Latest / The Perfect RIA / Accelerating Your Growth and Understanding Practice Valuations with Guest Ted Jenkin [Episode 260]

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Accelerating Your Growth and Understanding Practice Valuations with Guest Ted Jenkin [Episode 260] · The Perfect RIA

• 0:31
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  All right, back to the show. Hello everyone, and welcome to
• 0:59
  another episode of The Perfect RIA podcast. I'm your co host,
• 1:03
  Matthew Jarvis, and with me, special guests who actually I
• 1:06
  still need to mail a check. Ted Jenkins, you may know Ted from
• 1:09
  his work as an advisor himself. You may recognize him for having
• 1:13
  been on the Michael Kitzes podcast and a quick backstory.
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  10 months or two ago, you were on the Kitzes podcast. You were
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  talking about valuations, and my phone starts blowing up. My
• 1:22
  buddies are texting me, advisors. They're saying, Hey, I
• 1:25
  just heard this podcast with Ted Jenkins. He says, guys are
• 1:29
  getting 10x EBITDA, I'm gonna sell my practice. And I said,
• 1:32
  "No way. This Ted Jenkins guy has got to be full of crap.
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  There's not a chance." I even go on LinkedIn. I'm like, I don't
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  know who this guy is. He's got to be full of crap. Oh, you're
• 1:42
  like, I know, Teddy's not full of crap. Like, I'll introduce
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  you. Like, nope, no, no. But eventually you called Ted.
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  You're like, sign some NDAs. I will show you that I'm not full
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  of crap. And, in fact, you were not full of crap. So with that
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  interesting introduction Ted, welcome to the show.
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  Ted Jenkin: Well, thanks for having me on, man. And I really
• 2:00
  believe this is like pervasive in our industry today. And, you
• 2:04
  know, look, everybody that's watching this or listening to
• 2:07
  this, the fact is, they're going to get an email from somebody
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  not trying to recruit them, but trying to buy their business.
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  And there's so many advisors that, by themselves, go to that
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  one person, they see a deal that's slightly better than what
• 2:20
  they thought the deals should be in general, and they make a deal
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  without knowing what the whole marketplace is actually doing
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  right now.
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  Matt: Well, for sure they do. And it gets worse. And I guess
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  we, maybe we won't name names, but it gets worse by some of
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  these valuation services that are a complete black box. I use
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  one of them again, I won't mention the name, and the number
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  came back magically at 3x and I said, Well, hey, I'd love to see
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  some comparative deals like, you know, I get my house appraised
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  at least, tell me the 10 other houses on Zillow, and they're
• 2:44
  like, Hey, listen, we're not going to test this is what the
• 2:46
  practice will cash flow. Like, that's kind of where this whole
• 2:48
  3x grows came from. Like, if you're doing an internal
• 2:50
  succession, that's all you can cash flow. But that's not what
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  you're seeing now at
• 2:54
  Ted Jenkin: No, and I will name names, I'll name them. But when
• 2:58
  you look at FP Transitions, probably one of the big gorillas
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  in the industry. Listen, if you're doing a valuation for a
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  buy sell, you have a partner and you want to buy some insurance,
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  by all means, do a valuation, but advisors need to understand
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  it. And you would think they would, because they're advising
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  clients, there's a big difference between evaluation
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  and what the market will actually pay for your business,
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  and that is the major misgivings of most advisors. They don't
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  realize the difference between evaluation and what the market
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  will pay for your business.
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  Matt: Well, so how about Tim? We're gonna jump around a little
• 3:29
  bit. You know, a lot of advisors say, Hey, listen, I gotta
• 3:31
  transition this to next gen, like, but that's not necessarily
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  anywhere close to the market prices you're seeing, right? So
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  if I'm saying I got this junior advisor, and I want to sell my
• 3:39
  practice to him, and he's got to go, got external financing, and
• 3:41
  we're going to sell it like that. That's really like in a
• 3:44
  completely different world. Then what's
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  Ted Jenkin: I mean, unless, unless it's like your son or
• 3:48
  your daughter, or you feel like some undying loyalty to the
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  generation two that's been in your practice for 15 years, and
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  you feel like you want them to have the whole business. That's
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  the actual way to minimize your valuation is by doing it with
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  like the guy down the hallway. The way to max your valuation is
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  that there are all these companies today, which, by the
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  way, if you run the math, might actually be better for your g2
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  than it would be if they bought the practice from you. Plus
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  you're not sweating bullets about them making loan payments
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  all the time. You know, it's the wonkiest deals Jarvis, the
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  wonkiest deals are between advisor to advisor, because
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  they're not people that normally structure deals. So they're
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  like, Hey, man, I'll buy your practice. But by the way, let's
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  do a cash flow over five years, and if Betty and Sue and the
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  Joneses leave, it'll go down by 10% like, what? What are we like
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  in an antique market? That's not the way that it works. If you
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  went to the marketplace and you looked at the 100, the 200
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  companies that are aggressively buying businesses that are out
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  there, you would get a much, much higher multiple than you
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  would by selling it to the guy down the hallway.
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  Matt: Let's peal this back a little further Ted. So how would
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  this be better for the gen two? I talk to advisors all the time,
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  and they come up with these deal terms. They're like, you and I
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  couldn't even imagine, right two thirds of this and a third of
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  that, unless we hit this market. But yeah, they say, well, take
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  these weird deal terms because it's better for gen two. But
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  you're saying that a lot of times these external sales are
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  better for, like, paint this picture for me.
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  Ted Jenkin: Yeah let me tell you why. Well, first of all, most of
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  those Gen twos are going to sweat bullets when they got to
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  go take a $3 million loan if they could even get one. Right,
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  Live Oak, or somebody's gonna actually give them the money.
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  But the thing is, is that you don't know how that's gonna
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  affect them. You know, emotionally, psychologically,
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  all those kinds of things. And in a lot of these deals,
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  remember, the gen two doesn't have to buy the practice, and
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  when you leave the business, their income is probably going
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  to be triple or quadruple what it was before, without ever
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  having to have a cent come out of pocket. Now I'm going to tell
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  you something here Jarvis that nobody has heard before, okay?
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  Here's what nobody's heard before - in a number of these
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  deals, this is going to sound like it's not true, and again,
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  people are going to call bullsh*t on Ted Jenkin, but your
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  g2 can get the practice from you after you sell it to a company,
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  and if they stick around for a period of time, the company will
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  let them have the equity in the practice. Now that sounds like
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  how could that possibly be true? Yeah, but it is. There are a
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  number of companies that will say, Listen, generation two
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  comes in. They work for a certain period of time as an
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  employee. After a certain period of time as employee, they get
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  all the equity in the practice, and they can resell it again.
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  Some of them will say, Look, we're going to give them stock
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  in the parent company, and if you do a great job, not only
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  going to make income, but it's going to be accretive to them,
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  because they're going to get stock when the private equity
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  company or the company ends up doing a recapitalization or they
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  go public, all of these are good for your generation two, versus
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  having to take a huge loan and sweating bullets every day.
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  Matt: I gotta confess. I'm still looking at this. I'm like, This
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  can't be. I know gonna be a lot of listeners like that. That
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  can't be that's got to be impossible. But again, the way
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  that you proved it to me, let's sign an NDA, let's sign an
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  agreement, and I'll show you these, these actual deals, Now
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  again, if you're listening to this thing, like, Hey, listen, I
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  want to prove Ted wrong, or I just want to waste Ted's time.
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  Like, obviously, don't waste Ted's time if you're seriously
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  in a gen two consideration. In fact, over the weekend, I sent
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  you an introduction to an advisor who's in this exact same
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  situation, like give Ted a call. If you think these are all BS
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  numbers. I'm the first person to call BS. If you're serious about
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  this, there's, there's a way to solve it.
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  Ted Jenkin: Well, nobody has to do business with me. Look, I'll
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  sign an NDA. I'll redact a contract and show you the legal
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  language of what they look like. I'm seeing 5, 6, 7 offers a
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  week. So I, I'm like the human Zillow right now of financial
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  advisor prices. I can tell you exactly, exactly where they are
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  and all names that people on this podcast in the RIA space,
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  you've heard them, you've heard the names before, these are in
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  the top 100 RIAs in the country. Most of them are acquiring
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  businesses right now.
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  Matt: Names you've heard and names you would respect, right?
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  This isn't like again, I'll try not to be disrespectful, this
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  isn't like the Joneses is going to buy now, practices, right?
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  That's not what we're talking about. These are, these are
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  people that that are speaking at the industry conference. These
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  like stalwarts in the industry that have realized this is the
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  next move.
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  Ted Jenkin: And there's another trend happening right now, which
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  is unbelievable for pure RIAs, and that is this, that there are
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  a lot of capital companies that actually want to get into the
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  financial advisory space, as do family offices. A good example.
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  This is a company called Bison as an example, that is owned by
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  the Pagula family, who owns the Bills and and the Sabres, and
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  they wanted to get into this market, and they started an RIA.
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  Why does this matter? Because I know the companies that are
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  trying to get into this space, and if you have a $500 million
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  RIA and above your EBITDA, I mean, again, people are going to
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  call bullsh*t on this, but your EBITDA is probably going to be
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  between 14 and 17 times on cash flow.
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  Matt: So Ted how are these evaluations so much higher?
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  Ted Jenkin: So advisors that understand private equity in
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  That's incredible. So much higher than what we've seen in
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  forever. It was 3x growths. That was just the number. It was
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  always, we don't even discussed it. The valuations were made up.
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  It was always 3x growth. Why has it changed so much?
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  And it's the same thing that we saw a few years ago in the
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  general, and I think you'd be surprised Matt, about how many
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  advisors really don't understand private equity. The gain is not
• 8:19
  veterinarian space, or still seen in the optometry space. I
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  about IRR, meaning when I buy another advisor's practice, I'm
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  had a client he sold his veterinarian practice a couple
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  using some Excel spreadsheet where I'm if I take a loan, and
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  of years ago for double what he ever thought he would get. Same
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  this is when I pay it off, here's where I'll break even,
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  here's where I'll get my money back. Well, PE doesn't think
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  kind of thing in that industry was always, I can't remember if
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  that way. What they think about is arbitrage. When you read like
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  RIA Biz, or you read City Wired, you see that Carson got bought
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  it was two or three. It was always just 3x that was it.
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  out, or at a 20 times multiple. Or you see recently, Spain took
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  a piece of CI at 26 times cash flow. You know when they buy you
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  at 12 times cash flow their EBITDA may already be worth 20
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  times cash flow on the street, which means the game for them is
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  That's what they sold for, for decades. And then that same
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  about arbitrage. It's not necessarily about a four year
• 8:58
  IRR and then I'm cash flow positive, right? True. That's
• 9:01
  not the game, and that's what people need on it. So how do I
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  pay these multiples? I pay our multiple because I have
• 9:06
  arbitrage. That is the game.
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  thing happened, probably doubled this valuation. Yeah, I guess
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  you're right, because the arbitrage is there.
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  What's interesting in general is that most advisors, when they
• 9:32
  market, and you'll appreciate this, here's the marketing
• 9:34
  strategy for a lot of advisors, I'll get of a good CPA who are
• 9:37
  affirming, a mortgage broker, an attorney, right? But the number
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  one person that advisors don't saddle up to are business
• 9:44
  brokers, and that should be one of your best referral sources,
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  because when they sell a business, if they don't already
• 9:50
  have an advisory relationship, that's going to be the one big
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  liquidity event. So I see the garage door business right
• 9:56
  now...
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  Matt: So like the literal garage doors. Not like the symbolic
• 9:58
  like, literally garage door.
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  Ted Jenkin: Literally garage doors. You're at not a four to
• 10:01
  six cash flow anymore. If it's if it's a bigger business, it
• 10:04
  could be an 8 to 12 on cash flow for those businesses. So how
• 10:08
  much are advisors counseling their clients around how to
• 10:11
  really make the exit. There are a lot of firms that say they're
• 10:14
  good at Exit Planning. Well, I mean, I don't know how many
• 10:17
  advisors are really good at Exit Planning, right? But you want to
• 10:20
  be around a business broker.
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  Matt: So as an advisor, Ted, how old were you when you sold your
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  practice? Couple years now, if you don't mind sharing.
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  Ted Jenkin: I was 48 Yeah.
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  Matt: So this isn't just like guys and gals that are in their
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  late 60s or 70s or 80s, you know, they're never going to
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  sell. Like you're talking to advisors, really, in all stages
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  where they've said, All right, I've, I've done this chapter of
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  my life. It's time to take money off the table, or I need a
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  different infrastructure, like for these people
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  Ted Jenkin: Well, let's think about this like you're an Excel
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  spreadsheet guy. So I like that, because most advisors don't run
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  their own Excel spreadsheets. Is the reason why you want to look
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  at this when you're younger, is you have to think about the
• 10:54
  velocity of stock and the velocity of cash, meaning this,
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  if I, if I am making a million dollars a year, and I run out an
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  Excel spreadsheet for 15 years. Am I better off getting ten
• 11:06
  million dollars today paying cap gain taxes at 20% keeping this
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  simple, but let's say I had 8 million in the bank and I could
• 11:12
  let it run or making a million dollars at 40% yes, over the
• 11:16
  next 15 years, right? And this assumes that capital gains rates
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  won't change, right? If you double the practice over the
• 11:22
  next 10 years and capital gains go back to 40% you actually went
• 11:26
  backwards in a significant way. Number two, when you look at
• 11:30
  your stock, your intrinsic stock, in your practice, are you
• 11:33
  better off with that stock or with the stock of a private
• 11:37
  equity company move faster than your stock? And so that's the
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  other question that advisors need to be thinking about,
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  what's the velocity of my own net worth, my own growth? What
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  will that look like? But this whole thing in here is just
• 11:49
  talking about the velocity of cash and then stock, right? You
• 11:53
  know, if you have a practice today, and your practice is $2
• 11:56
  million of revenue, and you value it at x, remember, we were
• 12:00
  talking about this arbitrage with private equity companies,
• 12:02
  meaning, if your EBITDA is 10x and now you swap it for stock
• 12:07
  where the EBITDA is 18x you made some arbitrage on your own
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  equity, and that's what advisors don't understand. Would I be
• 12:13
  better off just growing my practice? Forget about if you
• 12:16
  like it. It's fun. You golf four days a week, blah, blah, blah.
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  I'm just talking purely about building your net worth. And
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  what I decided when I did mine, is that I could build my net
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  worth faster by taking the cash, paying the capital gains,
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  swapping stock with Blue Spring, which is where I sold it, owned
• 12:33
  by Warburg Pincus, which is really where the stock is, and
• 12:36
  that stock is up massively over the next five years. I could
• 12:39
  have grown the practice fast, but never as fast as that stock
• 12:43
  grew. Never. No.
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  Ted Jenkin: These are all assumptions that there's going
• 12:44
  Matt: Well so that's consideration and I'd love your
• 12:46
  thoughts here, I think almost a disservice I did to the industry
• 12:48
  to be no compliance changes, no margin pressure, AI won't affect
• 12:49
  was talking about lifestyle practices. And so we end up with
• 12:51
  these advisors who are just like, they say they have a
• 12:53
  your business. I mean, you know we assume, and I know I've seen
• 12:54
  lifestyle practice, they're really just not working in their
• 12:56
  practice, like they're not growing right? This like, I'm
• 12:59
  golfing every day kind of thing. But if you're looking at your
• 12:59
  a lot of arguments about whether 1% will hold up over the next 10
• 13:01
  practice, you say you're not seeing 10, 20, 30% growth year
• 13:04
  over year, which would be an impressive growth rate for most
• 13:05
  years. It's not going to go up. I don't think that, if anything,
• 13:06
  practices, youu look like am I at the apex, or am I kidding
• 13:09
  myself? I'm not actually growing still. I'm actually gonna start
• 13:11
  it's going to be flat or it could go down just for margin
• 13:12
  losing clients due to attrition or age or death, whatever the
• 13:14
  case may be, and I would be left with nothing. Versus, geez, if
• 13:16
  pressure. But if you love the lifestyle business, because
• 13:17
  you can pull 10x off the table, you have to at least look at it.
• 13:20
  Right? It'd be negligent to not look at it.
• 13:21
  you're making 800 grand a year and you live six months in a
• 13:26
  place like Florida, and you can golf four days a week, that's
• 13:32
  fine, you know. But if you're really trying to build your own
• 13:37
  net worth in a significant way, that's where you have to look at
• 13:43
  this, even if you say, I'm not ready to exit the business for
• 13:49
  15 years. So what? Where would it be more accretive to you
• 13:54
  financially? That's what you would be advising your clients
• 13:59
  on. How do you build your net worth the fastest? And that's
• 14:05
  what I feel like. I'm helping advise people, not just on
• 14:10
  making a deal, but what's accretive to building your own
• 14:15
  net worth?
• 14:16
  Matt: Yeah, I want to pull Ted on that string where you talked
• 14:18
  about compliance risk, because advisors, they dramatically
• 14:21
  underplay that. Guys like you and I that in the industry that
• 14:23
  know a lot of people, like people don't understand what a
• 14:26
  tightrope compliance is. There's an advisor I knew for years. You
• 14:30
  can look up Dave Hanson, Yellowstone Partners. He went to
• 14:32
  federal prison for a billing error. There was an error in his
• 14:37
  billing, and you can pull up the court documents, and he went to
• 14:39
  federal prison, and the entire value of his RIA went to zero.
• 14:44
  It went to zero. And so, and part of that was he didn't have
• 14:47
  enough compliance on his side to fight that thing. Part of it was
• 14:49
  he had made some mistakes, like I'm not defending, I don't want
• 14:51
  to get in trouble with the SEC myself, but again, he thought he
• 14:54
  was on the top of the mountain. All of his net worth was tied up
• 14:56
  in this enormous RIA he'd built. The whole thing zeroed out
• 14:59
  almost overnight. So, so, like you said, you know, this risk of
• 15:03
  fees coming down, or regulatory thing, or just the SEC getting
• 15:07
  your number, this is not like some annuity you own, like this
• 15:10
  is a highly volatile thing that we own in our practices.
• 15:12
  Ted Jenkin: One bad market, you know, one bad situation, one bad
• 15:16
  employee. And look for a lot of advisors, it may never happen.
• 15:19
  We hope it never does, right? But when you look at at the
• 15:21
  totality of all the things that can go right versus all things
• 15:25
  that can go wrong, it's what got me started down the path of
• 15:29
  saying, you know, beyond the fact that I hated seeing 25
• 15:32
  appointments a week, it was basically sucking the life out
• 15:34
  of me. Beyond that, I just looked at all the risk, and I
• 15:37
  said, What makes more sense? Are capital gains going to go up or
• 15:40
  down, they're not going down. They're likely, over time, to go
• 15:43
  up, where to $34 trillion deficit you know. There is only
• 15:47
  two ways to fix it, man, you either got to get more revenue
• 15:49
  or cut expenses. What do we cut? Medicare, Social Security,
• 15:53
  Defense? Yeah, the number four line item on the fiscal budget
• 15:57
  for United States is a net interest on the debt. That's not
• 15:59
  going down. It's only going to go up so, so they've got to
• 16:02
  generate more revenue. What advisors don't realize, what are
• 16:06
  the, what are the two or three biggest things to generate
• 16:09
  revenue? It's payroll tax, personal income tax and
• 16:11
  corporate tax. Got to get it from somewhere.
• 16:14
  Matt: Ted, let's, let's shift just a little bit. 100% agree
• 16:16
  there. Let's shift just a little bit for advisors listening that
• 16:19
  are still in a massive growth mode that are still they love
• 16:23
  meeting with clients. They love growing. They're adding assets
• 16:25
  in, like crazy. What should they be thinking if they're saying,
• 16:28
  like, hey, I want to grow this thing like crazy for another
• 16:30
  five or 10 years, or I want to hit, you know, I'm at 500
• 16:33
  million now. I want to hit a billion, or 2 billion or 3
• 16:35
  billion. What should they be thinking about? Right? We talked
• 16:37
  about guys like, maybe you should cash out. But guys that
• 16:40
  are still on a run like, what's the thing in there?
• 16:42
  Ted Jenkin: There are two ways to do this, and then I'm going
• 16:44
  to offer a third. Number one is, if you can acquire and you can
• 16:48
  find advisors that will sell you their practice cheap, or you're
• 16:52
  a good negotiator, and you get it before it goes to the street.
• 16:55
  I'd buy as many of them as I can. If I could buy a practice
• 16:57
  at a 2x i would buy as many as I can, because I know there's
• 17:01
  going to be automatic arbitrage for me to turn around and sell
• 17:04
  at 4x or 6x, but what I have learned is that all these
• 17:08
  acquiring companies will pay an additional value, if you will.
• 17:13
  It's more accretive if you can prove you have organic growth.
• 17:16
  So if you can prove you have a lead generation machine, which
• 17:19
  is the single toughest part of the business, you have the
• 17:23
  opportunity to get more for your practice relative than to just
• 17:26
  the numbers in the business. My last comment on this is that
• 17:30
  when you negotiate a deal, since most advisors have never done
• 17:34
  it, and I've negotiated a lot of them, it's all about filling the
• 17:37
  air in the balloon. And what I mean by that is that if you want
• 17:40
  all your cash day one, and you want to be gone on a never see
• 17:44
  you again limousine, the practice is going to be worth
• 17:47
  less, of course. But if you are a grower like you're talking
• 17:50
  about, and you said, you know, I think I can grow this thing with
• 17:52
  you, and I'm willing to bet, on my side, that I can grow by 15%
• 17:57
  a year. You might be able to add an extra two multiples to your
• 18:02
  EBITDA, but you're going to have to get the growth. So you're
• 18:06
  saying, Listen, if we make a five year deal, don't buy my
• 18:09
  practice for a 10 times cash flow. Buy it for 13, but I'm
• 18:12
  only going to get the 13 if I grow out at 15% a year. That's a
• 18:17
  way to shave some of that risk off of your own end owning the
• 18:20
  practice, and get the higher multiple on the business.
• 18:21
  Matt: And just to make sure we're not getting lost in
• 18:22
  Unknown: And that's where everyone Jarvis says, well I'm a
• 18:24
  multiples, I always say percentages with clients. You
• 18:26
  might as well say marshmallow. But let's say you've got kind of
• 18:28
  grower. Like, Well, do you call bullsh*t and put it on the line
• 18:29
  like a standard 2 million gross 1 million net practice, right?
• 18:32
  So let's just talk about the difference between a 10 EBITDA,
• 18:35
  a simple math, a 10 EBITDA on a million bucks. That's 10 million
• 18:37
  versus a 12 EBITDA as 12 million, you have $2 million
• 18:40
  potentially on the table. This is substantial money, it isn't
• 18:43
  like $12 and a steak dinner.
• 18:50
  or not? And if you can, you can get paid more money. Because
• 18:54
  what does every company want to do in any industry if they
• 18:57
  acquire a business? They want to grow.
• 18:58
  Ted Jenkin: And you're gonna get compensated along the way.
• 18:58
  Matt: They want to grow. Yeah, they're buying the future
• 18:59
  People forget when you sell and you stay, most of the
• 19:00
  compensation in the industry, and I'm being ballpark-ish with
• 19:00
  earning potential, not the past, yeah.
• 19:01
  this is gonna be between, you know, 30 and 35% right? So if
• 19:14
  you're doing a $2 million business, there's still gonna be
• 19:17
  $600,000 servicing revenue. That's there.
• 19:21
  Matt: Yeah. Ted, where do these not work? Like, you've seen a
• 19:24
  lot of these deals. Where do you talk to guys who did the sale?
• 19:28
  They're like, oh, shoot, that was not, that was not the move.
• 19:31
  Or hear of those, maybe not deals you've done, but ones you
• 19:33
  hear about?
• 19:34
  Ted Jenkin: No, I've had some deals that have gone to LOI and
• 19:36
  people backed out, right? You know? So, yeah, I've had it
• 19:39
  happen three times where they got a letter of intent, they
• 19:41
  started due diligence, and they said, I can't do this. So number
• 19:45
  one, remember this, even though about money, 51% of the deal is
• 19:51
  culture. If you don't really like your partners, it is going
• 19:55
  to be a lousy, awful, horrible deal. And that that's why you
• 19:59
  want to kick the tires on their investment management, how they
• 20:02
  do financial planning, how the senior management team
• 20:06
  philosophically, where they want to take the business. Because if
• 20:09
  you're in a massive philosophical difference on how
• 20:13
  to run the business, it is going to be an ugly, I don't care how
• 20:16
  much you got paid, you're going to hate it, even for the time
• 20:19
  that you're required to be on you're gonna hate it. Two is:
• 20:23
  the two major factors that mess up advisors are brand and money
• 20:27
  management. So you know, if you really care about your brand,
• 20:32
  don't go to a company that says you can't have your brand
• 20:35
  anymore. I ran into a situation. I'm just going to use a generic
• 20:39
  name, like Cornerstone, where they were called, like,
• 20:42
  Cornerstone Financial Partners, and the acquirer said, you now
• 20:45
  have to be the Cornerstone team. And they go, well we are
• 20:48
  Cornerstone Financial Partners. No, with us it's the Cornerstone
• 20:52
  team. And it was a battle, man, it was a battle. I'm like,
• 20:55
  really? You know? And then money management, look some advisors
• 20:59
  on here. Think that they're great at managing money and more
• 21:01
  power to you. Some advisors on here give not a hoot or a holler
• 21:05
  money, but some of the companies will tell you, keep managing it
• 21:09
  the way you're managing it. Some companies will tell you, you
• 21:12
  must use our models. Sure, and in most cases, if they're
• 21:16
  telling you, well, you can kind of do what you want, poke around
• 21:20
  and find out. Are you going to have to use their model? Because
• 21:23
  if you don't like them, that's just going to be a spiral,
• 21:26
  right? And then three, like, if you're the kind of person that
• 21:29
  you've always loved, bleeding every single expense you have in
• 21:33
  the business. You lied to the IRS probably, you probably
• 21:38
  fudged a little bit. But if your kids are on payroll, your wife
• 21:41
  was on payroll, your season tickets were on payroll.
• 21:44
  Whatever it may be, that stuff's gonna end. And having all that
• 21:49
  stuff you're not gonna be able to do, the flexibility of
• 21:52
  calling every single shot the way you want it all the time,
• 21:55
  all bad reasons to do a deal.
• 21:57
  Matt: Yeah, that makes sense, right? If you want to just kind
• 21:59
  of continue with your shenanigans. And I guess at that
• 22:01
  point you really got to own, like, all right, I'm okay. I'm
• 22:04
  doing these shenanigans, because they're costing me millions of
• 22:06
  dollars, like, literally millions of dollars. And I guess
• 22:07
  you could make that decision, but yeah, don't, don't kid
• 22:09
  yourself about your growth or your culture or your investment
• 22:12
  models, or the name on the wall. Do I really care that it says
• 22:15
  Matt, Inc, or do I care about $2 million more?
• 22:18
  Ted Jenkin: Now here's the good side of that. The good side of
• 22:20
  it is that you should really be keeping two sets of books, like,
• 22:23
  if you run QuickBooks, or whatever it may be, you have the
• 22:25
  books that you show the IRS, and then you've got to have
• 22:28
  something that's called add backs, which are all the things
• 22:30
  in the business that really belong in EBITDA. But you just
• 22:32
  kind of use the business that way. And some of them are very
• 22:34
  legitimate. Like, you have your wife on payroll. She obviously,
• 22:38
  or he is not going to be there when the sale is over. So we're
• 22:41
  going to want to add that back in. And by the way, gross is not
• 22:44
  always gross. This affects people that have a broker deal
• 22:46
  or more. If you're like an RIA, under a bigger RIA, and they're
• 22:50
  taking 10% haircut from you when you sell the business to
• 22:53
  somebody, many advisors make the mistake of showing them their
• 22:55
  PNL, which will only show 90% of the revenue, as opposed to
• 22:58
  grossing back up the real revenue in the business. So make
• 23:00
  sure you're showing somebody the real revenue in the business.
• 23:03
  Matt: to be an add-back in. So that's incredible. So any action
• 23:15
  items that come to mind, right? Just for our listeners in
• 23:16
  general, listen, this is pretty interesting. Like, what's
• 23:18
  something they could go out and do you know right away to either
• 23:20
  learn more about this or improve evaluations, anything like that.
• 23:22
  Ted Jenkin: Well, we put together something for the
• 23:24
  podcast guest today at our website, jptdpartners.com I
• 23:27
  think it's /theperfectria. I'll make sure that we have the
• 23:30
  actual link for you. We got one guide on your T minus two years
• 23:33
  checklist, all the things that you should be doing, blow by
• 23:36
  blow, step by step, whether you deal with us or not, just
• 23:39
  getting yourself prepared if you want to go to market. Doesn't
• 23:42
  mean you have to sell, doesn't mean you're going to leave the
• 23:45
  business. It's just if you want to test the market, which I
• 23:48
  think is the best business valuation you could possibly
• 23:51
  get. Let the market speak. Two I put together because I'm like
• 23:54
  you. I'm a marketer. I love the market. I put together my top 10
• 23:57
  client acquisition techniques, things that, and unusual ones,
• 24:01
  things that you may not have heard of before, that you could
• 24:04
  get from listening to the podcast that hopefully will help
• 24:07
  you drive new AUM, which for me, I consider myself to be one of
• 24:10
  the not so great money managers out there, right? You know, I,
• 24:13
  other people did that. I just happen to be a good marketer. I
• 24:16
  learned how to market and bring in lots of new AUM, which was
• 24:19
  the game, is the game and will continue to be the game.
• 24:22
  Matt: Yeah, it is, a 100%. I would add an action item on
• 24:25
  there. If you haven't, go back and listen to Ted's, Kitzes
• 24:28
  episode, right? It goes a lot deeper into your marketing, into
• 24:32
  oxygen, all the things that you've that you've built over
• 24:35
  time. And of course, I'll add my personal voucher. Ted and I've
• 24:39
  been working on some deals together, which will disclose on
• 24:43
  another day, super impressed with with everything you bring
• 24:46
  to the table. So for our listeners, remember it's not the
• 24:50
  things that you know, like you could pat yourself on the back
• 24:54
  and say, Well, my practice is now worth 10x EBITDA. No, it's
• 24:57
  what you do. But it's the things that you do that counts. Ted,
• 25:01
  thanks so much for being on the show, and until next time, happy
• 25:05
  planning. Hey, before you leave a quick word from our sponsors.
• 25:09
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• 25:23
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• 25:27
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• 25:31
  committed to tax planning.