Acquisitions Anonymous - #1 for business buying, selling and operating - I bought a business. Now what? Learn with us from an expert - e67

Episode Date: February 11, 2022

This episode is a short session with Dzmitry Miranovich (Twitter: @dzmitry9), he is Co-Founder at Associated Veterinary Partners, which is a roll-up of vet clinics.We talk about Dos and Don'ts when acquiring a new business and first stepsWe'd love your feedback on this episode!-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right, welcome back to Acquisitions Anonymous, the internet's number one podcast about small business acquisitions and now also operations. We are excited to try some new formats of content based on what we've heard from our listeners. One of the things we've heard is, hey, help us with doing some of the operational stuff, especially post-integration. Help us figure out how to do that better, right? Like, that's a very scary time. You've bought a business. What do we do? So we put our heads together.

we also went and found somebody who's done it a bunch, both in his previous career and what he's doing now. Dmitri Mironovich, who you guys should know as a friend of the pod, has been on here before and is sporting an amazing baseball cap today, which maybe we should get baseball caps, Bill. Yes. Really up our swag game. It would help for those with no hair, meaning me. But, Dimitri, like, super excited to have you here. People probably have heard your episode with us before. I think you, me, and Mills talked about rolling up and buying a veteran.

practices, which is much more interesting than maybe at first glance, people think. It's a really fascinating thing. But we're so excited to have you today and kind of talk through this topic of, I bought a business like, now what? How do I make sure I know what screw it up? So thanks for being here. Yeah, no, of course. Thanks, guys.

Michael Bill, it's great chatting with you again. I guess I can start and then open to any questions and sort of take it into any direction. Yeah. I guess the first thing that I would say is before we get into the, post-acquisition integration, I think you should have a game plan ahead of time. Like, what is it that you're actually going to do? And some of those things you should front run ahead of time. And the reason I'm saying that is because the day you close in the business,

like the time clock is ticking and you'll have a lot in your hands and you might feel overwhelmed. And there are certain things that you can do ahead of time. Like two things that specifically come to mind, the two things that we're We always try to frontrun in our business right now, our InVet Clinics is number one is making sure your bank account is set up, like set up bank account, get the credit card, and keep in mind for that, you'll need your federal ID, you'll need your entities form ahead of time as well.

Get void check. That's something that vendors might require and also your payroll provider might require. Get the void check, get the debit card, get the credit card. basically have everything bank account related, set up something else that we've experienced a few times is that some of the smaller banks, and you might end up using one because you are in the middle of nowhere and there's just no chase or Bank of America, you're sort of regular, perhaps, banker or like bank. Some of the smaller banks have very convoluted processes around

getting you approvals to use wire transfers and ACH transfers. And so make sure, you ask ahead of time that, you know, the first deal that we've done, like, I had no idea and turned out that, you know, our bank was just not set up to do wire transfers the day of when we're supposed to wire funds. And so it's just something to know and something to front run. And then the other big keys that you should front run is anything related to vendor change form. So you'll find out that a lot of vendors specifically, it could be your, if you're doing So if you're doing an equity deal, I think that's a separate story. And chances are you're not going to need any of that.

But if you're doing an asset deal, which is, I assume most of the deals that are sort of done in the SMB space or micropriot equity space, if you're doing an asset deal, most of the vendors, or like some of the vendors might require you to fill out a change of control form or change of ownership form, you might also be asked to do the same by your merchant processor, i.e. the company that takes credit processes, credit card transactions for you. And those change forms could take weeks to be approved. And so it is something that we honestly, one way or another struggle each time we do a deal.

And so just asking the seller, what are the key vendors, what are the key contracts, who is the merchant, or reaching out to them ahead of time. You might have to ask the seller to reach out because they might not want to talk to you if you're not the legal owner, getting those forms ahead of time,

stealing those forms out, and then signing them, having the seller sign them, I think will save you a ton of headache post-closing. So it seems like, I mean, you just spout it off like 14 things, and I'm not a detailed person. So maybe that's why they don't ask me to do post-merger integration.

But, like, what mechanism are you using to, like, track all this stuff because you're a serial acquirer. Yep. Like, do you have a master list that you're using or like, and where did you get that list? Did that come from, you know, a lawyer, a book? How do people kind of have that checklist of exhaustive like, oh, I need to worry about all of these things from vendor contracts to whatever? So we do have a list.

So we use Notion for that, by the way, highly recommend. You know, it's, I can't remember it's maybe 10 bucks a month for the corporate subscription or even maybe less than that, or I think it's like 50 bucks for a personal subscription, or 50 bucks a year. Notion is great. It's, you know, let's set up tasks list and task lists and things like that.

You can use whatever you want. But point being is that we have a checklist and we assign certain tasks to certain individuals. And you're right. So we have a list of tasks that have to be completed pre-closing. and then we have a list of tasks that have to be completed post-clothing. And we essentially have a template set up in each time we sign a new LOI, we dupe that template into a new task for a new deal,

and then it populates an our to-do list with the team. It assigns tasks automatically, and then we follow that time, sorry, we follow that template based on our timeline. So yeah, as far as how, where that list, came from. I mean, you know, when we started doing it, I mean, I asked our lawyer to send a list. I asked a couple of buddies to send me their lists. I, you know, recalled a few things from memory from my past job. And you also learn as you do those, I guess, back to back, you also learn things. And then so this list, you know, it's been increasing or like it's been growing and

it's actually been contracting because we found out that certain tasks are actually not necessary. and certain things are just very low value ad. But yes, I think you should have a structure in place because otherwise you'll inevitably forget. I would also highly recommend it's sort of technical, but I would highly recommend being able to take notes next to each task. So not just having a sort of checkmark done, but having some sort of process of where you're able to take notes

because you'll want to come back and take a look at those tasks later on and see what was done. And I would do the same, for example, by the way, for the diligence list. So we use the same process for diligence lists. And so being able to take notes and then come back because inevitably, inevitably, you'll forget and then inevitably you'll have questions about what you've done. Pretty close. Yeah. I think doing this, this is one of those areas where if you do multiple deals, you really do get a lot better because you snug your toe a bunch of times on stuff that you fail to integrate properly. Yeah. One thing we learned back to your point about financial infrastructure was that payment processing accounts, credit card processing accounts, are typically personally guaranteed by the owner, which means they do not transfer.

Which means, and also which means they have to be underwritten typically. So you can't just like open a payment. I mean, Stripe is sometimes a little different, but a lot of traditional payment processors will not open a credit card processing account like on the phone in real time. So the first business we bought, the seller was like, piping me money for a month because we weren't set up to process credit card transactions that close. This all actually gets worse when you start to enlist foreign accounts as well. So we bought a software company in the UK and it took us almost two months to get access to our money. And so, you know, all that kind of stuff happens as well. But, you know, so let's say I'm a new, I'm a new acquirer, and this is my first time to get a list. It sounds like, how do I put together kind of that, oh, my God, I don't want to screw this up, list of stuff.

Go ask, it sounds like, Demetri, you went and asked everybody you knew. I assume in the books, there's some starter lists as well, Brent Boucher's book and stuff like that. I can't remember it specifically, but I think it might have had a list in there. Those are places, the HBR book about acquisitions. Is that the strategy? Yeah, I think so. You can also go on SearchFunder, and there are a few sort of diligence lists floating around

and integration lists floating around. I think it's a good starting point. I would caveat, though, you would have to, so it's a personalize a list for a given industry because there are a lot of nuances for specific industries. And then I think once you start as a generic list, I mean, assuming most people are looking to make one acquisition, they're not looking to, you know, roll up in industry. because the two obviously very different. But as you're working through your first acquisition or your only acquisition,

I think you'll get smarter along the way and you'll have questions pop in your head. And so you need to start somewhere and I would also recommend collecting a few different lists. So your lawyers would have a list too or they should have a list. And I think their lists would be focused, you know, would have a bit of a different focus, right? they would be focused in regulatory environment and liabilities and things like that. And so I think a lot of that stuff is very useful and a lot of that stuff is overlooked and sort of traditional diligence list. Well, I would add, I did that exact same thing the first time I bought a business and the lawyers and the accountants gave me like a hundred page list. And like you learn pretty quickly like there's about 93 pages of that that doesn't matter at all.

Right. And future sellers appreciated that. the first seller was pretty happy with me. So let's transition bits. I want to add just one more thing as far as how to make a list. As you said, Michael, you get a list. It's like a million miles long. One thing that I find to cull it is start with the credit card statement, basically

follow the money, because everything that they pay for has to be transitioned, right? Because if they're paying for it, their name's probably on it. Your credit card's got to go on that account. And it's probably kind of critical to the operations of the business. So if they're paying for it, that kind of tells you what the business is running on. And then similarly, if they're getting paid by it, same thing, a credit card processor, key customers, as you mentioned, Dimitri, et cetera. So if you want a place to start, start with the money flows in and out for places to transition.

Yeah, I love it. Well, cool. So, Dimitri, in the prep for today, the second thing kind of bucket you talked about is, like, you talked about the process of starting on the right foot, right, in terms of having a good day, one meeting with the new folks. And then the second bucket was you just talked about, like, okay, in most of these businesses, the number one asset that you have is the knowledge in the people's heads and they go home every day and you hope they come back the next day. So let's maybe talk a bit about how you think about those two things and how acquirers should think

about starting off on the right foot and then also retaining the people that you want to keep. Yeah, so I think first of all, you should have conversations with all the key employees before you walk into the doors. So the way we do it is essentially we speak with the seller. Typically, sellers stays with us. In our case, seller is typically one of the veterinarians of the clinic. But we also want to chat as the practice manager with maybe key surgery technician, some of the other associates veterinarians in the clinic.

Basically, everyone who we think is a key employee, like we want to chat with them before closing beforehand. And it doesn't have to be a lengthy conversation, just needs to be, you know, a 10-minute chat where you make them realize that they're important to you, right? And you care about them and you want them to stay, right, to be there. And so I think that sets a good precedent. Now, when you walk into the doors day one and to make a presentation, you know, we try to keep it certify a level. we just, you know, present, you know, who we, who we are, what we're going to do. My advice or like my number one advice is to is not, I guess my number one advice is to try

not to promise anything specific and also try not to promise that, you know, some people go in and say nothing will change. I mean, inevitably something will change, right? And so, and people will haunt you for that. And so I think just saying somewhat generic and vague is helpful. I mean, you want to be positive, right? And you hopefully believe that, you know, assuming you're not in the business of acquiring distressed assets, which is a whole separate store, right?

Assuming you're acquiring a performing going concerned business, then, you know, you should be positive, right? Like, you should be excited about growth. You should be excited a lot about opportunities. and you want them to be excited as well. You know, we kind of gently imply that they will be changes. We do promise that we're not going to cut people and things like that. But, you know, we don't make sort of blank statement of, you know, nothing is going to change.

Something else that we do. We do a lunch for the team the day we come into the doors. You know, it's a small thing. It's a very easy thing to arrange. but I think it's quite impactful. And we try to chat about just, you know, life and things. And so try to make it personal. We try to, we also something else that we do that I think

differentiates us from other buyers in the industry. We look very non-corporate. So, you know, we're like a group of people wearing sneakers, jeans, you know, T-shirts, maybe polos, but like very informal. I mean, we'll look proper, right? but we're not wearing suits and ties and buttoned-down shirts. And I think that enables us to relate closer to the demographic that we're talking to. Michael, I think you're going to ask some kind of people transition things for my end.

Yeah, yeah, I was curious if you've gone through anything in your career. Yeah. So, you know, typically when you buy a business, very often the people assets are critical. And if those people assets, there's a window, right? because you buy that business and you have all the financial risk, but you don't know anything. So the only people that know anything are the people that work there and your fate is in their hands. So I have always been pretty aggressive with financial incentives. In addition to Demetri, everything you mentioned, I thought was great advice about being personally relatable.

We have always come in with kind of a, we're so glad to meet you guys. We're so excited you're here. and as an indication of how excited we are that you're here, we want to give you guys all $1,000 or $500 or something like that as just like a welcome bonus, and then we hang another $1,000 or $500 or something out there 90 days later, assuming you're still employed, which is not a lot of money in the grand scheme of the acquisition, typically, because there's simply not a lot of employees.

So pick the number that works for you, acquire, but something to say, hey, we're glad we're here. Like, we're not going to fire you. We just gave you a bonus, right? That doesn't compute, right? And then also, please don't go looking for a job. You know, I really need your help. Stick around for 90 days, you know, or six months or whatever you deem.

But it's very cheap insurance. And for the key employees, I would make the numbers too big to deny. I mean, like, I have offered, you know, half a year of salary for a stay bonus for a really important person. for like six to 12 months, like stick around and you're going to get, you know, tens of thousands of dollars. And it was worth every freaking penny. Yeah. And I've seen where that for the right acquiring team, like the team on the inquire side,

who builds relationships with the employees and the owners during the courting process prior to closing, I've seen to where they, you know, if they're really good at it, they can start to win over the team even before the deal happens, right? especially when you're going in and doing diligence and talking to different people, especially if they're in the ring of trust for the owner. Even so far where I've seen some deals where the team was so good and trustworthy and so genuine when they went in, that the team was telling the acquirer stuff that, like, in retrospect, the seller was like, you knew that? Like, they told you that.

It's because, you know, they actually had already mentally joined the team of the acquirer before the transaction even happened. And so you going in and being like a genuine nice person, you know, both pre and post acquisition and caring about them as people, like especially if the atmosphere and environment they're in right now is bad, like it can make you money. So it's a solid thing to do. Yeah. And we try to meet with key stakeholders. It depends sometimes like two weeks to four weeks before closing. So for example, we're hopefully closing an acquisition about the months.

And my co-founder, Dr. Bill, just went to the clinic. Matt was all the associates. Matt was the seller. And actually received an inbound request or like inbound interest from some of them to co-invest with us and to buy the clinic alongside with us. So that just speaks to, I think what Bill mentioned, like, you know, you're trying to build those relationships. I also would say that it's super important to identify the key point person.

for the integration to come post-closing because what we found out is that there'll be a lot of requests and some of them will be small, some of them will be very significant. But you need to have one dedicated person to chase those requests for you. It could be the salary of the sellers stays with you in the business, but oftentimes, you know, salary is either checked out or seller's time is extremely valuable. So in our case, you know, doctors, you know, their time is extremely valuable and they're not always the most just organized throughout the day just because they have cases coming

out, you know, emergencies, things like that. And so having a dedicated person, whoever that is is extremely important. And I think it's worth chatting with the person ahead of closing or in the closing day about the expectations for them being that key sort of

point person for the coming, you know, months, two, three months and so forth. So how do you think about when is the right time to, especially if you're acquiring the business into an existing business, when is the right time to start rolling out changes, like the integrations you want to have, new software systems that you're using,

new processes and procedures, there's a yin and yang there, right? Change is gonna hurt morale, but it's also gonna help make everybody more successful. So how do you think about that, both in your specific instance and then I think also in general? Yeah, I think some changes have to happen day one. Otherwise, it just becomes incredibly painful.

So specifically HRS, if you're using one, you need to take over day one. So everything payroll benefits related. You need to take over day one. You need to onboard all the employees. You need to collect their I-9s. You need to essentially hire them into the new entity. If this is an asset deal and there's a new legal entity, that has to happen on day one. Something else that needs to happen day one is basically your accounting system, right?

Like you don't necessarily need to train the team to use your accounting system, if it's a new system or whatnot. But you need to make a point that, okay, day one, we're using the new accounting system, meaning that if you used to input transactions into QuickBooks and now, you know, stop doing that, stop, you know, either send them to us to record into our accounting system or if you're familiar with our accounting system, we'll start, you know, we'll enable you to start doing that day one. Because otherwise it just becomes painful.

I mean, everything else, we take a gradual approach. Like, for example, we space our visits. So day one, we have two people going in, and then a few weeks later, we have our practice management officer going in. And so he trains the team on what we call a managerial checklist, essentially things that we want the team to do on a daily basis or weekly basis. And so we space those things out. But, you know, I wouldn't make all the changes they want, but certain things have to happen to Taiwan, just because otherwise it's going to be incredibly painful.

Yeah. All right. I usually try to drop, like, one or two growth-oriented things. Like, I know you guys have been wanting to, you know, release new products. One of the things we're really excited about is to bring the resources to launch new products. You know, so I typically try to drop, like, one or two, the constraints are off thing. something you learned during diligence that you know they should do, they probably know they should do, and now you're going to be able to do, I just drop like one or two of those and leave it at that

for a couple weeks so they can get fired up. And then a couple weeks in, you start rolling out the ones that might make them a little bit more uncomfortable. Yeah, that's a good one. Yeah, it's always good to earn goodwill first and make their lives easier a little bit at first, and then you're able to ask them to do more things. Yeah. That's great. All right. Anything else we missed on this topic?

I think I feel better about my ability to integrate stuff, which is make sure somebody else does it. Why you trust the other person? I would be fine the first time. Second time, maybe somebody. Make sure you do not touch your P day one. Just don't. Make sure you don't want.

Make sure you do not. touch the ERP day one. Fair, or maybe even day 90. Yes. ERPs break businesses. Just be extremely careful with the ERP. And if you want to implement the new ERP, you know, roll out your own ERP,

whatever you want to do or change the existing ERP, just be extremely, extremely cautious. Because if you botch something, you could literally destroy your business for a period of time. Well, I think that's a really good point, Dimitri, because having done several ERP integrations in jailhouse, the key to a successful one is understanding the business backwards and forwards. Like all of the different ways the business touches the ERP and what it needs to do, all ERPs are pretty customizable. They have to be customized.

So if you're a new acquirer, you don't understand the business well enough on day one or probably even on day 90. or I would wait a whole year. I mean, like, you've got to understand the intricacies of how this business runs before you touch the ERP. Yeah. And if you're a serial acquirer, it's almost easier to build some sort of mid-layer, either software or even manual process whereby someone takes data from that one ERP and then makes it comparable to data from your other, you know,

businesses, clinics, whatever you own, and just kind of do that. that for the time being. I think that's a, that's an immediate solution you could implement. It requires people hours, but it's not that bad usually. And then that obviously doesn't risk, you know, destroying your business.

That's great. All right. I think we did great on this one, and we will click stop. And thanks everybody for joining us this week. Hopefully you learned something I definitely did about how to do this post-merger, post-acquisition integration better. So thanks guys. Thanks, Dimitri. Thanks guys. Good chatting.