A Lesson in Heeding Advice

Giving advice is like seeing an elephant in someone’s path and suggesting they remove it. Heeding advice requires forcing the elephant to budge. Huge difference. -Richelle E. Goodrich #WomenTalking

How many times have you given advice to a client knowing it was for the client’s good, yet, the advice was ignored wholly or in part.

Well, I was that client about two years ago and the elephant was cash flow.

In December 2021, we started down the road of acquiring a local payroll company. I hired an excellent M&A attorney from a large firm in Atlanta. On socials, I’ve often talked about the feel good lessons related to the acquisition.

What I haven’t talked about was a very hard lesson that made us cash poor from not heeding the advice of my high-cost attorney.

I take a lot of risks, (mostly calculated) but, still risky. My husband says that I like living on the edge and I agree. I can be hard headed. Yet, I worked smart to be where I am today and I don’t downplay that I got it out the mud. Well, things got very muddy during the contract and financing phase of the payroll acquisition. I became very impatient with banks and their insurmountable lending requirements.

Tired of getting the run around, I told my attorney that I was going to use $250,000 of my cash as the down payment and use cash flows from the business, a HELOC, and savings to pay the balance over 13 months.

I know you're thinking, "Nicole, 13 months?" Yes, 13 months.

The revenue from the business was solid. We were also acquiring all of the employees that worked for the company. I ran the numbers. Eek! I knew I was skirting on the edge of being cash poor even if everything worked out perfectly. I was determined to make it happen. I had a 12-month retention clause built into the contract. If there was a dip in revenue based on an average, then, the final payment would be reduced dollar for dollar. I did not anticipate that happening. And it definitely wasn’t going to happen on my watch. I never bet against myself.

After relaying my intended plan to my attorney, he became concerned. I am sure he thought this woman is crazy. He said 13 months was a very short time frame to finance the deal. He went on to state that typically these deals have a 3-5 year payment period if there’s no bank financing. He was also concerned about the final payment and retention clause. I listened. It was his professional duty to relay these worries to me but he wasn’t going to sway me. His final advice was to at least stretch out the payment period to 18 months. No. I refused to budge.

We closed the deal.

After the deal closed, the owner became seriously ill and passed away. We didn’t get the negotiated handoff of the big clients she managed so we lost a handful of them. We also didn’t raise prices during the year the deal closed.

My primary goal was to gain the trust and respect of these clients. I was not going to do anything to jeopardize that.

We made payments every quarter for 13 months.

Every time a payment was due, my hubs/partner, J W Davis looked at me sideways. He didn’t say a word. He just looked. He generally lets me play out my plans because he has a front row seat to my brain and thought process. I have not failed us yet.

The retention clause was never triggered. Why? I raised prices in the new year (still during the retention measurement period) which included pricing for year-end work. Now, I didn’t raise prices on a whim. There was a plan. By this time, the clients were appreciative of our services & 3E philosophy (Execute Excellence Everyday). We had very little push back on the price increase.

When the final payment was due, we were up in revenue but cash poor. We paid all of our bills & met payroll but there was not room for much else. This was nobody's fault but my own.

Head down, we designed revenue/cash generating strategies. We cut costs where necessary. We operated lean. We survived. Two years post-acquisition, revenue is up 40%, profit is even better, and we are building cash reserves.

Below are my top 3 obvious lessons. I hope you’ll consider them if acquisitions are part of your growth strategy:

1. Listen and follow the advice of your attorney even if you’re accustomed to taking risks that pay off. My attorney was waving red flags about the payment timeline, and honestly, I should’ve taken that advice to heart. It would have lessened the temporary financial strain that I caused.
2. Always be prepared to tweak your game plan and innovate. After acquiring the payroll company, I faced challenges I didn’t see coming, like losing key clients unexpectedly. My response? I didn’t panic. Instead, I raised prices strategically after building trust and delivering upon our service standard. This not only stabilized our finances but also proved that being adaptable and innovative in your approach can turn potential disasters into big wins.
3. Plan financially for the long-term and be patient. I chose to go all in with my own cash to nail down that deal fast. But, let me tell you, rushing things and ignoring conventional financing routes like bank loans can put you in a tight spot. Banks are there for a reason. Use ’em. Start your financing talks early, and give yourself the breathing room you need. It’s better to play the long game and keep your cash flow healthy.

The deal is paid in full. This is hands down one of the best moves I’ve made as a firm owner despite a few setbacks (many created by me). I mean, I haven’t even had to dive into processing a single payroll myself. What I do is move the elephant—offering up strategic guidance, leadership, and improving our processes so that we are profitable but efficient. I rarely make decisions in silo now. I listen to sound advice and reason so that I can make the best decisions for the company to move forward.

What really made this work was the trust I had in my team and the trust they had in me.

Without all of that, this could have been a BIG FAIL.

#MergersAndAcquisitions #BusinessFinancing #payroll #innovate #business

Note on financing: I put up the $250,000 cash as collateral in a CD initially to get a short term loan from the bank to use as the down payment but paid it off and liquidated the CD within 1 year.