Dr. Jeremy Weisz 16:25
You know, Brandon, what about what other mistakes do you see people making? Obviously, you know, people aren’t trekking time. Therefore, if you’re not trekking time, you can’t track the utilization, which is the like. Dan, you were saying the biggest cost that agencies have, a lot of companies have. What other mistakes or what other things are agencies not doing?
Brandon Kordower 16:49
So I think the trap that a lot of agency owners fall into is just tracking top line revenue. They just focus on revenue growth. They say, okay, well I’m at a million. I want to get to two next year. What should I do? And all they’re focused on is bringing in new revenue without looking at any of the other costs. Unfortunately, what happens as a result of that is that you may be starting from an early place, not bringing in the right kind of business, and now you’re just amplifying the issue.
So, you know, an example of this is Danny and I were talking about six months ago to a prospect, and he was doing around 5 million top line, which, you know, there’s a lot of agency owners that would be very, very happy to get to 5 million. Right. And it feels great to say I have a $5 million agency. The problem was it was a $5 million agency that was only generating a 5% profit. So he was generating 250,000in profit. Okay. But in order to fuel his growth to 5 million, he took on a lot of debt. Right. Because in his mind, it was okay.
Well, I need to fuel this revenue growth. Let me bring in this money to invest into the business to fuel my top line. And if you’re only focused on fueling the top line and you’re not watching the margin, you end up in this situation where now basically 5 million in the top line, you have 5% profit, but all that profit is just going to debt servicing. So you really have nothing to show for it at the end of the day. I see this almost daily when I’m talking to prospects. This is one of the biggest concerns that I have is that there’s this focus around I have this saying which is “revenue is vanity, profit is sanity.”
Okay. So yes, top line revenue growth is important. But if you’re not watching your profitability, along with that, you can run into significant issues. And that I would say is probably one of the biggest things I see when I’m evaluating working with agency clients. And probably 80 to 90% of those prospects I speak to are not really watching their figures. They’re not necessarily watching their utilization. They’re focused on X revenue, and I want to get to X plus Y revenue by next year.
Dr. Jeremy Weisz 19:18
I know one of the things when you’re looking at companies and you’re helping them, you have a dashboard. And you know, you have these benchmark numbers. So I do want to talk about what you look at and what you help companies look at so they can make better decisions. And I remember both of your points. I had someone on Tommy Mellow on the podcast who had A1 Garage Door, had a garage door company, and he built it into a $220 million company.
But early on the revenue was growing. But they had a bunch of locations that were not profitable, even though the revenue was growing. And I know I remember in the conversation, he’s like, he asked one of his mentors, which I do, and the person was like, just shut down. This one, this one, this one, this one, and it’s an ego hit. You know, he’s talking about it’s an ego hit. But once he did that and became even more profitable, then he can grow faster. So even though the like you said, the top line was bigger with all those other locations, but the bottom line was hurting in some of those areas.
Brandon Kordower 20:18
Well, and this happens a lot in the agency space because as an agency grows, they want to feel like, okay, I want to be full service to my clients. I want to offer a full suite of services. And so they start bringing on all these additional services without knowing, am I? Am I even profitable offering these services? Am I? Am I losing money offering these services? And so once again, it kind of goes back to why the time-tracking is so important? Because time-tracking one-on-one is yes, you should know where your staff is putting their hours into clients.
And then what I would call kind of the 201 version of time-tracking is okay, we know when we’re working on a certain client, but then what service we’re providing for that client, because you should be able to see the different suite of service offerings you’re providing, see the margin for those different service offerings to make sure that you are making the right amount of profit, because it could be that you’re losing money in certain places, but you’re continuing to double down and offer servicing that only is going to exacerbate or or hurt the issue if cash flow is an issue or if profitability is an issue. So when we’re evaluating a client, one of the first things I like to start with is, okay, are we making money doing what we’re offering now?
Because you want to start with that. Are you making the right amount of margin offering which are currently offering to your clients? Because if you’re not, we have to start with the root of the issue, because it doesn’t matter how much revenue grows, we’re only going to create a bigger and bigger issue for ourselves. So the first question is are you generating enough margin? And so what we need to do is we need to look at time-tracking data, or we need to even if the time-tracking data isn’t there. Okay. Let’s start at least with estimates. We need something to start with. And then let’s make sure we are making the right margin in this.
And you know, for a professional service business you want to have a minimum of a 60% gross margin. So gross margin is Revenue minus your direct costs. In this case, direct costs would be your. You know people’s costs and you have that number that gives you a gross profit. Gross profit divided by revenue is margin. It’s a percentage. You should be generating a minimum of a 60% margin. Ideally you try to push that to 70 or 80% because as the business grows as well, you will need to make significant investments into the organization. You will have to build a leadership team. You will have to build sales and marketing.
Your overhead costs are only going to increase, so you need more and more profit to be able to reinvest back into the agency. And so kind of step one is to make sure you are making the right amount of money offering the services you currently are. And if the answer is yes, great. Okay. Then let’s get things aligned. If it’s not, then we need to figure out how to fix the root issue, which is either the offer or there is too much time going into something, or we’re not pricing accordingly. But you start there because if you don’t address the root issue. There’s no point in, you know, cutting costs, growing revenue. You’re only going to dig yourself deeper into a hole.
Dr. Jeremy Weisz 23:28
So you mentioned one benchmark that you look at as it should be 60% gross margin or more. What else? And it’s funny because like do you step in at that point like okay, it could be an offer issue. It could be that there’s, you know, a pricing issue and you could discover that. But are you typically giving advice on that sometimes or you’re just giving the options of here’s some things to look at.
Brandon Kordower 23:57
So we are here to advise on what this is, what the information is telling us. So we are looking at the data. We are compiling the data. And this is what the data is providing to us. Now from there can we advise. Absolutely. But at the end of the day, we are not the ones running the business, right? We are the ones that are kind of compiling the data and then bringing you the facts. Right? So we are the fiduciaries that are third parties that are coming to you and say, hey, look, we’re analyzing the data and this is what the data is showing us now.
Some people choose to take that information and to make changes within the organization. I suggest using this information to run a better business. Some people don’t, and it’s not to say that the business won’t continue to grow. It’s just that here are the best practices, right? And here’s what the information is telling us. So if you’d like to follow best practices on growing your agency well based on industry experience and knowledge and the data, here are some changes that we recommend.
Daniel Simon 25:08
But if I can just add to that, I mean, we are also offering CFO advisory services. So to your question, Jeremy, you know, should a client, you know, wish to expand upon that in addition to the data, we have the ability to step in and say, let’s delve into this and find out why your gross margin is only 45% or 50%. Let’s do a little bit of homework and see what we can do to correct that. And what are the ways that we can get ourselves into a better position as far as that particular parameter is concerned? So the core business is definitely, as Brandon has highlighted, but we have that capability as well. And we have people on board who can work with clients in that respect.
Brandon Kordower 25:56
And just to, you know, give an example of why this is so important. If you have a $1 million agency that’s generating a 60% margin, and if you can move that million dollar agency from a 60% to a 70% margin, you effectively add 56% 6% increase to the bottom line. And so that and I’m sorry, not even the bottom line 56% increase in gross profit, which adds even more amplification to the bottom line. And so while some people are not liking to focus on these things because it’s not sexy, right.
They’d rather be doing client work, or they’d rather be just focusing on business development, working on these things and making sure that you are maximizing the profitability on the types of services you provide. This is the biggest lever you have in the organization to add significant profitability to the bottom line, and then you choose how you use that profitability. Do you want to take more distributions? Do you want to reinvest that back into the business? It gives you the freedom and flexibility to use it as you wish. But I really advise anyone running a business to run this business as efficiently and as profitably as possible, and then give yourself the flexibility of what you want to do with that additional money that the business is generating.
If you’re not into profit, great. Reinvest that back into the organization, into bonuses and to, you know, providing more benefits to your employees. Or if you know that you need to make sales and marketing investments great, this will give you more fuel to add to that growth, right? So there’s so many reasons why profitability should be the number one focus. And particularly when it comes to service margin that’s on the services you’re providing to your clients.
Daniel Simon 27:45
And forgive me if I can just add one more thing to that. So one of the things we often see and I just want to focus on Brandon’s, you know, reinforcement of profitability is that smaller agencies and, you know, founders of small agencies, they often come in and say, you know what? I’m not going to pay myself a market salary right now. I’m going to take 50% of what a real CEO should earn, and at the end of the day, it may boost up their profitability in the early days a little bit more. But the reality is they’re kidding themselves because that’s not the true market cost of running that business.
And so their profitability is artificially inflated in that respect. And then down the line, if you’re looking at a divestiture or an acquisition or something like that, well, any sort of company that’s going to target you is going to say, well, wait a second, Jeremy, you’ve only been paying yourself 50% of what a normal CEO. You know, I’m not gonna you know, I need to adjust the price of the company based on that because your profitability is inaccurate effectively. So I just wanted to add to that.
Dr. Jeremy Weisz 28:57
Yeah. To replace that person, especially if they’re leaving, we’re going to have to hire someone at double the potential or whatever it is.
Brandon Kordower 29:06
Yeah. And to add even one more thing. And then, Jeremy, I promise you can take over because we could all use it all day.
Dr. Jeremy Weisz 29:11
Keep going. I’ll just sit back and relax, you guys.
Brandon Kordower 29:14
No, no, because just because of how important this stuff is. Because especially what happens, especially for a very small agency where the owner of the agency is wearing many, many hats. They’ll fool themselves into thinking they’re more profitable than they are. And so they start to double down on bringing in more work. But the problem is, once they have to start replacing themselves with staff to handle that work, that’s where the profitability completely erodes.
And so just going back to making sure if you’re factoring your time into providing the service offering at what you should be charging for providing those services, are you still generating that, that 60% margin minimum? I think it’s particularly for any small agency, even if they’re a solopreneur agency that has no staff or freelancers, they should all be doing this analysis, because without this analysis, they’re not going to be able to grow a business.
Dr. Jeremy Weisz 30:09
What are some of the others? So 60% gross margin, I guess I kind of consider you. I picture you as a kind of doctor for people’s business. Like, you go to the doctor, they take the blood work and you’re like, listen, you’re pre-diabetic or whatever. You’re barely profitable or whatever the analogy is there. And like, listen, you’re going to, you know, die a slow death if you don’t exercise or start eating, right. And like, it’s kind of like, okay, pricing and offer. And they could choose to be okay.
No, you just die a slow death and not exercise or whatever it is. I mean, you give them the options or stop eating, you know, steak every single night of the week. I like steak, but it’s probably not good every single night. And that’s kind of what I visualize you doing for these. You’re bringing kind of the data. I mean, like, here’s the changes you need to make. And then you’re looking at the data obviously. So 60% gross margin is kind of a benchmark metric. What are some others?
Brandon Kordower 31:10
So Danny, do you want to?
Daniel Simon 31:13
So I’ll jump right into it. Jeremy. So simply because I’m going to follow up on what I said earlier, which is about people. Probably the biggest metric that we advise our clients on that they should be focusing on is people costs. And people’s cost is a percentage of your revenue. Now when we talk about people’s costs, people often forget what really makes up people’s costs. It’s not only the salary, it’s the tax component. It’s the IRA contributions, it’s the bonuses, it’s the medical insurance and anything that is related to our staff as a cost that an agency puts forward is related to people’s costs. And throughout my career, as I said earlier, I worked in a lot of holding companies.
But at the end of the day, the metric that has worked for agencies, small and large, is you should not really be adding more than 55% of your revenue against your as people costs, which then would leave you with the second metric, which is you can spend 25% of your revenue on all of your other costs, whether that’s travel, whether that’s meals, whether that’s training sessions, you know, subscriptions and, you know, paying for my internet and newspaper subscriptions, etc..
And so that leaves you with a 20% profit margin. And those are the metrics that we generally advise our clients on in terms of what they should be looking for. And as Brandon said, as our accountants go through and evaluate, you know, the finances of our clients and discover that the metrics don’t match up with that. Then we give them reasons as to why it should. And even in an instance where a client is at 55%, but say all of the other ancillary costs are less than 25, say they were at 15 producing a 30% profit margin.
Should you be taking that 10%? We’re not investing in the ancillary costs and putting it into people. No you shouldn’t. Okay. You should really be looking at that to reinvest in the company for growth in other areas. So it’s really important. Those are really the key metrics that you know. You know I’ve been in the marketing industry for 35 years. You know, and started a long, long time ago back in 1990. And you know, I don’t see that changing very much from the day I started until today.
Dr. Jeremy Weisz 33:59
Brandon. Anything else? And you’re in.
Brandon Kordower 34:03
So what I would emphasize about these metrics is it sounds at a basic level, it sounds like, great, I’m just going to add up my people’s costs every month. I’m going to look at my operating expenses. And the reason where we come into the picture is that you need to be looking at these things with the understanding of how much my true people cost this month. Okay, so let me give an example. If you are an agency that’s providing project based work, you don’t want to look at, what did you invoice your clients this month?
You need to look at what work was performed this month. How much revenue did we generate based on the work and services that we provided, not what our customers paid us or what we invoiced? Because if we have a very large invoice and we, you know, asked for a 50% deposit up front and we book all that revenue and it just makes us look hunky dory this month because we have all this artificial revenue. We haven’t even performed the services yet. So when you’re looking at these things, when you’re looking at revenue and your costs, you need to be looking at, okay, what was the service I provided this month?
What was my revenue I generated there, and then what was my cost on that service? Because if you’re providing direct labor, that’s for this month’s work. You can recognize that. But if you’re doing work on stuff you can’t recognize yet, well, those people’s cost shouldn’t be there. And that’s where the sophistication comes in of tracking and measuring these things. And we’re deep in spreadsheets and reconciliations, looking at time-tracking data and other data to actually correct the revenue, to say, okay, it doesn’t matter what you invoice your clients.
Here’s the actual revenue recognition this month. Here’s the actual costs. And then we trickle that down to then provide this information to say, okay, where do you go against your people cost and your operating costs. Because if you just take these metrics that we’re talking about and you’re not looking at the accounting properly, it’s not going to give you valuable information because you’re going to notice significant swings month one month, your people cost maybe 40%, but the next month it might be 80%. And you can’t run a business when you have that kind of volatility month to month.
Dr. Jeremy Weisz 36:16
I know we are going to talk about cash versus accrual on this kind of, you know, goes into that. I don’t know if you want to show we were talking about this before we hit record. And you have something I figured it’d be cool to see something visual. Do you want to bring that up and talk about it?
Brandon Kordower 36:33
Absolutely. Yeah. So here is an example of this is the same agency with the same data. It’s just how the data is presented. So on the right side we have a cash basis. And just at a high level what is the difference between cash and accrual. Cash is I am looking at my bank statements and I’m seeing money come in. I’m recording it as income. I’m seeing money leaving, and I’m recording it as an expense.
And so the problem when you’re running a business just off cash basis and this is all small businesses mostly use cash. And it’s great for getting your taxes done. It’s also great for being able to manipulate the data. Right. Because if you’re getting to the end of the year, you say, oh man, I need to ramp up my expenses so that I can reduce my, you know, what my taxable income is. And so what you end up doing is you end up skewing your financial data because you can’t really rely on that.
So what we do is we’re when you correct and put revenues and expenses in the proper place, now you go to a place where when you’re looking at accrual, now, things are tying together nicely. When your revenue is going up, so is your gross profit. And therefore your net income should also maybe be going up too, right. Those things are all aligned. Whereas on a cash basis you can see there are months where things don’t make sense. There are months where my revenue is going up, but my profit is going down.
How does that make sense? It doesn’t. Right. And so this is an example of why having proper, accurate data is so important to the decision making process for business owners, because it allows them to see the data unmanipulated. And then to determine, okay, based on what we’re seeing, how do we then what? What should we do to set a goal or to, you know, continue to enhance the business whether it’s through revenue growth, profitability, etc.?
Dr. Jeremy Weisz 38:25
What about Danny? Danny. Anything else on that on your end?
Daniel Simon 38:30
No, I think Brandon captured that really well. I think, you know, a cash basis is good for start up companies, but once you get to a certain level, you really want to go on to accrual based accounting because and, you know, do acquisitions get done by companies that are on a cash basis? I’m sure they do. I’ve never been involved in any, but I’m sure they do. But it’s going to give the acquirer a much better sense and a better understanding of the organization. When a company is doing their books on an accrual basis. So that’s all I would add to that.
Dr. Jeremy Weisz 39:07
I want to understand a little bit about why people come to you. What are the issues they’re having? And they’re, you know, an agency in government contracting. I don’t know if you want to talk about that scenario because it’s probably a common scenario.
Brandon Kordower 39:22
Yeah, yeah. So basically, you know, a lot of clients come to us when things aren’t making sense or the business isn’t doing well, or they’ve scratched their head enough to try to figure out what is the issue here. And so with this client that started with us around almost a year ago, they came to us when they thought that everything was looking great on their financials, but they saw that they had a backlog of work and they just weren’t making sense of how that reflects what’s on the financial statements. And so their cash basis showed really, really, really strong because they had all these deposits that they were recording as income.
But now they had to service all this work. And so, you know, we came in and kind of cleaned things up to give a roadmap of, okay, once we actually clean everything up, oh, we have a problem now, which is that we’re not generating enough margin in providing the work that we are. We need to make some tweaks. And so through that process of sitting down, evaluating, working with their COO, you know, really taking the time and effort to analyze this data, they’ve now been able to turn it around significantly to where.
You know, Ebit margins went from being in the red to now being above 20%. And this is what we want to see is that we’re doing this work. And then there’s actionable takeaways that companies can take in order to enhance the bottom line. If you know if we’re doing this work and then nothing’s being done from it, well, there’s much cheaper options, you know, just work with a bookkeeper alone. Right. We’re really here to help companies that are looking to, you know, that really have a growth mindset, want to take their business to the next level and understand that they need some subject matter expertise to help them get there.
Dr. Jeremy Weisz 41:12
I’m wondering if you mentioned actual takeaways, and both of you can chime in, you know, with the different metrics you’re seeing. What are some of those actions that you’ve seen agencies take. Right. So you talked about maybe changing their pricing. You’re like your pricing is too low. You’re not profitable here right. Or they changed their offer. What other actions. I imagine people have to make staff changes too based on what they’re seeing. What are some of the actions you’ve seen agencies have to take based on what you find?
Brandon Kordower 41:49
Danny, do you have any that come top of mind?
Daniel Simon 41:52
Again, I’m going to sound like a broken record, but people is the biggest one it takes. I’m a slow learner.
Dr. Jeremy Weisz 41:57
It will take me five times for you to say it, so keep repeating. I love it.
Daniel Simon 42:03
You know. I mean, the reality is, you can easily overstaff your business if you don’t have proper data and information. And if you overstaff your business, you’re going to find out about that from your numbers very, very quickly. You know, so I think that’s certainly one of them. I also remember, you know, related I suppose you asked Brandon before about why do clients come to Aura. You know, Brandon and I had a meeting sometime last year with a client that talked to us about a desire to potentially sell in X number of years.
And so we spoke with that client and the founder, and the CEO was on the call, and we asked the CEO, who was also the CFO, about the profitability of the company. And the person told us, oh, wow, we’re at zero. Every month is what they told us. Our profit is zero every month. And we said exactly zero. And they said yes. And we said, how is that possible? They said, well, whatever cash is left over, we just pay it out to ourselves. Okay. That’s not accounting. Okay. That’s not tracking the performance of your company.
And so we said, look, you’re going to have to change the way you’re looking at your company. If you’re looking at an acquisition or a sale, because no one’s going to touch you. If that’s the response that you’re going to give them in terms of how profitable your organization is. So you know that that really is something, again, you know, related to your question there, Jeremy. But for me, the biggest action is taking action on people. You know, whether it’s going from not tracking time to tracking time or tracking time, but not utilizing the data, and then really delving into the data and saying, okay, well, Danny is only 80% utilized, but he’s our key account guy.
What’s that other 20% of Danny’s time? And how can we utilize that better? Because the reality is I’m paying Danny $100 a month. Whether he produces 80% against clients or he produces 100% against clients, you know, his salary doesn’t change. It’s a fixed cost for me. And so, you know, just being able to have data at your fingertips to be able to make decisions, educated decisions and having the expertise, you know, and guidance from people at Aura to be able to, you know, direct you in the right direction, I think is really important.
Brandon Kordower 44:36
Well, and absolutely. And what I would add to that is, Jeremy, I know you and I are both members of EO or Entrepreneurs Organization, and one of the big takeaways I have gotten from EO is to think strategically. And so I think the best practices that I’ve learned through EO, I also try to instill in my clients as well, because it’s one thing to just take action or to be working in the business, and it’s a whole other thing to be working on the business, which is so important to have kind of a strategy and to constantly be thinking about tomorrow versus just being in the today. So I think when it comes to that kind of strategic advice or guidance, you know, taking what I’ve learned and being able to assist clients as well, I think has been really beneficial both for them and for me. And I know that EO has been indispensable as far as kind of help me level up as an entrepreneur as well.
Dr. Jeremy Weisz 45:38
I have a few more questions I realized were four minutes over the time. I don’t know if either of you have to go and have a meeting, but I want to be respectful of that. I knew this conversation would flow, but you know, Brandon, you know, Dan, you mentioned that when people are thinking of selling, that’s another thing that people are like, we need to get our financials in order even more because it’s going to be under magnifying glass essentially. And we were chatting before we recorded Brandon about there was an eight figure exit. They had a three year plan. And then that just required a very short phone call because of what you did. Talk a little bit about that scenario.
Brandon Kordower 46:20
Yeah. So this client came to us with the understanding that they had a 36 month exit horizon. They knew that they wanted to exit, and they knew their stuff was a mess. And they knew that going through due diligence, there’s going to be a three year look back and at a minimum, they wanted to have those things cleaned well. They were correct. Their stuff was a mess. We were able to come in and clean that up and correct it though.
And one of the things that happens by also having accuracy in your data, number one, it gives you the ability and the information to run a better business. But also when this information goes out externally, the receiving end of it, whether it’s a bank, whether it’s an investor, you know, they’re going to be able to tell right away if there’s some sophistication injected into these financials. Our chief accounting officer came from a half billion dollar company.
Right. So and all of the clients that we work with, we have what I like to call audit ready financials, meaning we’re doing supporting schedules and documentation for all of the journal entries that we’re posting. Anything that we’re booking, there’s a reconciliation or a backup to show this is why we’re making this booking. Okay. So it’s not just arbitrary entries. There’s things to tie back so we can. So somebody could follow the logic of what’s being done. And in the case of this client, sure enough, about three years later, after engaging with us, they did go into due diligence and part of due diligence was us supplying all of that, supporting documentation for every month that we were preparing the financials.
And the extent of our involvement on that exit was a one 15 minute phone call with the other side. And I’ve seen this happen many times. And the reason for this is because when they see professionalism and when they see the certain caliber of how the work is being performed, the guard comes down. Okay. They see, oh, okay, they were working with professionals that know what they’re doing. Because the reality is a lot of times they’re not used to that. They’re used to seeing, you know, lower quality work. And so they need to prod and poke at it to uncover inconsistencies.
And so it’s an investment. I like to think of us as an investment into your business, not a cost. Because whether you’re looking to increase the bottom line, whether you’re looking to get the maximum amount of value possible upon an exit one day, having your accounting done properly is going to help you in either scenario. And I think it just speaks to the importance of conveying professionalism not only to your clients, but then also to your bank and to any other third parties that are reviewing your information. You create a lot of credibility through those financial statements.
Dr. Jeremy Weisz 49:16
I’d love to talk about what you know, and you’ve seen a lot of this, both of you. Danny, you specifically in your career with the holding companies is what a potential acquirer is looking for. So they’re looking. You give them everything. What are they actually looking for?
Daniel Simon 49:35
Yeah. Great question. Well, I mean, the first thing an acquirer is going to look for is, is that business fit in with me? Is it going to fill gaps? Is it going to add something that I already have? So every company that makes an acquisition is going to have a strategy behind that acquisition. You know when you go out and you’re thinking about acquisitions, well, there are many options. You can build something internally and do it organically, or you can go out and buy it, or you can just, you know, pray that something’s just going to come along and all of a sudden things are going to change.
But when you’re looking at buying something, you know, you want to make sure that what you’re adding into your portfolio is filling gaps in what currently exists. Because if all you’re doing is duplicating what you have and not providing anything new to your offer. Then you have to question, well, why are you making that acquisition in the first place? Now, one of the reasons you might make that acquisition in that example is, and this is a rule that I always followed, is that any target company that I’m going to look at, I want to be margin accretive to my organization being the buyer of the company.
So, for example, if I’m currently looking to buy a company and my company’s at a 20% margin, and the company I’m looking at is at a 5% margin, and by combining our two companies together, I’d go down to a 10% margin. Well, is that the right business decision? You know, similar to what Brandon said earlier, you know, it may increase my revenue, but it’s certainly not increasing my profitability. So I want to make sure that I’m margin accretive. I want to make sure that the company I’m looking at is margin accretive.
I want to make sure that it’s not going to put a strain on my resources in terms of bringing them into the fold and into my organization. So I think that’s really important. As you evaluate whether or not you’re going to make an acquisition, you know, and look at a company in terms of coming on board, I think that’s really important. Brandon, I don’t know if you want to add anything on to that.
Brandon Kordower 51:50
Yeah. What I would just say too, is that, you know, the companies that bring the highest valuation are those companies that can run successfully without the owner founders involvement. And so it goes back to that, you know, your business should be generating 20%, including your cost of being within the organization, being the CEO, because really, you should be able to step back and replace yourself with a competent CEO. And it’s still a profitable company that’s generating margin. And ultimately, to the extent that you can delegate enough away within the organization so that it runs.
Every department can run without this. The founder’s involvement are those companies that bring about the largest valuation, because they understand that the business isn’t directly tied to the founder. And, you know, the business doesn’t rely on the founder. So I would say that for those agencies looking to exit, that’s an important strategic objective is to make sure, how do I have this business run successfully without my day to day involvement? And on top of that, I would say that typically, you know, multiples tend to go up around the 5 million with a million in EBITDA mark. I would say companies at that size and greater start to get larger multiples beyond, you know, 4 to 5 x of EBITDA, at least just in my experience.
Dr. Jeremy Weisz 53:18
Danny, we were talking before we hit record about, you know, you were mentioning filling gaps in strategic acquisitions. There was one Vietnam. It sounded interesting. You want to talk about that?
Daniel Simon 53:29
No. Absolutely. Yeah. So, you know, Jeremy, as you stated up front, you know, I spent 25 years of my career working in the Asia Pacific region in this industry. And, you know, we had an opportunity to sell one of our businesses in Vietnam. And actually the company that was looking to buy the business had no advertising experience, and didn’t know anything about advertising whatsoever. And so when I was sitting down with him to discuss the reason he would consider acquiring such a company, I said, you know, where are the synergies?
What’s coming up? Maybe I’m missing something. I don’t understand enough about your business, so maybe you can explain a little bit more so it will come a lot clearer. And this other company was in the distribution business and they were distributing products, you know, all over the country from, you know, small little villages to the big towns of Hanoi and Ho Chi Minh City. And, this gentleman saw tremendous synergies in terms of using advertising to promote his business, also to show his clients, because he’s working with massively huge clients.
You know, with a lot of different product lines and basically have a way into those clients to then offer marketing services as well. So, you know, this was an example of, you know, a particular acquisition or a divestiture in my case. But the company that made the acquisition, you know, came in with, in my mind, no synergies, but this gentleman who was an entrepreneur saw a tremendous number of synergies, and it ended up being very successful for him. So again, it’s a matter of thinking outside of the box and not necessarily you know, this was his gap. And this is what he felt was important to him. And so we went through and we sold the company and he did very well.
Dr. Jeremy Weisz 55:30
It’s like if it’s doing well without advertising, think of it with. And then he can offer that as a service as well.
Daniel Simon 55:34
100%.
Dr. Jeremy Weisz 55:35
Interesting. I have one last question for both of you. First of all, thanks for sharing the knowledge, the lessons, the journey. It’s always really enlightening for me to hear because this is something that is not my strength and is not something I like to do. So I like how you explain it and people can check out AuraCFO.com. As I mentioned, AuraCFO.com to learn more. My last question is just some lessons you learned from a mentor or colleague, right? And so Brandon, from your end, maybe some lessons you learned from Danny and then Danny, you could think about on your end some of your mentors, colleagues and what you’ve learned. So, Brandon.
Brandon Kordower 56:21
Well, jeez, what haven’t I learned from Danny? You know, I think Danny helped me understand the importance of processes. I think when, you know, entrepreneurs a lot of times want to be entrepreneurs because they want to throw up a middle finger to the corporate world, right? They want to say, I want to do something different. I’m going to be rock and roll. I’m going to do things a different way. But there’s a lot of great lessons that come from the corporate world. And one of those is processes and having consistency around those processes, because to the extent that an organization can create efficiencies and processes, it makes it much more scalable.
And so I would say that’s definitely one of the biggest takeaways that Danny has helped advise me in before even coming on, was to understand the importance of creating some structure and processes and how that aligns to the big picture growth and how it makes it that much easier. I’m going back to finding a niche, because when we were servicing many different industry types, well, when we would onboard a new client, we would all of a sudden now we would have to learn that new client’s ways, how that accounting type and oh, okay. Do we have somebody on the team that has expertise in that type of accounting? Now working with agencies, everybody on the team is an agency expert at this point. And so we have the processes down so that it makes it much easier for us to onboard new clients and for us to grow as an organization.
So what I love about the agency world, even, is that professional services are the same. Whether you’re an accounting firm, an agency, a you know, an architect or an engineer. There’s a lot of great lessons and takeaways, and I’m constantly learning new things as I listen to agency podcasts and go to conferences such as Elevate, where, you know, you and I met in person. Jeremy, I’m mentioning Jason again. You know, I think this idea of, like, leveling up, getting this information and then. But using it. Right, it’s one thing to go and to take it all down and to write it on a notepad and never look at it again. It’s another to actually sit down and now start to execute on some of the lessons learned.
Dr. Jeremy Weisz 58:37
I love it. Danny, what about you?
Daniel Simon 58:40
Yeah, I had to think about this. And the only thing that comes to mind is that when I was first asked to move to Hong Kong, I was living in New York, working in the advertising industry, and my boss said, hey, guess what? You’re going to go run Asia Pacific for the company and live in Hong Kong. And you know, this, this was my mentor. This was the guy who taught me everything I know, you know, to date in this industry. And my biggest concern was that while I was a good accountant, I probably wasn’t the best accountant. Okay. But I knew what I was doing, and I said, you know, okay, boss, you know, you know, this is my concern.
He said, don’t worry about that. He said, the reason I’m sending you over there is because you have an incredibly sharp business mind, and you know how to look at things, you know, outside of the numbers and then combine them together with the numbers, okay? And that’s what I thrive on. And it’s funny, you mentioned at the outset of our discussion today about my background. So both of my parents were school teachers, and they told me to never follow in their footsteps simply because I would never make any money. And I listened to them. But at the same time, I like to sell myself as a financial executive with the heart of a schoolteacher, because I was raised by two school teachers.
And, you know, I really understand. And, you know, it’s not just about the numbers, it’s about understanding people and understanding what makes organizations tick. And again, for the last time on this podcast, I’m going to talk about people. People are our biggest asset in this industry. And if you don’t understand people and you don’t have an open mind to be able to have open discussions and really listen, you know it, then then you won’t succeed. So I succeeded in my job because of that mentor and really believing in me. And ironically, I built up my accounting skills from good to better and better and better, you know, over the years. So that would be the story that I’d leave you with Jeremy.
Dr. Jeremy Weisz 1:00:41
I love it, first of all, thank you both. Everyone check out AuraCFO.com to learn more and we’ll see everyone next time. Thanks everyone.
Daniel Simon 1:00:50
Thank you.
Brandon Kordower 1:00:51
Thanks, Jeremy.
