You Can’t Add Back What You’re Still Doing: An IT Services CEO’s Guide to Clean EBITDA

23 Apr You Can’t Add Back What You’re Still Doing: An IT Services CEO’s Guide to Clean EBITDA

Shoot The Moon

You Can’t Add Back What You’re Still Doing: An IT Services CEO’s Guide to Clean EBITDA

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EPISODE 216: Let’s talk owner salaries, bonus plans, and the fine line between smart and shady.

EPISODE TRANSCRIPT

Mike Harvath  00:02 

Hello and welcome to this week’s Shoot the Moon podcast, broadcasting live and direct from Revenue rRocket world headquarters. If you know, if you’ve tuned into this podcast in the past, revenue rocket use the world’s premier M&A advisor and growth strategist for tech enabled services companies! With me are my partners Matt Lockhart and Ryan Barnett, welcome guys. 

Matt Lockhart  00:25 

Great to be here. Mike, you know, we sometimes give a report on things here in the great white north, and happy to report that I think spring has sprung. So we are. We’re excited. You know, we hibernate for a few months in the winter, and it’s exciting to exciting to feel the sun. Also exciting topic today, Ryan, what’s going on? 

Ryan Barnett  00:52 

Yeah, it’s a it’s a great time for a little spring cleaning. And one of the things that people do in their P&L’s is sometimes spring cleaning with the lines of things they spent on when it comes to financial reporting. And so what we want to talk today is the concept of add backs to EBITDA. And so if you’re not in the M&A world and have not gone through a process or not seen as the term add back might be unfamiliar, and the easiest way to think about this is that an add back is an expense that’s typically non recurring or discretionary or even owner specific, and the biggest thing is that it is expected to disappear once it’s gone, if You think even about the definition of EBITDA, the earnings before interest, depreciation, excuse me, amortization. They depreciation and amortization. If you think about that, those are you’ve got that in net income before all those things that essentially are things that are expected to disappear post close. And we get a lot of questions from buyers and sellers of what is an add back and what’s an appropriate add back? So kind of the gold rule out there. If it if it stays, it pays. If it goes it grows. So essentially, if it goes away, it’s going to be that add back and have a multiplicative effect. But if it stays, put it, you’re going to have to pay for it. So today we want to get that definition of what an add back is. We’d like to talk about some scenarios and clearly what’s in or out. And then I’d like to talk Mike about a little bit about some of the gray areas that are out there as well. So Mike, if we define that add back as a non recurring expense expected to disappear. Why is that important when it comes to the calculation of EBITDA, when it comes to deals in the IT services market? 

Mike Harvath  02:49 

Well, as you mentioned, Ryan, you know, all deals really in the IT services market are based on a multiple of EBITDA. And there’s a variety of factors. You guys have probably heard that term or familiar with it. It is earnings before interest, taxes, depreciation and amortization. EBITDA. It does typically get calculated in a trailing 12 months EBITDA. That’s why we’ve talked about in past podcasts. It’s important to have in corporate financial hygiene, be able to tell EBITDA is and, you know, have sort of defendable financials. When someone looks at it, when you think of an add back, you know, an ad back is typically something that adds to that EBITDA that maybe is a discretionary charge that’s made for, oftentimes, owner benefit. So sometimes that won’t continue if you were to do a transaction with someone so easy ones that are defend are, you know, let’s say you have your car lease, if you’re an owner, and run through the business, and you know that won’t continue after you own the business. You’re gonna not you know, need to run that through is an expense. So it’s easy to add that one back to EBITDA as an example. And there’s a variety of other owner discretionary one time expenses or other things that might, you know, not continue post close. Sometimes people have sports tickets or boxes or things that they run through their corporate P L’s that are justifiable and easy add backs also some one time expenses often are considered an add back. So one time expenses might be some legal fees you had in a particular year that are anomalous, or they might be, let’s say you do some estate planning, and you put a trust in place, and there’s a one time, you know, legal fee for that, that certainly would be a justifiable add back, or you’re having a M&A advisor work with you, for example, that’s a justifiable add back. It’s one time expense happens before a transaction. Won’t continue post deal justifiable add back. Now, there’s certainly plenty of things that are in the ongoing business that people try to put in for add backs that will need to be continued post close that if they weren’t continued would harm the business. Oftentimes, the easiest way to think about that is that is not a justifiable add back, even if it’s a contractor type expense, if it’s, you know, form, if it’s part of the ongoing operation, it likely is not qualified as an add back. Hopefully that helps. 

Ryan Barnett  05:33 

Yeah, my thanks for getting us going here. And I would like to say that this is seems like a big battle between buyers and sellers. Battle may be a little harsh, but it is definitely a point of contention or deep analysis. That’s probably the word we’re looking for between our buyers and sellers. And the reason for that is the buyers they’re looking for kind of that, that really true operating costs of the business and sellers. This is one of those times where you might hear the term sellers discretionary earnings. This helps them boost up kind of that seller’s discretionary earnings. However, the every add back that you take a look at is going to have scrutiny. So I think one of the things that when we think about the concept of add backs and and walking through them, having a defensive position on each add back is critical to help you as a seller, be able to claim those add backs increase EBITDA, and if the deal is based on a multiple of EBITDA, ultimately increase the payout that you have. Matt, I’d like to to help bring you in on the on the conversation Mike had mentioned the owner’s compensation that is typically above market is going to be a pretty clear, clear, add back. However, when you think about that owner’s role. There’s a lot of confusion of what can be an add back or what’s not an add back. Can you help us just dig into the discussion about an owner’s compensation and how that should be looked at when it comes to add backs?  

Matt Lockhart  07:15 

Sure and great question, you know, and I don’t think that it’s it’s not a clear line, right? It really needs to be thought through as you ask frame the question in terms of what that owner’s role is. So let’s look at a couple of scenarios. Say it’s maybe a smaller firm, and the owner is obviously providing the top level leadership and guiding the firm, and oftentimes in in smaller businesses, the owner will also be providing sales management, or Could even be the number one sales person, right? And say the that owner is looking to sell the business, and he’s found a suitable buyer, and they have agreed that there can be a short term transitionary period for the owner, and so the owner, and this scenario, is being paid market, you know, he’s paying himself what would generally be seen as market, right? And he’s saying, Well, I’m going away. And so, you know, I get an ad back, right? Because I’m going away, and that and the cost of my salary is going away. Well, the buyer may look at this scenario and say, Well, yes, you are going away however, you are providing some critical functions in the business that don’t exist when you leave, right? And we are going to have to replace those critical functions right within the business. And so it’s really not appropriate for that owner to be able to claim a full add back. Now, using that scenario, maybe the decision is, well, we really need to hire a sales leader, and because that’s a critical function that you’re taking, we understand that, and we’ve agreed that you can transition out of the leadership and we will be able to consume the leadership responsibilities in your role, but we can’t consume the sales leadership aspect, and yet, a sales leader is going to be paid less than that owner’s compensation. And so, you know, pretty simple math. You say, take the owner’s comp and. Compensation minus right the compensation that would be expected for a sales leader, and then there is still money left over that would be an appropriate add back in that scenario. So, you know, I bring up the scenario aspect because you really need to look at it on a case by case basis as to what the role the owner is playing and what he’s built within the organization to be able to continue as a going concern when that owner leaves, 

Ryan Barnett  10:41 

Matt, I think one of the areas where we typically start to see confusion is this definition of of this setback. And it’s almost on every line that we see, there’s some level of an owner add back for their compensation. And I think the one scenario we see the most which sellers really have the hardest time understanding is that if you’re staying with the business, you cannot add back your salary. That’s kind of the basic way to go. If you’re selling in, you’re with it, you’re staying on. That’s not an expense that stops. It’s it’s still there. So let you likely see that you’ll have an employee agreement, or you might have some kind of contractor agreement. You’re going to still get paid in a different way, but it’s not going to have that multiplying effect that you may see within a transaction. I think we see a lot of a lot of kind of mistakes or people misinterpreting what this means that if your salary is an add act, that means it’s not going to continue going forward. If you think about other add backs, in this case, we’re just very, very clear, if you have an ex being owner, absolutely that compensation is going to be on there. Mike, you had mentioned M&A legal fees. When you think about some of the ongoing fees and Matt help, or Mike, Mike, if you think about those fees of a lawyer, the one time transaction fees that are associated with m&a, that’s pretty clear that’s not going to happen to your company again, and that’s going to go away. But how to view expenses that may have this kind of one time charge versus a ongoing charge? What do buyers look for in that those types of scenarios? 

Mike Harvath  12:40 

Well, you have to sort of think about, you know, walking a mile of the shoes of the buyer, right? If you’re a seller, and say, you know, if I’m going to operate my business, close, close, you really have to use this litmus test that says, Is this an expense? It’s going to continue in some way, shape or form, in the future? So, you know, that’s the same reason why an owner’s salary doesn’t get added back? Someone’s gonna have to damage that business. Someone’s gonna have to, you know, in some cases, sell at that business, if that’s part of the role that the owner was playing, even if they’re going away. And you know, that has to be rationalized. And so I think, you know, that’s an important point to answer the question more directly, you know, I would say, you know, certainly there is always some discussion around add backs of whether it’s a gray area or not. Some of that occurs, like with rationalization of staff. Well, you know, I rationalize three people. We had a riff. Those guys are gone. Well, that’s fine. When was that? When did that occur? Do you really need them in the business? Is it a role that needs to be funded or not funded? You know, those are things that you have to really unpack if you’ve sort of had a riff and a way to optimize profit. Now you may have done that a reduction in force risk is what I’m referring to as a way to optimize profitability. You may have done that to crop up EBITDA because you knew we were doing a deal. You know, it’s up to the buyer to sort of make sense of that, and I think it’s up to you as a seller to be pretty forthright about, hey, we, you know, we’re getting by running more lean. Maybe we could use a person here. We’d probably hire one if we weren’t doing a transaction. Just be more open and transparent about that. Certainly, it’s important to think through that like a buyer, like, what do I need to really run the business? You know, that recent example we had was on marketing expenses. A company outsourced a bunch of marketing, had some marketing going on internally, and you know, they’re having or wanting to add back all those marketing expenses. Well, you know, to grow, continue to grow the business after the transaction is done. You. I’m sure the buyer is going to want to continue to do marketing right? There’s going to be marketing expenses. They’re going to be sales expenses. There’s going to be office and rent expenses, things that need to be there, that were there free transaction that would just never qualify as an add back. So you know, the advice I would give any sellers to think through, you know, it’s just kind of a one time thing or an owner benefit thing, okay, that’s good enough. You can sort of justify that if that cost isn’t going to continue post close. But if it’s something that you would spend your money on to continue to run the business, if you’re running it, continue to own it run it, then it probably is not going to qualify for something that would make sense to add back, 

Matt Lockhart  15:48 

you know Ryan, you brought up the legal fees. I think the legal fees is the is an interesting one that could be seen as gray area if somebody doesn’t do what Mike was just advising, which is to be, you know, really transparent as to what these costs are so. And the reason I bring up legal fees, so say you employ a lawyer to do contract review on an ongoing basis for new contracts, new supplier contracts, or new master services agreements, and so on and so forth. And say in the past, in the year prior to you selling the business, there was a lawsuit. For whatever reason, there was a lawsuit that was in place. And you don’t have a history of lawsuits, but it just happened to fall within in that year prior to the transaction. So the the correct thing to do would be to detail out these different legal fees, right? And say, okay, look, there’s a you see an increased cost right in legal fees. In the preceding year, there was a lawsuit. This was the situation. It has all been resolved. There is no, you know, pending lawsuits, etc, etc. And that cost, say it was $100,000 that cost is an appropriate add back. Now the total legal fees were, say, 135,000 because there was $35,000 being spent on an ongoing basis in in contract review. And that $35,000 was there the year before, maybe it was 30,000 or whatever it may be. Well, that 30,000 or 35,000 is not add-backable, because that is something that is a fee that you are using to continue to run the business. 

Ryan Barnett  17:57 

And I think it you hit the litmus test, great if it continues and it’s ongoing, and it’s something you’re used to paying for, and that could be a role, or it could be a service that’s likely the buyers are not going to let you allow to have that add back and Mike one thing that’s just more of a technical nature, but I think it’s important to just to talk about, and this goes a bit back to owners compensation, but when you think about distributions that are allocated to a to a individuals or people, those are sitting on the balance sheet, it’s important to know that if a add back is to be considered, it’s got to come from the profit and loss and just Mike. Is there anything to add to that? Or have you seen cases in which non P&L items have been considered? Or any advice to sellers that to make sure that those items come off the P&L? 

Mike Harvath  19:01 

Yeah. This is a super common mistake Ryan that sellers oftentimes make. They may take the lion’s share of their income, or in some cases, all of their income, as distributions, distribute. Owner distributions, right? Owner distributions are a balance sheet item, and do not hit the P&L, and thus do not impact profit. And when that’s the case, they essentially come out of retained earnings. But when you’re when you’re running a business, and you want to, quote, unquote, add back, logically, you think, well, I should add back my compensation, or a portion of my compensation, because it’s above market, let’s say. But if it hasn’t come through the P and L, right, it hasn’t come through a normal payroll function on your P&L, then it cannot be added back. And I think that’s just really, really important to note. Lot of times we’ll see you. Uh, sellers who will say, Well, you know, I paid myself, you know, above market, you know, X, Y, Z, dollars and and so that above market portion we want to add back to the P and L, even though it came through the balance sheet. Well, that’s not appropriate, nor would it be accepted. Pretty common thing that we see. And so just, you know, as a seller, think about that again. Walk them on the fuse. The buyer, you know, if it’s never impacted the P&L, it’s hard to add it back to the P&L, and owner distributions happens to be one of those categories. 

Ryan Barnett  20:43 

Great summary there Mike and and on that note, there are certainly one time revenue and profit that is also not appropriate for an ad vaccine from 2000 through 2003 even through today, you’ll still see a PPP payments go on to a essentially a revenue source and buyers. You got to be careful on to make sure that the revenue is really associated to the revenue delivered, not necessarily a one time program that’s out there. Switching gears a little bit. Matt, I’ll start with a punch line here in that oftentimes when two businesses come together, the synergies that are created in that business for perhaps overlapping roles, overlapping systems, those synergies go to the buyer in the context of add backs. Have you seen a scenario where people have tried to add back, perhaps their connect wise system. And if, let’s say you get connect wise, and you’re selling, connect wise is a big professional service estimation tool used by most or many, many, many managed service providers. And let’s say your buyer also has connect wise or Kaseya, and your buyer has Kaseya, can that be an add back, or is that just simply a case of the buyer gets to rationalize that fee, those costs as they go forward? 

Matt Lockhart  22:10 

Yeah. I mean, it’s, it’s clearly not an ad back they Yeah, if you go back to what are the costs that you need to continue to operate the business right, and that’s that as though it was a standalone business. And moving forward, I think that is the sort of the clearest line. And and a system like connect wise, or, you know, you could say any ERP system, or any CRM system, and the seller could say, well, you’ve already got one of those, right? So you don’t need it. And so I get the I get the add back. That’s just not the way the game works. It won’t be accepted. And so you can’t think along those lines. And you know, it does simply go back to that principle that you started out with Ryan, that are these one time expenses, or discretionary expenses, or personal owner expenses that are going to go away. You’re the mere fact that the buyer can rationalize that’s good for them. It’s good for the buyer. It’s one of the reasons that that people look at at making acquisitions is that they they can spread their costs out across a larger revenue stream and and and more businesses. And so that’s a real positive for the buyer and and sellers need to go into the process understanding that and and enabling and really quite quite honestly, it we guide our sellers to be able to point out the benefits that can come now. It can’t be added back, but in negotiation of what the ultimate enterprise value is, there is some value there, and it can be incorporated into that negotiation, as opposed to, you know, what are our Correct and justifiable impacts? 

Ryan Barnett  24:21 

Yeah, great, great.  

Mike Harvath  24:23 

I’m going to add a point there. Ryan, you know, buyer synergies are interesting because, you know, buyer synergies can be shared with sellers, but this is how, if you structure a deal, certainly you may have an earn out, let’s say, or a sort of a contingent pain, and if you’re able to create more profit through the combination of those businesses, even though they’re buyer synergy related, it could impact your ability to make your earn out. Likewise, if you roll equity as an example, and now you’re an owner in the new entity, obviously those buyer synergies you’re going to take advantage of. Of either through some cases, distributions or increased enterprise value. And so you know, you certainly want to encourage owner synergies, particularly when you’re going to be able to participate in more and more deals, sellers are able to participate in buyer synergies, sort of through these vehicles. And so don’t be thinking of it as a win lose type negotiation. And certainly is win win. And there are pretty firm and established buyer synergy areas that are an opportunity, GNA related expenses oftentimes have buyer synergies. To your point, Matt, like, you know, back office and accounting, there may be some synergies. There may be some synergies and savings and licensing, you get some to more seats, you get a bigger discount. You’re able to, you know, leverage outside professional services, maybe a more effective rate. All those things impact what would be perceived as a buyer. But oftentimes, depending on how you structure your deal, you get that benefit as well. 

Ryan Barnett  26:12 

That’s a great point. A lot of this does deal have to deal with deal terms and offer to us to refer back to one of the podcast, I think it’s a good topic, is that a EBITDA multiple is not an offer. And so just keep that in mind, even though we’re spending a tremendous amount of time talking about some nuanced things on making sure that EBITDA is to what is accurate, and sellers really thinking through this process of what, what should I include in this and in the multiples in their space are guidance if they’re not an offer, and that offer is going to be based on many things, including something like EBITDA multiple I’ve got a super tactical One. I just want to address it. I think Mike might be best to cover this one. Just quickly. We see a lot of P&L’s that have seen a reduction in rent, and sometimes that reduction in rent or a sublease can be put as an add back. And we’re starting to get some questions on, is that legitimate or not? Okay? Can you just either Mike maybe start or Matt, feel free to jump in here, when you consider rent and these reductions, how is that viewed in as an add back? 

Mike Harvath  27:34 

Well, a fair amount of moving parts are in rent and rent add back. So oftentimes, you know, IT services companies, because they tend to be, you know, pretty strong, high cash flow. Businesses will buy real estate on the advice of their either, you know, maybe you buy a small building somewhere and, you know, and then you have a rent. That’s not market like you’re either charging yourself too much rent, sort of as a tax strategy, or, you know, you may have some other off market rent sort of scenario. And I think it’s important to understand, again, walking a mile in the shoes of the buyer, that you have to try to forecast to the best of your ability, what market based rent would be post transaction. And you know what that means to the P and L moving forward, that really is this limits just to determine whether or not any portion of that rent would be an add back or a reverse add back, in this case of maybe you’re charging yourself above market rent, renting space from, you know, another one of your corporations, because you own the building. And so, you know, again, the advice is just, you know, think of it like a buyer. You know. What’s the likelihood that your sublease tenant? In the example you used, Ryan is going to stay on? Is it a month to month thing, or is it a longer term thing? You know, really, will it be material over time? Are you going to need to take that space back if you grow? You know, likely you’re going to do a deal, because there’s more opportunity with your buyer than there would be on your own. So maybe you need to ask those sublease tenants to leave so you can have that space back to go into. All those are considerations, and you have to sort of think through it again as a buyer to say, what’s the more likely expense there, and does it qualify for an add back or a river zendeck, 

Matt Lockhart  29:44 

you know, Ryan, you brought up the fact that we, in the past few years, right, we’ve seen a little more of this. I think that that the pandemic, you know, obviously had an a bit of an impact on this. But even more so, i. You know, some organizations have rightly so, made the decision to move from an in office to a hybrid or a fully virtual organization, and the business has thrived. The business has grown. And, you know, maybe that decision was made, and there was a year left on the rent, right? And they said, Well, we’re just gonna, we’re gonna swallow it, because it’s the right thing to do for the business, right? And so I think that we saw, we’ve seen more of those scenarios, probably less. We will see less of those moving forward. But that is an sort of a nuanced situation that needs to be talked through, and could potentially have some merit as a as an add back. 

Ryan Barnett  30:53 

Yeah, great, great, great feedback there, Matt and Matt, you can feel free to keep going with this question. And I think this is the last question I got for in or out nuance. Great kind of questions. But one of the things you’ll see on the P and L is oftentimes employee or management bonuses. And I’d love to get your take on this, Matt, when you think about a bonus, one phrase. Everyone thinks their bonus is special, but buyers just think it’s payroll with a hat. I’d love to get your take on this. And if you think about bonuses, there could be one time bonuses. Might be an annual executive bonus, there might be a performance based bonus, and there might be a commission or profit share bonus. And so if you think about, in those in those senses, Matt, how should can bonuses show up as an add back? 

Matt Lockhart  31:52 

well, I think that you, you framed it, there’s there. There’s a number of moving parts, and there’s a number of different types of bonuses, those bonuses that are an ongoing use for compensation and and the system that you’ve set up to drive the performance of your business will likely continue forward, and when they continue forward, then not appropriate other bonuses, or maybe a profit sharing scenario that you brought up, the those may not continue forward And with a new business, and one could see a good strong argument that those types of scenarios will not continue forward and and so then merit a good discussion as to the viability as a as an add back. So I think it, it really depends on on how and what these bonuses are used for as part of the overall compensation philosophy of the business and and then Again, you know, are they going to continue forward? 

Ryan Barnett  33:23 

Yeah, great, great. Thanks for breaking that nuance. I There’s all sorts of cases here that you can see the back and forth that you have here, and I think that’s part of of this. This whole discussion really comes down to that there, there is a back and forth, and so buyers are always going to redo your ad backs. That’s just the reality of it. So they’re going to cast your forecast, and they’re going to recast and they’re going to take a look. I would say that if you get too aggressive with your ad backs, that starts to erode trust. And so when you’re going through this whole process, you’re trying to really show transparency. You’re trying to build trust, and if you have a big number that’s out there that’s driven by add backs that can erode that trust, and also just, you know over inflated EBITDA that that ultimately is going to equal more valuation when the truth comes out. So if you’re inflating EBITDA by utilizing some aggressive add backs. Buyers are going to take a look again, you know, if you think about it like a dating app profile, and you can Photoshop your pictures, and you can really you can Photoshop your EBITDA, but the buyer is still going to see you in daylight eventually. I mean, they’re going to take a look and so just keep in mind, whatever you put in here, they’re definitely going to take a look at and they’re going to analyze to a point that may run the trust that you that you’ve got. Mike, Matt, I love this. We’ve done this podcast before, but has there been an ad back out there or good at. Story that could make me chuckle, and just something that was over the world. He just thought, oh my gosh, I can’t I can’t believe this is even on here, 

Mike Harvath  35:09 

by which time we got Ryan. Oh, we have some funny ones. We have some certainly ones that you know, have been ordered on even being legal. I mean, I’ve seen ones where people were paying for their to be two scandals here, but paying for their mistresses home and a large feed of them every month for, I guess, their support in that individual business owner trying to justify that. I’ve seen lots of issues around plane streams and automobiles where people have tried to justify those add backs, even large automobile collections and things like that would make sense as an add back. But, you know, some of them are interesting, some of them are illegal. Some of them add a lot of doubt around the ethics of the seller. And I think when you think about that, you really have to not only think about what you’re going to put in add back. So, you know, does this erode trust? Right? Because your point earlier, crazy, add backs do erode trust, and even quest cause the buyer to question whether they can work with you, even if it may be, you know, perceived as something that’s legitimate. But, you know, I would, I would just say, and oftentimes it’ll also question someone’s, you know, not only ethics, but maybe it questions their business judgment, if it’s an extreme expense that’s not sized for the business, even if it’s for personal benefit. Certainly, I’ve seen, you know, many of those as it relates to luxuries or trips or investments in in things that you know may not be interesting. We’ve also seen investment losses tried to be put in as add backs for things pursuant to the business or adjacent to the business that are sort of arm’s length. So you know, when I joking about how much time do you have? There’s certainly been a lot of things that have been tried. I think it’s important, again, to lock them on the shoes of the buyer, to make sure, one, they’re reasonable to their defensible and three, that, you know, it doesn’t, it doesn’t make you look like you’re just, you know, doing a land grab for EBITDA when that’s not appropriate, 

Matt Lockhart  37:43 

Safe to say, careful with those personal airplanes, right? You know, and but, but in reality and good guidance, if you are thinking that your time is coming, right? And we always talk about this, the very first thing is, is it time to look at a new chapter with your business? And you’re one of those individuals who, for years and years and years, has run a large amount of personal expenses through the business. And you know, understand why people do it right? And can be freeze, can be there can be some tax benefit, you know, etc, etc, but you know that your time is coming. Just a real, just smart thing to do is to stop running all your personal expenses through the business right to Mike’s point, it can raise questions, right? It can, it can make the discussion as to what is applicable and not applicable for for add backs to be more difficult, and can be, as Ryan said, can turn into a battle, if you will, and ultimately, can make the process of trying to get your reward for your life’s work more difficult. So just a good 

Ryan Barnett  39:18 

to absolutely add, and the I’d say the best piece of advice in this is that if you run a business that generates great net income without add backs, that’s probably the the easiest piece of advice that we can give you, is that if the better that net income line, there’s buyers will have audible groans when they open up a spreadsheet that has add backs a mile long, and so sellers, absolutely you’re justified in pointing those out. You should, and I’ll put a plug in here. You work with an advisor to help you find that that’s one of the big roles that revenue rocket plays when we position companies to go to market just to make sure that your expenses. Are fairly captured that you are getting what you deserve and your exit. So make sure that you have the right person by your side before doing this. Mike, Matt, anything else you want to cover on the topic of adpex here today? 

Matt Lockhart  40:16 

No. Ryan, I’ll just accentuate your last point there. Run a great business, right? And run a nice, good, profitable business. And, you know, work with an advisor hat. We talk all the time. The have clean books, right? All of this is going to add to in addition to that appropriate add backs is all going to add to the enterprise value that you’re going to be able to capture within your business. 

Mike Harvath  40:48 

Mike, yeah, totally agree. Matt, I think as long as there you know your numbers are defensible, and you’re running a easy to understand sort of set of financials that are standardized, and you know, better yet, you’re operating the business in the top quartile your peers for both revenue growth and proper realization, you’ll be in a good position to transact a deal and sort of have people understand your add backs. So with that, tie a ribbon on it for this week, Shoot the Moon podcast. Please tune in next week, we’ll unpack more topics around M&A and growth strategy and the IT service as well. And with that, make it a great week. Take care.