Gina Cocking interviewed on the ConsumerFi Podcast

Gina joined the ConsumerFi Podcast 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. 

Listen to the Podcast here.

Gina and Joel reference the Middle Market Mergers & Acquisitions Podcast which offers actionable advice and strategies for selling your company and is aimed at owners of Middle Market companies in the financial services and business services sectors.

Read the interview transcript:

Joel Kennedy:

You’re listening to the ConsumerFi Podcast powered by Nortridge, loan software that accelerates change.

Joel Kennedy:

Welcome back everybody to the ConsumerFi Podcast. If it’s your first time listening welcome, please like, follow, and share. I do want to share one little bit of news. We have, obviously, I work for Nortridge 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. There’s going to be a ton of functionality discussed, omnichannel, 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 jkennedy@nortridge.com or hit me up on LinkedIn. Okay. So I really want to welcome today’s guest. I’m very excited. We have Gina Cocking, who’s the Managing Director and CEO of Colonnade Advisors and joining us in the pummeling.

Joel Kennedy:

We are going to pummel her with questions today. Joining me is none other than the Nick Zulovich. He’s a senior editor of SubPrime Auto Finance News and the Buy Here Pay Here Report, quality outfit from Cherokee Media. Nick, welcome.

Nick Zulovich:

Thank you so much for the kind introduction, Joel, glad to be here.

Joel Kennedy:

Well, let’s get into it. So Gina, I met you a couple years back with Chris who was as the prior managing director and you had a history with him. And then, I think you kind of moved your career along and then you came back and now you’re running the show.

Gina Cocking:

I am. I am. I was with Colonnade at our founding back in 1999, when we rolled out of JP Morgan. And we originally founded Colonnade to focus on middle-market companies, largely in the technology space. I left Colonnade in 2003, became the CFO of a number of companies, including a class 8 truck finance company, so 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. So if a company is looking to sell themselves, we are probably the bank they should be speaking to, if they’re in the financial services space. The typical deal size we work with is $75 million to $125 million. We work with smaller companies and we work with much larger companies.

Gina Cocking:

I would say about 70% of my work is doing sell-side assignments, so raising capital or selling a company. 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 back strategics, 20%, 25% of our work then is buy-side mergers and acquisitions. So we’re advising buyers and companies. And then, 5% would be capital raising. 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.

Joel Kennedy:

Outstanding. And you have a podcast as well that really strips a lot of this out, not only from a strategic standpoint but also from an educational standpoint. Can you tell us a little bit about the podcast, how that got started?

Gina Cocking:

Sure.

Joel Kennedy:

Yeah, I feel like we’re brother and sister now, we’re in the same club.

Gina Cocking:

We have a podcast for middle-market mergers and acquisitions. I host it with my partner, Jeff Guylay. And we focus on the technical aspects and the processes of what happens in a merger or acquisition. And our podcast is geared towards people that are thinking about going through a transaction someday.

Joel Kennedy:

Mm-hmm (affirmative).

Gina Cocking:

They’re an entrepreneur or an owner of a company, or they’re a college student or MBA student looking to be involved in mergers and acquisitions in some way. So we take, we break down the M&A process into kind of 40-minute bite-size deep dives into a topic. We get kind of geeky on some of these topics. We’ll spend 25 minutes talking about earn outs, another 25 minutes, another episode talking about rollover equity. What is due diligence? We have a four episode arc on diligence where we talk about business diligence, accounting, diligence, technology diligence, legal diligence.

Gina Cocking:

So we talk about everything that a seller or a 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 it kind of gets them mentally ready for what to expect. So we talk about the technical aspects. Jeff and I tell some of our war stories. We talk about what we think works, what doesn’t work. Jeff and I both have, I hate to say it, we’re well over 20 plus years in doing mergers and acquisitions. So we have a lot of insights as to what to expect in a transaction. And we often invite experts to join us in our discussions. And so that we, for example, did a reps and warranty episode, an episode on reps and warranty insurance, which is used in 95% of the transactions where a private equity investor is making an investment.

Gina Cocking:

So we talked with 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 kind of some of the intricacies and deal documentation. We had a recent episode with a wealth manager and talking about how to plan for your transaction because for most entrepreneurs, most of their wealth is tied up in the company that they’ve built.

Joel Kennedy:

Yeah. That’s right.

Gina Cocking:

We really have a lot of fun doing these episodes. And we think it’s helpful to potential clients. There’s companies that are out there that are thinking about, “gosh, what do I want to do with my company at some point, I can’t run on this until I’m 110 years old, so I need a next step. And what is that next step? What does that look like?”

Joel Kennedy:

I love it. I love the educational aspect. When I had my business and we were looking, going through the capitalization process, we just had one mantra and that was you never stop looking for money.

Gina Cocking:

Yeah.

Joel Kennedy:

And that’s a good mantra to beat your drum to, but there’s so much underneath it, right.

Gina Cocking:

There is.

Joel Kennedy:

Now Nick, you were asking earlier about some of the decisions that companies make through a merger or looking at… I’m going to butcher it. I’m going to let you ask the question about how to contemplate, structuring the company through diversification.

Nick Zulovich:

Absolutely, as Joel referenced before we got online, we were having kind of an organizational conversation and mentioned to both Joel and Gina, that how it’s really struck me, that there have been multiple shops within the auto finance space, whether it’s been reporting their quarterly or full-year accomplishments or whatever their latest platform update or enhancement might be, whatever the case may be, they’ve highlighted how much they’ve tried to diversify their offerings, whether more than just booking traditional paper, retail, installment contracts.

Gina Cocking:

Right.

Nick Zulovich:

Whether it’s the leasing or commercial loans for dealerships to buy brick-and-mortar facilities and expand their physical footprint. Or Just thinking about diversification, Gina, how do you see companies approaching that perhaps as an enhancement to their current short-term prospects to continue to either rebound stemming from the pandemic or solidify themselves, how does the investment world view diversification through that prism?

Gina Cocking:

That’s a great question and it is a complicated answer because it’s situational, boy, that is just such a fantastic non-answer right there that I just gave you. But truly, what we hear when companies have a single product or single service or single audience that they are addressing, they will hear from outsiders. It’s important that you 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 a lot of value in vertically integrating a company. So if you’re using a third-party distribution network through agents or sales force 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, or can it. The [inaudible 00:10:31] with it is your investor universe or buyer universe can find the message complicated.

Gina Cocking:

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, fill in the blank, what that means. Maybe it’s a new DMS system. Maybe it’s bringing AI into the organization. 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 with that 10% of your business, can you be valued like a FinTech company, maybe? Or do your buyers look at you and go, “gosh, that is a confusing story. 10% is FinTech, 90% is it? So is the 90% going to fund the 10%? Is the 10% really losing money? And therefore, how do I value that company? I’m confused.”

Gina Cocking:

Really, there is 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. 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 case.

Gina Cocking:

There may be different investors that are now interested in you. One area in the auto finance and auto-related field that is very impactful are companies 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, they don’t keep it on balance sheet more than warehouse facilities over a few days. That is a very different company than companies that have on balance sheet risk. And that is a different investor universe. There are private equity firms out there that [per 00:12:46] their documents with [for 00:12:47] their fund and with their institutional investors, they do not do balance sheet risk companies, but they will do fee-based companies. And so, if you are a company that is a fee-based company, and you’re like, “gosh, 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. Therefore, my bottom line will improve. My margins will improve so that’s what I’m going to do.”

Gina Cocking:

That’s great. And that is a great way to run the company, but you should be aware that your buyer universe, your investor universe is a much smaller universe. The other thing about entering into new lines of business is that a really big advantage is bringing in a larger universe of customers. So where I see small and middle-market companies having challenges is in customer or distribution diversification. And it’s tough, right? So you have a company that’s grown 20% for the last two years, largely because of two clients.

Joel Kennedy:

Mm-hmm (affirmative.

Gina Cocking:

So if you have a company that has, a dead stop is greater than 20% concentration with any one client, like if you’re greater than 20%, probably 60% or 70% of private equity firms cannot invest in you, you are too high risk. And I don’t care how long your relationship is or how great that relationship is. It’s just, unfortunately, a non-starter.

Joel Kennedy:

Yeah.

Gina Cocking:

Then I sometimes see documentation where if firms can’t do more than, if three customers make up more than 60% of the business, and that could be revenues, it could be gross profit. It could be earnings. I mean, it gets confusing. So diversification in clients is extremely important and diversification just kind of generally. So if let’s say you are a data analytics company, and you supplement your data with outside data sources. Hopefully, you don’t have concentration with just one data source, because that will be problematic. Or if you have a single provider… You’re a off balance sheet lender. And so, you have lending relationships and you have three big lending relationships. That’s probably not enough diversification.

Gina Cocking:

So really it’s diversification throughout the business. And the way we advise our 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? Is it, “gosh, if that vendor goes out of business, I am screwed. My next four months are a disaster.” Okay, well, that’s a problem for the investors too. So that’s a big issue, but getting back to your initial question, Nick, branching into other business lines and other adjacent product lines can really help with that diversification issue, but you don’t want to complicate the story too much.

Nick Zulovich:

Fascinating to say the least.

Gina Cocking:

[crosstalk 00:16:32] Go ahead.

Joel Kennedy:

I was going to say the thing that strikes me is that if I were to, let’s say I was 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 pre-originated paper, or I’m going to get into the floor planning business, right? So not an altogether illogical extension. I can see how you can integrate that all into your core system. So the data is, 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 things that you really do harp on your podcast and just personally in having conversations with you. You talked a little bit about the role of the customer and that piece within diversification and making sure there’s not too much of a concentration. How do you guys view data? And how can companies that are listening to this best prepare themselves for having a data architecture that is going to support them?

Gina Cocking:

Yeah. This is one of my big bugaboos. Financial services companies by the nature of being financial services companies are data companies. We don’t actually produce things that people physically use. We don’t have a pen or a widget or whatever you can actually physically see. What we’re producing is in financial services is paper or data, and the data needs to be under control. So to be a financial services company in 2021 [inaudible 00:18:15] back in 2000, you have to have good control of your data. And when Colonnade comes in and starts to work with a company, one of the first things we do is we ask for the data tapes. So we want to see the look loan tapes, the data tapes. We want to see every loan originated. We want to see all the fields filled in.

Gina Cocking:

If you have it in the fields, we will want to see it. The buyers will want to see it. Cause we’ll want to slice and dice that data every way possible. We’re going to look at it by vintage. We’re going to look at it by vehicle. We’re going to look at it by originator, by rate, by term. Think of a way to cut the data, we will cut the data and look at it and then probably put into a PowerPoint slide 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. 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.

Gina Cocking:

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. And there should be no variance like zero variance. Okay, maybe 1% variance would be okay, but really no variance. You should be able to tie up every single loan. And we frequently like 100% of the time see problems with the data sets in the middle market. And there’s a variety of reasons. For example, for the F&I industry, the dealers are actually putting the data into the DMS. And so, it’s really hard for an administrator or loan administrator or 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, it means garbage out.

Gina Cocking:

And the financial 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. We don’t see that often enough and that has an impact in a transaction and potentially in valuation. So imagine Nick, that you’re a buyer of a company and you’re coming in and you’re like, “ah, this group, this non-bank lender of auto loans [looks 00:21:02] fantastic.” It looks great on paper. They have a book of $125 million on book. This is great. So let’s start looking at the data tapes. And you’re like, wait, the data tapes and the financials aren’t tying out at all. Like, “oh yeah, we switched systems, and so sorry about that, but it’s all there and it’ll be okay.”

Gina Cocking:

You’re going to lose all confidence. Maybe you won’t 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 and that’s why San Francisco and FinTech companies really do well. FinTech is a big splashy, shiny, rainbowy thing that gets people excited when they hear FinTech, but it’s almost kind of a stamp of approval. When you see some company that’s putting them for sales force as a FinTech company, they probably started as a data-first company, a technology-first company, and they have control. And if they have control, then you know their position to do really well.

Nick Zulovich:

Indeed, as you are articulated Gina using the finance company, as an example, as I’ve heard many individuals who are way smarter than I say that it’s not necessarily what you book, it’s what you collect.

Gina Cocking:

Right.

Nick Zulovich:

That means that is the true value, at least in the auto finance space, for example.

Gina Cocking:

Absolutely. Absolutely.

Nick Zulovich:

Well, to pivot our conversation from the broad topic of data to another equally as important one, I’ll dub it as money. We’ll start from that perspective. Would love to hear both of your perspectives on this. It can go into so many different angles, be it the US dollar or when Fed Chairman Jay Powell makes public appearances, which good, bad or otherwise, he’s pretty apt to do nowadays after committee meetings and that sort of thing. I’ve seen it, read, and heard that there are some observers who will parse every phrase and try to judge the inflection of what the Fed Chair might or might not say.

Gina Cocking:

Mm-hmm (affirmative).

Nick Zulovich:

From an investment perspective. Again, would love to hear each of your perspectives, what comes out the fed, what Chair Powell says, or doesn’t say, how much is that analyzed, dissected, observed from your own personal perspective and then your colleagues and contemporaries in the investment world. What happens at the Fed? How does that really impact what you do or do not do?

Gina Cocking:

Sure. Joel, take the first crack at it. 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, what is the meaning behind what they’re saying? And where is it going? And there are lot of people who are a lot more dedicated to focusing 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 going, if rates haven’t raised are they going to be increasing? Well, yes, I can say right now, definitively I will be right. Rates will increase someday. Cause my partner always says, a broken clock is always correct twice a day.

Joel Kennedy:

Right.

Gina Cocking:

So rates will rise someday. The current item that everybody’s looking at is inflation.

Joel Kennedy:

Mm-hmm (affirmative).

Gina Cocking:

We have inflation is coming and there’s some inflation is good for the economy. 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. The question will be is it going to be an abnormal amount of the inflation. Right now, I think everybody sees it there’ll be normal. Historically normal inflation will be coming. I think what we’ve seen generally in the market and what’s been moving the markets has been, part of it’s been the stimulus packages.

Gina Cocking:

It’s been [not what’s 00:26:10] coming out the Fed, but the stimulus packages, it has been the Congress putting forth the PPP loans to stimulate the economy. These stimulus packages really have benefited companies. And in the financial services arena 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 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.

Gina Cocking:

And money is still relatively cheap. I was just looking at an article again today that mortgage rates are starting to tick up just a little bit. And so, there’s a rush again to refinance mortgages, or get a mortgage before we see a large increase.

Joel Kennedy:

Mm.

Gina Cocking:

We’re in for a time of, I’ve heard the term, we’ve used it in the past irrational exuberance. It’s hard to say, the markets are doing really well while the country is feeling pretty crummy and a lot of people are out of work and you step back, it can be a bit of a hedge scratcher.

Nick Zulovich:

Right.

Joel Kennedy:

I agree with so much of what you said, Gina. I think the macro market risk in this next cycle is going to be kind of where the meat is at.

Gina Cocking:

Uh-huh (affirmative).

Joel Kennedy:

You look at availability of capital. You mentioned money is cheap, right?

Gina Cocking:

Right.

Joel Kennedy:

So then if I’m a CFO of a company that has significant cash reserves, there’s a lot of talk right now about where to park that money,

Gina Cocking:

Absolutely.

Joel Kennedy:

Longer term. And so, you have a lot of that going on. You mentioned the stimulus, unemployment is another big one, right.

Gina Cocking:

Mm-hmm (affirmative).

Joel Kennedy:

As long as there’s some support provided there, but that tied in with inflation starts to get a little bit scary. So then you have that coupled with Nick, you mentioned about people making immediate responses to things that the Fed Chair says. I’m going to take it on a wicked path, but I’m interested to see if you agree. I think the social fabric of the country is such right now that there is probably, like if the Fed Chair had an approval rating, it’ll probably be very low. And I think you have a lot more people that are doing their own thinking for themselves. New voices are out there.

Gina Cocking:

Uh-huh (affirmative).

Joel Kennedy:

So I watch a lot of the cryptocurrency markets, right.

Gina Cocking:

Yep.

Joel Kennedy:

Michael Saylor of MicroStrategy made big news a while ago cause he put so much of the cash reserves into Bitcoin. Tesla, CEO, Elon Musk comes out a week ago. And then, now we’re hearing about Blackrock or Blacks, I forgot if his Blackrock or Blackstone said, “yeah, we’ve been dabbling in it.” Now, what does that mean? They’re not going to tell you, but the point is people are saying, Nick, I think there’s going to be more of these voices. And those do move the market significantly in those cryptocurrency markets.

Joel Kennedy:

There’s more of these voices that I think, I don’t know what the [equilibrium 00:29:16] 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 reserves.

Gina Cocking:

Uh-huh (affirmative).

Joel Kennedy:

That isn’t going to get decimated.

Gina Cocking:

Yep.

Joel Kennedy:

Do I hold it in gold? Do I hold it in an Asian currency, right?

Gina Cocking:

Right.

Joel Kennedy:

Because all those countries with their trading, 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 interest rates and the availability of money and all those things as we go into this next cycle.

Nick Zulovich:

Right. And to take it even a step further, if the recent past does any indication, perhaps instead of listening to the Fed Chair, they’re going to, folks will go to Reddit or other social media platforms and find the next [crosstalk 00:30:12].

Joel Kennedy:

Yeah.

Nick Zulovich:

And take it from there. I mean, I don’t have my phone in my hand at present, which is kind of an anomaly.

Joel Kennedy:

Is it new risk-taking or is it intelligent for people to take some control? I think, Is it repeatable or is that one-off?

Gina Cocking:

I look at it as it’s an exciting time. I always think it’s great when younger peoples start getting more involved in the markets and more involved in managing their money. My daughter who’s in college had sent me a text that was a little cartoon of a girl bringing her boyfriend home saying, “Hey, mom, my boy boyfriend trades because of Reddit. And he’s just made a ton of money trading game stuff.” And the dad looks at the kid and goes, do you have a 401(k)? And kid goes, well, what’s a 401(k). 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. Get your toe in, start doing something if you’re doing because of Reddit. Awesome.

Gina Cocking:

Might you lose some money, you know what, in your 20s and 30s, you should be investing in risky things. Okay. By the way, I’m not a financial advisor. But seriously, when you’re 20 and 30, you can afford to lose money, experiment in the markets, get your feet wet, and get used to it. And then, the more that individual’s trade, it is causing some volatility, and that’s great. We saw this before the last financial crisis. And 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 and that’s great. People should have their money and try to make money with their own money.

Joel Kennedy:

Yeah.

Gina Cocking:

Because I have one of the highest rate checking accounts out there that we put when I was looking in at this morning, we’re getting 50 bits, checking account. People should be or if they’re younger, you diversify their holdings, but try putting some in the markets and if it’s game stuff. Okay, good. Give it a try.

Joel Kennedy:

Yeah. So we have a couple other dimensions that are important for companies to look at structurally as they head down the path. And it’s so important that you really think with the end in mind with this. There’s a couple others and Gina, I’ll invite you to kind of discuss them, as you see them as important, especially given the landscape that we just described. So we’ve got elements of growth, automation, controls, compliance, and controls, and compliance are obviously near and dear to me and probably Nick too. He’s also compliance certified of those aspects, maybe you could touch on all four of them and kind of mention how those kind of tie in.

Gina Cocking:

Controls and compliance. It’s really interesting. So as I mentioned, we’re working with financial services companies and often 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’ve got your 15 employees there, it’s easier to have controls and 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 to double-check these documents to make sure every box has been filled. We need to make sure we have our documents filed in the right places in our systems.” And that we file with this state. And we file 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 and clients tend to fall apart.

Gina Cocking:

Maybe 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 that you’re putting non-compliant loans on the books. That’s great that you had 20% year-over-year growth, but Ooh, one-and-a-half percent of your loans were non-compliant loans. 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 in developing a chief compliance officer, in developing in the technologies to manage my company from a compliance perspective.”

Gina Cocking:

And that’s shortsighted. 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 their technologies that are available that can help a company stay within compliance guidelines 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 being done. But it’s kind of like having a finance department. Too often companies when they’re growing, they want to spend on their sales force and spend on their marketing team and their operations people.

Gina Cocking:

And they underspend on the accounting and finance and compliance and legal. And those are what cause companies to end up in really expensive lawsuits. Those failures are what cause companies to inadvertently default on terms of loan agreements. Under-investing in those areas can bring a company down.

Joel Kennedy:

Yeah.

Gina Cocking:

And it’s tough for entrepreneurs, it’s tough for anybody to get excited about a cost [center 00:36:49], but you have to, otherwise you’re not really building a company. You’re building a sales force and a team, and that doesn’t have value. That’s not an enterprise.

Joel Kennedy:

And I want to get in a jab on that point. 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 operating in Illinois and Wisconsin. Okay, well, now your compliance matters, at least to start for your originations are going to center around those two states, 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 are right-size solutions out there if you look.

Gina Cocking:

That’s right. [That’s actually like 00:37:38] I’ll see it, sometimes once again, getting back to customers’ data. I’ll be looking at a data set and for whatever field they’re in, they’re not licensed, let’s say in the state of Nevada and they should be. To operate in Nevada, you have to be licensed, but they’re not licensed in Nevada. And yet I see product originations in Nevada.

Gina Cocking:

And I’m like, okay, how 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. I’m like, nice story, but that’s still, you still went against the regulations. So it would’ve been an easy fix, like in your systems for your platform, for your product origination, your loan origination should have just turned it off. Like some big flag should have gone off and 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 geographies or products or certain types of clients. So they’re staying in line with the regulations and they just still don’t take the time to review what they already have.

Joel Kennedy:

Yeah. I mean, 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 to severity, but then what’s the likelihood.” And if you go through that list and let’s say, you come up with 20 that make it through, out of a 100. 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 size in this. It’s been there since the [inaudible 00:39:38] administration. I think you have to have some sensibility there, but that’s a great way I think, to tip off, because you could pull in your CFO and somebody who knows a little bit about operations and you could cover majority of that risk setting.

Gina Cocking:

Right.

Joel Kennedy:

And if you do that year over year or with some frequency. Yep. And you keep track of, “Hey, how are we building against each of these controls?” And you know, that there’s different types of controls, a system based control, Gina, as you were talking about is going to have far more durability than telling, Nick, who’s sitting there underwriting the deals. Nick, if you see anything come in from Nevada, just kick it, yeah.

Gina Cocking:

Right. Because Nick might be sick one day and Jane takes the loan and didn’t know about the Nevada rule.

Joel Kennedy:

Yeah.

Gina Cocking:

So it’s got to be through technology.

Joel Kennedy:

Yeah. Well, I am going to thank you guys for everything today on the podcast. I’m going to let Gina have the last word, but Nick, I’m going to ask you and then Gina, just Nick, we didn’t really talk too much about all the great work that the Cherokee Media Group does with all the publications and the conferences. Please provide a little bit of, yeah.

Gina Cocking:

And I use them all the time. I’m always, all the various, I’m looking at your articles and sources all the time. It keeps me up to [best 00:41:03] on what’s happening in these industries. So thank you.

Joel Kennedy:

Amen. Amen. Yeah. It’s great having you, but give us a little taste of maybe some things to come and maybe how people can get, reach out to you. And then Gina, I definitely want to make sure you tell people about your website and your podcast and they have a way to get ahold of you.

Nick Zulovich:

Well, thank you to each of you for the incredibly kind words. Definitely, we’re not the largest shop in the automotive media landscape, but I’d like to think that we try to cover a lot of aspects of the world with the resources that we have to the best of our abilities, whether it’s from the wholesale side of the automotive worlds, auctions, and used car values and that sort of thing to financing and compliance. How trends are happening, whether it’s defaults or originations, or what have you been, and also on the retail side of things, dealership operations, how they’re continuing to leverage the digital components when the pandemic started out of absolute necessity in order to keep vehicles turning because of the state of things, as well as how consumer preferences have changed to rather than to always have to go to a dealership, “the dealership comes to them,”

Gina Cocking:

Yeah.

Nick Zulovich:

There’s a truck arriving with their shiny vehicle and they completed all the documentation on their iPad or what have you.

Joel Kennedy:

Mm-hmm (affirmative).

Nick Zulovich:

And it’s a done delivery. So that’s just some of the elements that we try to bring together at Cherokee Media Group. And whether it’s the written words, podcasts that each of these two astute individuals have been a part of. We tried to cover a lot of the automotive world, again, through the used car financing and wholesale prisms of the space. Our home page autoremarketing.com [inaudible 00:43:16] can find a pathway to whatever content that you might be interested in, in the way you would like to consume it, whether it’s through our daily emails, that we deploy through podcasts, that we are ramping up steadily and still the printed version that will land in your mailbox, that will be arriving on a monthly cadence as well. You can sign up for any and all of that material. Again, just go to our website autoremarketing.com. Again, thank you for the kind words from each of you and for having me as a part of this great endeavor.

Joel Kennedy:

Great. Gina, you want to bring it home?

Gina Cocking:

Sure, sure. So we launched our middle-market mergers and acquisitions podcast because we wanted entrepreneurs and owners and executives at companies to start thinking in advance. So they already think in advance before they go through a sale, but you’ll start answering some of the questions that maybe they don’t know the right person to ask. How do transactions work? What do I need to do to get my company ready? And Colonnade’s been around for over 20 years. And so, we had a lot of pattern recognition and we know what works and what doesn’t and how companies can prepare themselves for a sale. How do they should be diversifying their client base? How do they get their systems in order? How should their operations be set up?

Gina Cocking:

And some of 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 on what it looks 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. It’s not the first time they’ve heard reps and warranty insurance, or some of these arcane concepts and structuring deals. They already have been a bit of a student on the topic. Our podcast can be found middle-market mergers and acquisitions podcast can be found on most of the major platforms, Apple, Spotify, et cetera, and on our website. So our website is coladv.com. So coladv.com or Colonnade Advisors. Google Colonnade Advisors and our podcasts are all up there. And we do a new podcast pretty much every couple of weeks, every two weeks.

Joel Kennedy:

Well, it’s a fantastic resource. And we’re all very passionate about educating, not just the ecosystem, but all the new exciting people and companies that are going to enter into it.

Gina Cocking:

Mm-hmm (affirmative).

Joel Kennedy:

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.

Gina Cocking:

Thank 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. And we’ll talk about transactions that we’ve seen in the industry news that we see that’s impacting 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. [crosstalk 00:46:48].

Joel Kennedy:

You do some white papers as well. I’ve read some of those and they’re fantastic.

Gina Cocking:

Thank you. Thank you. We do, we do. We find those white papers are great academic exercises for us internally.

Joel Kennedy:

Uh-huh (affirmative).

Gina Cocking:

Like it’s hard to find the time to sit down and think about an industry and mergers and acquisitions trends in an industry. But if you sit down and you say, okay, I’m going to write about it. Then you really have to do research and coalesce your thoughts. And so, they’re almost as much for us as they are for others to learn from.

Joel Kennedy:

Yeah. Well, it’s a great way to kind of check the water and see, what people are thinking. Well, Gina Cocking, she’s the Managing Director and CEO of Colonnade Advisors. Thank you so much for joining us and the one and only Nick Zulovich, senior editor of Subprime AutoFi News and the Buy Here Pay Here Report. Thank you both for being on the podcast today.

Gina Cocking:

Well, thank you, Joel. Thank you, Nick. It was a pleasure to be with both of you.

Nick Zulovich:

Oh, indeed, thank you both so much.

Joel Kennedy:

The consumer five podcast has been brought to you by Nortridge, loan software that accelerates change. We’d also like to thank the National Automotive Finance Association, the only trade association, exclusively serving the non-prime auto financing industry.