Rancho Mesa's director of surety Matt Gaynor interviews Kevin Brown, a founding partner of the RBTK, LLP accounting firm. Brown discusses the anatomy and considerations of succession planning.

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https://rbtk-cpa.com/

Director/Producer/Editor: Megan Lockhart

Host: Matt Gaynor

Guest: Kevin Brown

Music: "Home" by JHS Pedals, “News Room News” by Spence

© Copyright 2023. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

[Introduction Music]

Alyssa Burley: Hi! This is Alyssa Burley with Rancho Mesa’s Media Communications and Client Services Department. Thank you for listening to today’s top Rancho Mesa news brought to you by our safety and risk management network, StudioOne™.

Matt Gainer: My name is Matt Gainer, director of surety here at Rancho Mesa Insurance Services. Our guest today is Kevin Brown, one of the founding partners of the firm RBTK LLC here in San Diego. Kevin, thank you for coming in to StudioOne™ today.

KB: Matt, Great to be here. Thanks for having me.

MG: I think we've known each other for some 15 plus years. I wanted to have our listeners get to know you better with some background on where you grew up. Maybe high school, college, first job. Why don't you go into some of that?

KB: Sure. We're going to go back decades here now. So, native San Diegan. So, as far as like high school,

I went to Crawford High School, which is near San Diego State, so, and lived there for all through college, basically that area, and went to San Diego State. So, love my Aztec basketball too by the way. And- but then after school graduated went to, well, I call it Peat Marwick today, it's KPMG, and started my career there and a few years later we are here today, so…

MG: Well, we're big San Diego State fans, season ticket holders for both basketball, which was a great run, and football over at Snapdragon Stadium here. But how did the transition to RBTK come about?

KB: Yeah, so, after working for six years in Peat Marwick, went into private industry, into the financial institution industry for about three years and happened to coincide with the collapse of the savings and loan industry. So, I thought about what's next. And long story short, I found a CPA firm and then at that point that was 1990. And then in 1994, three firms merged together to become what today is our BTK. So, I'm actually one of three founding partners of the firm, and the last one standing at this- well and they're standing, there just now working 100% in the firm. Still obviously great folks in the firm. But, and I'll soon be joining that rank sometime here in the near future.

MG: Well, that's a long time career and we've always enjoyed working with the CPA firm, especially with our construction clients. So, thanks for helping out with that.

KB: Yeah, same here. Obviously we love collaboration, we love teamwork and Rancho Mesa is great with that. And I think that's great for the clients.

MG: Yeah, thanks. So, I watch one of your earlier podcasts where you discuss that RBTK is more than CPAs. Similarly, here at Rancho Mesa, we like to think that our client value reaches far beyond providing insurance and bonding. Can you explain a bit on how RBTK goes beyond providing financial statements and tax returns for your partner clients?

KB: Sure. One thing I'll tell clients, or prospective clients, when they come in and it surprises them initially, I'll say, look, I don't really care about tax returns and financial statements. And they kind of look at me with a blank or weird look and I say, look, that doesn’t mean they’re not important. It's just that those two items should be the result and the measurement of good planning and not where we're going, but where we've been. And so, we really focus with our clients on helping them get to where they want to go to, and not be transactional or what I call practitioners in the CPA firm. That doesn’t mean we don’t practition CPA services, but we come with a business perspective. I'm a business owner, and that's the way we pursue our services to our clients is really understand their business, where are they wanting to get to and helping them get there to achieve both their business, family, and personal financial goals. They're so tied together because we work- just like you folks here at Rancho Mesa- work with closely held businesses for the most part, right? Maybe two or three owners, typically not 20 owners. It's you know, probably the majority of our clients fall into two or less, you know, two or one owners. And so, the business and the personal come so closely together. And then as life moves on, things change. You know, whether that's bringing new people in, or, you know, transitioning people out. Deciding, you know, lifetime goals and estate planning and things of those nature. So, that's really where we focus with our clients and try to help them get there and achieve their goals.

MG: I think we share a lot of similarities. A lot of our clients, I tell them, call me on the weekend, call me at night or whatever, because I think of them almost like an extension of, you know, what we're doing here at Rancho Mesa as our partners. So, continuing in that mode and leading into today's topic, let's talk about strategic planning with regard to your clients. Can you provide some fundamental basics about strategic planning?

KB: Yeah, I think if we look at the most important thing with strategic planning is it's a process and it's continual. It's not just beginning of the year. Let's plan for the year or let's do a budget, let's do a forecast, let's talk about what we want to do this year. That's great. That needs to be done because we need to measure what we want to do this year. But we have to look beyond that. And strategic planning is really looking in the future and addressing some of those things I said previously. And most importantly, what are we doing? Why are we doing it? And how do we get there? And then, because you put that together, it's again, it's not a process, it's a plan. And if we look at it as a process that let's just do this step by step that's important and we need to do step by step. But we need to look at it as really, most importantly first saying, who are we? What do we want to do? Some will call that a mission statement, but that's the guiding principle in who are we as a business? In RBTK’s place or our focus is serving our clients to help them achieve their business, financial, and personal goals. And as part of that that we as a business achieve those same things for our staff, our partners and our people. So, that's the kind of focus that we start with at strategic planning or what I believe is important. Because once you do that, you can start to put the process in place and know how to execute it. And of course there's a number of things to address in executing it, but that's where we like to start. What are the goals? What are the objectives? What's the principal really of the business? I'm sure the same thing Rancho Mesa did however many years ago when they started. How do we want to serve our clients or what are we in the business of doing? Who are we going to do it with and how are we going to do it? But we start with that, you know, top line kind of goal and objective.

MG: Those are great starting comments and important questions to assist your client in this process. So, once management is on board, what would be the next steps?

KB: Yeah. So, again, you outline that, you again, I'd like to start with what I said before. So, we start that objectives, goals and get buy in at the appropriate levels, at the big level. If it's just all the partners or owners, then you may pull in the management team, get input there, and then really develop the plan in the sense of the goals and what we want to do. Now you start to move to the processes of execution, and that is again, going to entail a number of things. But you start to look at, okay, what are the roles and responsibilities we need in executing this plan? Because a lot of times in business we tend to be, or we can be, reactive as opposed to proactive. So, we kind of deal with problems as they come up, and of course those come up, we can't predict all of them. But as they come, they come up, we deal with them. We want to look and focus in, okay, how are we proactive to addressing responsibility for the areas? Responsibility in your case, is for the bonding side of the business. But within that, you have, I'm sure, a number of other people and we have roles and responsibilities people take. So, if we really focus on that, then the team knows who to go to, who to work with, who will be focusing and addressing on those issues. You know, so, I imagine, someone in your firm doesn't come to you to talk about medical, other than maybe if they're hurt and they need some input there. But meaning they're going to come to you for the bonding side, but within that, there's going to be people who have roles for you that they may just go directly to them. And if that's well communicated, well-structured, it makes a very efficient flow. And that's kind of where after we look at that big picture strategic side of who are we, where are we going, we then want to move to… Well then, the first start of how we get there is who and who is going to help in that? So, certainly one area that I think is key in addressing after we take care of the big picture.

MG: Well, that's helpful. Even in Maria, five person bond department I knew back, and strategically planned and said, hey, don't come to me, come to this person here for this kind of issue.

KB: Yeah, we developed something in the firm because to be honest, part of this is practically learning. Years ago, back in, this would have been I think 2008, I started to realize the role I had played for so many years was the Managing Partner, which is just a cool title for directing the firm and directing kind of the overall operations. But, too many things were coming to my table and so it was bogging things down because everybody was, well, we got to hear what Kevin's going to say. So, we totally restructured at that point to take me out of the picture in a lot of- because I didn't need to be involved in all of those things. And it was really making service harder. The outside didn't see it, but inside it was just could be real frustrating for the people within the business. So, and I think I mentioned earlier, a strategic plan and an implementing of that is a continual process and we have to continually look at it during the year, both, you know, long term as well as current and what are the issues we're facing. So, it's something that we just got to continue to revisit. It's almost like culture, right? And the strategic plan, culture is a big part of that and it's really driving things. So, we need to constantly monitor it.

MG: So, obviously you work with smaller clients and larger clients. I guess my question would be, are these action steps the same for all size companies?

KB: Great question. And the short quick answer, no, because it's first and foremost, it's not a process we're working to- it's a goal, objective- and that's individual. That's individual business. And so, again, we start there with again, who are you? What do you want to do? Where do you want to go? What's your business like? We take a lot of time, which I'm sure you guys do here at Rancho, also, is to really understand our clients and understand their business and start to understand them and their goals and really listening to them. And so, that is, again, what is individual to every business. Now, once it becomes a process, there's a lot of, you know, common steps that you do, some of which I just mentioned. So, let's start looking at roles and responsibilities. Let's start looking at what part of operations are necessary for certain areas and kind of allocating resources and things of that nature. But it's, I hate to look at things as being- we like to put things into simplification, right? We like to have boxes, we like to have processes that address everything. And that is good and we need those. But when our first focus is a process, we lose the big picture. And it's so easy to end up with all these whatever, rules, regulations, or things put in place that we sometimes don't know why we're doing it and why we have it. You know, it's kind of that, well, we've always done it that way type of thing. So, hopefully that makes sense that no, I don't believe it. It's the process that's important first. It’s very important after that, but we want to design the process to what the needs, desires, goals and objectives are.

MG: Yeah, that makes a lot of sense, and I want to get your thoughts on the importance of succession planning. During our annual meeting with our clients and the bond carriers, this is a topic that seems to always come up. The bond company wants to know if and what type of succession plan the contractor has in place.

KB: Yeah, it's, every business owner has a succession plan in mind, probably from the day they start. They just don't focus on it. It's in their mind. It never really becomes part of a plan or a strategic plan until they're ready to do it in a lot of ways. Very general statement, but kind of true. And so, transition planning should be a key part of that strategic planning. When I said, who are we what do we want to do, and some of those objectives, part of that should be if it's one owner, five owners, ten, how are we going to transition? And in a minute all kind of give an example of kind of the importance of that kind of planning. So, transition planning is always necessary because people like yourselves, banks, various other people, they like stability, right? Insurance people, not necessarily insurance people, but insurance carriers, right? They're managing risk and they honestly don't like risk, right? They're trying not to have it, you know, and we do that investment planning. We're managing risk, not we, we don't necessarily do that, but personally we do that. We're trying to manage risk. So, we like that. Well, the risk of transition not happening well and not being planned out well can really result in a company that doesn't make it. You know, I'm sure over our careers we've both seen family businesses because a lot of ours are family. They transition and they don't transition well. So, if it's not done well, then why did we, what was the purpose of everything? And so, fortunately in, I guess from the sense that our firm and myself take a business approach, I was focusing on that with our clients 20 years ago. And the reason why it's important and a lot of people were planning their transition in their mind to be done around 2007, 2008, a number of our clients. Well, what happened? A lot of what they built up was gone in a few years, or certainly deteriorated, right. Some of their capital. And so, now they're all, all right, we're going to make the next run, you know, and try to get to transition. And now we have COVID and some of these things. And hey, none of those could we predict. But part of strategic planning, part of transition planning is planning for things that are unexpected, and building some of that either wealth personally to be there, to backstop the business, to allow transition, to, you know, again, make our goals and objectives attainable. So, in our firm, I've transitioned in and out gosh, probably eight, ten people in the firm. And maybe that's why it was something that was so interesting to me and a joy. But, I really see it as again, a great benefit to our clients to get the fruits of their labor. And I could talk a long time on transition planning. So, I'll, you know, I'll let you hit me up with some more questions and, or, I'm happy to talk more about it so.

MG: Well you kind of hit some of a sample client I'm working with now that wanted to sell last year and unfortunately had two bad years in a row. So, their evaluating their company and they're like, we're not going to get the money we thought we were going to get. So now, use a term pivot, which I think is a great term because you always have to reevaluate something that might have been clear a year ago, now is totally different and like, maybe I need to hang around for a little more time or something like that. So, it's interesting and it's a good feeling for me because I can refer a client over to your firm and say, maybe you want to talk with these people and, you know, find out more about what's the proper time for- to get out.

KB: Right and the process and the plan and, yeah, it's, look, we have a lot of baby boomers that are- either have transitioned or are ready to transition and there's a lot of issues with the generations behind not being either big generations or yet ready to transition too. So, what we see is a number of clients and businesses that end up maybe transitioning into just a bigger company, which may not have ever really been their objective. You know, there's a- I see a lot of value in firms like ourselves that focus on those small, closely held businesses and really that service and seeing them continue. And if, hey, if we merged into some bigger, you know, firm, not to say that necessarily would be bad or the wrong thing to do, but it's sometimes, well, it definitely changes the dynamic of what you were. And if that's not what you wanted to be or where you saw things going… With myself, transitioning the firm, I wanted to be able to transition it to some of our key people and I've been fortunate to be able to do that because, again, I'm the last remaining founding partner. And you know, hey, it was my baby and, you know, you'd like to see your babies stay around. But if it takes a different form in the future, hey, that's great. But at least think of it strategically and understand how that changes things. So, again, you know.

MG: So Kevin, you provide us a good deal of information to get our clients to think about strategic planning and succession issues. How can they get in touch with you if they want more information to help with this process?

KB: Sure. Two ways. One is, they can go to our website which is RBTK-CPA.com, and certainly it’ll give you some background information on the firm, myself, and the other partners. And of course, I can be reached at my email address, which is KBrown@RBTK-CPA.com.

MG: Well, thank you for coming in today and sharing your perspectives with our clients.

KB: Matt, Appreciate it. Thanks a lot for having me.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information, visit us at ranchomesa.com and subscribe to our weekly newsletter.