wealth fund, whatever you want to put on it, has redefined what these businesses are worth. And that playing field, I think is, we’re going to see a lot of derivatives of what happens going forward. You know, it’s this thing, every action has a reaction and you sort of knew it was coming, just didn’t know how fast and furious it would be coming.
Yeah, and that seems to be a common question among a lot of firms is updating deferred comp, updating buyouts, different things like that, updating buy ins. And what’s interesting just as an observer, obviously to the profession, you and I aren’t in those firms. We work with the firms, but we’re not a partner in these firms. And what’s interesting is seeing firms where in years past, you know, the buy in was either a set amount or, you know, when you became partner, you just got the equity. Maybe there wasn’t even a significant buy in. Yeah, you had to put capital in the account or… There’s so many different models out there. Almost everybody’s now looking at it and saying, but hold on a second. The valuation has changed, which I believe is very healthy for us to start seeing what we do as way more valuable than we have in the past. We could go a whole other hour on how we view our value in the marketplace. And the fact that we’re very quick to discount everything that we do for clients. And we’ve got to get that self esteem, as you said, that value in our minds, up, not only in what we do, but the overall value of the firms.
Yeah, hearing a lot more questions about that. Do we need to change the buyouts? Change the deferred comp? What’s the methodology now? And it’s interesting to see. I don’t know that it’s necessarily a bad thing. It could create some challenges when it comes to the next generation buying in or buying older partners out. And I’d love your take on this. I tell firms all the time, it’s up to you what you get when you retire. I mean, if you’re sitting there thinking our firm is valued too high for our new partners to be able to buy us out, owner financing, right? At that point, it’s up to you on do you want the firm to continue with those new partners, and if so, it’s up to you, how you structure that. There’s no hard and fast rule most of the time that says how you have to do it.
Or, and I’d say you know, we’re seeing more of this. I’m sure you’ve seen a lot more of it than I have, that’s when firms start looking at the M&A or the PE or whatever it may be, just to figure out how do they even fund the exit strategy of those partners.
Yeah. Jeremy, the one thing I would say, and I know you do this when you challenge firms, is there are scenarios where the wall goes up and unfortunately we don’t know what we don’t know. You know, someone will say, it seems a lot of firms are exploring this or doing that. And someone in the room raises their hand and says, I don’t want any part of that. And someone else says, if you do that, I’ll leave the firm. And we sort of shut it down because we got one or two loud voices in the room.
And I usually pull those loud voices aside and I say, look, a couple of things: One, you don’t know what you don’t know. You just said no to something you know nothing about. I said, here you are sitting on the board. Last time I looked, you have a fiduciary obligation to your other partners. That’s why they put you here, to go figure out what’s out there. So because you think you don’t like something, go prove your point. You might be right, but you may be wrong, but at least you’ll know, do the work, get the information, go figure it out.
And I think some of them, they sort of feel it’s like a rope a dope. If you take like the one step and you’re going to take the two and there’s no stopping the train, so the best way to stop the train is never get on the track. I mean it’s a little bit of an archaic way of thinking. But in the same breath it’s, you know, it’s sort of that linear thinking of how many of us accountants have been trained.
Sure.
We are risk adverse, but unfortunately sometimes we are risk adverse to a fault. We’re not talking about risky audits or tax shelters here. We’re talking about a business, you know. A business in which nothing is forever.
I appreciate that. So Allan, let me ask you this as we conclude, we’ve talked about a lot of things, a lot of different angles on PE, M&A, and there’s probably a ton more that we could have talked about or could talk about if we had more time. If a firm leader is looking to, as you just said it, exercise that fiduciary responsibility. They’re not in on M&A, they’re definitely not in on PE, they’re not even sure they ever want to even think about ESOP, but they recognize they’ve got a fiduciary responsibility as a member of their management committee, their board, as a partner in the firm, what resources would you recommend for them to go do the research and figure out how can they learn more about all of these options in a way that doesn’t feel like a sales pitch? Because I would imagine if they call up a private equity firm and say, I’d love to learn more about what this is, that’s not exactly going to be the low pressure way to learn, so where can they learn in a way that’s going to, maybe it’s going to be a little bit more comfortable than having to go through the whole, you know, courting process with a PE firm or another firm from an M&A strategy. Where do they go? What are your resources you’d recommend?
Yeah, I mean, I would recommend going to conferences, you know, there’s one called the PE Summit coming up. There’s, you know, various webcasts, podcasts, things like that. Probably the best is go to an advisor you trust. So if it’s Jeremy is the one, come to Jeremy. Would welcome any phone calls from anyone that wants to talk about the space, of course. And really figure out a game plan of how to approach it.
You know, I like what you’re saying. The last place I’d start is with a PE fund. Look at these people, they’re all ideally educated, they’re all smarter than me—maybe not you. And damn, if they don’t know how to sell. And yeah, you know, I didn’t have one PE client before 2020, and now there’s over a hundred. And I put them in buckets. I put them in buckets of, if I were a partner in an accounting firm, I would want to be a partner with them, I might want to be a partner with them, or no way in hell would I want to work with them.
And, you know, it gets into all those things. The culture, you know, everybody always gets focused on the economics. How’s it about grassroots? What’s the strategic fit? Why will we be better together? And if you can’t answer that, don’t even go forward. And then the culture. You know, will 92 percent of my culture stay the same or is it going to get flipped upside down? Those are the three buckets, the culture, the strategic fit, the economic fit. Way too much chatter about the economic fit, I think with firms today, but it’s such a shock to the system and it’s sexy. How can you not talk about it?
It is. And hey, we’re accountants. We like the numbers. Get an accountant’s attention, throw out the numbers, right? Allan, if they would like to get ahold of you, what’s the best way to find you?
Yeah, I’m easy, get this, there are only nine people in America with the spelling of Koltin, K-O-L-T-I-N. So, if you can’t do anything, just Google that and look for the name Allan, A-L-L-A-N, or you can go to our website at Koltin.com. Or you could send me an email at AKoltin@Koltin.com, or you could just call my cell, (312) 805-0307. Don’t call my landline because I haven’t checked it in two years.
Very good. Allan, thank you so much for taking the time to join me.
Thank you.
It’s a busy time of year, and I greatly appreciate your insights for our listeners.
Jeremy, thank you. And thank you for all in your team do for the profession. You, everywhere I go, you personally, as well as your group, always rave reviews. You’re impacting a lot of firms, but more importantly, you’re impacting a lot of people’s lives. And you’re allowing them to have a better tomorrow by the training and leadership and all of the consulting things you do for those firms. So keep it up, my friend.
I appreciate it. Good to see you, Allan.
You too, buddy. Take care.