We are back talking to Edward Chan from Chan & Naylor Accountants. Ed regularly contributes to many widely read magazines and publications across Australia and speaks on Best Practice Methodologies to build a successful business. In this concluding episode, we continue looking at growing your business through joint ventures and acquisitions. Ed provides some strategies to avoid problems on consolidation, and the steps you can take to make your business work without you. You really don’t want to miss this gem!!
- The importance of knowing who you are in a business relationship with
- Ed’s strategy on how to avoid problems on consolidation
- The difference between a joint venture model and a franchise model
- Having your business work without you
- How the joint venture partnership growth model started
- The end game for Edward Chan
- How to reach Wize Mentoring
Welcome back to our discussion with Edward Chan, an expert on tax who and a keynote speaker in many property seminars around Australia. Ed shares valuable insight into how you approach an acquisition or joint venture partnership even when you don’t have a lot of money on your side. Then for the accountants out there he discusses his involvement in Wize Mentoring and regales us with the lessons he has learned, relevant to accounting practices and all other businesses looking to grow.
Note: This has been automatically transcribed so will be full of errors! We are not providing it to you as a word-perfect version of the podcast but just as an easy way to provide you with a different way to be able to see or scan what kind of information that might be relevant to you if you are the kind of person that likes a transcript.
Joanna: Hi, it’s Joanna. Oakey here and welcome back to The Deal Room Podcast, a podcast proudly brought to you by our commercial legal practice Aspect legal. Now, today, we have part two about two part series talking all about the difference between joint ventures and mergers and acquisitions in growing a business. And in order to talk about this, we have onboard the fabulous Ed Chan from Chan and Naylor, who is also now co-founded the accounting consultancy Wize Mentoring for accountants, but also potentially relevant to businesses outside of accounting practices. Now, if you haven’t heard part one, I strongly, strongly recommend you go back and have a listen to that, because that really paves the way for the discussion today, in part two which is a follow on in looking at the difference between mergers and acquisitions and joint ventures. So in this two-part series, we’re really diving deep into the opportunity in Joint Ventures, which is a slightly different proposition to the usual course of events that we think about in terms of mergers and acquisitions. And so in this discussion, we’re really digging deep into the model that Chan and Naylor had used over the past many decades to grow their accounting practice. And we’re taking some of those elements and looking deeply at how you can apply them in your business. So we look at the difference between mergers and acquisitions and joint ventures. We looked at why corporate models are better than partnership models and we dug into what that actually even means. We looked at some of the tips and tricks if you were looking at undergoing joint venture relationships. So being clear about who’s responsible, looking at the different variations of joint ventures and how you can set yourself up for success. Today, we’re looking a lot further at how to avoid problems in consolidation, how to make sure you’re bringing value to the relationship and how a joint venture model is different to a franchise model. Ultimately, we’re looking at how you can use these strategies to create a business that can work without you. So as I said, if you haven’t heard part one, I highly recommend you start off by going back and listening to that. That was the last episode released just before this episode. But if you have then sit back, relax and let’s get stuck into part two of our discussion with Ed Chan, all about joint ventures.
Joanna: And so now, you know, taking you into what you do today. And I love that. What a great idea is spending, you know, 12 months together and actually, there’s an element of this that sounds a little bit similar to something that I think you had talked about in a previous episode where we were talking about acquisitions, where you’d said that you keep everything the same for a year.
So I recall you saying that like this 12 month period of time is obviously, you know, something that you have in your mind is that period of time that’s important to have enough time with a business to know how the business is running before you make changes or in this instance to get to know someone enough before you enter into a business relationship together. And I guess because the pain of tearing these things apart when they don’t work out, you know, it can be you can take your eye off the ball, can take time, money and attention. So I guess you’re saying, well, he’s the ways to avoid that element of pain.
Ed: It’s a lot of damage to both firms. Is the damage to the firm that’s coming in and the damage to our firm? Look, I’m interested in the long term relationship and it’s going to be a win for both parties. And if it’s not going to be a win then it’s best not to do it. I’m not an opportunist or anything and I’m trying to take advantage of it. But it’s going to be a fair income and a legitimate value for both parties. And if it’s going to be a long term and I’m in it for the long term, and if it is a long term scenario that I’m interested in, I’m certainly the one that’s interested in the long term relationship then I wouldn’t like to go into something too short term and grab it later on. Yeah. Go slow and, you know, a year of engagement before you get married. I suppose.
Joanna: That’s a good way to refer to it. It makes sense, makes sense. One more question just out along that line in terms of how you were doing things today. Do you adopt the philosophy of these days buying into practices as well, or is it is it still that concept of the value that your bringing is a bit like the sweat equity side of things? Is it a phase that you had started with and they moved away from or is that something that’s a good long term strategy, I guess is what’s underlying my question.
Ed: That’s a really good question, Joanna because if you look back at the history, is this a huge amount of damage when the consolidators came through and they started consolidating and I won’t mention names because there’s a lot of failures and they all failed. And Kraho was is the only one that’s left then. And, you know, I’m not sure, you know, that they’re going that well. But I think, though, that they will face the same problem when you buy a firm at the end of the day, the relationship is between the practitioner and the client. And that’s quite unique in the sense that they’re not just clients, not just coming to a shop to buy a product. And the boy in that relationship with the practitioner, whether it’s a lawyer or a doctor or an accountant and in particular with an accountant. You know, it’s all to do with your finances and it’s quite private and so forth. So that the accountants, in particular, have a very personal relationship with the client because, you know, you get to know their personal affairs and, you know, they are sharing that with you. And they rely on you quite a lot. And so it is a relationship. And for an investor to try to invest in that relationship, it’s quite risky. And, you know, if that was me, just look at history and look at what. And there’s many of them have failed and many of them have lost money. And it just not works. And you might it often people say to me, you know, Chan and Naylor are still around and you’re still going, well, you know, what’s the difference? And I think the main difference for us is that we don’t interfere in the way they run the business and we bring particular value to the relationship, whereas a lot of consolidators were there weren’t bringing any value to the office. It was, you know, is the value was for them on the IPO.
Joanna: And that’s what it was all about. Right. That’s what drives a lot of the aggregation models. I guess as a whole. So what would you say your top tips are on the..and I guess we can hear perhaps you’re feeling that the difference between mergers and joint ventures given you ended up really going for the JV model. So I guess I’m guessing here.
Ed: In particular, I guess I better just explain the difference perhaps between V. Moto and perhaps a franchise model. Because it looks very similar when a franchisor and a franchisee.. the franchisor earns his or her income from the royalties that the franchisee pays to the franchisor and the franchisor has no interests in the business of the franchisee other than the royalties that they get. So they don’t have a share in the profits of the business of the franchisees business. So so, therefore, the franchisor, because he or she makes their money from the royalties that’s calculated on the turnover. The more franchisees they put on, the more money they make. And often you get franchisees that make any profits and they just exist.
And the franchisor continues on putting on more and more and more franchisees because the purpose is not aligned. With us, we don’t earn our money from royalties or anything like that. Our revenue or our earnings come from the profits of the officers. So we take a equity interest in them and then therefore we share in the profits based on our percentages.
So that aligns the interests of our officers to my interests, which is the bottom line. So they’re profitable and I am profitable and if they are not profitable then I am not profitable. So, you know, we’re both working towards ensuring that our joint venture partners are profitable. We’re different from the franchisee franchisor model. So that’s why we don’t have hundreds and hundreds of Chan and Naylor offices around. There’s no point in having a lot of officers. I’d rather deal with one office that’s 10 times the size of ten small ones.
Joanna: Yeah. Yeah. Yeah, absolutely. And maybe you can give just a short comment on how this has allowed you to, I guess, leave or have a different lifestyle compared to many business owners because I talked to many people who have grown really big businesses, but they quite often they are trapped by the business itself in that, you know, perhaps doing very well because of the business and have a lot of value in the equity in the business, but are still chained to the rolls and just end up with bigger and bigger responsibilities on a daily basis. But you have always seemed to me to have had a bit of a different approach. And when I say this, I say the first time I recall we met at one point when both of our offices were speaking at a seminar. We met at the seminar. And I said, well, gosh. I contacted you afterwards and said, look, I’d love to have a quick ten-minute coffee. So I came out and we had a four and a half-hour lunch, I think. In my world it is very hard to find people where even if they planned a four-hour lunch well in advance, they could. But this was just a random, you know, occurrence. And we got talking and four hours later, we were still talking about business. Now, that’s generally not the mark of someone that has a large business behind them. Do you know what I mean? So I just want to dig into this a little bit because I think this is really special.
And I think it’s a really important distinction and an important approach that I found really useful to hear from you. So I’d just love if you could share a little bit of that.
Ed: Yes, sure. I think that’s a problem with small business as well as large business. And because often, you know, you could be a one-man band being very small, but you’re a prisoner to your business. You are chained to your business. And then you could be very large and still be chained to your business. And I guess the fundamental difference, I guess, is for me, I’ve always wanted the business to work without me, not because of me.
And in order to have it work without me, then you have to have things set up in such a way that it’s not dependent on me to get done if I wasn’t here. So every step of the journey of building this business, I’ve always said, you know, how do we get that done when I’m not here? And, you know, if you have that mindset, then you always make sure that you know, you’ve hired the right people, you’ve got the right systems in place, you’ve trained them the right way. And in the event that they leave, you’ve got plan B. I’ve always thought that way. And because of that, I’ve been able to build this business that works without me and not because of me.
I think it starts with the way that you think about your business and then whether that’s small or large, because, you know, firstly, if you don’t think like that, then you cut scale it. You can’t leverage it. You can’t grow it. That’s the first thing.
And then, of course, if you do think that way and then you do grow it, then it’s just a natural extension moving forward. So I’ve been able to create, you know, full businesses. Now, that all works without me. It just generates a passive income. And it’s only because, you know, I thought that way from the very first from the very beginning. And that’s it. That’s the only reason.
Joanna: But it’s not you know, I mean, many of us have read the E-myth. And that was a cornerstone book for me when I read it. It was one of those books or I just went, wow, yeah, I get it. That’s amazing. But you’ve so lived it. And applied it. And I guess, you know, I think that’s part of the that’s the sparkle as well. It’s not just the concept. It must have been execution every day. Constant application implementation. You know, of all of these concepts that got you to that position. Is that right?
Ed: Absolutely. You’ve got to implement. And, you know, accounting firms often say to me, I’ve been following your career. They will be talking about Chan and Naylor I think and, you know, we’re about the same size. And, you know, 20 years later, you’re doing what you’re doing and I’m doing what I’m doing. And your 30 times the size that I am. And I think the only difference was you implemented and I didn’t.
Joanna: But at least it’s not just about the size. I guess it’s what we’re saying here as well. Because you’ve got you got the size but without getting the ball and chain, that quite often comes with the side.
Ed: Yeah, that’s right. But I think, to be honest, it’s easier to be less ball and chain when you get bigger. When you were smaller and you don’t reach that critical mass, it’s more of a ball and chain situation. But as you get bigger, as I said, an accounting firm, you’ve got to get to seven or eight hundred thousand and it gets easier. And then when you get to a million, it gets it easier still. But then it flips the other way where then it gets really hard, because if you don’t change how you’re doing things, then most accountancy firms haemorrhage at about a million to 2 million per partner. So they haemorrhage of that. In fact, most firms 99-98% of firms at about a million dollars per partner. So it’s a two million dollar practice and it is 2 practices. So that’s a 4 million dollar practice for 4 partners and 10million practice for 9-10 partners.
And unless you change what you do and you change it to the way that we do it, which is all so captured in Wize mentoring. So then we can if you use the Wize mentoring way, which is everything that Chan and Naylor stand for is being captured in Wize mentoring, then you can go to about five million per partner.
That shows you the strength of the system because it’s a system that’s carrying the business and not the individual that’s carrying business.
And often when you get to a million per partner, you know, if you pull that partner out of there, the whole thing will collapse with you. For us, you know, not only can we go beyond million that we can get the 5 million, but if I pull that trigger out of there. The business won’t collapse. It will continue to run because it’s on the strength of the system, not on the actual individual.
Joanna: Which is such an important distinction because as I say, you know, we see many businesses that are 10, 20, 30 million dollars making thin profit margins and running, you know, as fast as they possibly can.
But with, you know, lots of problems on their back. So I guess here’s another way of of envisioning it and putting it together. So, one, I had a question as you were talking, that popped into my head. I wondered, where did you get the idea for this approach to growth? Because I think this JV model that you’re talking about, which is actually a bit unique, you know, I haven’t seen this model in many other places. And lots of people adopt lots of different models of this growth through, you know, acquisition, merger, what what joint venture. But your model is really getting a little bit different to the average bear I’ve seen. So where did you get the idea?
Ed: Well, I guess it fundamentally it is it’s based on what I said earlier. That at the end of the day that the relationship is between the practitioner and the client. And I think that’s where most of the past consolidators have miscalculated. I thought it was a business I could buy. They didn’t realise that it was a relationship between the practitioner and the and the and the client. And often in those consolidation models, when the practitioners sold out, they went down and set up a new office down the road and all the clients win and went with them and in the consolidators lost out big time because I didn’t understand that there is this really unique special relationship, I guess because I’m a practitioner. I grew my practice from home and I understood that. So. That was the basis of the JVP model, is to ensure that the practitioners who had that relationship still remained in the relationship. And so today we have a 25 to 30% ownership, equity ownership in the joint ventures.
We make sure that we add value to the joint venture not be a consolidator of the joint venture, unlike old days where we brought no value to the office. We bring the value that we bring is the marketing that we do. So we generate over 3000 new clients a year for our offices and to make sure that there is a win-win for both parties. And whenever this the win is not both ways, then you’re going to have a falling out. So unlike the consolidators of the old where they just took and did not gave, you know, our model is to to give back in the form of marketing and the things that they weren’t good at. So an accounting is very good at the tax work, of course, the accounting work. And they’ve got a very unique relationship with the client. So that’s what they contribute. And then what they can’t do very well is the marketing and the then or all that stuff. So we do the marketing and we bring the leads to them.
So in sort of the model, like the traditional model is, you know, you invite a finder, a finder in the finder, minder and grinder.
Joanna: As an aside, this is a sort of three quadrant model for an accounting practice, but defined it being someone who goes and you know, is the go-to in parts of the industry speak the one that goes and finds that work.
Ed: Yes. The sales, the day generates leads and he is a foreigner. You know, he’s in and generally the traditional model in the accounting him.
The way they grow is that they invite partners in who find us. If you’re a minder, they might invite you in if you’re a grinder. They won’t invite you. So the growth model is adding new partners who are finders. I call that model catching butterflies with a public butterfly net. Problem with that model, of course, is that, you know, when you take that butterfly catcher out of there, that’s the end of your growth. And it just doesn’t work long term. So it’s much better to create a garden that attracts butterflies to you. And the problem with creating the garden, as you know, Joanna, it costs a lot of money.
Joanna: Yes, It takes time and effort.
Ed: At the runway and it needs particular expertise like unions and fancy firms don’t have that. But if you bring in complementary skills working together, you get the synergy one plus one becomes five. So I bring in the finding aspect of it, the garden that attracts butterflies and they bring in their side of it, which is the relationship with the clients that the meetings to have the strategy, the tax, you know, all that. They bring that into a relationship. And I bring in the marketing, the brain, the brand is very strongly the marketplace and know. So, therefore, we bring complementary skills to work it, not bring literacy skills.
Joanna: And so, you know, implicit in that, I guess, is the point that you identified what it was, that you had a value that perhaps was a little bit different in the industry and harder for other people in the industry to access themselves if they weren’t naturally the as so. And so I guess extrapolating that across other industries, outside of accounting practices, that it is about perhaps finding your strengths and finding ways the pool of people who have this value that’s being limited by the fact that they don’t have strengths and then using that together to create something, you know, synergistic.
Ed: If you’re a finder and you’re entrepreneurial, you’d be growing the firm yourself and you wouldn’t have a need to join because you know that the aspect of the business that’s important, which is the ability to grow the business, you’ve got to bring that to the table. Therefore you won’t need someone like us, so the entrepreneurial accountants will join Chan and elope because the intrapreneur real accountants are sufficiently entrepreneurial to want to work for themselves. But they also need to work in a team.
Another limitation they can’t do everything and they know what they’re good at and what they’re bad at. And they can see the value that we bring to them. And they understand that, you know, that the synergy of complementary skills with the business.
Joanna: And I guess interesting, it’s just occurring to me that you’ve got this model to partner on to JV with the entrepreneurial but then you also have a model to work with, the intrapreneurial. We need a bit more of the entrepreneurialism through Wize mentoring, I guess. Is that right?
Ed: Absolutely. Because often the entrepreneurial accountant knows. They can attract new clients and so forth, but they don’t know how to run the business. Often they get a lot of churn from the clients. And so, you know, I put Wize together with all the tools and the systems and the processes to run the back office. And that’s where most entrepreneurial companies have trouble is in the back office.
So so by joining up with Wize to get access to all of that, which is how we grew Chan and Naylor to the size it is you can’t do that unless you have your back office working well. And you know, the systems and the foundation, if you like, you have if you have a solid foundation underneath it all, you can put a second and the third story onto it.
But if you don’t have a foundation, you kind of you can even have the first story onto it because it will collapse. And often entrepreneur firms who are really good at bringing new work in trouble in their foundational space.
Joanna: I love it. Ed, you are a very, very clever man. You’ve got the intrapreneurs covered. You’ve got the entrepreneurs covered. I mean, what’s left? it is all done. That leads me to my very last question.
What is the endgame for a man who feels like he must be living extreme business at the moment? What’s the end game for you Ed Chan?
Ed: Oh, well, I’ve never wanted to be an empire builder. I’ve never, never would have wanted that. I’ve always, ever wanted just to be financially independent and achieve that a long time ago. And it’s just, you know, everything I do now is to give back and to help.
Joanna: And I really sense that in you Ed. I do. Absolutely.
Ed: With the wise mentoring, it’s when I started, you know, when Chan ad Naylor was going very well and I had time on my hands and firms would ask me to help them. And, you know, I started helping them and coaching. And that’s how Jamie Johns came along. And then, you know, Jamie said, well, this is really good. And, you know, you should get this out to other accounting firms. And I was just giving back by coaching one on one.
But I realized that you know, you can only you can’t reach too many people when one-on-one coaching.
Joanna: Yeah, so you fixed it.
Ed: We put it all online. So, yeah, we’ve got over 100 members now and it’s growing we have two a day showing interest. And you know, we’ve got a few from America and one from South Korea, so international as well. So it’s very exciting. And I guess it would just we’ll just wait and see. But, you know, I reached my first goal a long, long time ago. And the risk now is, you know, if I can help others do what I’ve done, then that’s a real plus.
Why in accounting? It’s because accountants have such a huge position in the marketplace in terms to contribute. They can run their business as well. And, you know, they’ve got such an influence on small businesses out in small businesses, you know, the engine room of employment. Absolutely. Yeah. They can help their clients run their businesses because the stuff we do and why. It can be used across all businesses. You know, I often say that what we do might be different. You know what the industry is what we do is that businesses are run, run the same way.
So how we do it is exactly the same. If you don’t change how you do it, but you change what you do, and often small businesses do that.
You know, they think it’s greener on the other side. They do without changing how they do it. If they did that, then they’ll replicate what they created in the in the first business. In the second business. And then they’ll look to change again. And that’s what happened to me. You know, I in the early days when I was working over 100 hours a week in the counting and I wanted to get out and, you know, I thought, you know, you got into the wrong industry. And I wrote and I read the book, E Myth, you know, that changed my whole outlook on it.
And then Napoleon Hill wrote a book called Think and Grow Rich.
And he said the gold is in your own backyard. Look for it. And in that was like a light came on for me. But then I looked for how to do it, not what to do and stayed in the business. And I just changed how I did it.
And when I changed how I did it, my whole life changed. And here I am today, continuing to teach people how to do it.
Joanna: And having fun and having time to turn a 10-minute coffee into a four and a half-hour lunch.
Ed Chan, you are an inspiration as well as very generous with your time and your ideas. It’s just like I get the feeling whenever I’m around you, you just want to it’s like, look how much fun I’ve had in building this business. Now I just want to impart these ideas on the other peoples so you can have fun, too. That’s that’s the feeling I get. It’s just like you just want to impart this information and all of these tips on, you know, the old business owners that you come across. So go on. Give us a plug. How do we find Wize, Ed?
Ed: OK, well, it’s a wise mentoring with a Z. Not not in this. You can Google us and you can find a Web site. And you know, there’s a seven-day trial. So it’s free for seven days. Just go in and have a look at it and try it out. There are lots of videos. Most of it is a lot of it is education. Because if I can you know, this is saying that the personality of your practice is a reflection of your personality of the owner. And unless I can change the owner, you won’t get to change the business in the way that you think will shape the kind of decisions you make.
The decisions you make will shape the actions that you take and the actions that you take will shape your destination. And so, therefore, if I can change the way you think, hopefully, I can change your destination in there’s a lot of educational material in the often cited. The best return on investment is the investment in yourself because once you’ve learned to, you can use it over and over and over and over again. Yes. And so, therefore, a lot of the one hundred and fifty tools that are sitting in Wize vault is educationally based. So there’s videos and spreadsheets and, you know, all sorts of things in there to run the can see practice.
So going there, give it a go. There’s even a free book that I’ve written, an e-book. You know, it’s free. Go in there and download it for yourself and have a look at it. And you know, there’s no obligation. And if it’s not for you, then you go to the free trial, runs out for seven days and doesn’t cost you a cent.
Joanna: Brilliant. I absolutely love it. Well, very wise words from a wise man. Very appropriately entitled Wize of mentoring. But remember, with a Z, not an S. Ed Chan as always, it has been an absolute pleasure. Thank you so much for coming onto the show. I’d loved it. I hope you had fun. You always seem like you’re having fun, though.
Ed: Most of us because of you.
Joanna: Stop. Fabulous. Well, look, I just want to say a massive thank you. And I think this has been a great episode. I’ll be definitely going back and listening to it again.
Ed: Thanks for inviting me Joanna and thank you for making it so much fun.
Joanna: Well, that’s it for this two-part series, all about joint ventures and how joint ventures are different to mergers and acquisitions. We’ve covered a lot in this two part series. And whilst, of course, it’s particularly relevant to anyone who is building an accounting practice, it’s also extremely relevant, I think, to anyone who is building a business at all and who might be looking at ways to grow a business other than strictly through organic growth. If you’d like more information about this topic or you’d like to get in contact with Ed Chan either at Chan and Naylor or at Wize mentoring. Then all you need to do is head over to your show notes or over to our Web site at thedealroompodcast.com. There you’ll be able to link through to Chan and Naylor and you’ll also be able to link through to Wize mentoring. And I know Ed has some fabulous Friday tips that he sends out from Wize mentoring. You can easily set yourself up on that Wize mentoring site. And I tell you what, the Friday tips are extremely insightful. So I highly recommend, no matter what business you’re in, that you subscribe yourself to these Friday tips to get a bit of gold in your inbox every Friday morning and of course, on our website. You’ll also find details of how to contact our lawyers at Aspect Legal. If you or your clients would like to discuss any legal aspects of sales or acquisitions, we’ve got a number of great services that help businesses both prepare for a sale or acquisition and help them to get transaction ready. And to also guide them through the sale or acquisition process. We work with clients both big and small and have different types of services depending on size and complexity. So don’t hesitate to book a free appointment through our Web site if you’d like to find out how we might be able to assist. Well, that’s it for today. And for these two-part series. I hope you enjoyed what you heard. And if you did, why don’t you go and leave us a review on your favourite podcast player as well as, of course, hitting subscribe if you haven’t already. Well, that’s it. Thanks again for listening in. You’ve been listening to Joanna Oakey and The Deal Room podcast, a podcast proudly brought to by our commercial legal practice aspect legal. See you next time.
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