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ConsumerFi Podcast: Prepping Your Business for Sale with Colonnade Advisors’ Gina Cocking

August 1, 2022

Episode 18


Joel is joined by Sub Prime Auto Finance News Senior Editor, Nick Zulovich, and Colonnade Advisors CEO, Gina Cocking, for a discussion on preparing business for sale, touching on subjects like how diversification can be a double-edged sword, the macro effects of the current day trading trend, and how to avoid accidental compliance that can lead to huge headaches down the road.

Check out Gina’s podcast, Middle Market Mergers and Acquisitions, for more great content.

ConsumerFi is presented by Nortridge Software: Loan Software That Accelerates Change.

Don’t miss Nortridge’s Sixth Annual User Meeting on March 9-10. You’ll be able to attend general and breakout sessions to get ideas about how to best leverage our software and improve your technical skills and hear about upcoming features. Register at the link above and download the event app here.

And special thanks to The National Automotive Finance Association: The only trade association exclusively serving the nonprime auto finance industry.


[00:00:20] Welcome back everybody to the consumer five podcast. If, uh, If it’s, if it’s your first time listening, welcome, please like follow and share. Um, I do want to share one little bit of news. We have, uh, obviously I work for Northridge and we’re having our user conference. It’s a virtual user conference, our sixth annual Nortridge User Meeting coming up, March 9th and 10th.

[00:00:40] There’s going to be a ton of functionality discussed. Omni-channel compliance. We have a really, full suite of, outstanding speakers and content, and it’s going to be fun. So I encourage all of the Nortridge users to please, get registered. If you are interested in Nortridge, hit me up.

[00:01:00] [00:01:00] Or hit me up on, on LinkedIn. Um, okay. So I, I, I really want to welcome today’s guest. I’m very excited. We have, uh, Gina cocking, who’s the managing director and CEO of Colonnade advisors, uh, and joining us in the pummeling. Uh, we are going to pummel her with questions today. Um, joining me is, is, is not other than the mic Zula.

[00:01:22] Vich he’s the senior editor of subprime auto finance news and the buy here, pay here report a quality outfit from Cherokee media, Nick. Welcome. Thank you

[00:01:31] Nick Zulovich: [00:01:31] so much for the kind introduction, Joel, glad to be here.

[00:01:35] Joel Kennedy: [00:01:35] Well, let’s get into it. So, so Gina, you know, I met you a couple of years back, uh, with, uh, Chris.

[00:01:42] Uh, who was the prior managing director and you had a history with him. And then I think, I think you, you, you, you kind of moved your career along and then you came back and now you’re, now you’re running the show.

[00:01:53] Gina Cocking: [00:01:53] I am. I am, uh, I was with Colonnade at our founding back in [00:02:00] 1999, when we rolled out of JP Morgan and we originally founded Colonnade, uh, as a, to focus on middle market companies, largely in the technology space.

[00:02:10] I left Colonnade in 2003, became the CFO of a number of companies, including a class eight truck finance company. So. Uh, you know, equipment finance company, and as a divisional CFO in a large bank, I then returned to Colonnade back in 2014, and we focus on business services and financial services companies and advise companies on mergers and acquisitions.

[00:02:40] So if a company is looking to sell themselves, uh, We’re probably the bank they should be speaking to if they’re in the financial services space or the typical deal size we work with is 75 to $125 million. We work with smaller companies and we work with much larger companies. [00:03:00] I would say about 70% of our work is with, uh, is doing sell side, sell side assignments.

[00:03:06] So raising capital or selling a company. Um, and when I say selling a company, it’s usually not. 100% outright. Typically the owners are going to roll over 10 to 30% of their proceeds into equity in the new company. So often selling to private equity firms or private equity backed strategics 2020 5% of our work then is buy-side mergers and acquisitions.

[00:03:31] So we’re advising buyers on companies and then 5% would be capital raising. Um, the majority are, I would say the majority of our work is with. Founders and entrepreneurs owners of companies. And then some of our work is for private equity firms or large corporate entities that are looking to spin off a division.

[00:03:54] Joel Kennedy: [00:03:54] Outstanding. And, and you have, you have a podcast as well, that [00:04:00] really strips a lot of this out, not only from a, from a strategic standpoint, but also from an educational standpoint. Can you tell us a little bit about the podcast, how that got started? I feel like, I feel like we’re brother and sister. Now

[00:04:16] Gina Cocking: [00:04:16] it is, we have a podcast for middle market.

[00:04:19] Mergers and acquisitions. Uh, I hosted with my partner, Jeff Galle, and we focus on the technical aspects and the processes of what happens in a, in a merger or acquisition. And our podcast is geared towards people that are. Thinking about going through a transaction someday, you know, they’re an entrepreneur and owner of a company, or they’re a college student or MBA student looking to do a Tran you know, be involved in mergers and acquisitions in some way.

[00:04:58] So we take, [00:05:00] we break down, uh, the M and a process into kind of 40 minute bite size. Deep dives into a topic, you know, like get, we get kind of geeky on some of these topics. We’ll spend 25 minutes talking about earnouts another 25 minutes, another episode talking about rollover, right? Uh, ha what is due diligence?

[00:05:23] We have a four, a four episode arc on diligence where we talk about. Business diligence, accounting, diligence, technology, diligence, legal diligence. Um, so we talked about, about everything that a. Seller or buyer of a company would be thinking about in a transaction. And we found it’s really helpful for entrepreneurs to listen to it because kind of gets the mentally ready for what to expect.

[00:05:51] So we talk about the technical aspects, Jeff, and I tell some of our war stories. We talk about what we think works, what [00:06:00] doesn’t work and Jeff and I both have. I hate to say it, you know, we’re well over 20 plus years, uh, in doing it and acquisitions. So we have a lot of insights as to what to expect it transaction.

[00:06:12] And we often invite experts to join us in our discussions. And so that we, for example, did a rep some warranty episode. Oh, Oh. An episode on reps and warranty insurance, which is used in 95% of transactions where a private equity investor is, is. Making an investment. Um, so we talked about, we talked about one of the leading guys and reps and warranty insurance to get his view on pricing and when they’re brought in and how it works and what it means, we have attorneys as guests and they talk about, you know, kind of some of the intricacies and deal documentation.

[00:06:49] Um, we had a recent episode with a wealth manager and talking about how to plan for your. Transaction because, you know, for most entrepreneurs, [00:07:00] most of their wealth is tied up in the company that they’ve built. So we really have a lot of fun doing these, these episodes. And, you know, we, we think it’s, it’s helpful to potential clients or companies that are out there that are thinking about, gosh, what do I want to do with my company?

[00:07:16] At some point, I can’t run this until I’m 110 years old, so I need a, a next step. And what is that next step? What does that look like?

[00:07:28] Joel Kennedy: [00:07:28] I love it. I love the educational aspect. You know, when, when I, when I had my, my business and we were looking, going through the capitalization process, we just had one mantra and that was, you never stopped looking for money.

[00:07:41] And that’s a good, that’s a good mantra to beat your drum too, but there’s so much underneath it. Right. Now, Nick, you were asking earlier about, um, some of the decisions that companies make through a merger or, uh, you know, looking at, you know, I’m going to butcher it. I’m going to let you ask the question about how to contemplate, uh, structuring the company through [00:08:00] diversification.

[00:08:01] Nick Zulovich: [00:08:01] Absolutely. As, as Joel reference, before we, before we got online, we were having kind of a, an organizational conversation and, and mentioned, said to both Joel and Gina, that how it’s it’s really struck me, that there’s been multiple shops within the, the auto finance space, whether it’s been reporting they’re there.

[00:08:24] Um, Quarterly or full year, uh, accomplishments or whatever their latest, uh, platform update or enhancement might be. Whatever the case may be. They’ve highlighted how much they’ve tried to diversify their, their offerings, whether it’s more than just, uh, Booking traditional paper, retail, installment contracts, whether it’s leasing or, or commercial loans for or dealerships to, to buy a brick and mortar, uh, opera facilities and expand their, their [00:09:00] physical footprint.

[00:09:02] Just thinking about diversification, Gina. How do you see companies approaching that perhaps as an enhancement to their, their current short term, um, prospects to, to continue to either either rebound stemming from the pandemic or, or, or solidify themselves? How does the investment world view diversification through, through that prism?

[00:09:30] Gina Cocking: [00:09:30] Yeah, that’s a, it’s a great question. And. It is a complicated answer, uh, because it’s situational and boy, that is just such a fantastic non-answer right there that I just gave you. But, but truly, you know, what we hear, uh, w when companies have a single product or single service or a single audience that they are addressing, they will hear from outsiders.

[00:09:57] It’s important that you. [00:10:00] Do more you diversify, so you have different income streams. And I get that. And in a lot of ways it can make a ton of sense. There’s, there’s a lot of value in vertically integrating a company, you know? So, uh, if you’re using a third party distribution network through an agents or Salesforce that you don’t control, bringing that in-house, that can be pretty valuable or bringing in an insurance component in house that can be pretty valuable.

[00:10:27] Or can it, um, the challenge with it is your investor universe or buyer universe can find it the message complicated. So for example, a hot topic is FinTech, right? FinTech companies get really high multiples and therefore you should be valued. Like a FinTech company. So you need to do something that’s FinTech oriented, you know, fill in the blank.

[00:10:54] What that means. Maybe it’s a, it’s a new DMS system. Maybe it’s bringing AI into the [00:11:00] organization. Um, it’s some new startup division that you have, or a small acquisition that you’ve done and it could be 10% of your business. So the question is, would that 10% of your business, can you be valued like a FinTech company?

[00:11:14] Maybe or are you, or do buyers look at you and go, gosh, that is a confusing story. 10% is FinTech 90% isn’t so the 90% going to fund the 10% is a 10% really losing money. And therefore, how do I value that company? I confused. Really there is an, an investor or a buyer for every company out there. You just have to find it no matter what you do, you’re not going to appeal to everyone.

[00:11:49] So a company that’s doing acquisitions and diversifying to say, ah, now there’s a broader universe of investors that will be interested in me. Let’s say, yeah, that’s not necessarily the [00:12:00] case. There may be different investors that are now interested in you, your one area in, in the auto finance and an auto-related field that.

[00:12:12] Uh, uh, is very impactful are companies that do that have a balance sheet and companies that don’t have a balance sheet. So auto finance companies that originate loans, but don’t keep it on balance sheet. Don’t keep it on balance sheet more than a warehouse facility or a few days. Um, that is a very different company than companies.

[00:12:33] That have on balance sheet risks. And that is a different investor universe. There are private equity firms out there that per you know, per their documents per their documents with, for their fund and with their institutional investors, they do not do balance sheet risk companies, but they will do fee-based companies.

[00:12:55] And so if you are a company that is a fee-based company and you’re [00:13:00] like caching. I can make a lot more money per loan originated or per product sold. If I keep this on balance sheet and I don’t pass it through, I don’t sell it and I can control the customer relationship. Um, therefore my bottom line will, will improve.

[00:13:17] My, my margins will improve. So that’s what I’m going to do, you know, that’s great. And that, that is a great way to run the company, but you should be aware that you’re. Buyer universe, your investor universe is a much smaller universe. The other thing about entering into new lines of business, that that is really a big advantage is bringing in a larger universe of customers.

[00:13:45] So. Where I see middle market companies, small and middle market companies. Having challenges is in customer or distribution diversification. And it’s tough, right? So you have a [00:14:00] company that’s grown 20% for the last two years, largely because of two companies, two clients. So if you have a company that has a dead stop is greater than 20% concentration with any one client, like if you’re a greater than 20%.

[00:14:18] Probably 60 or 70% of private equity firms cannot invest in you. You are too high risk. I, and I don’t care how long your relationship is or how great that relationship is. It’s just unfortunately, a non-starter then I sometimes see documentation where firms can’t do more than, you know, if three customers make up more than 60% of the business, and that could be.

[00:14:46] Revenues, it could be gross profit. It could be earnings. I mean, it gets computed. So diversification in, in clients is extremely important and diversification just kind of generally. So if let’s [00:15:00] say you are a, uh, data analytics or you’re a data analytics company and you supplement your data with outside data sources.

[00:15:12] Hopefully you don’t have concentration with one, just, just one data source, because that will be problematic. Or if you have a single provider you’re off balance sheet lender. And so you have lending relationships and you have three big lending relationships. That’s probably not enough diversification.

[00:15:32] So really it’s diversification throughout the business. Way we advise our clients, potential clients to think about it is. When you go to sleep at night, think about the company, your vendor, or client that poses you the greatest risk. Which one is it that keeps you up at night? And how much of a risk is it?

[00:15:57] Is it, gosh, if that vendor goes out of [00:16:00] business, my next four months are a disaster. Okay. Well, that’s a problem for the investors too. So it’s, uh, that’s a big issue, but getting back to your initial question, Nick, you know, branching into other business lines and other adjacent product lines can really help with that diversification issue.

[00:16:23] But you don’t want to complicate the story too much.

[00:16:25] Nick Zulovich: [00:16:25] That’s fascinating to say the least.

[00:16:32] Joel Kennedy: [00:16:32] I was going to say the thing that strikes me is that if I were to let’s say I was a, an automotive lender, and then I decided I’m going to start buying bulk. I’m going to buy a lot of pre originated debt or, or pre originated paper, or I’m going to get into the floor planning business. Right. So not. Not an altogether illogical extension.

[00:16:53] I can see how you can integrate that all into your core system. Um, so the data [00:17:00] is, is, is, uh, I’m thinking data now I’m thinking of, okay, we go down this path we may stay as is, or we may combine with others. What do you view the role? There’s a couple of things that, that you, you really do harp on, on, on your podcast and just personally, and having conversations with you.

[00:17:17] You talked a little bit about the role of the customer and, and, and that, that piece within diversification and making sure there’s not too much of a concentration, how do you guys view data and, and, and how can companies that are listening to this best prepare themselves for having a data architecture that is gonna support

[00:17:35] Gina Cocking: [00:17:35] them?

[00:17:36] Yeah, this is one of my big bugaboos, um, you know, uh, financial services companies by the nature of being financial services companies or data companies, you know, we don’t actually produce things that people physically use. We don’t have a, a pen or a widget or whatever you can actually physically see what we’re producing is in financial [00:18:00] services is paper or data and the.

[00:18:05] Data needs to be under control. So to be a financial services company in 2021, and he even back in 2000, you have to have good control of your data. And when colony comes in and starts to work with a company, we will, one of the first things we do is we ask for the data tapes. So we want to see the loan tapes, the data tapes.

[00:18:30] We want to see every loan originated. We want to see all the fields filled in. Like, if you have it in a field, we will want to see the buyers will want to see it because we’ll want to slice and dice that data everywhere, the way possible. We’re going to look at, we’re going to look at it by vintage. We’re going to look at it by vehicle.

[00:18:50] We’re going to look at it by originator, by rate by term. Um, Think of a way to cut the data, we will cut the data and look at it and then probably put it into a PowerPoint slide [00:19:00] because the buyers are going to be doing the same thing. We needed to understand the story. And we’ll also be taking all the data and saying, okay, we have this nice pile of data here.

[00:19:10] How does that translate into the financial statements? So I’m a former CFO of companies. That’s what I did for a little while. I was away from investment banks and from investment banking. You know, the finance department has to be taking the raw data. The loans originated and the loans on book and translating that into the gap, financial statements, there should be a walk every month that explains that.

[00:19:34] And there should be no variance like zero variance. Um, okay. Maybe 1% variance will be okay, but really no variance. So you should be able to tie up every single loan and we frequently. Like a hundred percent of the time, see problems with the datasets in the middle market. Uh, and, and there’s a variety of reasons.

[00:19:57] For example, for the [00:20:00] FNI industry, the dealers are actually putting the data into the DMS. And so it’s really hard for an administrator or loan administrator OEM to control the data that’s going in because you’ve got 20 people working at the dealership and they’re just throwing stuff in and they haven’t really been trained and so garbage in garbage out and the financial.

[00:20:25] Services company has to take control of that data. They need to have a data architect. They need to have somebody that is testing the data, cleaning the data, reviewing the data, stress, testing the data, backing up the data. Um, we don’t see that often enough and that has an impact. In a transaction and potentially in valuation.

[00:20:51] So imagine Nick, that you’re a buyer of a company you’re coming in and you’re like, ah, you know, this, this group, [00:21:00] this non-bank lender, a lot of loans looks fantastic. It looks great on paper. You know, they have a book of $125 million on book. This is great. So let’s start looking at the latest, the data tapes and you’re like, wait, The data tapes and the financials aren’t tying out at all.

[00:21:16] Like, Oh yeah. You know, we switched systems. It’s a sorry about that. Um, but you know, it’s all there and it’ll be, yeah. Okay. You’re going to lose all confidence. Maybe you will walk away from the deal. But Nick, you’re going to drop the value. You’re going to drop your price. And so data can impact price and people, companies under invest in the data.

[00:21:41] And that’s where San Francisco and FinTech companies really do. Well. You know, FinTech is a big splashy. No shiny Ramos, you know, thing that gets people excited when they hear FinTech, but it’s almost kind of a [00:22:00] stamp of approval. When you see some company that’s putting the Salesforce as a FinTech company, they probably started as a data first company, a technology first company, and they have control and they have control then you know, their position to do really well.

[00:22:18] Nick Zulovich: [00:22:18] Indeed is, as you are articulated Gina, you using the finance company as an example, as I’ve heard, uh, many individuals who are way smarter than I say that it’s not necessarily what you book, it’s what you collect. So that, that is the true value, at least in the, in the auto finance space. Uh, for example,

[00:22:39] Gina Cocking: [00:22:39] absolutely.

[00:22:40] Absolutely.

[00:22:41] Nick Zulovich: [00:22:41] Well, it’s a, it’s, it’s a pivot our conversation from, uh, the broad topic of data to, uh, another equally as important one. I’ll put dub it as money who will start from, from, from that perspective would love to hear both of your, uh, perspectives on [00:23:00] this. Uh, It can go into so many different angles, be it the us dollar or, or win fed chairman.

[00:23:08] Jay Powell makes, uh, public appearances, which, uh, good, bad, or otherwise. He’s pretty apt to do nowadays after, uh, committee meetings and that sort of thing. I I’ve seen it read and heard that there are some observers who will parse every phrase and try to. Judge the inflection of, of what the fed chair mates might, might or might not say from an investment perspective.

[00:23:36] Uh, again, we’d love to hear each of your perspectives. What, what comes out of the fed? What, what chair Powell says, or doesn’t say how much. Is that analyzed dissected observed from your own personal perspective and then your, your colleagues and contemporaries, uh, in, in the investment world, what happens at the fed?

[00:23:58] How does that really [00:24:00] impacts what you do or do not do?

[00:24:02] Gina Cocking: [00:24:02] Sure. Uh, Joel, take the first crack at it. You know, I, uh, I must say I don’t. Watch and make determinations immediately upon the announcements, but I watch what the markets do because you’re exactly right. There are people that trade on those words, the inflections, in the words, the timing of when statements come out, um, what is the meaning behind what they’re saying and where is it going?

[00:24:30] And there. There are a lot of people who are a lot more dedicated to focusing, uh, on exactly what the fed is saying and what they’re meaning, and really it’s how the markets react to what’s being said. And that’s what we watch. And that’s how we see where things are, is, you know, if rates haven’t raised, are they going to be [00:25:00] increasing?

[00:25:01] Yes, I can say right now, definitively I will be right. Rates will increase someday because my partner always says, you know, a broken clock is always correct twice a day. So, you know, rates will rise someday. Uh, you know, the current item that everybody’s looking at is inflation. You, we have inflation is coming and there’s some inflation is good for the economy.

[00:25:26] Is it too much inflation? Well, we’re not used to inflation. I mean, we have like a whole generation of kids out there that have never experienced an inflationary environment and they’re totally going to freak out. I don’t think they’re going to trade on it, but we will have some inflation. Uh, the question will be, is it, is it going to be an abnormal amount of inflation right now?

[00:25:47] I think everybody sees like, it’ll be normal. Historically normal inflation will, will be coming. Um, you know, I think. I think what we’ve seen, uh, [00:26:00] generally in the market and what’s been moving, the markets, uh, has been, you know, part of it’s been the stimulus packages. It’s been not it’s coming out the fed, but the stimulus packages, it has been the.

[00:26:14] No Congress putting forth the PPP loans to stimulate the economy. These stimulus packages really have benefited companies. And what, you know, in the financial services arena, you know, for banks and lenders of all sorts, it has improved their credit quality because there aren’t as many bad loans people are paying off their loans.

[00:26:37] Uh, more quickly, and that has reduced reserves, which is then recognized onto the income statement. So financial services companies are all doing really well right now. And money is still relatively cheap. I was just looking at an article again today that, you know, mortgage rates are starting to tick up just a little bit.

[00:26:56] And so there’s a rush again, to refinance mortgages, or [00:27:00] get a mortgage before we see a large increase. Um, You know, it’s we we’re in for a time of, you know, it’s, it’s nice. Yeah. I’ve heard the term. We’ve used it in the past. Irrational exuberance. It’s it’s hard to say, you know, the markets are doing really well while the country is feeling pretty crummy and a lot of people are out of work and we step back.

[00:27:25] It can be a bit of a head-scratcher.

[00:27:27] Joel Kennedy: [00:27:27] Right. I agree with so much of what you said, Gina, you know, the, I think the macro market risk in this next cycle is going to be kind of where the meat is at. You know, you look at availability of capital. Uh, you, you, you mentioned money is cheap, right? Um, so then if I’m a CFO of a company that has, you know, significant cash reserves, there’s a lot of talk right now about where to park that money longer term.

[00:27:53] And so you have a lot of that going on. You mentioned the stimulus, unemployment is another big one, right? [00:28:00] That, uh, as long as there’s, uh, some, some support provided there. Um, you know, but, but that’s that tied in with inflation, it starts to get a little bit scary. So then you have that coupled with Nick, you mentioned about people making resp immediate responses to things that the fed chair says.

[00:28:19] I’m going to take it on, uh, I’m going to take it on a wicked path, but you got, I’m interested to see if you agree. I think it was the fabric of the country is such right now that there is probably like if that guy had an approved, if the fed chair had an approval rating, it would probably be very low.

[00:28:34] And I think you have a lot more people that are doing their own thinking for themselves. New voices are out there. So I, I watch a lot of the cryptocurrency markets, right. Mike wholesaler of micro strategy, uh, made big news a while ago. Cause he puts so much of the cash reserves into Bitcoin Tesla, CEO, Elon Musk comes out a week ago.

[00:28:53] And then now we’re hearing about BlackRock or Blackstone. I forgive is BlackRock or Blackstone said, yeah, we’ve been dabbling in it now, what [00:29:00] does that mean? They’re not going to tell you, but the point is, is people are saying, I think Nick. I think there’s going to be more of these voices and those do move the market significantly in those cryptocurrency markets.

[00:29:12] There’s more of these voices that I think, I don’t know what the equilibrium or, or whatever between those two are, but I almost feel like people are going to care a little less about what the fed chair says, given that they have these larger macro concerns about where to hold their whole, where to hold their, their, their, their reserves.

[00:29:32] And isn’t going to get decimated. Yep. Uh, do I hold it in gold? Do I hold it in Asian currency? Right, right. Cause you know, all those countries with their training, they said we’re not holding dollars so much anymore. So there’s just so much macro risk. That’s what I’m seeing right now, Nick, that you may be subject to some of the.

[00:29:52] The interest rates and the availability of money and all those things as we go into this next cycle.

[00:29:57] Nick Zulovich: [00:29:57] Right. And, and to take it even a step [00:30:00] further, if the recent, uh, past is any indication, perhaps instead of listening to the fed chair, they’re going to folks will go to Reddit or other social forums and find the next up.

[00:30:13] And yeah. And take it from there. And since we, I mean, I don’t have my phone in my hand at present, which is kind of anomaly

[00:30:22] Joel Kennedy: [00:30:22] there’s there’s is this, is it new risk taking or is it intelligent, uh, for people to take some control? I think that, is it repeatable or is that a one-off?

[00:30:34] Gina Cocking: [00:30:34] You know, I, I look at it as it’s, it’s an exciting times.

[00:30:38] I, I, I always think it’s great when younger people start getting more involved in the markets and more involved in, in managing their money. You know, my daughter who’s in college and sent me a, um, uh, uh, Uh, text. That was a little cartoon of a guy, a girl bringing her, her boyfriend [00:31:00] home saying, Hey mom, you know, my boyfriend, you know, trays because of Reddit.

[00:31:04] And he’s just made a ton of money, you know, trading game stuff. And the dad looks at the kid and goes, Do you have a 401k in Kinko’s? Well, what’s a 401k, you know, it’s, we have people that I wouldn’t call them unsophisticated. I would say they’re new to financial markets and investing, and that’s fantastic.

[00:31:24] You know, get your toe in, start doing something if you’re doing, because Reddit. Awesome. Mikey, you lose some money, you know what, in your twenties and thirties, you shouldn’t be investing in risky things. Okay. By the way, I’m not a financial advisor, but, but seriously, when you’re 20 or 30, you can afford to lose money, experiment in the markets, get your feet wet and get used to it.

[00:31:44] And then I, you know, the war that individuals trade is. It is causing some volatility. Um, and that’s great. And we saw this before the last financial crisis and nothing, you [00:32:00] know, I don’t think it impacted the financial crisis, but you had day traders and people were making money on their own accounts and actively investing.

[00:32:09] And that’s great. Yeah, you should, people should have their money and try to make money with their own money because I have one of the highest rate. Um, checking accounts out there that we put, when I was looking at it this morning, we’re getting 50 bits, you know, checking account people should be if they’re younger, diversify their holdings, but try putting some of the markets and if it’s game stuff.

[00:32:36] Okay, good. Give it a try. Yeah.

[00:32:40] Joel Kennedy: [00:32:40] So we have a couple other dimensions that are important for companies to look at structurally as they head down the path and, and. I just, I it’s so important that you really think with the end in mind with this there’s a couple others and Gina I’ll I’ll, I’ll invite you to kind of discuss them as you see [00:33:00] them as important, especially given the landscape that we just described.

[00:33:04] So we’ve got, you know, elements of growth, automation, controls, compliance, and controls and compliance are obviously near and dear to me and probably Nick too. He’s he’s also compliant certified. Um, Of those aspects, you know, maybe we can talk, maybe you could touch on, on, on, on all four of them and, and kind of, uh, mentioned how those kind of tie in

[00:33:26] Gina Cocking: [00:33:26] you controls and compliance.

[00:33:27] Um, it’s really interesting. So we w as I mentioned, we’re working with financial services companies and often, uh, companies that are in the middle market. And so they have been growing and when you’re small, And you’re starting out and you’re looking across the floor and you bet your 15 employees there.

[00:33:49] It’s easier to have controls in compliance. You’re watching over people. They’re going to do the right thing. You can walk past their desk and say, by the way, remember. We have [00:34:00] to double check these documents to make sure every box has been filled. We need to make sure we have our, you know, the documents are filed in the right places, in our systems and that we file with the state and we filed with this agency, but as companies grow, especially if they’re going through a period of rapid growth, During periods of rapid growth is when the controls clients tend to fall apart.

[00:34:23] Maybe it’s the compliance falls apart because the controls aren’t in place and companies. Need to invest and that’s invest with their dollars and with their time, they need to invest in compliance early and put the systems and controls in place. So that way growth. Is in a compliant way and you don’t have to worry that once again, going to a lending company, quitting non-compliant loans on the books, you know, that’s great that you had 20% year over [00:35:00] year growth, but Ooh, one and a half percent of your loans were a non-compliant loans.

[00:35:06] And they’re going to come back and bite you in a big way. And I think too often, Companies when they’re going through periods of growth, say, gosh, I don’t have the extra dollars around to invest. Um, in, in developing a chief compliance officer in developing in the technologies to, uh, manage my company from a, from a compliance perspective and.

[00:35:32] And that’s short-sighted. Um, and I think too often people think they need to go hire an in-house attorney for compliance. And that’s not the case. You can have, you know, there, there are technologies that are available that can help a company stay within compliance guidelines. Um, That are needed for whatever industry that they’re in and then use outside consultants to help manage, to make sure everything’s up to date and [00:36:00] being done.

[00:36:00] But it’s kind of like having a finance department too often companies when they’re growing, they want to spend on their, their Salesforce and spend on their, their marketing team and their, uh, operations people and the underspend. Um, the accounting and finance and compliance and legal, and those are what cause companies to end up in really expensive lawsuits.

[00:36:27] Or those are the, those are the, those failures are what cause companies to. Inadvertently default on terms of loan agreements. And those are the under investing in those areas and what can bring a company down. And it’s tough for entrepreneurs too tough for anybody to get excited about a cost center, but you have to, otherwise you’re not really building a company, you’re building a Salesforce and a team, and that doesn’t have value.

[00:36:57] That’s not an enterprise. And

[00:36:59] Joel Kennedy: [00:36:59] I, [00:37:00] I want to get into jab on that point. It, it doesn’t have to be expensive. You don’t have to hire the full-time equivalent. You can get in and get out. So I started off a company and we’re, we’re operating in, in Illinois and Wisconsin. Okay. Well now your compliance matters at least to start for your originations are really going to center around those two States.

[00:37:20] Are customers going to matriculate to other States? Of course, but let’s focus on these first. And then as this expansion takes place, and as we see, we have concentrations of customers moving elsewhere, then we can address that on an as needed basis. You don’t have to spend there, there are right sized solutions out there.

[00:37:36] If you look. That’s

[00:37:37] Gina Cocking: [00:37:37] right. That’s absolutely right. You’ll see it. Sometimes, once again, getting back to customers, data, I’ll be looking at a dataset and, uh, for whatever field they’re in, they’re not licensed, let’s say in the state of Nevada and they should operate in Nevada. You have to be licensed, but they’re not licensed in Nevada.

[00:37:54] And yet I see product originations in Nevada and I’m like, okay, how [00:38:00] do you have product sales in Nevada? And they say, well, We must have had somebody that we contacted from a marketing perspective. And when we contacted them, they were living in Ohio. But by the time we originated, they were in Nevada and like, Hey, nice story.

[00:38:19] But that’s still, you still went against the regulations. So it would have been an easy fix, like in your systems for your, your platform, for your product origination, your loan origination should have just turned it off. Like some big flags should have gone off said no, and that’s easy enough, but too often companies aren’t doing those types of reviews of their own, the technology they already have in hand that can turn off, uh, you know, geographies or products or certain types of clients.

[00:38:48] Um, So they, so they’re staying in line with the regulations and they just don’t take the time to review what they already have.

[00:38:58] Joel Kennedy: [00:38:58] Yeah. Yeah. [00:39:00] Anybody who’s ever done any kind of like operational or financial or compliance-based risk assessment, really? I mean, you can blue sky, this thing, you can get it done in an afternoon where you say, what are the biggest potential risks and you list them and you say, if this risk happened, what’s the severity, but then what’s the likelihood.

[00:39:17] And if you go through that list and let’s say you come up with 20 that make it through out of a hundred. Right. Well, this is where I’m going to at least focus now. And I got news for you. Any regulatory body or auditing body I think is going to look very well upon that. If this is your guiding force behind you, because there is an expectation of right.

[00:39:35] Goodness, it’s been there since the Cordray administration, um, You know, I, I think you have to have some sensibility there, but that’s a great way I think, to, to tip off. Cause you could pull in your CFO and somebody who knows a little bit about operations and you could cover, um, you know, majority of, of that risk setting.

[00:39:53] But if you do that, If you do that year over year or, or with some frequency. Yup. And you, and you keep [00:40:00] track of, Hey, how are we building against each of these controls? And do you know that there’s different types of controls? The system based control gene, as you were talking about, is going to have far more durability than telling, uh, you know, Nick, who’s sitting there underwriting the deals.

[00:40:13] Nick, if you see anything come in from Nevada, just kick it. Yeah.

[00:40:17] Gina Cocking: [00:40:17] Because Nick might be sick one day and Jane takes the loan and didn’t know. What about the Nevada role? So it’s gotta be through technology.

[00:40:26] Joel Kennedy: [00:40:26] Yeah. Well, I am going to thank you. Thank you guys for everything today on the podcast. I’m going to let Gina have the last word, but, um, but Nick, uh, I’m going to ask you and then, and then Gina, um, just Nick, we didn’t really talk too much about all the great work that the Cherokee media group does with all of the publications and the.

[00:40:51] The the conferences, um, please provide a little bit of, yeah.

[00:40:55] Gina Cocking: [00:40:55] I use them all the time. I’m always all the various, you know, I’m looking at [00:41:00] here, articles and sources all the time. It keeps me up to breast of what’s happening to me. Hey

[00:41:04] Joel Kennedy: [00:41:04] man. Hey man. Yeah, it’s great having you, but give us a little, a little, uh, uh, taste or maybe some things to calm and maybe how, how people can get, reach, reach out to you.

[00:41:12] And then she, and I definitely want to make sure we, we, we, you tell people about your website and your podcast so that we, and they have a way to get ahold of you.

[00:41:21] Nick Zulovich: [00:41:21] Well, thank you to each of you for the incredibly kind words that we, we, we definitely weren’t, we’re not the largest shop and they automotive media landscape, but, but I’d like to think that we try to, to cover a lot of, of aspects of the world with the resources that we have is to the best of our abilities, whether it’s.

[00:41:41] Uh, from the, from the wholesale side of the automotive world, uh, auctions and use car values and, and that sort of thing, too, uh, financing and compliance, uh, uh, how trends are happening, whether it’s diff defaults or, or originations, or what [00:42:00] have you, and also. On the retail side of things, uh, dealership operations, how they’re continuing to, to leverage, uh, the digital components, uh, when the pandemic started out of absolute necessity in order to, to keep, uh, vehicles turning because of, uh, of, of the state of things, as well as.

[00:42:20] How consumer preferences have changed too, rather than say, to always have to go to a dealership. The dealership comes to them that they can, there’s a truck, uh, arriving with their shiny, uh, vehicle. And they completed all the documentation on their iPad or what have you. And it’s, and it’s a done delivery.

[00:42:44] So. Uh, that that’s just, uh, some of the, the elements that we, that we try to, uh, bring together at Cherokee media group and, and, uh, whether it’s the written words, uh, podcasts that’s that each of these, these two, [00:43:00] uh, Stute individuals have been a part of. We, we tried to cover a lot of the. The automotive world again, through the use car financing and, and wholesale prisons, uh, of the space, our homepage auto and find a pathway to whatever content that, that you might be interested in in the way.

[00:43:23] Uh, you would like to consume it, whether it’s through our, our, our daily emails that we deploy through podcasts, that we are ramping up, uh, steadily and, and still the, the, the printed version that, that will land in your mailbox, that that will, uh, be arriving on a monthly cadence as well. You can sign up for any and all of that material.

[00:43:46] Again, just go to our website. Auto remarketing dot-coms again, thank you for the kind words from each of you and for having me as a part of, uh, of this grade’s, uh, endeavor.

[00:44:00] [00:44:00] Joel Kennedy: [00:44:00] Great Gina. You wanna, you wanna, you want to bring it home?

[00:44:02] Gina Cocking: [00:44:02] Sure, sure. So, you know, we launched our middle market mergers and acquisitions podcast because we wanted, uh, entrepreneurs and owners and executives at companies to start thinking in advance.

[00:44:20] And so they’re already thinking in advance before they go through a sale, but you start answering some of the questions that maybe, you know, they don’t know the right person to ask, you know, how do transactions work? What do I do need to do to get my company ready? And colony has been around for over 20 years.

[00:44:38] And so we have a lot of pattern recognition and we know. What works and what doesn’t and how companies can prepare themselves to get ready or prepare themselves to pour a sale. How do they diversify? They should be diversifying their client base. How do they get their systems in order? And what should their, how should their operations be set up?

[00:44:58] And, and some of [00:45:00] that comes through, or that all comes through in the podcast that we’re doing, that’s there to help educate listeners, entrepreneurs, college students, MBA students. Uh, on what it is like to go through a transaction, what are the technical aspects? So that way, when that person’s ready to go through a transaction, they’ve heard the terms before.

[00:45:20] It’s not the first time they’ve heard reps and warranty insurance, or, you know, some of these arcane concepts and structuring deals. You know, they, they already have been a bit of a student on the topic. Um, our podcast can be found middle market mergers and acquisitions podcast can be found. Uh, most of the major platforms, Apple, Spotify, et cetera, and on our website.

[00:45:43] So our website is C O L a D So C O L a D or Colonnade advisors, Google colony advisors, and our podcasts are all up there. And we do a new podcast pretty much every couple of weeks, [00:46:00] every

[00:46:00] Joel Kennedy: [00:46:00] two weeks. Well, it’s a fantastic resource and we’re all very passionate about educating, not just the ecosystem, but all the new, the new exciting people and companies that are going to enter into it.

[00:46:11] And I knew your podcast as a fantastic resource for those even beyond the ecosystem. I think there’s a great applicability to the information that you’re putting out. So thanks for that, Gina. Thank

[00:46:23] Gina Cocking: [00:46:23] you. And we also are pretty active users of LinkedIn, and we do a lot of blog posts too, not only in these topics, but that tends to be more industry specific.

[00:46:31] And we’ll talk about transactions that we’ve seen in the industry news that we see that’s impacting, you know, just like the two of you. I wake up each morning and I do a lot of reading and I’m like, Oh, Well, I think other people should be hearing about what the Fed’s latest thoughts are and I’ll post something on LinkedIn.

[00:46:47] Yeah.

[00:46:49] Joel Kennedy: [00:46:49] You do some white papers as well. I’ve read some of those and they they’re fantastic.

[00:46:53] Gina Cocking: [00:46:53] Thank you. We, uh, we do, we do, when we find those white papers are great academic exercises for us [00:47:00] internally. Like it’s hard to find the time to sit down and. Think about industry and, and mergers and acquisitions trends in an industry.

[00:47:09] But if you sit down and you say, okay, I’m going to write about it, then you really have to do research and, and coalesce your thoughts. And so they’re almost as much for us as they are for others to

[00:47:20] Joel Kennedy: [00:47:20] learn from. Yeah. That’s a great way to kind of check the water and see, you know, what people are thinking.

[00:47:26] Well, Gina cocking. She’s the managing director and CEO of Colonnade advisors. Thank you so much for joining us and, and, and the one and only Nick’s Olevitch senior editor of subprime modify news and, and the buy here, pay here report. Thank you both for being on the podcast today.

[00:47:44] Gina Cocking: [00:47:44] Well, thank you, Joel.

[00:47:45] Thank you, Nick. It was a pleasure to be with both

[00:47:47] Nick Zulovich: [00:47:47] of you. Oh, indeed. Thank you both so much.

[00:47:51] Joel Kennedy: [00:47:51] The consumer fi podcast has been brought to you by Northbridge loan software. That accelerates change. We’d also like to thank the national automotive [00:48:00] finance association, the only trade association, exclusively serving the non-prime auto financing industry.

[00:48:06] Agree.

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