When you’re buying a small business, it can be hard to find affordable due-diligence help with the expertise you need. That was the struggle Boston-based buyer Matt Hogan confronted, particularly when it came to financial help. An experienced buyer with a focus on purchasing medical-services businesses, he found that few local accountants had the industry expertise he needed, both for due diligence and post-sale, as he looked to improve profitability in his acquisitions.
In the past, Hogan had tapped his own rolodex and networked to find CPAs to help him analyze the financials of previous acquisitions. He’d connected with financial pros this way, but felt he overpaid and didn’t get the individualized attention he needed. He followed several Facebook groups about M&A and contacted some of the accountants he saw posting there, but found their fees “too expensive for what I got.”
In 2021, a potential investor in one of his acquisitions told him about DueDilio founder Roman Beylin and the network of M&A due diligence experts he’d built. It turned out to be a fortuitous introduction that connected Hogan with an accounting team he needed to institute better reporting systems at a medical-services acquisition.
That team ended up exceeding all Hogan’s expectations. He reports the financial team went above and beyond their assigned duties to help him identify a lucrative opportunity that more expensive providers who’d reviewed the deal never spotted.
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An Underperforming Acquisition
Hogan turned to DueDilio for post-acquisition financial expertise after purchasing a 30-year-old New Hampshire multi-specialty medical practice in Summer of 2022. With over 125 employees, the business included three medical specialties, an in-house lab, and ambulatory surgery centers. Revenue was $15 million, but Hogan felt there was opportunity to grow the top line by implementing industry best practices for how services were packaged, marketed, and billed.
The bottom line was in worse shape, with margins hovering around 5%. A more typical industry margin for the business type ranges from 15%-25%, Hogan says. Fiscal discipline had faded after the doctor who founded the company stepped back from hands-on management 15 years earlier. Monthly P&L statements weren’t being compiled, and systems weren’t standardized across the company’s many diverse locations.
“Financials weren’t GAAP, and needed to be normalized,” Hogan said. “There wasn’t even a monthly budget. Management had lost focus, and some changes needed to happen.”
In fact, financials were in such a mess that rather than delaying the sale to iron them out, Hogan committed to working with the seller post-close on creating standardized, month-end financial reporting.
To begin optimizing profit at the acquisition, Hogan first needed an analysis of the current state of company financials, to identify problems and create an action plan for improving cost controls and standardizing reporting. Then, he’d need the accounting team to create better reporting systems based on the company’s existing software, and train staff on their use.
He reached out to Beylin at DueDilio for referrals and received the names of several accounting teams with relevant experience. After free, initial consulting meetings with the candidates, he zeroed in on Seamless Advisors in Austin, Texas, as the best fit. Trained as CPAs but now handling a broad range of financial services, Seamless partners Brad Parker and Chris O’Shell had the needed experience in medical-services accounting. Additionally, O’Shell had served as a fractional CFO in the past, a role Hogan expected he’d need filled once improved reporting systems were in place.
Hogan appreciated how easy it was to find, interview, and compare several candidates to find the best team for his accounting needs.
“DueDilio is a one-stop resource for finding due diligence pros, like Priceline is for travel,” Hogan says. “I’ve already referred another buyer with an equity purchase he’s doing.”
“DueDilio is like the Priceline for finding due diligence pros.”
Building a Turnaround Plan
To get his new acquisition on the right track, Hogan needed to gather information on how the business was performing. Hogan asked the Seamless team to develop cash-flow projections so he could start to understand the company’s billing cycle.
“We discovered the team doesn’t know how long it takes them to collect money–what are the actual A/R days,” O’Shell. Once they have clarity on the financial basics, O’Shell said he’ll move on to looking at ways the business might save on expenses such as insurance and freight costs.
“I’m looking to keep adding money to the bottom line,” he said.
Spotting an Opportunity
Before the Seamless team began delving into the acquisition’s financials in depth or working on the reporting software, O’Shell had a few questions for Hogan about a little-known tax credit for service businesses. He’d learned through work with past clients that a lucrative tax credit is available to companies impacted by COVID-19–but that many owners seemed unaware of it.
First introduced as part of the CARES Act in 2020, the Employee Retention Credit (ERC) was intended to help compensate companies that kept employees on during the pandemic slowdown of 2020-1, up to a maximum of $26,000 per employee.
But there was a catch: If you got a Paycheck Protection Program (PPP) loan, you were ineligible for the ERC. Because most businesses saw more benefit with the PPP loan, few claimed the ERC.
Later, the rules were changed so that businesses that received a PPP loan could also claim the ERC. But the change wasn’t well-publicized, and few owners had thought to file amended federal quarterly payroll-tax statements to claim it.
Seeing a need, O’Shell had taken the time to develop a specialty in helping businesses claim this credit. He’s since found that in M&A, roughly 40 percent of new owners of service businesses qualify for this credit.
O’Shell had a few questions for Hogan to see if he qualified for the ERC. Confirming that the acquisition was structured as an equity deal that gave Hogan ownership of the business’s original EIN, that the business had seen reduced revenue due to COVID-19, and that the seller hadn’t claimed the ERC previously, O’Shell gave Hogan the good news: His new acquisition qualified for the ERC–and he was owed a $1.2 million tax refund.
For a business with highly paid doctors on staff, O’Shell noted, “It’s huge dollars.”
The news was mind-boggling, given that the purchase price Hogan paid was $1.4 million, and that only assuming all the seller’s earn-out targets are fulfilled. Hogan is still in disbelief that such a large credit had gone overlooked, and was now his to claim.
“I talked to another guy for over a year at a healthcare-exclusive, boutique CPA firm, checking in every couple months,” Hogan said. “And the ERC didn’t come up once. Seamless has a track record around finding these types of advantages.”
The Seamless team saw to executing and submitting the required forms. Government moves slowly, so there’s a 6-8 month wait for the credit to finalize and a check to arrive. But O’Shell says based on the figures submitted, the business meets all the criteria and the credit is a done deal.
“I’m trying not to get too excited,” Hogan said. “I told Chris, ‘I’ll believe it when the check hits my bank account.’ But for sure, they added instant ROI.”
O’Shell was delighted to be able to make his work pay off for Hogan so quickly. “It was great to see him turn his ROI majorly into the black on Day One,” he said.
Right-Sized Fees + Exceptional Expertise
Seamless didn’t just go above and beyond their assignments by bringing the ERC to Hogan’s attention. As the team implemented the reporting package the business needed, Hogan found their fees compared very favorably with those of other firms he’d considered using.
He also found Seamless’s rates were right-sized for the size business he’d acquired, Hogan said, and roughly half the rate other CPA groups he interviewed quoted him. In comparing notes with a golfing buddy who’s also getting an ERC credit, he found his friend’s CPA firm was charging roughly triple what Seamless quoted him for its work on the credit. Bigger firms were often no only more expensive, but less responsive to a smaller-scale owner, in Hogan’s experience.
“Some of these groups bill $1,000 an hour, and you don’t even know if they’ll pick up the phone and talk to you,” Hogan said.
The Next Phase
The plan is to keep Seamless on to make sure the new reporting systems succeed and that staff understand how to use the new system. And there’s more work ahead to wrap up Hogan’s acquisition.
The founder also has a separate real-estate entity that owns all the buildings where the practices are housed. The commercial buildings have a few outside tenants as well, Hogan said. Once the business fundamentals are cleaned up, Hogan will work on acquiring the property side of the business. When it’s time for this second acquisition phase, he knows who he’ll call for leads to the right due-diligence professionals: DueDilio.
“I’m leaning in to using their professionals,” he said. “I’m in the habit now of going to Roman immediately for any one-off projects or M&A transactions.”
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