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538. Beyond the Boom: Creating Fair Valuation for Lasting Legacy · Daily Influence

• 0:10
  [SPEAKER_00]: Welcome to the daily influence where our mission is to deliver a daily dose of positive influence that can uplift you personally or be shared within your sphere of influence.
• 0:20
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• 0:40
  [SPEAKER_00]: Hey everybody, Brian Smith here with the IMT series and your daily influence.
• 0:46
  [SPEAKER_00]: And today I am going to be diving into a topic that every business owner will face at some point, valuation and white clarity around it is so critical, especially during times of transition.
• 1:03
  [SPEAKER_00]: And in this episode, you're going to see an interview by Brandon Cohen, one of our associates who is working with us to develop our smart business operating system program.
• 1:15
  [SPEAKER_00]: And he's asked me some really good questions about
• 1:19
  [SPEAKER_00]: one of our real world cases in.
• 1:21
  [SPEAKER_00]: The issue that you're going to hear us discuss had them coming off of the COVID boom and the founders were grappling with the challenge that many small businesses can face is how to fairly value their business amidst inflated market conditions.
• 1:38
  [SPEAKER_00]: doing that while preparing for succession all at the same time.
• 1:41
  [SPEAKER_00]: And look, this is a good episode for you to see how smart management principles helped us to work through the noise of the market, work through the noise that can influence valuations, but give us a realistic, sustainable and most importantly, a fair valuation.
• 2:02
  [SPEAKER_00]: And we'll also talk about the emotional and strategic impacts
• 2:06
  [SPEAKER_00]: of discovering what true value really is and how you can build that into your organization.
• 2:12
  [SPEAKER_00]: So that clarity can shape more thoughtful decisions for you in the future.
• 2:17
  [SPEAKER_00]: So I hope you will enjoy this episode and stick with us.
• 2:21
  [SPEAKER_00]: We have many more to come.
• 2:23
  [SPEAKER_01]: I want to start with a client where valuation clarity was the focus.
• 2:28
  [SPEAKER_01]: When this client first approached us, what were the key challenges they were facing around valuation?
• 2:34
  [SPEAKER_00]: In this particular instance, the client is in the firearms industry.
• 2:40
  [SPEAKER_00]: So we had just come out of COVID and they were looking for a valuation to start planning for succession, but because of the period of time and some of the stuff that was going on with social economics, their particular industry was seen record sales and
• 3:03
  [SPEAKER_00]: They were concerned that the valuation would be skewed because traditionally in the firearms industry, especially of the late, there's been a lot of pressure on that industry.
• 3:14
  [SPEAKER_00]: So they were hoping to overcome some of the socio economic and socio political issues that they were faced with in their industry.
• 3:24
  [SPEAKER_00]: in that sales were great, but outside pressure on the industry that could be damaging to them was also great and they were worried about overvaluation.
• 3:36
  [SPEAKER_01]: I see.
• 3:37
  [SPEAKER_01]: So what were some of the underlying business issues that made evaluation necessary or difficult?
• 3:42
  [SPEAKER_00]: So for them, one of the underlying issues that made it necessary was they're trying to plan for succession and as a family owned
• 3:52
  [SPEAKER_00]: business oftentimes that's difficult, is it a fair price, but is it too much of a price?
• 3:59
  [SPEAKER_00]: They don't want to actually maybe get from family members what they would hope to get if they were to put it on the open market.
• 4:08
  [SPEAKER_00]: And the challenge for us was to use different valuation methodologies and make sure they were fair, make sure they were legal and honest that they followed gap
• 4:19
  [SPEAKER_00]: Generally accepted accounting practices, but also followed IRS regulations.
• 4:25
  [SPEAKER_00]: Then the other challenge was as I just pointed out, it's an industry that has chaos in it is.
• 4:34
  [SPEAKER_00]: a challenge in the state that it's in.
• 4:36
  [SPEAKER_00]: It's in a state that has a lot of gun regulation and has a firearms company.
• 4:42
  [SPEAKER_00]: They had these pressures even though sales had been record sales and they knew that the pressures were going to return after the socio economic issues gave in to the socio political issues that were coming up.
• 4:58
  [SPEAKER_01]: And how do we help them gain clarity on what their business was worth and why did that clarity matter to them?
• 5:06
  [SPEAKER_00]: So what we did was explain to them the different variables that were going into that valuation and how the socioeconomic side and the political side had some joining areas that were supportive and also some combative areas that
• 5:27
  [SPEAKER_00]: that degraded or threatened valuation.
• 5:30
  [SPEAKER_00]: We were able to clarify that for the client and also help them understand, with the help of some of their other advisors, what the valuation meant and how that valuation would impact succession and also impact continuity, continuity within the industry and continuity for the family to have a viable business in the future.
• 5:53
  [SPEAKER_01]: whether any surprising things that came out of the evaluation process that they had not considered?
• 5:59
  [SPEAKER_00]: Yeah, I think the clarity of how socioeconomic and social political issues can influence your business, not just short-term, but also long-term valuation, how we think about transfer of that asset.
• 6:19
  [SPEAKER_00]: How we look at risk and risk to revenue risk to profits risk to liability all of those things and how they can influence not just.
• 6:32
  [SPEAKER_00]: Financial value, but emotional value, culture value, and all of those things that are really important to have in a small business.
• 6:42
  [SPEAKER_01]: And how did our work prepare them for what came next, whether it was a sale or a partner bio or just more strategic planning?
• 6:50
  [SPEAKER_00]: Yeah, well, it gave them a tool, the valuation, with that brought them clarity.
• 6:58
  [SPEAKER_00]: that allowed them to think more strategically, not just as a family and not just as business owners, but also in collaboration with people beyond us, accountants, lawyers, financial planners, it gave them one central hub, one central place where they could collaborate collectively and individually to get the best information and the best advice that they could.
• 7:25
  [SPEAKER_01]: All right, thank you.
• 7:26
  [SPEAKER_01]: So that wraps up our discussion on valuation.