Are you looking to create a new business related to your current one with a business partner?
In this episode of the Bean Ninjas Podcast, Michael Wark, Wark joins us to talk about the process we went through in launching a new entity called the Bean Ninjas Money Mindset under the Profit First Program.
If you’re interested in setting up something new that leverages your existing brand or network, the experiences we share in this episode will be relevant to you. If you are an employee or team member looking to own a business or have an equity, we also talk about the things you need to do in order to create this situation with your employer.
In this episode, we discuss:
[03:50] The story behind Michael joining the Bean Ninjas team.
[05:26] His reasons for interest in owning part of the business.
[07:11] His thought process behind the shift in how he wanted to work with the business.
[11:35] Figuring out what he wanted to work on in the business.
[18:02] Meryl’s thought process around being a business owner, having a brand, and launching a related business.
[20:32] Structuring the deal in creating a new entity outside of Bean Ninjas.
[22:08] Tips for finalizing the contract.
[26:05] Transition steps after the signing of contracts.
[28:13] Advice for people in the first 6 months of building a business
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Transcription
Launching a New Business in a Recession with Michael Wark
Announcer Welcome to the Bean Ninjas Podcast, where you get an all-access pass to see what happens behind the closed doors of a fast-growing global bookkeeping and financial reporting business.
Meryl:
Hey everyone. Welcome back to another episode of the Bean Ninjas Podcast. I’m talking with Michael Wark today about the process behind launching a new entity, Bean Ninjas Money Mindset, which is related to Bean Ninjas but offers slightly different services.
Our core Bean Ninjas business provides bookkeeping and financial reporting services, and Bean Ninjas Money Mindset is there will be a suite of products and the first is Profit First Consulting and Coaching.
And it’s been a really interesting journey for Michael and I in figuring out how we’re going to structure this, how we’re going to work together. Michael’s been an accountant with Bean Ninjas since 2017, and he’s been in a range of different roles, actually. He’s the sales manager of podcast for a while; he’s been involved in video production. So he really seen a number of different aspects of the business.
I think this particular episode will be interesting for business owners who are looking at creating a related entity and giving a team member, or it may not be a team member, but it’s someone inside or outside of the business, but a partner, an equity stake in that business to be the operator in that business.
So if you’re interested in setting up something new, leveraging your existing brand and network, then this episode, I think you would; our experiences, the way sharing would be relevant and there might be something you can learn there.
And then on the flip side of that, if you are an employee or a team member and you’re looking at, well, you’d like to own a business one day or at least have a slice of the equity, then how could you frame things with your employer to create that situation.
And we actually had a previous episode with Kate Lynch who has done something similar where she was the general manager of a bigger company and also has split off a side entity, which she has an equity stake in, and we’ll link to that episode in the show notes as well.
And I think if you were interested in doing a deal like this from either perspective or it’s just something that you’re interested in learning more about, then you might find this episode interesting.
Hey Michael. Great to have you back on the podcast.
Michael:
Thanks, Meryl. Good to be here.
Meryl:
So today, we’re talking about the launch of Bean Ninjas Money Mindset, which is a spin-off entity from the main Bean Ninjas business, which provide bookkeeping and financial reporting services. And the genesis behind the new entity and Profit First Consulting really evolved over a period of two years.
So I want to go back a little bit in time and first look at why you joined Bean Ninjas and the story behind that. And then, throughout the episode, we’ll go through how we came to do this deal, and then what Bean Ninjas Money Mindset has looked like in the first month of operations. How does that sound?
Michael:
That sounds great. We’ve got a lot of material to cover here.
Meryl:
Yeah. So tell the audience a little bit about how you came to come across Bean Ninjas and originally joined the team.
Michael:
Yeah. It was in early 2017. I was flicking through my travel accountant’s magazine called Acuity and I read an article, an interview with you in it. And it kind of turned a lot of cogs in my head that I didn’t know were there. And a lot of what you were saying, I really connected with and made a lot of sense to me.
I haven’t read the article in a long time, but it was the remote-based business, it was your attitude to work, and it also helped that you’re a surfer as well; that probably actually touched my interest as well because I thought that would be a nice business to work for.
And at the time, I was working with a lovely bunch of people but in a more corporate office; in a more structured office. And at that time, I was looking for a little bit more freedom in my life, in my schedule, but still leveraging, obviously, my accounting background and experience.
So I think back then, I’d found your number and gave you a call on the mobile or emailed you and then we had a chat on the phone. And from there, I think I joined like as a part-time team member in March. A few months later, after a few back and forths and it was a bit of a trial period, and slowly, I met each of the team on calls, and then, I think it was like six months after that in October 2017, I came on full-time.
Meryl:
And what I found interesting about the initial contact; so number one, I was intrigued that someone had reached out to me to express interest in a role, and we weren’t actually hiring for an accountant at Michael’s level at the time. So I found that interesting.
And then also, you’d raised equity pretty early on. So part of our early conversations through the interview process before you joined Bean Ninjas involved you expressing the way you want it to be in the future; in five or ten years; and that you were interested in owning part of a business.
And it was good to have those conversations upfront that I had respect for you bringing that up from the beginning and being clear about what you wanted. And was there anything in particular that made you interested in owning part of a business? If you can remember, what was your thought process back then?
Michael:
Yeah. No, I do. I remember where I was as well because I was out, sneaking out on a lunch break at work with my employer at the time. And I was walking along the Finger Wharf in Sydney down by the water. Like I remember the situation when we were chatting.
And I think it was really important to me at that time, especially coming from a corporate world into the smaller business world. But I wanted to have that sense of ownership to give me the motivation, but also, to feel really invested and part of the business.
Obviously, being an equity owner has a lot of advantages, but it’s also, you’ve got more risk as well. So it was about expressing the fact that I wanted to have some skin in the game and help grow something, which was really important to me.
Meryl:
And so, you came on board at Bean Ninjas and it was initially part-time, and then came on full-time. And our original intention then was that you would eventually lead a portfolio within the bookkeeping business; so you would be running a team of staff and a portfolio of bookkeeping clients.
And in the early days, that was our plan around how you could have equity stake. And along the way, when we were having these conversations, and as I’ve said, this was over a period of a couple of years that we’re exploring this and try to figure out what exactly this would look like.
But at some point along the way, we realized, or you realized that that wasn’t exactly what you were after in terms of the type of business that you wanted to run. So could you talk a little bit more about that and your thought process behind that?
Michael:
Yeah. It was a big one, and it only happened along the journey, because, you know, at the start, I was learning, I was new to Xero, I was new to bookkeeping. I’d done, obviously, bigger, more management financial reporting in big corporations and stuff like that, so it was a whole different level.
So it was a lot for me to learn in the first couple of years just to get used to the small business environment. So that was a really stake learning curve, but an awesome one. And then from there, once I’d kind of mastered those skills and spent a lot of time with our clients, it kind of got to the point where it was what is the next step going to be.
And it wasn’t until we were mapping out the cash flows of how it would look and I was working out; well, how many people need to be in the portfolio, how many team members are going to be there, and looking at that split and trying to like imagine day-to-day what that looks like for me.
It started to crystallize that maybe that wasn’t where I felt I was best suited. And it only happened as we were doing these discussions, which, I guess, maybe to the listeners sound ridiculous because I should have imagined it, to begin with.
But a lot of it, for me, when I was first doing it; so I loved working with our clients. Like, I liked my contact with helping people and getting that feeling that I was helping the small business grow and thrive, and that contact with the clients was actually what brought me a lot of energy.
And then I realized that when I was imagining that the next level where basically I would be managing a team of bookkeepers and helping manage them and dealing with those different kind of management-style problem, I realized that that wasn’t going to make me as excited and that what I loved was working with our clients and helping them grow that business.
So it took me a while to work that out, which then led, I guess, into this new entity. But yeah, it was definitely a process.
Meryl:
And I think that thought process is really interesting and important for anyone else that’s thinking about running a business or buying a stake in a business to imagine, to run their numbers, first of all, and us doing that cash flow forecast and looking at; we’ll, how many clients would we need, what would that look like from a team perspective; that was all really helpful to have these conversations.
And when you’re forecasting, they never said it would be perfect, but it really helped to guide these conversations. But also, as well as forecasting, I think it’s important that the thought process that Michael went through; what does that look like for you day-to-day? When will you be working, who will you be working with, what brings energy?
So I think that was, yeah, really good thought process. And then we went through an interesting patch going from there. I could see the potential in you to run a business, and I wanted to find a way that you could continue working at Bean Ninjas.
But initially, it was a bit of a curveball because the only business that we had was bookkeeping. So there wasn’t really a lot else to offer in terms of something that could involve an equity stake.
And this next phase, it took us a number of months and quite a lot of conversations to really figure out, well, what’s next? How do we actually do something together? And it would be interesting to hear from your perspective, what kind of things you were thinking about in figuring out or if running a bookkeeping business isn’t the right kind of business, what is?
Michael:
Yeah; the million-dollar question. I knew I wanted to leverage my skills and experiences over my career and still leverage that knowledge that I’ve build up seeing so many different businesses over so many years, both big and small, all in different industries.
I felt like I had a real wealth of knowledge there that I’d be throwing away if I tried to change tac completely and I still; I love working and understanding businesses and seeing how they operate, and then also, trying to make them better. So I wanted to leverage that.
And I guess going back, another point to working out for people if they want to buy a business or run a business, you’ve got to analyze; does your skillset and what brings you energy, like the things that really make you shine, is that what you’re going to be doing day-to-day? Because the idea of an owner or a CEO, you’ve got to look at what are your day-to-day responsibilities and do your skills line up with that?
So it’s about finding the right little section the way you can thrive. And that I guess I was mulling over what I loved about what I was doing at Bean Ninjas already, and then where I thought I could grow into. But I also explored other options, you know?
In all honesty, I was always looking at the corporate world and saying, “Look. Do I jump back into that world with some more secure?” All the benefits of corporate life, which there are many; it’s more secure employment, you’re with a team, obviously, and that kind of stuff.
I looked into that world, but eventually, I came back to realizing that there was still so many things in the Bean Ninjas world that I love that it was just about working out what we could roll out or what I could move into that would combine my skills and experiences with my strength, but also still help people in our Bean Ninjas community.
And so, that’s where I started looking at, you know, I was inspired by people like the Barefoot Investors’ Scott Pape, I really loved his honesty and I loved his passion for helping small businesses. And then I was exploring personal finance kind of ideas about how I can try and help small businesses with this.
Because the big step of moving from the corporate world into Bean Ninjas, to begin with, was that like I had mates with small businesses and they’re like, “Oh, you’re an accountant. Can you give us some help with this?” And quite often, I’d have to say, “Oh, look. I do big corporate accounting. Like, I don’t have a lot of wealth to draw on for small business challenges.” And I was like, “You know what? Am I really useful in society?”
Like, if I can’t help my mates, if I can’t help my mates and I’m an accountant with all this stuff, like what am I really doing? So it was also born of a decide to be useful to my immediate community, not to an American multinational that funnels their profits back into that country.
Like, I wanted to be able to help people in my community and see those things grow. So that was kind of the motivation and the passion for it is to see people to get on my level in our world grow awesome businesses.
And so, that’s where the idea of coaching came in and leveraging my wealth of knowledge, but also adding value to people’s businesses. So not moving beyond compliance and moving into the value-added space where we help give business owners the tools, and skills, and templates, and the mindset to help their small businesses thrive.
Because I was already on a lot of sales calls as part of my current job, so I could hear the challenges of people. And our original product offering was answering a hell of a lot of that, but I felt like there was more to give.
And that’s I guess the genesis of why we’ve rolled out Bean Ninjas Money Mindset, and also the first product lines, which is to the Profit First Consulting. And then, obviously the coaching on top of that as well.
Meryl:
Yeah. And I think it was really important to take the time to do all that thinking and figuring it out. And I’m not the most patient person, in fact, people have known that I’m quite impatient. And if someone says something is going to take two weeks, then I want to investigate, “Well, why can’t it happen in one day?”
Michael:
Yeah. I did get the patience. I know that. I mean, I was [Inaudible 00:16:06] during this negotiation and we had a call and you’re like, “Okay, same time next week.” I was like, “Ohh, well, okay. I’m going to have to come up with some answers in a week now.” But thanks for your patience with that, I appreciate you.
You know, I was walking through the weeds of a foggy situation trying to work out what the end goal was, but it wasn’t clear. So it’s tough because you’ve got to answer those big questions like what’s your purpose, what do you want to do with your life, where are you going to be useful, what’s going to make you satisfied?
So it’s a whole bunch of stuff there. Like, they’re tricky questions, and I mean, everyone in life has to answer this kind of stuff. So it’s not easy.
Meryl:
No, you’re right. And my advice here is I knew I had to be patient because you can’t answer these life questions in two days. You might be able to build a financial forecast in a couple of days or a week and tweak it, but some of these life questions, they need the time to think things through.
And so, that was something I found challenging during this process, but I thought it was really important. And that’s the advice I’d give to anyone else in this situation is you can’t rush this kind of deal because it needs to be the right fit.
There’s no point in doing, building some kind of new business or having an equity stake with someone if you haven’t thought through when you’re going to be aligned now, and it’s the right fit for them and the right fit for you.
So as much as I wanted to rush this through and have it done really quickly, and as much as I found it difficult, too, to be patient, and for us to go through this process together, I’m really glad that we did.
And then that would be my advice for anyone else trying to do something similar is just to give space and time. Even if inside you want answers now, sometimes, you can’t get them and you have to just give people space.
Michael:
Yeah. I appreciate you doing that. It was helpful.
Meryl:
Well, it worked out well for both of us. I think if I had rushed it, then we might not have got to where we are now. So next, I wanted just to share some more perspective from what is my thought process around being a business owner and having a brand; so we already have the Bean Ninjas brand.
And then, why it would make sense, but also, what some of the risks would be in doing something like this where we’ve got a related business, and how my inspiration for this was reading a book by Dan Andrews called Before the Exit.
And the premise of that book is all about factors you should consider before you sell a business. And it’s not that we’re thinking about selling Bean Ninjas, it’s more that as business owners, we should always be aware of how to optimize the value of your business.
And one of the sections in this book was looking at, well, how can you leverage your existing assets? So instead of selling your business, what about leveraging what you already have, and your network, brand, assets?
And so, for me, I was interested in exploring that. And so creating a related business is one way of achieving that. But I also had some concerns; you know, you hear about staying focused doing the one thing. And so, I was worried, would I be losing focus if I did help around a related business like this?
And that’s something that I had to be conscious of because Profit First Consulting is a little bit; it’s really related to what we do with our bookkeeping services, but it’s not exactly the same. I was also worried about spending a whole lot of time on the deal, especially if it didn’t go through because then the benefit of that is zero.
But then, the other side of that was I was worried about losing a key team member who had a whole lot of potential. And that’s why I thought it was worth it spending the time on this. And the way that I’ve addressed this with focus is really that Michael’s running the Profit First business.
So, yes, I’m involved, especially in the early stages. But I’m clear about not spending 40 hours a week on that because, obviously now, there’s multiple businesses that we’re running.
So I thought it would also be interesting to talk through how we structured the deal. And again, this took some time. So first of all, we had to figure out what the right fit was in terms of business model and then what we were selling for Michael’s skill set.
But then, we also needed to figure out well, how do we actually structure the deal between the two of us? So Michael, did you want to explain how we’ve structured the deal in terms of us creating a new entity that’s outside of Bean Ninjas?
Michael:
Yeah. I mean, yeah, it’s relatively simple. It’s just setting up a different entity, and we’ve both taken a stake in the new one. So we both have skin in the game, which is kind of what I wanted. And that’s for me really helped with my motivation and my focus as well to feel like I’ve got what I was trying to get over two years ago now. So it’s nice to have that locked in.
And then, I’m just taking a pretty modest salary to begin. Obviously, we’re trying to get the business off the ground, so I’m still paying myself a wage, but obviously, a pretty low one to begin. And I’m the sole employee of this company and we’ve got a cash runway to get us through probably ‘till six months, and that’s probably where the crunch time will come in. So I’ve got a little bit of runway to get my hustle on and try and get this off the ground.
Meryl:
Yup. Great. And we’ve talked a little bit about how we figured it out and the negotiation. So going from figuring out what the business was, and then, I think it was about October last year, then we started to dive into the detail in terms of getting the contracts or shareholder agreement; all of that sort of stuff organized.
So I think it took us about three months to get all of that locked in, ready for our first of January 2020 start. Is there any; do you have any tips or just insights from your perspective of finalizing that arrangement if someone else was looking to do something similar?
Michael:
I found it really useful going through all of the scenarios with you during the contract negotiations, and not just the good ones but the bad. And those are weird, sticky situations to have that you normally avoid. But I’m glad we’ve got a relationship where we both could be honest and bring this to the table because maybe a lot of businesses do fail.
And the whole point of this entity is to stop businesses doing failing, but you need to, at the start, also imagine what happens if it does go wrong. And so, not all of that was in the shareholder agreement or the legal contracts, but it was a conversation with you and me going, “What happens if XYZ happens?”
And we talked through those scenarios to make sure we’ve explored all of the area and not just focused on, “This is great. When we’re millionaires, how much do we both get?” It was having a clear understanding of that I found really good because it was not only obviously realistic, but it also brought up questions that we wouldn’t normally talk about.
And I guess it’s a bit like parenting. I’m sure you can relate to this when you have a new kid. There’s a whole bunch of decisions that you need to make about this kid that you didn’t think about before. And if a business goes wrong, there’s a whole bunch of conversations you need to have that you didn’t think you would before.
So yeah, I found it really good to explore both the good and bad, and explore all the options to make sure that you’re both on the same page as to vicarious ways it could play out. And obviously, you’re aiming for the best. And then, that’s where we’re moving, but I found that useful.
Meryl:
And I’ll add a couple of extra comments on that, I think the process of drafting contracts and going through all of those details together is really good, just following on from what you were talking about the benefit of talking about all of this, talking through different situations and discussing things that might make you a little bit uncomfortable, but it’s good to have those conversations early.
And part of my broader approach to contracts and working with people in things like shareholder or having equity stakes together is thinking about, “Well, could I; do I think I could solve the problems with this person?” Because our contracts aren’t going to cover every single situation.
And so we’re going to need to be able to; when problems arise, to be able to talk through it. And so, to me, it’s much more important to know that I’ve got those kind of relationships than having every single scenario documented in the contract.
And so, that’s something that I’ve felt with you, Michael, that if situations come up that we haven’t thought about, even though we have tried to talk through most scenarios, that we’ll be able to come to some kind of fair arrangement and talk through things in a reasonable way.
And that’s, I felt similar with Simon and with Wayne, who you might have heard me mentioned on the podcast previously. They’re both in on the podcast previously who also are involved with Bean Ninjas.
Michael:
Yeah. Absolutely. I mean, and that’s based to the bigger point of choosing who you get into equity arrangement with and are they the right business partner? I know you’ve covered that a lot with Wayne and also Simon, but I guess that flags a whole bunch of stuff. If you can’t have those conversations and have that handshake deal kind of feeling, then is it the right person, to begin with, I guess?
Meryl:
Yup. Spot on. So I wonder if you could next talk through; so the contracts were signed and we’re ready to kick everything off first of January. So what’s it look like after that? Were there any kind of tradition steps in getting going? What needed to happen? What have you been working on after we got everything locked in?
Michael:
Yeah. Once the contracts were signed, I guess it was going through all of that business setup stuff. So the palaver of opening up all that new business bank accounts; been on the phone way too much with banks. And registering it with ASIC and doing all that kind of basic knots and bolts of starting a business.
So balancing those demands along with obviously the Profit First component, which is getting up to speed with developing our Profit First offering, working out what our price points are going to be, and also, how the coaching packages are looking? So developing not only the business’ internal finances, which takes a bit of time, but also then working out what we’re taking to market and how that fits in with the current Bean Ninjas offerings because it’s not just beginning a new one.
I’m kind of, I’m growing next to the bigger Bean Ninjas brand. So it’s working out how we look from that perspective. And then also, beginning the process of doing that direct outreach and actually getting out there a bit more, which has been a challenge for me because I’ve been normally just working in the business and taking sales calls. But the leads have been coming through our normal avenues.
So it’s been good for me because it’s also made me facing fears about putting myself out there, and having to post a little bit more on LinkedIn and do videos. So it’s good because it’s pushed me in a whole bunch of areas outside my comfort zone, because that’s how people get to know you and that’s how people might want to work with us.
So yeah. It’s been kind of a few different spinning plates and just trying to keep them all going, moving ahead in the right direction.
Meryl:
And I know back from the early years in Bean Ninjas, the first month and first year in business especially, it can be overwhelming because there’s so many areas where you could spend time; so many things to do. Do you have any advice for other people in their first couple of months or six months of business around where to spend time?
Michael:
First advice is to have a good mentor. So it’s been great working with you, Meryl, that you could…
Meryl:
Well said, Michael. Well said.
Michael:
Point my noise in the right direction when I might be getting off track. I read an awesome book called Atomic Habits recently, and it talks about there’s the actual action of doing work, and then there’s the peripheral stuff that feels like work but you’re not moving the needle in any way.
And so, it’s making sure you address the things that are moving the needle, and quite often, internally, you know what those are. But because you’re scared a little bit, you distract yourself with the other work.
So for me, an obvious one, is the direct outreach is hitting up my friends, and family, and mates, and people in LinkedIn and saying, “Hey. I’ve got a new business. I’m offering this. I want to tell you about it,” and putting yourself out there a bit more. So that’s been probably the big one for me.
But it obviously depends on the business, and I think it’s getting your first sale and doing that, and speaking to your customer, working out what they want. And I guess for me, it’s a little bit different because I’m not selling a product; I’m not in e-comm. Mine is about working out what our customers need and making sure that my products are suiting that.
So it’s about just hitting the ground running, but also building a stable platform, to begin with. So I’ve been very mindful of making sure that I’m trying to set up processes or document the processes as the business develops. And we do different situations with the view that eventually, hopefully, other people come on board and help and there’s a bit of structure to what I’m doing.
Meryl:
Yup. Great advice there. And I’ll just add a couple of closing thoughts because this is, I’m in a new role, too, with this business. Previously, I’ve been on the ground, and in the early days of Bean Ninjas, it was me that was talking to customers and figuring out pricing, and doing a lot of those things.
And so, I’m really enjoying being in this different role where Michael’s making a lot of those decisions and I’m providing import and advice, but it’s really nice seeing you Michael really challenge yourself and do things like these LinkedIn videos, and yeah, get a little bit out of your comfort zone and to see the progress.
We’re only; it’s only the middle of February when we’re recording this. So we’ve been going for about six weeks, and already, to see the progress that’s been made, it’s awesome. So yeah, really enjoying the process and it’s been fun actually chatting with you and sharing this story as well.
Was there anything else you wanted to add? Any closing thoughts before we wrap up this episode?
Michael:
No, not at all, not at all. Yeah, I’m excited, and hopefully, we look back on this podcast.
Meryl:
Right. Well, thanks so much for joining us again on another episode, Michael. And we have a related episode to this, which dives into all the details about Profit First; the benefits, how you implement it, and also, a number of the challenges you can face when trying to implement it.
So we’ve got a link to that in the show notes. So make sure to check out that episode as well if you’re interested in learning more about Profit First.
Meryl:
Do you want to improve cash flow or get started with Profit First in your business? Well, we’ve got a resource that might help you. It’s called our Profit First Kickstarter Kit and it includes two chapters; so the popular Profit First book by Mike Michalowicz, and it also has a template that will help you to make your Profit First allocations.
Just head over to beanninjas.com/profitkit. You’ll be able to access it for free.
References and Links Mentioned:
- Book: Atomic Habits by James Clear
- How to Launch a Side Hustle with Your Employer’s Support with Kate Walsh Rose
- Profit First – Benefits & Challenges for Small Businesses
