patrick dictor thank you for joining me today on acquiring minds i'm happy to be here thanks for having me you are the new owner of apple tree business services apple tree provides bookkeeping payroll and tax services to small businesses it's based in new hampshire about an hour north of boston and you closed on the business at the very very end of 2021 so just about two months ago looking forward to hearing your story today patrick and to having you tell us about bookkeeping which is a business that has interested me and and i know others um for reasons that we'll talk about but start us off patrick with your background give us the two minutes on you and just taking us right up to that decision to go out and want to buy a business yeah thank you for having me and hopefully uh add some value to your listeners i know when i was searching i felt like i had podcasts and twitter and those were those were my immediate anonymous search um while i was looking so um yeah my quick story uh grew up in colorado um you know undergrad and mba i you know went to school i was not an accountant by trade i took accounting courses and then i went down a sales path so i i sold door-to-door in college and really cut my teeth doing door-to-door sales and then i helped grow a digital marketing agency after my mba and we grew it from zero to 35 million in revenue while i was there i loved serving small businesses during that time and then i joined a consulting company cultivated advisors a great small business advisory company and had about a three and a half year run there and what led me here was you know we'd start these consulting engagements and most of the time we'd see really bad bookkeeping it was out of date and kind of a mess and we always end up referring it out and i had a niche to go buy a business and as i thought about different industries or b2b service you know categories i just kept coming back to bookkeeping and the more i explored it the more excited i got and so i searched for about 10 months and ultimately closed on on apple tree at the end of 2021. cool um i wanna i wanna dig in a little bit i want to hear about how cultivate informed this and and the fact that you went out looking for a particular type of business that's really um important part of your story but you you glossed over a little bit patrick this itch to buy a business where did this hitch come from had you been entrepreneurial before why buy a business rather than then start one from scratch give me more about just kind of the the um the emotional journey to come in personal journey to arriving at i want to go out and buy a business yeah you know not to get too personal i i didn't grow up with money you know grew up kind of lower middle income and i always had i feel like i had that entrepreneurial bug but i never looked at myself as a founder type you know i'm not i'm not a technical or you know software developer um and i had a couple stints where i you know started a consumer product company or i started you know small landscaping company growing up um and you know i i love the advisory work that we were doing but naturally you're going to see some people that are doing really well and making great money and think maybe i could do that you know um or maybe i could have more time freedom you know so that's that's where i came from i think it was always there and then you know in doing three years of advising you see all these different businesses and you see patterns and um and just getting to know what my strong suits are you know my strong suits are sales and marketing so feeling like if there was an opportunity to run with that um it could be a good one you know yeah so that's that's part of the part of it yeah and and why not so as you know you just alluded to the fact that we all now think of founders and entrepreneurs as mark zuckerberg and elon musk highly technical um which is unfortunate because of course that's that's historically not been the case and it and it's not the case now but it's it's what the media has told us but going back to whether or not to start you know buy versus build um in you it sounds like you'd started a landscaping company as a younger guy but why not buy why not start a bookkeeping business rather than than buy so you in other words you know start a business yeah it doesn't require technical jobs in the in the book even accounting space it's something that i thought about and i think if you have listeners who are already an accountant it's probably better off to build a couple reasons made me want to buy um frankly household cashflow you know we have three young kids and just the the ramp up to you know get it to be able to support us i don't know if i would have been able to do that and frankly i thought if i could buy an existing one i could maybe add more value and move faster towards my long-term goals and maybe save a few years and not burn out versus like trying to trying to build it from scratch so in just your time at cultivate actually um before cultivate you said you worked at the digital marketing startup that grew from zero to 35 that sounds suspiciously like uh cassie kneecamp were you guys at was this revlocal yeah yeah yeah so okay so you you know i was our sales leader for a bit and um she's a dear close friend of mine so we met each other in ohio at a networking event she came to work at revlocal we launched a couple different markets together st louis chicago and then she joined cultivate in chicago and she's like you should come check this out i really think you'd like this work and um yeah and we're still close friends to this day so so just for the audience who hasn't listened to cassie was one of my earlier interviews probably i don't know 15 20. she and she bought a fencing company on biz by cell um so you guys are following each other from rev local to cultivate to acquiring minds to buying businesses it's pretty cool okay so and just um so cultivate so i so i had cassion talking about cultivate i then have had the ceo of casey casey clark on who the ceo of cultivate um so if cultivate is just a you know something i've i've watched a business that i've watched seems to be doing really well small business advisory consulting as you said um and growing like crazy you see such a wide cross section presumably over three years three and a half years you cultivate such a wide cross section of of small businesses and you decide to go after a very specific type of business namely bookkeeping and so give us a sense of like all these other businesses how how many of these other other types of businesses did you see um and and that bookkeeping was you know really rose above to grab your attention yeah so cultivate does you know one-on-one advising and i probably had like 40 to 45 clients myself during that time okay um that included a lot of professional services you know a lot of marketing agencies and then a lot of trades you know cabinetry drywall remodeling solar so yeah that most most of their clients are service based businesses that are like you know zero to 10 million so and were any of those businesses business types or industries tempting to you did you consider going down a different path in bookkeeping before yeah i mean i'm always like chatting with people on twitter i think property management is one that is very attractive to me i had a software development client that similarly i was like wow this is a great business there was a small software company that serviced trucking companies that i worked with um that appeals to me and um i had a lot of marketing custom software as a sas it was a sas tool for trucking companies um and then i you know i had a lot of marketing agencies but i did not want to buy marketing agency and a lot of people were like what why why wouldn't you go buy an agency you know and um especially since you've said sales and marketing is your strong suit yeah so a couple things bookkeeping i i saw just how transformative that was to a small business when they had good clean data and they started to understand their numbers and frankly i think the competition is higher in marketing agencies i think there's a lot of people that um yeah it's just it's frankly higher competition versus a little bit more like a cottage industry in bookkeeping and what i saw with you know the firm i was at a lot of other marketing agencies you can do a great job and people just change their mind and stop stop doing marketing with you right whereas it's it's hard to leave an accounting firm if they're if they're doing a decent job um so it's it's pretty sticky um and i also you know the more i exported i just saw there's room for efficiency and there's definitely some elements that are somewhat similar to sas you know like you can um you can have a really good lifetime value of a customer you get the recurring revenue um you don't quite get the profitability as it scales but there's a lot you can build off of that accounting relationship you know you can help with crm implementation you can do fractional controller work fractional cfo work um so my long-term goal is ultimately to do other acquisitions and have a you know like a holding company and i think uh accounting firm just sets you up for a better platform to do that from sure and was this a kind of your own insight or was there a model out there that you saw of other bookkeeping companies that have done that that have started offering ancillary services and ancillary business services to bookkeeping um you know since it's gone public now but since cultivate has acquired an accounting company funny enough they acquired a bookkeeping company just a couple of months ago and that was announced and it's funny because i heard about them wanting to do it and i had been trying to go after my own deals um so i think we had similar thoughts there and i had a good friend in denver who um he always had a bookkeeping company on the side and he had a couple us employees and then he had a team in india and i i had referred some clients to him and they were very happy with the services and you know he told me what his what his margins were like so a couple of those conversations were very eye-opening and then there was one prospective client that came in for cultivate and i sat down with him his name's adam and he's bought three accounting firms now and he was telling me you know just how many accounting firms are for sale where they're 250k to 750k in revenue and the owner can't retire or they have health issues um because they never scale it past that and his first acquisition the account died at his desk is pretty sad but um he's like that's the reality is there's just so many of these like smaller accounting firms that they can't scale um for various reasons you know owner can't get out of their own way or they they're unable to you know recruit and train other people so that was another conversation that opened up my eyes to you know kind of just how fragmented this space is yeah although that feels like often you know when we hear about really fragmented spaces we think that that right this is a great acquisition opportunity for acquisition um growing through acquisition but with um something like accounting and and people you know individual accountants who maybe they're just loan accountants or they have a very small staff if if they just get to 250 between 250 and 750 they are all i mean the business is just them yes um much more than say like a you know a really small mom-and-pop hvac company where um the guy running who founded hvac company is probably not out in the field doing work maybe he is some but he's got other people doing the work versus an accountant they're doing all the work right so how do you um so so that doesn't seem like as as good of an opportunity like you um but so just kind of talk me through understanding that yeah so what i started to see when i was searching is um the there's a lot of those small firms for sale and i think there's a lot of people that do tuck-ins you know they'll buy the book of business and then they'll they'll try to retain some of the staff you know they'll keep growing that way but there there weren't a lot of bookkeeping or accounting firms that were over a million in revenue and had good systems and good profitability um and if they if they were on the market they would go for sale very fast um or you know the bigger ones that i talked to through an introduction they just say i'm i'm not gonna sell this you know they they knew what they had and they didn't want to let go of it so you're you're kind of looking for you know the minority of accounting firms that especially if it's majority bookkeeping that have been able to scale like that but so but those the smaller 7 250 to 750 type accounting firms that you just described do those now become an opportunity for you patrick that you can tuck in their client they they are even though they're so wound up and so wound up in the owner you can buy their books of business yeah and i talk to them effectively i feel much more comfortable picking those up now versus the first one you know uh it's it's just much higher risk if that's the first one that you go after um okay so okay and and um before we get into the search just one more thing on on cultivate and what oriented you toward bookkeeping so just talk me through a little bit how you saw um the clean in your cultivate clients that it was just this weakness that you saw over and over again messy or non-existent books and how cleaning up the books could really help these small business clients that you had talked me through that yeah so i i think it's this natural evolution right where you're you're scrappy and you're you know uh a guy that does websites and you go along you're just looking down at your bank account you're like okay i got money in the bank account and i'll hire a couple people and you're really you're not looking at your financials on an accrual basis and you don't know any different you know so you might have books that you've done yourself or you might have like some individual who's doing your bookkeeping and then you throw that over to a cpa at tax time and they take this mess and try to do your taxes and they're overwhelmed and it's a very like reactive process and you know that example of the founder who has a web design company it's gotten them to that point right but if if i met them at cultivate and i said okay you're 500k in revenue and you've been paying yourself 80 to 100k and they tell me they want to get to one two three million as an agency i'm gonna say okay we need to really make sure we understand um the profitability of each project that you're doing and what your cash flow cycle looks like and you know what your acquisition cost looks like and how much you're paying the contractors and suddenly to be able to make those types of decisions and analysis you need to have good clean books and so then like the light bulb would go off and it was an easy it was an easy thing for them to understand like oh this is why it matters now to really professionalize my accounting and financials you know because you really can't make strategic decisions or really understand your business very well the economics of your business without clean books yeah and i also i i see why they're underserved too because if you're a cpa and like some guy walks through your door he's like oh i just started doing websites would you take me on as a client you know it's like a lot of cpas might not service them well because they don't know if they're going to grow or like how much they can afford quality services so that's that's really where i continue to see this come up again and again and again with our with our clients great and just for getting everybody on the same page and definitions differentiate for me bookkeeping and accounting and in cpa and tax services and and all of that um because it can get quite blurry yeah there's a there's a big spectrum of services and there's a big spectrum of the types of firms when i initially was searching i was looking for pure bookkeeping um i i didn't want to buy a firm that also did tax at the time because my thought was you know cpas might refer the tax work but typically you know when you think of the accounting stack like bookkeeping is going to include reconciliations like you know categories and transactions updating the p l on the balance sheet you know doing monthly financials maybe some you know accounts receivable accounts payable type recognition and then from there you know a cpa by definition is somebody who's um able to do public audit work and do tax work and then you also have you know other firms that might do fractional control or fractional cfo um and a lot of firms will do payroll as well so um there's a there's a very wide spectrum and also our you know the firm i bought gestures businesses there are some people that will choose you know to just cater to certain industries or also take on individuals um so there's a lot of accounting firms for sale where you see a lot of individual returns coming through the door um and then there's this other spectrum of if you look on accounting brokerages you'll see cloud-based or traditional and you know traditional is where like somebody's coming in and probably visiting your office and dropping off physical returns um and then the the cloud-based is working the cliche uh shoebox full of receipts yeah right so yeah um yeah so and then there's also all the particularities around what software tools do you use so if you look on the accounting brokerages a lot of times they'll tell you up front like what software they run all their clients through because you know if you're running all your tax work through ultra tax and somebody else uses a different tool it can be really hard to to combine those firms just because of the the muscle memory with how you process clients so in this world there you're kind of like a whatever a as you said like an ultra tax shop yeah versus uh whatever versus a quickbooks shop i don't know maybe quickbooks is just what individuals and small businesses use not not what the firms use yeah so a lot of times it's around the tax software where they'll make the distinction yeah so yeah okay and so talk to me about this evolution so you were looking for strictly bookkeeping and then that evolved why and yeah yeah so i had a deal that i thought was going to close in june that was you know purely bookkeeping um it was about 800k in revenue and um that deal fell apart and and there's frankly two things one there's just not many that are big enough to you know have the seller's discretionary earnings that felt worth it to me um and then two as i talked to more people who had done the acquisitions they said cpas don't end up referring you back clients a lot of times they'll try to keep the bookkeeping or they're just they're going to keep their referrals close to their vest and as i was doing my own outreach and i met steve the previous owner of apple tree and he explained to me the model of how they've you know handled tax work with clients and the structure i became comfortable with it and willing to you know take on a little bit more risk a little more compliance and it allowed a bigger firm size and i think it creates more stickiness with with clients when you're doing their tax work as well okay so you kind of backed into it because an opportunity presented itself yeah to to to to buy something that was more than just strictly bookkeeping what were you going to say and it was also just becoming you know when i first started i was like i don't want that risk or responsibility and i yeah i've become okay with it so yeah so let's get into your search a little bit so you you went out there knowing the type of business you wanted to buy you just referred to brokers in the space so there are the these um bookkeeping and accounting businesses or practices or client lists transact enough that there's a whole cottage industry around for brokers just serving this space correct and talk to me about that yeah so there's there's probably four or five brokerages that just cater to accounting firms and none of them would take me seriously except one po advisors but i just could not get the time of day you know i try to build a relationship with a broker and tell them my background and tell them that you know i can grow the firm and i'll backfill the owner's time and they're just like no if you're not a cpa like i'm not going to present you to our clients go partner with a cpa and come back to me um but yes there's definitely most of the deal flow is controlled through those brokerages it's you know they'll throw the deal up on biz by cell as well but it's not like it's not like that's the platform that it usually comes through and these brokers wouldn't take you seriously or wouldn't even talk to you because you're not a cpa now does that um did that give you pause i mean so so one of the obvious questions here about choosing a bookkeeping or accounting firm is you know if if one isn't a cpa oneself you know and and in general in acquisition entrepreneurship we get comfortable with that i'm not a landscaper but i bought a landscaping company um so it's not uncommon but this is as you as you just referred to a minute ago there's a lot of responsibility in filing the taxes of small businesses so the stakes are higher in the work you're doing frankly and it's just a lot more technical and there's obviously there's a very technical training that goes into becoming a cpa or even a bookkeeper so um so you know you might walk into this industry feeling a little intimidated by that but thinking you can figure it out and then all these brokers are like no no dude if you're not a cpa i so so why were they saying no is it because they just thought that you wouldn't be able to hang or they just thought that you were going to be a tire kicker and an actual cpa is much more likely to close a deal or what so there are in their defense there are a couple states where you need to be a cpa to own the firm i think texas is one uh okay okay but i think the main reason was they were trying to prioritize who they were talking to and they felt like their client the seller wouldn't take me seriously or a lot of these deals have burnout components and retention components and they thought there'd be a big risk of clients churning out if if i'm not a cpa that can take on a lot of that work but i emailed them all and i said hey remember me i i bought a firm that was over a million like maybe be more open-minded next time so i i was petty like that and i sent them all an update so we'll see if they if they change their stance but yeah and i mean and given that you are going to be presumably growing through acquisition you you are going to need to establish relationships with them for deal yeah um i hope you weren't too petty uh the but did it did it so your original question was did it bother you did it determine yeah did it deter you if the industry is telling you hey you're an outsider you can't you you shouldn't be buying here i was pretty convicted in my thesis it definitely like might have slowed me down a little bit even some of my own outreach people were like you don't want to buy an accounting firm and um and a couple people were like just go start a bookkeeping firm but um during that time truly the more i explored it the more grounded i got in my thesis that this feels like a really good place to be and i was i was taking bookkeeping courses you know along the way to try to just be able to speak the language a little bit um and you know i i probably submitted six lois and so i dug in and due diligence on a few of those and even after some of those deals that didn't go through i continue to remain excited that there there'd be one out there and that i could make this thing go so so okay so let's get into how you were ultimately successful with your search you're given the cold shoulder by the the industry's brokers so you engage in a proprietary search um ginning up your own your own deal flow could talk to me about what that looked like and the mechanics of it yeah yeah so i had a virtual assistant build a list of firms in the geographies that i wanted as well as virtual firms and then i created an email marketing sequence and wrote the copy for that and used a tool to to you know catch them via email and then i also reached out to people in my network to try to get some referrals you know people who had accounting firms or maybe already had fractional cfo companies and see if they knew anyone who might be selling so the first email batch that went out you know it was like 70 people and i had like five solid replies and i was like this is easy you know um so at the end of the day i think i probably sent 500 emails it led to 20 or so seller calls and um you know three of the lois that i sent or from from that and ultimately the one that i closed was from my own outreach um so i always offer up to people on twitter or search wonder if you know that you're after one or two industries i'll show you how i did it and i i think it's a a channel worth pursuing you know i think some people are called outreach i i definitely think like the broker deals are probably faster and ready to go but you'll catch some people who um have been thinking about it or maybe they didn't want to go through a broker you know and i heard that a lot um so and why was that to save the money they didn't work broker i think that was that was part of it um and they're like i was thinking about maybe listening and a year from now but let's chat you know um so and did you get any of the the dismissiveness from the owners of these businesses that you reach out to that you had gotten from the brokers none they were they were much more open-minded they were almost like curious you know um of like okay what do you think in here and let's chat um and it was it was kind of refreshing versus the the feel from the brokers yeah and what what did your um how did you position your email like do you do can you give us a taste of the kind of messaging you use that's the secret and you know um yeah so really direct subject line and and then the the body was short they just said will i've been looking for an uh accounting firm to acquire in california and acquiring minds seemed like a potential fit i've been working with small businesses for 10 plus years and if you've ever thought about selling in the near future i'd love to chat just reply and we'll get a conversation started so it was somewhat personalized you know of like location your firm in particular and just direct to say if you have any interest like let's let's chat and the sequence was only three messages over two weeks um and yeah it worked yeah that's excellent now the you know you're you're you're searching for not only a particular industry in a particular geography so that's a very narrow search um although you you say you had actually 500 a list of a lead list of 500 all right a um an outreach list so how big was your geography if you were i mean there can't be 500 uh bookkeepers in new hampshire right so we we were living in colorado and we moved to new england in at the end of may so when i first started i was targeting people in colorado and then i started charting targeting people in new england between new hampshire maine vermont and mass so um and then i also tried to build a list of virtual firms those are a little bit harder to like to build the list on but um yeah so so in fact there are a few hundred of bookkeepers that fit the bill yeah i'm sure i hit some that were like kind of traditional cpa firms that i might not have wanted if a conversation started but yeah and the contractor who built the list for you how did that work he was a person from up work um and i'd refer other b2b clients to them for list builds for some of the marketing and sales outreach that i've done with some other clients before so can can can people reach out to you for uh for this individual if they yeah but don't reach out to me unless you're gonna follow through on your you know i i have so many people that say well you teach me how to do it and i send them exactly how to do it and i say it'll take 500 bucks and 10 hours of your time and hardly anyone follows through but one other guy on search founder did and he emailed me is like this changed my life because he's like i i didn't have deal flow and now i have deal flow so i'm happy to help but don't hit me up unless you're going to fall through so but if you will that's awesome i'll show you how to do that everybody yeah so so don't waste his time but if you actually do what patrick teaches you the one guy who followed through it quote unquote changes life that is quite an offer i love it cool okay and and it worked and obviously worked for you so you um get your 500 emails you talk to 20 people are you did you talk to 20 people or you get 20 responses i had probably 20 calls i had many 20 call supplies yeah okay 20 calls and then what worked me down this number so how many then did you disqualify after the first call take me through the funnel all the way down to apple of those calls you know probably uh of those 20 probably seven or eight felt like making an offer to some of them just got too busy or some of them like our conversations fell apart before the loi um but what i tried to establish with people as soon as we got on the phone was that i knew my stuff and i was serious and if it felt like a firm that i wanted to go for i was gonna i was gonna send him an nda quickly and i was gonna proceed to loi and so i think that goes a long way with just how you make first impressions and that like you're gonna follow through um so that other deal fell apart in june and then i had to like get the snowball rolling again and try to find another deal and i felt like i was running out of time before the end of the year and then tax season you know nobody wants to sell between january and may but in september i connected with steve the previous owner of apple tree and he said let's chat and um uh it felt like a really good fit from the start and we had some rapport and so you know he proceeded through the loi pretty quickly and then moved to move to closing great i want to hear about apple tree the specifics of apple tree but first when you said that you you know part of your strategy was to just really um establish credibility and that you knew what you were doing for in that first call make a strong first impression um and you said that uh you know basically making it clear that if things feel right you'll quickly send an nda quickly get under loi um was there anything else in that call that you did to to um give off a positive first impression that you're a serious buyer i i think it's just the little things like showing that you read their website in their bio and um be genuine with connecting with them on how they built their business and why they want to sell and show them that i had a plan to continue their legacy and grow the firm so was there anything about like demonstrating financial wherewithal um no it was kind of in my story like i did start here you know like here's my background i love small businesses you know i spent time in consulting and i've just seen how important bookkeeping and clean financials are and you know i want to acquire firm and and serve those small businesses um so and then you know after after the seller call i would follow up with an email and say like great to meet you here's why i think i'd make a good person to sell to and i would just keep the process moving along you know with them so it's funny because i i and were you self were you self-taught on all this patrick or were you following a playbook from one of the books or no it's frankly just from my background in sales it's like reiterate follow through be direct you know um and i know they're busy you know so i'm trying to you know stand out in their mind and and keep it on the rails so um but it was funny because there was one fractional cfo who referred me to he's like oh this is a great bookkeeper and i got to an loi stage with her and suddenly she had another offer and i'm like hmm you weren't going to sell and now you have two offers i was like i'm on the phone with her attorney i was like if your other offer is this mutual friend the fractional cfo you should sell to him you know and they're both just dead silent and they're like we can't say who the other party is like okay i was like just tell him so it was kind of funny because i went through all this work with this referral and then he ended up making her an offer as well so um it's such a roller coaster just the looking and trying to get under loi then once you're under loi trying to get the financing approved and you know you find you find some things you don't like in due diligence and you know but it all worked out so tell us then about apple tree yeah steve was the seller's name so yeah apple tree we do bookkeeping payroll and tax for small businesses as a as a package service so instead of that experience of like sending your bookkeeping to one person here and then sending it over to cpa over there um we do it all in you know one plan um so what that creates for a small business is a more proactive approach that helps you get you know better financials that are more up-to-date and more clean there's cash flow planning that goes into that there's better tax planning that goes into that and you have a team that you can lean on so what i really loved about apple tree is he he had three managers who are the tax experts and really run the client relationship and then there's staff accountants and payroll so steve only had two clients that he was involved with anymore and the 70 plus clients really had their managers as like their go-to person so it was it was productized really well so it created a better um created you know better cash flow for the company and a better client relationship and and by productized you mean patrick this is basically it was like a monthly kind of like a as you said earlier kind of like a sas model so your clients the 70 clients pay monthly they don't pay one long time at tax time and it's the same fee every month yeah we'll we'll look at it annually to see if it needs to be adjusted if they grew a lot um but yeah one flag and is this is this a model that the industry is going toward or was this steve's kind of own little innovation it's becoming more common but the advantage with apple tree and i didn't know this is he's been part of a association called pasba and that's an association of accounting firms that just serve small business so i'm almost getting like all these best practices that you'd get in a franchise without paying a franchise fee so within passboth there's a few hundred firms and they share pricing strategies what software works job descriptions you know growth numbers and he's been part of a mastermind a smaller group within the association for 10 plus years so it's really he's a super sharp guy and he's done well but a lot of it comes from just teachings from paz but of like how do you train people how do you bring in the right client how do you get out of the way as the owner and that's that's really where a lot of that came from and this is all stuff that you you didn't really realize until after you close this when we got discovering our second call he was telling me about the association and i just started to see how different this firm was versus the others that were out there and it's funny because there's a searcher who's like trying to scoop up every passable firm that he can he's a you know harvard mba with a bunch of investor money and he's he's found out um how well around the iron he's trying to buy a bunch of them i think he's bought two now um so and then there was a well there might be more after after this interview there was a there was also the shannon who's the live oak banker that specializes in accounting firms when i was talking to him he said oh this is a paz but shop he's like they're much different they're very very good um oh and he's like i'm going to be at the conference and what does paz stand for i don't know professional association of yeah professional association of small business accountants maybe oh yeah it sounds sounds good yeah but it's pa and so it was kind of funny because we closed in december and normally his mastermind meets every january so early january i got to meet these people that he's known for 10 years and i sat on the hot seat you know for two hours and i gave my business plan and like what's going on in the business and then i got to see all of them do it with um you know the their growth numbers and their profit margin and what their org chart looks like it was it's pretty incredible when they went around and you and you saw you know everybody opened the kimono of their own businesses did that make you feel like you had something really to compare apple tree to did it make you feel better or worse about apple tree better better because we're kind of middle of the pack in this group of 10 in terms of size and they're you know we haven't gotten the numbers yet but there were three firms that are like two and three times our size and when i heard their challenges i was like game on i can solve that you know i was like it just made me excited and you can solve that because of your own personal experience your own professional experience yeah there are are around recruiting and sales and keeping good systems in the business and i was like great i can do that you know it seems like for everybody it's a slog to get it up to a million in revenue and then it seems like you can move much faster to go from like one to five million very exciting so okay well speaking of numbers um tell us what you can about apple trees yeah so um the business was basically doing 1.2 million in revenue the prior year and 330 000 in seller's discretionary earnings and you know it's it was on a little bit bigger side of some of the ones that i came across um and these businesses trade for usually between 0.9 and 1.5 times annual revenue um so i i ended up you know kind of right in the middle of that um and we're you know only two months in but we've retained every client and the monthly recurring revenue is up 10 over last year um you know we've had our challenges but the transition's been going well and i feel like i bought a really solid firm that's so great and also i you had just said that it's a slog to get to a million and then getting from a million to five um happens at a much more accelerated rate well here you are here apple tree is sitting at 1.2 so all that you're right at the at the point where you can really kick things into high gear the slog you're just you're just post slog yeah yeah that's awesome my my goal is to get to 5 million within five years um so yeah we'll see and maybe we'll come back to this clip and see if i'm on track or made it happen the margins in in bookkeeping are they pretty so you had 300 what did you say 330 nsde on 1.2 million in revenue right so that's about 20 a little under 25 percent i guess yeah yeah and is that pretty standard in bookkeeping no it it really varies back to this whole like there's so many different types of accounting firms so on average you know our cost of labor essentially delivering the service you'll see a lot of accounting firms that are around like 50 ours is a little bit better than that you know with and that that's like a u.s average and then there's other people that offshore and they you know their cost is maybe like 20 so they they pick up much better margin um and then i think if you're just doing tax i think it can be more profitable but it's it's lumpy you know and it's high stress during the tax season sorry it's a complicated answer because i think compared to compared to pure bookkeeping companies ours is better um i was just i was thinking about it for a while but most of the time if i was seeing a firm that was doing a million in revenue you know you might see like 150 200 in sde oh so yeah i think i think the net is is probably on average between 15 to 20 percent so we're we're a little bit above that the way it was run previously but i i don't think that'll continue because you know i'm just not as efficient as steve was and i'm going to grow it and reinvest in in growth in people so yeah yeah and is apple tree then what you would call a cloud a cloud firm no we're we're sort of in the middle between traditional and cloud covid definitely forced you know a lot of more remote engagements um but we have a physical office and you know people are probably there 80 percent of the time and there's some clients that mail things to us um so we're not a pure pure cloud firm you know like i i know you had chris on an episode yeah a while back at system 6. 100 cloud yeah and is part of the strategy to become 100 cloud or not necessarily i definitely want to keep moving that way i don't want to lose you know ideal clients but i i want to continue to keep moving that way yeah one of the pivots i want to make is up to this point he's gone to market geographically to say you know we're the go-to firm in this area of new england and i want to go to market based on industries which you know makes us service people all over the country yeah yep and what industries are those ultimately i want to have four buckets but the first two that i'm really going after are trades you know landscaping roofing remodeling flooring hvc and then the other bucket would be professional services marketing agencies architects things like that so i want to say if you're if you're a service based business you know either trades or b2b services like we're your go-to accounting firm for people with 130 employees and did you choose those buckets for strategic reasons or because it's really what you know and you just got so familiar with the cultivate yeah it's partly what i know and i just think you become more efficient and you you get higher confidence from the client if you already speak their language you know and because there's so many things tied to the accounting stack if i have a home service business and i say yeah i know service titan and i know jobber immediately you're going to trust me right or a marketing agency that says oh okay yeah you guys are you know using hubspot like we know the integrations and we know your pain points are on time tracking and you know we know stripe integrations things like that um so that's the thought there is you can you can command your price better and and become more efficient with the client we just have we're bumping up on time here patrick but i wanted to any have we hit on the the lessons and surprises that you've um already learned after after two months in the seat so i closed at the end of the year right before the busy season so yep one surprise has been just how slow i feel like i need to move and how cautious i need to be of the rest of the staff's stress level around tax time um so i'm kind of sitting on my hands until may to make some of these changes the other big surprise has been how narrow of a client we've been willing to work with up to this point so i've had some leads come in and because we do live payroll you know it'll be a company based out of texas that has a couple employees in ohio and pennsylvania and steve will say no we don't want that as a client it's a total nightmare to do payroll in those states or like no we don't want it because you know that person said they're going to sell their business in 18 months we're not going to do a bunch of back work and then lose them in 18 months so it's frankly been really surprising to me just how many leads haven't felt like a fit at least you know i'm defaulting to him on you know who we're willing to take on as a client at this point partly to try to not mess with things too much and partly because we're we're bumping up against capacity with our team um so that's been a big surprise the other big surprise i thought tax would be more black and white and it's much more art than it is science you know i've seen i've seen with a lot of cases i i've seen multiple times where two different cpas can have just completely different opinions on what to do in certain cases um so i find that not reassuring about you know filing my own taxes yeah so it's a yeah so those are those have been the big big surprises and the last surprise frankly is how smoothly it's gone i was expecting just a lot more stress and chaos um and we've had some don't get me wrong but it's not been you know some of the nightmare situations that you read about or hear about and how is the team taken to the to the fact that the new owner is not one of them they've been really positive and supportive and i think steve did a good job of selling them on that idea you know he said i could have sold a regional firm and they probably would have cut half of you and got rid of the office because patrick is a you know not a cpa himself there's not going to be a lot of change around here we're going to keep the scene procedures the same team the same office etc and i've tried to build relationships with them quickly and make sure that i don't i don't change things early on you referred to steve the way you talked about the leads coming in new business coming in and steve kind of filtering out stuff that um isn't a good fit first of all is so is he still helping you in the business i mean what's the handoff looking like our purchase agreement was he'd stay on through may um and i had a tax season yeah i'd imagine maybe he'd work for us part-time afterwards um we have a really good relationship and he's super sharp and that's probably my biggest challenge is just filling his shoes when he's gone you know um so we'll see and was he was he open to selling because he was a retiring uh retiring guy i think he wanted just the weight of ownership off his shoulders it's been a brutal couple years for accountants between ppp and eidl and cares act and all these tax changes and they never had a chance to breathe you know um so i think he was just feeling all the way to the past couple years and just not wanting all the pressure of owning on him and wanting to do a little bit of travel so when we started talking he's like okay i need to know if you're a serious buyer and if you're going to be it or not otherwise i have these two other people that are sending me lois you know so he he definitely like wanted to find his buyer this this fall and the two other lois that he was considering are about to consider where did they come from because you found steve via proprietary search so yeah one was one was a large roll-up group um and then the other uh was that searcher who's you know targeting all these firms in the association and the other thing that struck me about what you were saying about steve is how he this this point that he filtered leads so strictly because typically that you know that that kind of being really selective or being really niche um i feel like is something that um more mature businesses do and and scrappy founder owners don't know to do and they just say yes to everything but it sounds like he was really the exception to the rule right yeah it's it's um it's made the business really stable and um it frankly is helps the staff too right so he he'll tell a prospect you know he'll go through the sales process but if you're just looking for bookkeeping or you're just trying to get last year's tax return done he's just like no we're not we're not your firm um you gotta do at least bookkeeping and tax with us um and it's gonna be on a monthly basis and you know we're i tell people now we're kind of a toyota value prop like we're not the most expensive game in town but we're not the cheapest but it's really good value and you're gonna you're gonna get a better experience you know um so that's been his approach is to like have a really tight narrow focus of who he's willing to work with and not just say yes to like one-off projects or one of those services that he wants excellent patrick for those who might want to get in touch with you either to learn the secrets of your uh of your proprietary outreach or otherwise um yeah we see each other on twitter tell people your twitter handle and if there are other ways that they should get in touch with you how they might do that yeah i'm patrick dicter on twitter d-i-c-h-t-e-r um i've got a personal website as well as the apple tree website and then um that's listed there or you know if you're on linkedin i'm on linkedin a little bit but twitter is probably the best place very good this has been great thanks a lot for your time patrick thanks for having me