Private Equity’s Big Impact

Today, our guest is Tim Petrey. Tim is CEO of HD Growth Partners and White Glove Payroll. We have some really interesting things to talk about today, so I’m very excited about this conversation. Tim, welcome to The Unique CPA.

Thanks for having me, man!

Yeah, this is going to be a lot of fun. We honestly, you and I just met—what was it, last week?—introduced by, Chase Birky, someone who has been on the podcast and a great guy. And so we want to kinda talk about your businesses, and I’m gonna—should I tease the—yeah, I think we will tease it. So you are in the middle of—an announcement was just made that you brought in a Private Equity partner, and that’s going to be the whole gist of the conversation today. But, you know, congrats on that.

Thank you. Thank you. It’s very exciting around here.

And is that what you call it? “We brought in” a Private Equity partner, or how do you explain it?

Yeah. I mean, it’s a strategic partnership with our friends at Ascend. That truly is what it is. We’ve not treated this as if it’s a, you know, acquisition and get out of the way. It’s not that at all. We’re having a lot of involvement in the construction of this platform, and it’s been a lot of fun thus far. We’ve spent a lot of time with these guys.

Nice. When this, obviously, this isn’t the first time, you know, Private Equity’s gotten involved in our profession, you know, happened back in the I think the 90s or so, maybe even earlier. And there was a lot of, probably, missteps back then. I think a lot of things have been learned over time. Allan Koltin and I recorded a podcast about two and a half years ago after this new round of Private Equity started coming in, and I had a lot of questions for him, and he’s a great guy. In fact, you know, as we speak, he just announced a big deal yesterday, or it was announced that he was part of Private Equity going in with Baker Tilly, the largest firm to get involved with Private Equity so far. I think they’re top 10, I think, number 10 on the list of largest firms.

So this is not going away. But it’s really interesting because when Allan and I talked two and  a half years ago, he said, hey, Randy, this is not, you know, at the time, it was like, okay, you’re going to see more top 20 firms, top 50 firms, but what you’re going to see is this continue in you know, $10 million firms, $5 million firms, and this is going to happen. And this is, you know, kind of, well, a fruition of what he said with what you’re doing and what they’ve done, what some other firms. 

So before we get into that because I’m so intrigued with Private Equity. I’m so intrigued with what it means, what happens, why do it. But let’s talk about the history of your firm and see how we got to this spot and decisions that went into that. So give me an, you know, both HD and White Glove. Did they start at the same time? Give me the history and and then we’ll get into where we are today.

Yeah. So we started HD back in 2008, 2009. I had a partner at the time who had left a small, regional size firm and decided he wanted to kinda make the next part of his career with this new firm that he wanted to start. And it was really kind of focused on business coaching and tax advisory services. But, you know, he got into it, and things really took off, faster than expected to, he took on another book of business and realized that it was just a lot.

I was fresh out of school. I was excited. I was, you know, ready to put my head down and work my tail off. I started working with Harold. We had 3 employees, and I was working at the front desk answering the phones. I was a receptionist. and it really wasn’t supposed to be a long term thing. I was only supposed to be here for a couple of months. I had planned to take a job at a Big Four firm in DC So it was never supposed to be a long term thing.

So we started working together. I was lucky enough for him to just kind of see me as someone that he wanted to invest in, and became my mentor and just brought me into every meeting, showed me the way to communicate with people, and just really poured every bit of knowledge he had into me and made a big investment in time. So, you know, I got excited about that. We had a ton of fun working together. And then once he saw that I was serious about it, it was no longer a conversation of I’m going to sell to somebody else, and Tim’s just going to go with him. It was, I’m going to sell you this practice. Right? So I’m early 20s, and Harold’s looking at me saying, you’re going to take over this business. And I’m all, what do you mean I’m going to take over this business?

Right? So I became a partner in my early 20s. I took over as our managing partner at 26 years old. We had 3 employees doing $300,000 a year. Fast forward to today, we do about $7½ million with 75 employees. We spun off our payroll business back in 2017, 2018. We hada  decent concentration of payroll clients, and we had a big decision to make. It was either we’re going to sell these clients off to, ADP, Paychex, kind of a situation, or we’re going to figure out a way to lean into it and understand how to make money doing it. 

There was a Christmas moment there where I went to see Christmas lights in our neighborhood, and the guy’s Christmas lights was one of the people that founded Paychex. And the Christmas lights were insane. I mean, it was a whole block of Christmas lights, right? So I come back to the office and I tell Harold, I’m like, Harold, we really gotta think about getting serious about spinning off the payroll company. And Harold, like, everybody else in the business at the time says, you can’t make any money doing payroll. The margins are too thin. The risk is too high. I said, well, I mean, I just saw this guy’s Christmas lights—they must have done something right, you know? 

So we spent a lot of time. We spent about a year really just kinda kicking it around. And said, okay. If we’re going to do this, we’re going to really focus on the highest level of service possible. We’re not going to try to compete with the tech. We’re not going to try to compete with the SaaS model, “software as a service,” we’re going to compete because we’re just going to be a better service provider than everybody else. So 2018 finally ended up after Harold had retired, I formally launched the payroll business. And, you know, we grew that to about a million and a half in revenue in a couple of years doing business in about 40 states. 

Our focus was that number 1, we were providing the highest level of customer service. But number 2, we were trying to provide jobs for a part of the labor market that was underserved. We’re trying to provide jobs for stay at home parents and giving them the ability to kind of scale back into the workforce. And payroll was an easy way to do it was you could do it from home as long as you’re responsive to people, you don’t need to necessarily, like, check-in from, you know, 9 to 5. Just get responses back to people timely. So we learned how to train people. We got access to really good people that were not working in the normal job market. and it just continued to take off. It was like the perfect two combination of things there of, you know, a really great talent pool, and focusing on service in an industry where a lot of the big providers just kinda gave up on service. They got super focused on tech stacks and technology and just gave up on that. 

So, you know, we got to a point as we went through the pandemic, it was wild, because all of a sudden, every single one of our clients called us at the same time as everybody else in our industry.

Yep.

And, you know, we started to see some of the cracks in the traditional accounting firm model in terms of scaling beyond this point. We wanted to continue to grow or we’re a young excited group about what we do. And we just realized that we were going to need to make a change. We were going to need to make a big move, a big investment, so we started you know, having conversations about merging up into larger firms, and went through about three years of that, of due diligence. And I had quite a few deals that I took basically the 1 yard line.

Really.

And then, just had to walk away from because something just wasn’t really right. And then, you know, fast forward to about two years ago when this, the whole Ascend thing came up, and it got really exciting really fast.

Yeah. So let’s go back to, before we even get into Ascend. Let’s talk about—so you built this, started this firm in 2008. You were fresh out of college. I started my firm when I was 29, and I thought I was way too young. You beat me in that. And I was just way too young. You were probably more advanced than me, so that’s good. 

The payroll then: immediately, or that was the part of the whole growth. We’re going to start this as well? So here’s a couple questions based on that then. One, and I’m already getting ahead of myself, but my first thought when you started talking about payroll and you’re going to be the high end customer service one. To me, that doesn’t equate with Private Equity in my mind because Private Equity probably wants more efficiencies, less hand touchy. This is—I might be wrong. More technology involved. But you went the opposite with this: We are going to be this high customer service that seems to me more employee-intensive. Do I have that wrong, or if I do have it right, how did that play into the Private Equity deal?

Yeah. So what’s funny about this and why that conversation with the Ascend partnership got really exciting, really fast, is that their entire investment thesis behind the Private Equity firm that backs them is their “people first” program. So every play that they have made in this industry has been based on this “people first” initiative. So while technology is obviously very important, especially in our world, making that the priority, they have a firm understanding of what’s going to be the differentiation of service-based businesses. They have a very solid understanding of all the things that need to happen in a service-based business to make them great. And if you don’t have great people, and if you’re not providing a great level of attention to those people, they’re not going to provide a great service. And if you’re not providing a great service, you’re not going to be profitable. If you’re not profitable, it’s not a good investment, right? 

So that’s been our thesis from day one. So to find a partner like that at that level that truly we connected with is that being the first priority for us, we knew that this was an exciting potential marriage at that point.

Okay. So that was a side note because I was thinking that when you said that, I’m like, boy, how does it fit in? So good. I appreciate that. 

Let’s go back then to the, hey, when you grew the firm, you know, when you started, payroll was part of it as well, full service, tax, accounting, audit. How did the evolution of the firm go from that standpoint?

Yeah. So when we first started, we were really just tax. The highest level of attest work that we were doing at the beginning was compilations. I had always been involved in tax. My partner Harold had always been involved in tax. We loved it. But after going through a few tax seasons, number one, I put myself through college washing semi trucks. Okay. So that’s important to understand where I came from to then coming into this business and seeing, okay, well, I can sit down with somebody for an hour, I can do a tax return. They’re going to give me a couple hundred bucks and they’re going to leave. You know, I thought about that. I said, boy, this is amazing. This is the simplest way I could, you know, make a living, and I love doing it. I’m good at it. 

But then the problem became scaling that. You know, you make all your money in 3 or 4 months, and then you try not to lose it the other 8, right? So the tax only business model was just something that, in my opinion, was not scalable. And so what you’re doing then is you’re putting yourself in a situation or you’re going to have constant turnover. You’re going to burn your employees out. You’re not going to be able to get great people, because people don’t want to just turn off their lives for four months out of the year, right? 

So the next step was bolting on year round services. So adding the A&A business, I had worked with my current partner, Joe Kilgore, at another firm, another regional firm, and he was an A&A guy. And I sat down with him, I was like, man, I need you to be my right hand. We want to grow this accounting firm, we want to become a real accounting firm because at the time, we were a tax firm, you know? In my opinion, we weren’t that full service firm. So, you know, we went and and convinced Joe to join us, immediately elevated us to a different level, because now we could do reviews. We could do audits. We could do those things that before we were saying no to, and it generated revenue for us all year long.

So the focus then became how do we grow in the other eight months so that we’re creating a more scalable business long term. So that’s really what was driving a lot of that growth for a lot of the following years, was then bolting on services that were year-round and then converting a lot of our tax services to year-round services where, you know, we’re reviewing financial statements with people every quarter, and starting tax projections in April of the current year. And just along with them for the entire journey of the year. So then when they come in and get their taxes done, it’s a pretty painless process. They knew what was expected in October, November, they come in, they sign things off, and then we don’t spend a tremendous amount of time with our clients in March. We spend a tremendous amount of time with our clients the other 11 months or the, you know, the rest of the year. 

So that was kind of our focus was to try to scratch that business out all year long. Selfishly.

I agree.

I mean, I had a young family, and I wanted to be able to spend time with them. And I knew that our employees eventually would want to do the same.

Yep. Nope. I think that’s perfect. So integrating advisory at a time before people were probably even talking about the need for the advisory aspect of things. That’s the hot button word now for sure, but it’s just a matter of, you know, just being actively involved with your clients.

And I’m a huge proponent of if you’re doing that, there’s no need to have tax season and April 15th or March 15th because you already know the answers. And so if you need to extend it out from a standpoint of, okay, we don’t need the file today because I know we don’t know. I know we we were on, buttoned in with the numbers. Some people don’t agree, some people want it down April 15th. I don’t see any reason to do that.

I mean, we don’t mind. You know, it’s, from our perspective, we live in northeast Ohio. It’s snowy. It’s cold. It’s bad at this time of the year. So we don’t mind being real busy this time of the year. We try to protect our summers by not extending a ton, but, you know, when you have that kind of relationship with your client, you have the option. If you want to stretch it out, you can stretch it out if you need to. And if that gives them a better service and a better experience, then that’s what we should be focused on.

So now you’re growing this firm. You know, you get to a point, the decision that, you know, 75 people and what’d you say? $7½ million in revenue at this point. So how many partners in the firm?

At that time, there were two.

Two. And so the age of the partners. Were you both about the same age?

Yeah. I was thirty six. Joe is forty.

Okay. Now you’re you’re you’re looking at this and you want to you know, we feel like we’ve set this up nicely. We’ve got a good foundation set. We want to scale this. You know, we’ve done decent. That’s a nice growth, obviously, in that time. But now the decision is, okay, how do we get to the next step? I assume this is starting to be the thought process. And so did you evaluate options? Did you look, should we get acquired? Should we acquire? How did that whole process go of determining what that next step was in growth?

Yeah. So, I mean, as part of our growth model, we were acquiring firms.

Okay.

We were acquiring small books of business along the way. You know, $200,000, half a million, you know, just tiny little micro-acquisitions. So we got really comfortable with that process. But we also realized the opportunity that there would continue to be in that market. So we knew that we really wanted to be still in that acquire-er position.

Okay.

But we also realized that we needed to step our game up. In instead of just acquiring those $200, $300,000 books of business, we wanted to get into the million, two million, five million acquisitions, because the acquisitions were no longer about acquiring clients—the acquisitions became about acquiring talent, and bringing other people into the organization that are going to continue to you know, be a value add to us, and we can share all of the administrative resources, and we could just be more powerful together as a group. 

So we started to look at that and realized that capital was going to continue to be restrictive. You know, Joe and I, for years just kept putting money back into the business. We built a beautiful building and new facility here in Youngstown. We made huge investments into technology, into our workflows, and automations, and our billing systems and all these other things, and we knew that the investments were just going to need to continue to increase in order for us to truly capture the opportunity that was in front of us. 

So our next step was evaluating a merge-up, and trying to find a like minded, larger firm that we could merge with, but still have a voice, and still have autonomy, and still have the ability to control our own destiny because we’re young, right? We’re a bit of a unicorn, right? We’re a $7½ million firm with owners that are in their 30s. There was a lot of firms that wanted us to merge with them—

—Oh, yeah.

Because we ultimately solved a big succession problem. 

Yeah. That’s what I was thinking. Alright.

We had the wherewithal, we had the capital, we had all the things that could ultimately then be their succession plan, but we weren’t getting anything in exchange for that. 

Right.

That was the big challenge. You know, Allan Koltin has used this term before, of the unfunded chain letter, right? Where you’re buying my firm with paper for your firm. You’re not you’re not giving me any real cash or anything of magnitude. You’re just taking my stock and just issuing new stock from your company to acquire it. Well, your stock has the same problems that my stock has, it’s just bigger. And so there was no real value to that exchange. There was nothing that we were being given that got us excited about that, you know? 

So we already had enough brand recognition. We already had enough, kind of, movement in the market where people kinda knew where we were. So it wasn’t like merging with a more known brand was going to give us that, right? They had some infrastructure, but a lot of their infrastructure needed fixed, because they were still running on pre-COVID infrastructure that needed adjusted to what the world is today. So we were already beyond them in terms of, you know, how our workflows worked, and how our billings worked, and how all of our systems integrated and talked behind the scenes, so we realized quickly that merging up wasn’t going to be, you know, attractive to us. 

And then once you get to that point, it gets a little scary. Yeah. Because you’re thinking about it and you’re saying, okay, well, you know, what does the future look like? We’re being attacked from every angle right now. You know, you’ve got labor and wage inflation that’s just bonkers. 75 percent of the CPAs in the country are at retirement age. You got one person coming in for every seven that are leaving. Technology is moving at breakneck pace. 

So, you know, it really became thinking about, okay. well, do we even want to grow anymore? We’re pretty comfortable where we’re at. We love what we do. We can really kinda zone in and refine what we’re doing and just be a great $10 million firm long term. and then, you know, I pull in my parking lot every day and I see all the cars. And, you know, I see that growing over all these years, and the pressure that that puts on one person becomes a lot, you know? Because you think about a lot of different things. You think about What if something happens to me? You know, I have a large book of business here. I have a lot of influence in our employment pool. What if that happens? 

And then you start to think about, okay, well, if we’re not growing anymore, are we going to be able to attract great talent? Are we going to be able to retain great talent? And so then I think about, okay. Well, how much harder is this going to be? If we’re just committed to staying here, just acceptance, and settling for okay, what is that going to do for our future? Is that going to just make us into we’re going to have more turnover. We’re going to have other challenges. 

So as we saw that becoming more prevalent, I got a little bit more open-minded, and I started to think about what other options there were. And I had conversations with a variety of people at that stage in the game. I had other investors that could have provided the capital and would have done some of those things, but we wanted rocket fuel. If we were going to do anything, we were either going to settle at $7-10 million and be comfortable, or we were going to find a partner that gave us rocket fuel to do what we wanted to do.

Got it. And then, so I’m curious about this rocket fuel—I’m going to ask question later on that. But you said at the beginning, you talked to multiple, got to the 1 yard line, you know, decided this wasn’t it. What were the—let’s jump forward—well, a couple things: What made the decision that, yeah, Ascend was the right one, but I guess what was the criteria that went into that decision? What did you have to have to bring in this partner that would supply you that rocket fuel you saw you needed to go to the next level.

Yeah. So I wanted something in exchange. In its simplest form, right? You know, I didn’t want to just exchange paper with another organization. I wanted somebody that was going to provide me ammunition, that was going to give me that rocket fuel that’s going to help me get to the next level of level up. And most importantly, I still wanted autonomy.

That was what I was thinking.

To some degree, yep. And that’s something that I’ve had conversations with people about this over the years. And, you know, Gary Shamis is a very good friend of mine, a thought leader in this community, and I talked to him a lot about these challenges over the last, you know, 4 or 5 years. And Gary’s answer to me was, hey, you’re going to give up autonomy no matter what you do. I you merge up or you find a Private Equity partner, there’s going to be some level of autonomy that you give up, and you need to be okay with that. 

And my answer to Gary was that I truthfully don’t have that much autonomy to begin with. You know? I’m held accountable by my employees and my clients. If I’m not doing my job for either of them, they’re going to let me know, right? So there it’s not like I just get to do whatever the heck I want every single day—I have people that I have to answer to on a regular basis. So finding that partner that, you know, I’m okay with answering to, so to speak, but they’re going to give me resources in exchange for giving up that autonomy—that was a different monster. 

So with Ascend, what was very unique about this was I started to talk to them before they created everything and built the place. So we started talking about 2 years ago, and I gave them a lot of my input about what I would want if they were going to do this. You know, here are the things that I’d love to see. I’d love to have, you know, brand autonomy. I’d like to still be a, you know, community-focused, regional firm. We feel very strongly about that. I mean, it’s right on the wall behind me, right? So, like, it’s kind of permanent. And we wanted somebody that was going to love that, that was going to be supportive of that.

And I knew that this had never happened in the market before. There was never a Private Equity partner that was focusing on giving resources to middle market, regional-sized firms that service small businesses. I grew up in small business. My uncle that raised me owned a motorcycle shop for 45 years, and I watched his business implode, and I watched his business crumble, as a result of not having qualified advisors around him to help him navigate through difficult challenges in the market.

Mmm hmm.

So I always found purpose in helping small business. I always felt that it was unfair to some degree that you’ve got these people trying to compete with the Amazons and Walmarts of the world, right? So if we could be that resource to those small businesses, think about the purpose that that’s going to give, not only me, for my entire career, but every single one of our employees. You’re not just making some rich guy richer, you’re helping somebody that is involved in your community: The people that we’re helping are sponsoring our little league teams and our, you know, giving money back to our universities and are doing things like that. Like, you’re making a real impact in your community. And, again, finding a partner that would allow for us to continue to make that a focus, and not just kinda roll up and be a part of some megatron of, you know, one big entity—that was what we needed to find. 

And since we got to contribute to that concept at the beginning, so early on, we felt that that made some movement in terms of what they felt was important. They’ve stuck to that.

Speaking of that, “you got to contribute to that focus from the beginning”—has Ascend invested in other firms? Or is this— 

Yeah. 

Okay, so they have.

So Ascend partnered with about six stateside firms over the course of 2023. So they have other people that were on the platform—and all of similar size between, you know, $5 and $20 million of annual revenue—all in that, you know, regionally focused small business servicing, you know, these firms are not doing SEC work. These firms are not doing huge, huge clients. But the one thing that is a commonality amongst every single one of those firms is that they all have great cultures. They’ve all been recognized and been awarded for those great cultures. 

Oh, really!

So tying back into that people-first mentality was, that was something that if you didn’t have that, they’re not partnering with you. 

You hit a hot button note for me. I love talking about great corporate culture and the benefits of that. So I love that that’s something that they look for, and that you have integrated it into your business then as well. 

Speaking of those other investments then, are you all—you said you wanted autonomy—are you still this own, you know, HD Growth by itself, or is there some connection between all the partners that have been brought in for the last year and a half?

Yeah. So this is where things get exciting, and I think in an unintentional way to some degree, is that now we all own each other’s firms collectively, right? So, you know, we have, you know, our office here in Youngstown, we have a partner firm in San Antonio in Washington, Kansas City, New York. And, you know, what we’re able to do now is when we need help, it’s no longer like your formal alliances. And I’m not going to say any names in terms of those, okay? Not here for that. But we have a direct incentive to help one another.

Yep.

Right? So it’s very clear, is that if one of our firms in San Antonio is stuck on something or in Kansas City, or us in Youngstown, we can share ideas together. How are you guys handling this technology? How are you handling this new tax code? How are you handling this AI piece? And just that knowledge sharing alone is going to continue to be insanely valuable as this thing continues to grow. 

Yep. Alright, so we went into the whole process of, you know, you evaluating what you wanted, what you wanted to see come out of this, and why to do it, and the rocket fuel, and everything. What’s the benefit for Ascend? Why does Ascend get out of this, or why do they do this then?

Yeah. So I think for a number of reasons. Now number one, I’ll speak to us individually, is that we’re a very progressive firm: in terms of how we operate, in terms of how we service our clients, in terms of how we’re structured, our tech stack, all of those types of things. So we have been able to convert a traditional styled firm into a progressive firm, which in and of itself has a tremendous amount of value that I mentioned some of those statistics about CPA’s retirement age.

Oh, yeah.

There’s going to be a lot of those firms that are going to be acquirable, and you’ve gotta have the right engines that can transition those traditional firms into a more progressively minded firm of the future.

Makes sense. Yep.

So undoubtedly where we’re bringing value to that equation is in that conversation, right? But, you know, why would Private Equity get involved in the middle market CPA firms? I mean, it is a relatively recession proof business.

Correct.

It’s strong cash flows. It’s great relationship-based year round revenues if you’re building it correctly. There is little downside, as long as you handle and treat people correctly. There’s a tremendous amount of upside, because there is no one dedicating resources to this. And one of the things that’s very exciting about Ascend is that they look at this as a long-term position. This is not your traditional, you know, five to seven year flip. This is something that they want to be long term holders of, you know, this platform that they’re creating for firms like ours. 

They’re not, from my position personally, is that you know, the idea here is that you’re not creating some mega firm—you’re not creating one giant firm. You’re creating a support system. You’re creating a platform for regional middle market firms. That platform in and of itself is something that has never happened in the history of accounting, and provides a tremendous amount of value, and could be an unbelievably valuable long term hold because of that consistency. I mean, accounting is undoubtedly a pillar industry of our overall economy. Every business needs accounting. Every business needs tax and tax advisory services, you know? In the absence of some crazy piece of flat tax legislation, this is a pretty safe place to park some dollars long term. 

And I think in a world where Private Equity has continued to see challenges to the best place to put their money, this is a great place for their investors. They can make a huge impact on an industry, they can provide a great ROI to their investors, it can truly be a win-win-win for every party involved. And it’s just rare to see circumstances like that, and to have the right partners who believe in that, you know, theory of, well, If I win, you lose. Right? Or there could be, everyone can win.

Right. So that’s the one thing, and you started to explain it to me. But I mean, do you—see, the one thing I don’t completely understand with Private Equity, and all good points and everything, is just what is the endgame, or what is the transition, or what is the—but what you’re saying is, this is not that we’re going to be in five years, we’re going to flip it to the next Private Equity or anything. I mean, you can’t predict the future, but, I mean, in your mind, is Ascend going to be your partner in 25 years from now, or what do you think’s going to happen?

Yeah. So in my mind, yes. I mean, I don’t see a situation where these aren’t my long term partners. But I’ll tell you, Randy, and the thing that I thought about as a young firm owner. Now, again, we’re a bit of a unicorn in this conversation, right?

Yep. Oh yeah.

Where I’m going to be doing this for a long time, because I love doing it, and I have great resources now behind me to empower me to do it in a more efficient, better way. But if I look at the next five to seven year runway without Private Equity, and I think about dealing with the challenges that I have dealt with over the last five years—If I have to do that for another five years, I’m probably not doing this anymore.

Right.

Right? So you consider the alternative of the two choices here, the w no versus the w you don’t. Our industry has become remarkably difficult to operate in. So I see this as we’re going to get healthy, we’re going to get stronger, we’re going to get better as a result of this partnership no matter what, as opposed to five to seven years on my own, I’m going to survive.

Okay.

Right? And we’ll probably get stronger and better along the way, but not the same level of stronger and better that I could get with that kind of capital behind me, not the same kind of stronger and better that we could get with that kind of people resource behind me. The immediate impact of the remarkably qualified people that are advising us and working with us behind the scenes with Ascend is amazing. That’s the kind of stuff that I look at and say, well, you know, the uncertainty of what truly does happen in five to seven years, versus the certainty of what I know will happen in five to seven years if we remain completely independent—that’s where that decision gets very easy. You know, yes, there uncertainty in five to seven years. There’s uncertainty in five to seven years about our entire industry.

True.

So bet on the right horse here.

Alright! And so from that standpoint, I mean, you don’t know the future, but you see that there’s an opportunity, that they may around with you for a while. So if that means that they’re—and I assume this discussion happened—they’re very comfortable with the year to year profitability and that being important to them rather than increase in value, and that’s where they’re going to get their money out. They’re comfortable they can build, and they can be part of this very profitable annual business that helps support what they want to do, in the next step—that’s an area that they’re happy. Profitability year to year is good. And and that value increase, yeah, maybe down the road, they’ll take advantage of that, but that’s not their main [focus] right now, sounds like?

Yeah. I mean, and so the beautiful part about this is that in our industry, just bringing that number of people together and getting that economy of scale in place—certain things change and fall straight to the bottom line to begin with, right? So for example, health insurance benefits. Health insurance benefits for a group of 50 people versus health insurance benefits for a group of 1,500 people is an entirely different negotiation process with health insurance companies. Software, technology, is an entirely different situation for an independent team of 70 to 100 people versus 9 different practices and 1,500 people and the potential of scaling and growing, is an entirely different position of leverage in terms of those conversations.

So, you know, getting the best technology and the best benefits to pay your employees then ultimately allows for you to be the employer of choice and pay your employees the best and give them the best level of opportunity. And they understand the very simple concept of, he who gains the greatest people in any industry wins. 

Yep. 

So ultimately for our clients, again, they’re going to win as a result of that, because we have great people and we have great retention, and we have low turnover, because we’re providing all of these things. So, you know, again, it all comes back to seeing this win-win-win for everyone, is that they can increase profitability by economies of scale and coaching businesses to budget more appropriately and hear national statistics about charging the right prices for things and so on and so forth, and everybody, again, is winning along that way because the value of the service is increasing, the clients are getting, continued tremendous level of service, your employees have a great place to work. And the value of the company obviously is going up as a result of that because you’re growing.

Alright. So one of the things that you talked about, which I think is extremely important, is this, hey, there’s, you know, seven CPA’s retiring for everyone coming in and whatever. And so from that standpoint, if you stayed status quo, you know, you’re having an issue, you know, whatever 30 years down the road when you’re ready to get out, because you don’t have anybody to buy you out. So one of the benefits of this, I guess, is you know the certainty of, I have a value here. I’m getting something. I’m just curious of the mechanics of the deal. And because everybody’s going to wonder, hey, Private Equity comes in. What does that mean to me financially? And so from a mechanics of the deal, you know, how does that work for you? You know you’ve got stock or investment in Ascend now. You know, do you get something out? It’s not just trading paper, like you said, when you’re merging another firm. So are you feeling comfortable through the mechanics of how that deal like this works?

Yeah. So I won’t get into the specifics of, you know, our individual mechanics, but what I will say is this, is that the traditional accounting firm model is a pyramid scheme, okay? It’s a professionalized Mary Kay, okay? You’re trying to convince new people to come into the business and buy your ownership and, “Well, when you’re 60, you’ll get some money as a result of it.”

Right. 

And it’s just, it’s broken. It’s just not built the right way. 

Agreed. 

So number one, people are starting to see through that, right? You’ve got a generational difference in how we view ownership in an accounting firm, and more and more people are starting to see through that. So number one, if you’re not looking at this differently, you’re not going to retain those great young people to be there to help you when you do want to retire, right? 

So from my perspective, retirement was never really a big issue for me. I love what I do. I live a very normal, comfortable, below the radar lifestyle. I’m a Dave Ramsey kind of a guy, like, big time into Charlie Munger and delayed gratification and spending less than you make and all of those things. So I was never really worried so much about, you know, what retirement looked like for me because I knew that, listen, if I’ve just continued earning what I was earning for the next 30 years, if I had a problem retiring, it was my own damn fault. It had nothing to do with me not having partners to buy me out. 

Right. 

But in this model, it certainly changes that dynamic, is that now not only am I going to be able to have a great partner like a Private Equity firm when it does come time for me to have retirement, I don’t expect them to retire me.  Opportunity for these people to create this amazing experience and career on our platform. Those are the people that are going to effectively retire me when that time comes. But at that point, retirement is no longer about getting a deferred compensation check. Retirement is about what did I do while I was here in this industry, and how many opportunities did I create for other people?

So I think that that’s undoubtedly an important mechanic, again, for me as a young firm owner. Now what I will say is that for the older firm owner, that’s obviously a different conversation, right? For that fifty to sixty year old person, this gives them their out, right? It gives them somebody that’s willing to show up with the check. It gives them someone that’s willing to finance, and you know that they’re going to have the cash and takes that completely out of the equation for those over firm owners. But, you know, for us, it was just a very different consideration when it came time for that.

Alright. And so this is literally just happening and so I think to wrap up, what is, I mean, obviously, this is an exciting chapter in your life, in your career, in HD, in White Glove, and everything. So what are the most excitements that you’re like, anticipating happening over the next year in this whole, I won’t call it a transition, but this whole new phase of the business?

So the part of this that is the most short term excitement is our access to get great people. One of the things that Ascend has already done is they have a dedicated team of recruiters, and they have a dedicated team of people behind the scenes to look at our benefit offerings, look at our compensation, look at all those things to help me ensure that we’re providing a really good, attractive opportunity for people.

So our opportunity for, you know, getting candidates in the door, and seeing people that we’ve never had the opportunity to see before, as a $7 million firm, now being part of this broader partnership is going to continue to provide rocket fuel for our organization. We’ve seen a lot of those opportunities already happen in a very short period of time.

Reviewing how operationally efficient we are and working with them to make that better is already improving the quality of life of our employees, and they’re seeing that. It’s no longer like, I felt like we were at a point where we were in that stage of insanity, right? Where we were just, well, we’ll just do the same thing this year. We’ll make some little tweaks. But ultimately it just felt like we were doing the same thing over and over and over again, and people were like, this is Groundhog’s Day, man. I’m not going to stick around for this long term. Right? 

Yep, yep, yep.

So being able to just step out of that insanity, being able to step out of that Groundhog’s Day and say, listen, guys, we’re going to do something radically different—we’re going to be a part of a radical shift and a radical change in our industry, and we’re excited about that, obviously, as a as a partner group, but the employees are super pumped about that because they’re no longer walking into work saying, oh, I can expect the same thing today that I did last year.

Right. So we talked about the fact that, yes, the business model needs to change and, you know, the waiting till you’re 60 to get, you know, a payout because you became a partner at 30, and now, you know, you’ve accumulated all these years, and now someone else can buy me out. But now when you’re bringing it in place, I mean, partnership isn’t an option for them, right? Or how does that work? I mean, not that that’s the incentive—that’s changing, I know. But what is that—how do you attract them if that’s not, that we just get higher pay now, than waiting till I’m 60, or what is the options there?

I’m very glad you asked that question, because this is something like, there’s so many cool wrinkles of this, and how we designed this and how we’ve worked together and how Ascend has built something different than I have seen anyone else view this problem. 

We are giving people ownership at manager level. Okay? We are giving people real equity and ownership earlier in this business.

Nice. 

As a result of our transaction, we gave away a lot of equity to our managers and senior managers and people that—you know, I have a twenty nine year old that got ownership in our business.

Right? Okay.

And that’s the kind of thing that we have to do. The alternative practice structure that you have to go through, in order to have a Private Equity partner, right? You’ve gotta split off your attest business from everything else and so on and so forth, and that allows for you to have non-CPA owners.

So I have people in our practice that are amazing contributors to what we do on a regular basis. They’re amazing contributors to their clients, to their team members. Why shouldn’t they have the same opportunities to have ownership as the CPA might, right? I have people that are non-CPAs that would run circles around many of the CPAs that I know, but for whatever reason, life circumstances, they didn’t take the exam, right?

So I think that that opportunity to put ownership and real equity in people’s hands earlier in their career will be an absolute game changer for us, for this model, and I think that it’s going to flip the industry on its head, because the other firms are just not going to be able to compete with that. Because if I’m sitting here saying to the 20-somethings and the 30-somethings, you can have ownership now, right? You can work your tail off for the next 20 years, have some type of liquidity exit in your 50sand sell to the rest of the partnership group, or this that or the other, why would you turn that down in order to go to the Mary Kay firm where you get your pink car and you get to wait for your check until you’re 65?

Right. Yeah. That’s exciting, actually. I love the way that—and, boy, you lit up when I asked that question too. I could tell, but that was a passion of yours. I love any way of looking at doing things different, any way of attracting the right people, getting them early on in the process instead of waiting till they’re, you know, die at their desk at 75 because no one could buy them out because there’s just no way to take over. I think that there to me sound like one of the best. All this sounded pretty amazing to me, and you really cleared up a lot for me, but that—the fact that you can bring that ownership in early and get them excited, and now they’re building something for themselves instead of building something for the partners is pretty cool. 

So I think that is a great note to end on unless you want to wrap up, and I’ll give you an opportunity, you can wrap up just, you know, the conversation we had here before I ask you a couple final questions.

I think the only thing that’s worth mentioning is in regards to our clients. I think this sets a different example as business owners, as advisors to our clients, is that sometimes, you know, the answer isn’t very clear, and you’ve gotta work really hard to find the right answer for what’s next in your business. It makes a huge difference when you can put real ownership in people’s hand. 

Yep. 

So I’ve got give you one example to tie to that conversation of equity is, I had a conversation with one of our leaders on our team today, she came in my office and said, hey, I have an opinion on something, and I want to talk to you about it. I said, okay. She brought up a point about how we were structured and how we were running one part of our business. And I said to her, I said, well, why didn’t you say that to me before? Why didn’t you say that to me 6 months ago?

She said, well, you know, I wanted to try to stay in my lane, and that was really not part of what I do. But now that I have ownership of the entire thing, I wanted my opinion to be heard, and what she said was insanely valuable, and will make a huge impact to our business. So, you know, getting people to act like they own the business is impossible if they don’t have some real equity in the business. So that that’s just another example of why I think this is ultimately going to be great, and an absolute game changer in this industry.

Well, it sounds very exciting for you. I’m really interested to see the evolution of this, even though we’ve known each other for a week, I’m going to stay on top of this and keep it, at least from afar, but I’m sure we’ll be in touch again, and I’ll see what’s going on. It sounds very exciting. And then, I feel a lot more educated about the wise and the house and the whats of everything of Private Equity now, and the excitement of it. 

It is, you know, we just mentioned Chase Birky at the beginning. You know, he’s doing things different. Well, anytime I see somebody doing things different, it’s a pretty cool thing. And because the profession needs different. And you said it and you highlighted it better than I could, but it needs to—there’s no reason for us to do the same thing we’ve been doing for the last 80 to a 100 years. It’s time for a change.

So to finish up, I have two final questions, not related to anything we said so far. So the first question is, and and, I know you have a family and that, but, I always like to ask everybody at the end of the conversation, you know, we just talked about all this business stuff, which you’re very excited about, and I love hearing that, but the business doesn’t define you. Your outside of work passions define who you are. So what do you like doing when you’re not helping your employees and your clients and then being a partner with Ascend now? What are your outside of work passions?

I love being a dad. 

Yeah? 

I mean, as broad as that is, you know, I lost my parents pretty young.

Okay.

And I’m very in tune to you know, the fact you only get 18 summers with your kids. You get 17 summers, and you get that 18th one spread out cumulatively over the rest of their life. So I love hanging out with my kids, watching them learn things. I love coaching my kid’s sports events, you know, I’ve coached football, basketball, baseball, and I just, I can’t get enough of it. I mean, it’s just a ton of fun. I I look forward to doing that for, you know, as long as they will allow me to. So it’s a ton of fun.

Yeah. I’ll agree with that. My kids are 30 and 28. And the cool thing is while we’re having this conversation, they’ve been texting me a lot. So it’s nice that, even though that 18th summer spread out, it’s a lot of contact. In fact, we are, you and I had talked about this and, you know, from a timing standpoint, I will not be here, but we’re currently in Northern California, for a month in the winter, and the kids are actually coming out to visit us in two days, spending a long weekend out here. 

That’s awesome.

So that’s exciting as well. And when I said your face was beaming about the ownership with your employees, it’s beaming right now too and talking about the family aspect. One last thing on that. I coached everything, and those are some of the greatest memories ever. So you, yeah, keep doing it. It is so fun. and, honestly, I think, oh, today, one of the texts was about, not a great memory, but one of, my son broke his wrist 14 years ago playing basketball, but that’s something that came out in the text today. So their memories are still there for sure. 

And then last question is then, if anybody wants to hear more about what you’re doing or see anything that’s going on with you and Ascend, or you and White Glove, and you and HD, or you personally, where would the best place be for them to look?

LinkedIn is pretty much it. I’m not super active on a lot of social media. I’m relatively active on LinkedIn, try to continue to keep things up on that front, but absolutely—come find me on LinkedIn. Give me an add. I would love to, continue to share our story in this journey as we continue to grow.

Alright. Well, I’m, like I said before, I’m definitely going to watch and, at least from afar, but hopefully up close occasionally too, just, talk about what’s going on. So Tim, I really appreciate you being part of this today. It was a fun conversation for me, and I think at some point in time, we’re going to have to do this again.

Sounds good, man. Thank you.