M&A Focused CPA

Thinking about buying a business? Take this quiz to determine if you're ready to smash the deal making process!

https://mark-s4jnnpay.scoreapp.com/

Industry Selection for Acquisition Entrepreneurs

I boiled 100+ acquisitions and 500 client engagements into a few simple frameworks for starting your search.

Here’s what the acquisition influencers won’t teach you: how to pick the right industry. 🧵


First, why should I care about the industry that I buy in? Shouldn't I just look at cash flow?

WRONG! Your industry will make or break your life for the next several decades. And if you buy in the wrong one, the business might just eat you alive.

Warren Buffett once said, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact".

And worse yet, you probably haven't proven your brilliance yet lol

I use this 4 step process to analyze industries with my clients:

1. Industry Revenue Matrix
2. Industry Production Matrix
3. Hard Filters (deal killers)
4. Thesis Buildout (how you’ll create value)

Here's how to use each one


1. Industry Revenue Matrix

I look at an industry's revenue breakdown on a 2x2 matrix:

Customer type and Service vs. Product Focus

Which matrix is the best for acquisitions?

That's a loaded question, but here's the variables that you must understand will change across these profiles:
 [img:MaNbqbIQQ]


Customer Acquisition Strategy: Depending on who your customer is and what they're buying, the method for how you find them will change. Hint: You want a client base that values a brand and quality, not a low cost producer.

Talent Recruitment: Depending on whether you are tethered locally or free to hire anywhere, your recruitment process will vary dramatically. HINT: I talk to tons of operators who's biggest struggle is that they cannot find good talent in their market. This is a do or die topic.

Offer positioning: Every industry presents opportunities for niches, but some are more valuable than others. Typically.. there's more upside in a brand in a high ticket, high stakes service like CPA services vs. selling Iphone cases.


2. To the point of talent and offers, you gotta think about who's doing the work and where.. Use this framework to map that out:

 [img:Xnr5774qL]


Here's a combination of the two frameworks slapped together.

In general... I like these characteristics the most (more on why later):

1. Skilled labor over unskilled
2. Local over global
3. B2B over B2C
4. Services over Products
 [img:9uFMmOfUX]


3. Hard Filters

These are things you should almost always avoid as an acquisition entrepreneur. 

A) Operating leverage: High fixed costs in proportion to variable costs is a major risk for a debt fueled acquisition. If your sales volumes drop (which they will at some point), your at risk of imminent death. Examples of companies with large operating leverage: restaurants & gyms. Big fixed rent, utilities, and payroll. Small ticket items with tiny variable costs and slivers of profit per sale.

B) Operating Complexity: Every business has some complexity, but how much? Watch your revenue per employee. As rev per employee trends down, its a signal that more coordination, hiring, training, firing, and babysitting is required. I work w one company that has a revenue per head of less than 15K. Take a guess at how much hair the COO has left on his head.

C) CapEx: Similar bucket to operating leverage, but you won't see it in your EBITDA analysis.. businesses that need constant equipment maintenance and replacements just to live are brutal for leveraged acquisitions. It'll eat up whats left of your free cash.

D) Cost-focused auction markets: In every industry, customers can get multiple quotes from vendors. But some industries have formal bidding processes where you are filling in your customers application form... if you're acquisition target has a whole estimating team to submit bids just to keep revenue steady, avoid.

E) Cyclicality & seasonality: These are both keywords for "sometimes, we go long periods of time without making any money". Seasonality for months out of a year. Cyclicality for years out of a decade. Cyclicality is a major no no for debt based buys. Seasonality can be planned for. but plan well.


Step 4: Thesis build out

How are you, Mr. Searcher, going to add value to this little fax machine driven shop you intend to acquire?

If you said replace the fax machine and turn on google ads, you need a friend to talk to. And that friend is me.

Use these frameworks to think about value add acquisition concepts:


Industry-level theses to think about:
• Apply tech/automation
• Apply AI
• Use global talent
• New delivery structure (pods)
• New talent injections (A-players)
• New customer acquisition engine

Deal-specific theses to model:
• Pricing (menu, floor, indexing)
• Cross-sell / upsell paths
• Working capital unlocks (terms, deposits, inventory turns)
• Overhead reduction (rare—assume less than you hope)


Recap: Pick a quadrant you like, confirm the production reality, run it through the hard filters, then write a thesis that changes the unit economics (not just “grow sales”).

Just make sure you know your industry well before you assume you can make these changes.

Great acquisitions are picked before the LOI. Choose industries where the economics favor you and the filters don’t fight you—and where your thesis is obvious, testable, and cash-visible. Save this thread!



Hey, thanks for your interest in the template!

Use this link to get the Builders Compounding Template 👇

https://exceptional-builder-3193.ck.page/460c499155

Want to learn more about financial frameworks for holding companies? Sign up for my newsletter!

https://exceptional-builder-3193.ck.page/0c42d61bb0

Building Compound Wealth

I talk a lot here about financial planning for SMBs, acquisitions, and taxes.

Here's how I plan to use my toolkit to build a $25M+ net worth in the next 10 years (template at the end for you to model this for your self):


 My wealth-building strategy has 5 pillars

1. Distribution
2. Acquisitions
3. Leverage (responsibly used)
4. Systems thinking
5. Tax efficiency

Let's dive into each component (the order is important)


1. Distribution

Distribution is without a doubt the most important lever of the 5 listed. Without it, everything else is more difficult.

In a little less than 600 days, I've built a distribution asset with more than 11.4K followers in it. Why is this important?


The distribution network empowers everything else that I'm doing. Whether that be:

- Finding clients ✅
- Finding business partners (@smbtaxattorney ✅)
- Finding acquisition targets
- Finding coaches (@pinpulleddrmf) , mentors, and friends


But that's not all. Here's why distribution is even more powerful than that

Every time I add an asset to my personal balance sheet, the inherent value of the distribution network grows


I have one business that's well on its way to 1M ARR in less than 2 years (this started with no book of business. launched from scratch in my apartment in October '22 with no clients)

What if I acquire another biz that I can funnel clients to? The value of distribution doubles!


If you don't believe me, ask @sweatystartup distribution is a force multiplier

Many business titans have known this for centuries


2. Acquisitions

Starting businesses from scratch is fun and can be cheaper than buying businesses, but buying great business assets at fair prices is extremely effective for building wealth.

Some old guy named Warren figured it out a while ago. 


The main thing to remember when executing acquisitions is that you should stick to your zone of competence.

Ed Thorpe called this playing games where you have an edge.


For me, this will be professional service businesses. Companies on my target list (in priority order)

- CPA / bookkeeping
- IT/technology consulting
- marketing 
- financial planning
- Property mgmt


The main goal is growing Builders CPA. But over time we want to serve our ideal client in multiple areas.

Here's how the value creation looks excluding any leverage or organic growth

 [img:x8mMxFBZ7]


3. Leverage

Leverage can have a meaningful impact on returns over time. It can also be incredibly destructive.

I plan to use a modest amount of leverage to fund acquisitions without requiring massive dilution of ownership and control


Here's what the prior plan looks like if I use 50% equity and 50% debt. Because I'm using modest leverage, DSCR never dips below 3.5. For simplicity, this is using 10 year amort and 10% interest 
[img:56Pm4ybRQ]


If I can assume a 5X EBITDA valuation in 10 years, the multiple on equity invested is over 3X. 

This is with some modest multiple expansion and no organic earnings growth.


4. Systems thinking

Systems thinking is a necessity for anyone growing wealth through small businesses. You don't have the luxury of passive involvement that you get from stock investing.

Even if you're not doing all the work, you must design systems to execute every phase



 Agile Method

As I attempt to remove myself from billable work in the CPA firm to focus on more strategy, this is just one example of a system I put in place. It's from the Agile method and it's called a scrum. I picked it up from my Big 4 days

 [img:rZ_eJEGE1]


Why? To visualize the team's open tasks, understand capacity, and prioritization

My manager and I will review this every week. She will go over key items with staff to ensure there are no blockers and that everyone understands their assignment\


These systems will become the bedrock of the organization as we scale from less than 1M revenue to 10M+

The goal is to have methods to ensure every person knows what they're doing, why they're doing it, and when it should be done (and in what order)


5. Tax Efficiency

This thread wouldn't be truly fun if we didn't put a little tax talk in.

Let's talk about the simple but effective tactics I'm using to compound wealth efficiently.


6. Entity selection

Entity selection is the foundation of tax planning for SMBs.

I'm going to show you what I call the "CSP" method. It's a twist on holding companies that group business activities into portfolios that share favorable tax attributes


By the way shoutout to @smbtaxattorney for making this strategy abundantly clear to me. Hit us up if you want to do something similar!


What does CSP stand for?

C-Corporation
S-Corporation
Partnership

At a basic level, these are the 3 entity types that you can bucket your business interests into to.


C-corporations

Any biz that will RETAIN and DEPLOY earnings for a long period should be held under a C-corp.

This is because Federal tax rates for C-corps are 16% lower than the pass-through rate top bracket.

I'll be using a C-corp for acquisitions to redeploy cash


BONUS: If I decide to divest, I'll qualify for QSBS under the C corp. Although I'm not selling much anytime soon!


S-corporations

S corps are great for service entities. If you have a shared service/management arm that charges fees to your portfolio companies, an S corp is ideal because you'll avoid dividends on this distributable cash.


I'll be using an S corp entity to charge management fees to my Op Co's for services performed by me and my shared service team

Between sales & marketing services and accounting/CFO services, I'll pay about 15% of earnings from the C corps into the S mgmt corp 



NOTE: This needs to be for real services at fair market value, otherwise it could be scrutinized as a dividend from the C corp


Partnerships (disregarded entities)

Partnerships are best for complex operating agreements and real estate investments.

DO NOT use S corps for real estate activities. The loss limitation rules, single stock class rules, and others make it a terrible RE vehicle.


Disregarded entities for real estate are a beautiful thing because, with the right types of debt and accelerated depreciation, I'll be passing tax losses to my tax return to offset pass-through income from the S corp


NOTE: This doesn't work without one spouse being a qualified RE pro. 

I won't be deploying this strategy until I have that piece locked down (more on this later)


So over the next 10 years, the plan is:

- Use distribution assets to build wealth in an SMB holding corp
- Mix organic growth w acquisitions using modest leverage
- Prevent compound wealth from becoming a compound headache w/ systems
- Use tax efficiency to increase what I keep


If you want to do the same, shoot me a DM!

I help acquisition entrepreneurs compound wealth using these tactics.

If you want the spreadsheet I used to build this plan, RT the top tweet and comment "Compounding"

https://twitter.com/BoilerPlateCPA/status/1758248073782788344

@BoilerPlateCPA's Latest X Threads

Read threads by M&A Focused CPA and get notified about future ones.

Industry Selection for Acquisition Entrepreneurs

Building Compound Wealth