Ep.19 – $2M Tax Practice Secrets: Building a Sellable Firm Without Working 80 Hours with Fred Stein

Jamie Gruol: Welcome back to another edition of Diary of a Tax Practice Owner. I’m so excited to have our guest here today because we’re going to be talking about big strategy things, big ideas like acquisitions and exit strategies.

And this is definitely something you don’t want to miss. I’m excited because we have Fred Stein and Fred is the tax director at BQ Tax and Accounting LTD, where he has been helping small and medium sized businesses grow and thrive for over 30 years. He’s an expert in accounting tax and keeping cash flows flowing smoothly.

Fred earned his accounting degree from Sunny Oswego, aced the CPA exam and earned his EA designation in 2019. In 2007, he founded BQ Tax and Accounting where he, under his leadership, has grown into a multi state powerhouse with over 25 remote pros. Making magic happen across the country, Fred. I’m so excited to have you here today.

And I would love if you would start sharing with us about your journey. How did you get into growing this large business in a multi state model and having so many tax professionals working underneath you?

Fred Stein: Well, thank you for having me first of all and it’s actually I’ve kind of found my way Back into accounting. I started off working for a cpa firm when I graduated like it. I left went to um working for a private non profit organization Loved it. They don’t really pay a lot of money So I started my little side hustle a few clients came next thing, you know, I had to make my choice I chose to come back into tax.

I thought I was out, they dragged me back in that was back in 95, 92, 95 when I, when I went out on my own and just it slowly cause I had young kids and to me, you know, I can always make money and I made enough money to live happily. I didn’t work as much back then. I actually spent a lot more time with my children. Kids grow up, they leave home and they say, go away, dad. And so, know, that’s when I, I bought my tax practice back in 2007. Um, it was originally called Beckley and Carini and we shortened it to BQ, everybody asked what it’s for. It’s still a tribute

Jamie Gruol: Nice.

Fred Stein: founders. that I, that I bought out. , a

Jamie Gruol: that.

Fred Stein: my now partner, um, she had worked for me in my restaurant that I also bought at the same time, which was a dumb idea. She moved to another

Jamie Gruol: Two businesses at the same time, that is kind of crazy, Fred.

Fred Stein: restaurant. Yes. Yes. It was enjoyable, but it was, it was a lot of stress. I lost quite a bit of money in that one and close it down within a year. Tiani, my now partner, she came with me and started at the front desk and she’s become invaluable to me and handles all the admin side of everything. So she became my partner a number of years ago and my kids grew up and moved on. So I spending less time with them. So we decided to Empire and I ended up moving out here to California. And so we bought a practice out here at first, just because. We needed more revenue to support both states.

Jamie Gruol: Yeah.

Fred Stein: thing, you know, we’re on our, I’m talking to actually three different people about acquiring them. I’ve got a deal going right now. That’s waiting for the lawyers to work on it. I just spoke to that one earlier today. So this would be, I think, Probably our 10th acquisitions. If we, if we go through with both of them, a

Jamie Gruol: So what’s driving you, Fred, in the acquisition space? Is it, you know, reigning the world or is it more just, is there something personally that’s driving you to want to acquire these other orgs,

Fred Stein: couple of reasons, and it’s not a pinking in the brain thing. We’re not taking over, not taking over the world today. And although we never know it could be

Jamie Gruol: right?

Fred Stein: originally, it was, we fell into the first acquisition out here. I was at a meeting and somebody said they were selling and I got into that. And we realized that, you know, we had a small office.

It was me, Tiani, and we had three, three to four other people that were working with us part time and, and on different things. And, and we took pride in the fact that we were helping others put food on their table. So as we started growing, we didn’t necessarily grow with the intent for us making more money, although we do, and we did. Um, but we’re happy to be able to act as a way to train new tax people properly. And cause we’ve all seen some of the garbage that gets thrown out there and we weren’t make sure that we trained him and we allow people, other practitioners who are going out on their own or want to go out on their own, they didn’t have enough work to go out on their own. we

Jamie Gruol: Right.

Fred Stein: space for them so they can grow their business, come work for us part time when, and how they want. And they’re helping put food on my plate. I’m helping put food on their plate. And many of them, after a couple of years, they don’t need to work for me anymore because their path has grown and they can work on their own.

Jamie Gruol: Wow.

Fred Stein: Part of it is my retirement because when I was young, I did play a lot. So I wasn’t as responsible as many other people. So I didn’t throw a lot into my retirement. Like my

Jamie Gruol: Yeah.

Fred Stein: the opposite. You know, she’s got her 401k and she’s all set. But main reason my growth was to grow it to a certain level. Because my business is now my retirement.

Jamie Gruol: Was there a point where you made that shift over to seeing your business as an asset that you could then sell in the future? Or was it just kind of like, It naturally evolved to that. I’m curious because I, there’s got to be a point where you wake up and you’re like, Oh shit. I don’t have the 401k. I don’t have the, the, the safety net to catch me after I’m done.

And I don’t want to work until I’m 85.

Fred Stein: Exactly. And, and, and that hit me probably 15 years ago or so. And we’re putting, we had some, but I don’t, I don’t have a lot. And the bulk of it is in other assets. And, you know, we’re, we’re expecting to go over, um, 2 million in revenue this year. And my goal is, you know, we had an original goal of like getting into 10 million and then selling, but, uh, I’m not sure I want to be that large just yet.

So we’re okay where we are now. Maybe, you know, revenue is another million or two would be nice. And we’re also doing the same stuff you’re doing, building our tech stack. So that my partner and I don’t need to be involved in the day to day this past year I pulled out almost entirely out of the personal side of the tax prep part I’m still working with the bookkeepers and the entity side and i’m hoping to be out of that Next year as well.

So within the next two or three years, it’ll be based solely on expansion acquisitions Maybe diversifying into other types of businesses so that we don’t have to be doing this all the time. And the hope is either going to sell it or I can just keep collecting a paycheck

Jamie Gruol: Yeah,

Fred Stein: long as it’s can run by itself.

Jamie Gruol: yeah. So what are you focusing on as you’re thinking about your exit strategy? I think acquisitions, a lot of people are familiar with the acquisitions world, right? There’s all kinds of chitter chatter on all the Facebook forums and all that. So I will, I think there’s amazing things we could talk about there, but I really want people to be thinking about the exit strategy because I asked a question the other day in one of the Facebook groups and it was You know, like, what are you planning on doing for retirement?

And there were a lot of people that were like, I plan on working until they have to pry my cold dead hands off the keyboard. And like, I think they were really serious.

Fred Stein: They

Jamie Gruol: And I, I, I feel for them to a degree because I think they’ve been so immersed and enmeshed into Their work that they haven’t taken the time.

Like you took the time when your kids were young to be with them. Right. There’s a lot of people that are just hustle, hustle, hustle all the time. Like grind, grind, grind. And when they get into their sixties and seventies, they’re like, I don’t have anything else out there. So when you start thinking about your exit strategy, I mean, it sounds like you’re, you definitely have some good retirement plans ahead for you.

And I’m excited for you on that. What are the things that you’re doing to prepare yourself for that exit strategy that others could maybe take away that have not really given it a lot of thought?

Fred Stein: It’s one of the things that I talk about when I, when I do coaching for, for other tax pros or when I do webinars. Is we see what we see this with our clients that they retire and they stop do working and they get old very quickly. And one of the things I encourage all tax pros, they need to have a life outside of tax. Tax can’t be what I identify as, you know, we take a lot of trips. We do a lot of hiking, you know, I play golf. You gotta have things that you do. and you plan for it and you can’t, we had a person in our local chapter, she just passed away at 96. She was still working. You know, another one, she has an 80 something year old person that, that works, that works in the office.

I think just retired this year. And, uh, you know, if, if I’m going to do that, like I may want to slow down and just be that old guy that comes in for five to 10 hours a week.

Jamie Gruol: Yeah.

Fred Stein: havoc in the office and I’m going to leave and then say, Oh my God, thank God. He’s gone for the day. That’s my, that’s my retirement role.

My partner understands that she’s nearly 20 years younger than me. So transition is if we can find another younger version of me to take my place.

Jamie Gruol: Yeah.

Fred Stein: I would get bored out or, we’ll

Jamie Gruol: Yeah.

Fred Stein: whether I just stay on the small thing, but finding that and understanding that people are hesitant recognize that and they realize when they get to a starting point and they want to sell and that’s not a good exit strategy.

Jamie Gruol: Right.

Fred Stein: You need to plan your retirement, you need to plan your exit. You want to plan for emergencies as we discussed previously outside of this podcast and it’s a three to five year process when you’re going to sell

Jamie Gruol: Yeah.

Fred Stein: a lot of tax pros, they don’t have everything in place that they need to do to exit.

Jamie Gruol: What are the, what are the top like three to four things that people need to be thinking about for that exit plan that you can kind of share with us today? Right,

Fred Stein: go and be gone you know, sell and go off right into the sunset. Whether they want to still do taxes, but on a, on a much smaller scale, they want to slow down and they want to sell and stay on and they need to do the same things we do with our clients.

And we are our absolute worst clients. You know, when we have clients, the stock market goes down, we talk them off the ledge. But you know, right now, if people are heavily invested in Nvidia, Nvidia, that went down. And I know my finance guys getting calls all the time because they’re wondering, and we’re telling them the same thing. You ride out the stock market and we tell people talk to people about retirement in our industries And and we don’t hear ourselves speak. We don’t tell that we don’t put together our plan

Jamie Gruol: right,

Fred Stein: sure we know what we’re going to do afterwards, you know, we retire and stop

Jamie Gruol: right,

Fred Stein: healthy.

It’s just like working too much. It’s not healthy.

Jamie Gruol: right. So I’m curious your thoughts on this. I’ve done quite a bit of research on the value of a practice that has implemented, you know, effective, efficient workflows, converted their client base over to online portals, have, you know, been, you know, Doing the work to systematize their businesses, not necessarily to the full degree of automation, but definitely like building the culture around online portals and, you know, virtual document management, that kind of thing.

So they’re not the old school, like paper,

Fred Stein: There’s a lot of things out there

Jamie Gruol: There’s a lot of those out there, but tax practice owners, like an accounting owners, they’re not thinking about that. They’re just thinking, I’ve been building this book of business for 20 or 30 years. I’ve got, you know, 500 or 800 clients and I’m making, you know, 2 million a year.

It’s awesome. We’re doing great. But when somebody looks at that practice, it does not see a 2 million practice. They see the investment that they’re going to have to take. They see that they’re going to have to convert all of those clients over to a virtual space. They see the importance of having, because a lot of people aren’t in, in your case too, like where you’re acquiring those practices, they’re not in your same town.

So you can’t, you don’t have the luxury of driving down the street to go and deal with paper documents, right? Like you need to have that. So are there those some of the things that you’re thinking about when you’re acquiring that these exit strategy folks should be thinking about as well?

Fred Stein: Our last acquisition, two years ago was more of an old school practice It did come with a number of employees and that was one of the reasons that it was attractive to us. It wasn’t the best of fit. We, we still have it. We we’ve lost a lot of clients because we kind of modernized everything.

Jamie Gruol: Mm hmm.

Fred Stein: And we’re in the process of going virtual with that one, but it was heavily invested in paper heavily. It didn’t use any of the workflows and to me It’s it’s both a good acquisition and a failed acquisition at the same time. Okay, we got good people out of it We didn’t lose Money on it. It did create a lot of headaches for us. So we won’t ever buy another Er You know, 100 percent paper office again, if they are not mostly virtual, you know, and that was in Virginia. So I’m traveling from California to Virginia, you know, we’re sending, you know, and my remoters, they’re good. They come into the office occasionally during taxis and we’ll fly them in, put them up, give them a car and they’ll come work in the office for a couple of weeks. For those in house people. And we did that in Virginia. I fly, I got my grandkids are back East coast, so I don’t mind flying back there. But, you know, the one I’m acquiring now is 40 minutes away and they’re 98 percent virtual. The lady I spoke to this morning, she’s a hundred percent virtual. So those are more valuable,

Jamie Gruol: absolutely. Absolutely.

Fred Stein: I bought what I call Walmart practices before where, you know, it’s the drop your stuff off, get in and get out attitude and I won’t ever buy that. To me, that that’s good fit for some people.

Jamie Gruol: Yeah.

Fred Stein: and I’m not, I’m not downgrading, it’s just not for us because we’re more of a virtual and we don’t, we don’t want to be that, come in, sit down, drop it, drop it out.

We have some clients that are like that, but it’s not something we want to be in anymore.

Jamie Gruol: Yeah. I think the clients honestly, maybe the older generation clients are the exception to this. But I don’t think accounting and tax clients want to be in that world anymore either. Honestly,

Fred Stein: they have to, they think, they think they, have to teach them, you don’t need to be there, it’s like, get this stuff and then we’ll have a meeting after we’re three quarters of the way through to clear everything up and do that.

Jamie Gruol: yeah, there’s lots of ways of doing that. And even, even just communicating digitally through a portal, you know, where you can actually have the conversation and be like, Hey, I asked you all these questions. We, our program leans, and uses tax dome of course, but we lean heavily into those organizers. And we’re having a virtual, like, I like to look at the organizers as like an asynchronous interview, right?

Like we get to ask them questions and then we get to ask clarifying questions and we get to ask another question and we get most everything that we need Unless a red flag comes up and we’re like, Oh, wait, no, we need more clarification on this. Right. And so when we’re working with our clients, like, that’s how we’re thinking about these types of, of, um, interactions.

So for anyone that’s listening to this, like, well, how do you do this? Then if you’re not meeting with these people, you know, at the get, at the start to get all the documents and get all the information it’s through technology. Like that, that is everything that Fred is talking about here. So.

Fred Stein: Absolutely.

Jamie Gruol: Yeah. I’m curious too.

So you, you said that you guys are leaning into the tech side of things. How are you, how are you, how did you transition that fully paper or practice? Like, would you share with us like what that journey was like? Cause I think a lot of people think that it has to be really hard. It is a journey. Like it takes time, a couple, you said three to five years.

And I think honestly, from a hundred percent paper, it’s at least two years, two to three years is probably a safe. Like not forced on the client, not breaking yourselves and your brains on how this all happens. So I’m curious how that experience was for you.

Fred Stein: Well, we started pre pandemic doing this. Okay. Um, back in 2017, when I met my wife and decided to move to California, um, a couple years before that, my partner moved, um, 150 miles away and married her husband. And so we went there. Yeah. Yeah. went remote at that point in time, you know, using the local software as logging into the, into the machines. And so when the pandemic hit, we were already set up for that. And then by 2017, we had our it guy build us our own service. So we had virtual as

Jamie Gruol: Yeah.

Fred Stein: the log me in stuff that, that takes up space. So we were already on a virtual workstation. We started, we wanted to cut down on paper. So we started telling clients that we’re going to give them discounts to join the portal, to do that. And with, with the, with the goal that at that, at that time, anybody over the age of 60 was over 50 at that stage was allowed to use old school, but if you’re under 50,

Jamie Gruol: Yeah.

Fred Stein: But older people now use tech all the time for doctor’s offices,

Jamie Gruol: Yep.

Fred Stein: with their grandkids. So they’re more, more well versed to it now.

So we started it back on around 2013, 2014. We started being less paper just from, you know, it was the way to go. And, and pretty soon it got to the point now is, If you want a paper copy of your tax return, there’s an additional charge for that now.

Jamie Gruol: Love that.

Fred Stein: and and we’re now taking of our clients and we evaluate clients every single year So now we’re taking like 25 or 50 clients every single year and we’re taking them up and we’re packaging them up and we’re them off to some of our remoters or starting their own practice

Jamie Gruol: Oh, cool. Yeah.

Fred Stein: Our prices are higher and these are the ones that may need that little more hand holding that You know, we’ll hand hold, but it’s going to be, it’s going to cost you money. And these are smaller returns that still want the handholding where some of my younger remoters were just starting out. they’re perfect for that. They pay me and they still make it more than what they’re charging. And it helps them value themselves and then charge more for their services as well.

Jamie Gruol: That’s so cool. I love that you have this. It’s almost just like a mentorship Academy that you’ve built into your business. I love that.

Fred Stein: It’s something that could be taught. We’ve, we’ve talked about it and we see it as a mentorship. And when we try to get, tried to take people that aren’t necessarily the normal fetch. business, um, like my administrative tax bond manager, she was a stay at home mom for five years when she applied and it was just for the receptionist. And we wound up giving her a chance, even though she hadn’t worked in five years.

Jamie Gruol: Yeah,

Fred Stein: What about one of our best decisions is every year, like we’d ask her to do things that were already done because she did on the previous year. And, and she’s invaluable now. She runs our tax department from the admin side for us.

Jamie Gruol: that’s so cool. That’s so cool. I love that. Well, Fred, is there anything that you would share with somebody who is in maybe like the earlier stages of the exit planning strategy that you think that if you had known this, You know, five years ago before you like actually started your active exit strategy plan that you wish you had known back then that you could share with them.

Fred Stein: You should, whether you’re in your first year, Or in your 20th year, you need to be looking at your exit strategy. What, what is your long term goals? We talk to clients whenever we plan. What’s the one year, three year, five and long term goals? We should have that for ourselves. Put it in place. Um, yes, you need to feed your clients. Your kids put food on your plate, but please don’t take every single client Not every client is worth having,

Jamie Gruol: Yeah.

Fred Stein: this industry. The client is not always right because they’re watching tiktok videos. So build the practice That you want now That you want in the future build that now.

Jamie Gruol: Yeah.

Fred Stein: take the clients you want Or if you have to take everything just because you do need the money Make sure you know you’re going to get rid of them and as you take on these two new higher clients You Get rid of the four lower clients and help bring that out. I’ve never been, when I was younger at the CPA firm, we’d sit around in the early twenties and go to the bars and say, and we were In the days where they beat you down they’re working 70 hours a week we said we’re never going to have this kind of practice and you know, We my partner we built a family friendly practice where we we tell our go to that kid’s kindergarten play You can take an hour and a half off during tax season go do it. got uh I have remoters with young kids that they would take the week off during spring break because the kids were home and it’s tax season build it for the full year and not just don’t see any pride in working eight hours a week, a hundred hours a week and not seeing your family. I never did that.

I don’t want to choose to do that.

Jamie Gruol: I love that. And I think those are words that everyone listening needs to take to heart. And if you’re not doing that, and if you had those same conversations when you were working for someone else and you said, I’m never going to do this, don’t do it in your business now.

Fred Stein: But we do.

Jamie Gruol: You probably are like, that’s some good introspection to like just sit with yourself quietly one day and just be like, okay, am I doing this?

Am I actually creating the business that I want? And if you’re not know that there’s people like Fred out there, mentoring others and sharing these types of things. I would love friend. How can people come and like, hang out in your world and like be exposed to you? Cause I think I am a firm believer that like, We just sometimes need to be, even if it’s like anonymously mentored by these people, but able to just see what others are doing and the thoughts and the beliefs that they have, and we can start adopting those as our own.

So I would love for our audience to know where they can come and hang out with you.

Fred Stein: Well, they can always find me on any of the Facebook groups. I’m in a bunch of them. I do run a Facebook group for Tax 101 where we’ve got other tax pros. It’s a group where they can ask all those called stupid questions that they get beat up on on some of the other groups

Jamie Gruol: Yeah.

Fred Stein: so and and it’s not it’s not to say that we’re just answering tax 101 questions They get some complicated questions, but it’s it’s a place where they can come and ask the questions It doesn’t mean they’re not going to be told to do some research on their own But it’s a mentoring group where some of the other groups are there to maybe Both mentor but to give answers and and each group is different. I run, An ultra tax group. I run a short prep group, but you can find me in cap encompass You can find me in uh as tax practice pro and other ones.

Jamie Gruol: Great.

Fred Stein: Yeah, i’m on twitter, but that’s more of a fun, just troll place for people. But

Jamie Gruol: Well, you want to hear some sassy tax talk?

Fred Stein: that’s it. And I’m quite open and I can be abrupt and brusque at times and I’m an acquired taste. So

Jamie Gruol: Well, I don’t, I don’t agree with that, but I think you, uh, you have a lot of great ideas and great things to share. So I appreciate you being a mentor in the industry and, and being here today to share with us your story. So we, we appreciate getting to hear about how acquisitions and exit strategy are so key.

To really having a thriving business. So I hope everyone took away some valuable takes from Fred today. And Fred, thank you so much for being our guest. We’ll see you on the next diary of a tax practice owner. Thank you.

Fred Stein: thank you very much, Jamie. Have a great day.