Latest / The SmallBizChat with Melinda Emerson / How to Increase Your Business Valuation and Build Wealth with Saul Cohen

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How to Increase Your Business Valuation and Build Wealth with Saul Cohen · The SmallBizChat with Melinda Emerson

• 0:00
  Three, two, one, zero.
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  Ignition.
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  Lift off.
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  Ending small business failure.
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  Welcome to the Small Biz Chat podcast with the number one small business expert, Melinda
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  Emerson.
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  Melinda's goal is to end small business failure, and she'll give you the information
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  you need to succeed and live the life you dream of.
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  Now here's your host, the small biz chat lady herself, Melinda Emerson.
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  Have you subscribed to the small biz chat podcast?
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  Well, it's time.
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  Every Wednesday, we offer listeners bite sized actionable tips to start and grow a successful
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  small business.
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  your business forward.
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  Be sure to subscribe to the Small Bitch Chat podcast today.
• 0:58
  Hi there.
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  Welcome to the Small Biz Chat podcast, your go to destination for entrepreneurs who want to
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  build profitable businesses that create freedom, wealth, and a lasting impact.
• 1:09
  I'm your host, Melinda Emerson, the Small Business Lady, America's number one small
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  business expert, and our mission here is simple, to end small business failure by giving
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  you the strategy, systems, and confidence to succeed as your own boss.
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  Every week, you'll hear inspiring conversations with today's top business experts, successful
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  entrepreneurs and industry leaders who share practical, real world advice you can put into
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  action immediately.
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  If you're ready to grow smarter, lead stronger, and build a business that you've always
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  envisioned, you are in the right place.
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  And as always, before we get started, if you are a fan of the Small Biz Chat podcast, please
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  take a moment and leave us a good review on Apple Podcasts or Spotify, wherever you listen
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  to your favorite podcast.
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  And as always, no hate mail.
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  Please give us reviews that let other entrepreneurs discover our show and learn about
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  how amazing we are.
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  Now today, we're gonna be talking about something that every small business owner
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  should understand.
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  Even if you're years away from selling your company, you need to know how to increase your
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  business valuation so you can build lasting wealth.
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  Now joining me today is Saul Cohen.
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  He's a partner at The Expert Eye and he's joining us from The UK, and he is gonna talk to
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  us about how he helps 7 figure business owners make the shift from operator to investor,
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  drawing on his experience in Pricewaterhouse and advising entrepreneurs through more than a
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  100 mergers and acquisitions.
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  He specializes in business valuation, tax smart exits, and wealth building strategies that help
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  founders maximize company value and create long term financial freedom.
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  Whether you're planning to sell your business someday or simply wanna really build more value
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  in your company, this is an important conversation.
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  Saul, welcome to the Small Bitch Chat podcast.
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  Thank you so much for having me on.
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  Alright.
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  So let's talk about this.
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  Many small business owners think of themselves as operators rather than investors.
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  What is the difference, and why does that mindset shift matter so much?
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  Well, okay.
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  Let's think about it like this.
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  So an opera...
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  An an owner operator is someone who might own a business, but they're still working quite
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  heavily dependent in that business.
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  The business is dependent on them, and and it relies on them quite heavily.
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  An investor, on the other hand, is external to the business.
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  They might guide an owner operator.
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  They may have a seat on the board.
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  They may work with the CEO.
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  But, ultimately, they look at the business from an external point of view.
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  And that change in viewpoint is I think important because it removes bias.
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  What I find often with owner operators is they look at their business like their baby.
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  I'm I'm I'm the same.
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  We're all in the same boat.
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  And that...
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  Because of the fact that you you are emotionally connected to the decisions that
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  you've made, both good and bad, You give it...
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  You you have a...
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  You have an unhealthy bias with your business.
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  Now that's fine up until the point when you come to exit because at the point when you come
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  to exit, you're looking at getting a third party involved who's going to look at your
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  business just based on the cold hard facts, removing all the emotion and the bias.
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  And if you can start putting yourself in that position ahead of time, then you have the
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  ability to sort of take the reins in that in that negotiation.
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  And I think that's really important.
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  Now a lot of entrepreneurs believe growing revenue automatically increases the value of
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  their business.
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  Is that true or are there other factors that may...
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  Maybe a buyer might care about even more?
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  Well, look.
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  The honest answer is it depends what a buyer's buying.
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  For most small business...
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  Small and medium sized businesses, what the what the buyer or an investor is looking to
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  purchase is future cash flows of your business.
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  And if the buyer is buying future cash flows, then actually just building revenue is going to
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  help very little to increase valuation.
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  However, if the buyer is looking to, purchase a client book, then obviously they might just be
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  purchasing purchasing...
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  Then then, you know, growing revenue will increase the rep...
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  Will increase your valuation because of the fact that, you know, you've now got more
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  revenue.
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  You've got a larger client book, therefore, it's more valuable.
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  How...
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  The other side to that, the really important caveat is that it's normally much more valuable
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  to sell your business as a whole than to skimp it off and sell the parts.
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  So it's much more profitable overall to sell a business for for a multiple of its profits
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  rather than just selling off individual assets and selling off a client base.
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  Yeah.
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  That that that normally doesn't achieve that much.
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  So talk to me about valuation levers.
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  What are the most important drivers that can significantly increase the value of a business?
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  I know you just talked about people wanna purchase future, you know, they they wanna see
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  long term contract.
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  They wanna be able to purchase, you know, future revenue, but talk to me about some of
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  the other things that can significantly increase the value of the business.
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  Okay.
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  So I think if we take out for a moment the anomalies, so the businesses that have been
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  bought because they've developed some insane technology, your general business is bought as
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  a multiple of its profit because of the fact that investors want future cash flow.
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  So we think about it there are two two determinants of a valuation then.
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  There is profit and then there is the multiplier.
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  Now obviously if you increase the profit therefore you will increase your valuation and
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  it will be multiplied by the multiplier.
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  But the multiplier, that's the thing that normally gets people.
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  And what that is is that is an indication on how risky your business is perceived.
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  The more risky your business is perceived, the lower the multiplier.
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  The less risky, the higher the multiplier.
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  Now, generally, as profits increase, that will automatically change the multiplier itself.
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  But I've got a bit of a framework that will give you a a sort of an idea of...
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  There are five things that really will affect heavily affect your multiplier outside of the
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  finances.
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  So the finances already affect valuation because they're affecting the profit.
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  But then the five things that will affect your multiplier generally are your systems, which
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  you were talking about before.
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  Fantastic.
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  Really important to make sure you've got your systems and operational assets in place.
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  Then you've got your commercial assets, so your customer journey, your...
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  How do you how do you how do you win clients, what is your standardized process for winning
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  clients, who owns those relationships.
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  You've got your organizational, and human assets.
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  So the people and the culture in your team, tremendously important.
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  Really, actually, of the biggest assets in a small medium business is its people.
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  And then your regulatory environment, know, how what regulatory terms are there, what
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  structural nuances are there in your business.
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  And finally there's what exposure is there in your business?
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  So key man in...
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  Key man exposure.
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  Is there any individual?
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  Not necessarily...
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  It might not even be the owner.
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  Is there any individual who is a massive risk if they were to leave that they take everything
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  with them?
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  Do you have any one customer who who would...
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  If they were to leave, would take away all your profitability?
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  As you see, the the...
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  They all spell SCORE.
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  So s c o r e, systems, commercials, organizations, regulatory, and exposure.
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  And those five things together are the key determinants of your valuation, of of the
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  multiplier side of your valuation.
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  The first four, the better it is, the higher the valuation.
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  That last one, the exposure, obviously, the more exposures you have, more risk, lower
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  value.
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  That...
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  That's a really good little acronym acronym I'm gonna remember that.
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  I'm gonna give you credit for it the first time I use it then I'm gonna take it.
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  I just wanna let you know.
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  Now talk to me about what are the key performance indicators that every business
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  owner should know if they want to attract a buyer someday?
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  Well, look, I think fundamentally they need to know what their valuation actually is.
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  I always tell people go out and get a valuation.
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  You know, what you track improves and, you know, you need to be in the know.
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  You need to understand what is my current position.
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  And the the worst position that any any business owner can be in is to think that their
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  business is worth one number and then find out just as they're about to exit that your
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  business is worth a lot less.
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  It might be painful right now to find out your business is worth less than you think, but
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  it...
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  You still have time to do something about it.
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  So that's that is absolutely the first thing that I think needs
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  to seen it both ways.
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  I've seen people who thought their business was worthless, and it was worth more than they
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  thought.
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  Seen people that thought their business was worth $4,000,000, and it would cost $400,000.
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  You know?
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  Obviously- Absolutely true.
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  I've seen things happen.
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  So the point is don't assume your business has no value, but let's be realistic.
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  I think sometimes, you know, people end up not selling and then years later, you know, get
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  almost put out of business and get sold in a fire sale kind of situation.
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  So I think it is important what you're saying.
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  Well, how early do you think the valuation should take place?
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  You know, five years in or five years before you wanna sell?
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  Like like, when when should one start going and getting a valuation?
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  And what does that look like?
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  What does that cost?
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  I think five years in, I don't think it needs to be like a full real deep dive valuation.
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  The cost can vary massively, but I think you want you want something to give you...
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  Unless you're really prepping for exit, you just want something to give you sort of a a
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  line in the sand.
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  It doesn't...
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  You don't need something that's overly complicated.
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  You might even find something, you know, a really good calculator for, a couple of $100 or
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  a couple of 100 pounds.
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  But it it doesn't need to be overly complicated, but it needs to be something that
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  gives you a feasible line in the sand that is good enough.
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  You know?
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  I know there's a couple of apps out here that are claiming they can do valuation, but then
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  you gotta be like, do you trust putting all your data into something like that that could
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  give you a...
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  There's always a trust factor in these things.
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  So if if they're gonna go get their valuation, that's one thing.
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  But how can taxes dramatically reduce the wealth created from a business sale?
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  I've also seen cases where people don't plan for their exit financially before they do it.
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  And so they end up paying way too much in taxes with the sale because they didn't plan.
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  And so can you talk a little bit about sort of like some of the tax planning strategies you
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  might wanna think about as you are, you know, thinking about your exit?
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  Yeah.
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  Hard to delve into specifics because of the fact, obviously, it's different different
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  environments, but I can talk about certain...
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  Certainly why it matters because...
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  And the thing about tax planning to understand is that what works for one person isn't
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  necessarily the right answer for another person.
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  And and a really good actually demonstration of this is that...
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  We had a client who recently sold a company.
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  They didn't need any money out personally, and they managed to sell that company and pay zero
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  tax on the sale of that company.
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  It it there's a there's just a a tax strategy in The UK that works to do that, and you know
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  whereas we have another client who they needed they know that you know they want to pay off
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  their house they want to pay off a whole load of things x y and z And we told them that
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  actually, generally, capital gains in most countries around the world, capital gains is a
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  lower rate of tax than income tax.
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  Most people prefer to pay capital gains.
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  And if you have a a larger amount of of personal upcoming expenses that you wanna wanna
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  pay, it's up like paying off a house.
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  You know, you might actually wanna pay some personal tax and extract that money at a
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  cheaper rate of tax.
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  So, actually, the most important thing is less the strategy and more to surround yourself with
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  people who know and and and and make the investment in taking the advice in your local
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  environment wherever you are around the world.
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  Just take the advice.
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  And the problem is is that obvious...
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  Often it's it's upfront cost, and the the saving comes in the future.
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  But in the future, it will be much more costly to put those strategies in if...
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  And sometimes you can't even go back and do it.
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  So it does make a big difference.
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  I I also would say just to...
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  And I'm and I'm so excited to be having this conversation with you because it's a
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  conversation conversation that's been coming up a lot around me.
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  But one of the other things I think people need to have in place is as an entrepreneur, you
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  should have a financial planner that understands entrepreneurship.
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  Because a lot of times, if you're gonna sell a business, that should be a sudden wealth
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  experience for you.
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  Like it should be like, that's your cash out, right?
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  That's your retirement and all that kind of stuff.
• 15:49
  So you really need to have people around you already talking to you about your money,
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  talking to you about your investments, talking to you about whether or not we need to make
• 16:00
  real estate a part of this play.
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  One of the things in The United States is, thanks to the big beautiful bill, Mr.
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  Trump put some stuff in there to really help entrepreneurs, particularly those with real
• 16:10
  estate.
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  So you definitely want to have a financial planner around you that doesn't just work with
• 16:18
  401ks and stuff like that, but somebody that really understands how to handle these kinds of
• 16:24
  dollars because you need to maybe put things in trust and all kinds of other types of vehicles.
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  And so you need to have some people around you two years, three years before you're about to
• 16:35
  do this so that there can be a plan in place.
• 16:37
  Sometimes when people sell businesses, they might wanna create a family foundation.
• 16:42
  They might wanna create a donor advised fund.
• 16:44
  They might wanna create, if they're gonna sell their business in the 10 figure range, you
• 16:51
  might wanna even be thinking about a family office or something like that so that you can
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  manage money that way.
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  Now, certainly I am not a financial professional, but I've been around enough of
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  these things that I know a little bit about it.
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  I work with some folks actually at Bernstein Advisors here in The US, but there's lots of
• 17:08
  different folks that can help you get ready.
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  But let me tell you something, I saw somebody sell a business for $30,000,000 one time and
• 17:16
  paid way too much in taxes because there was no tax strategy before the sale.
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  I've seen it.
• 17:22
  So please, Lord, everybody listen to me, please don't let that happen to you.
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  One of the other things that I think is really interesting that I read a statistic recently
• 17:32
  that eighty seven percent of people after they sell their business one year later are unhappy
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  and wish they had not done it.
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  And so I wanted to ask you about how many founders have you seen struggle with what comes
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  next?
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  You know?
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  Yeah.
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  Sorry.
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  I was I was just gonna say, actually, all of them.
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  Pretty much all of them all of the all of the...
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  Yeah.
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  Almost all of the founders that I've worked on, I struggle to think of any who have not been in
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  this boat.
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  Within two years of selling their business have called me up to say they're starting a new
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  business.
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  And I think that...
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  I think there's two things actually here at play.
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  I think the first thing is that selling a business is not...
• 18:22
  Or running a business is an identity for a lot of business owners.
• 18:25
  They identify as a business owner.
• 18:28
  Right?
• 18:28
  If you ask them, what do you do?
• 18:29
  It...
• 18:30
  That...
• 18:31
  We all judge ourselves by the profession that we do, and, you know, it gives us purpose and
• 18:35
  meaning and value and all of that good stuff.
• 18:38
  But I think business owners particularly, because they they wake up in the business.
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  They're they're thinking about it all the time.
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  It's...
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  It it becomes part of them, and it becomes part of their identity.
• 18:48
  And I think there is a big emotional side about selling a business.
• 18:53
  I often say I've nicked it from a from a fantastic business consultant.
• 18:58
  I work with sell side consultant in The UK.
• 19:01
  I often say that business businesses is 80...
• 19:04
  Business sales, m and a is 80% heart and 20% head.
• 19:09
  And I really do think that there is a big part of the emotional side of running a business.
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  However, I think the caveat to that is having seen so many, I see how quickly they run and
• 19:22
  they build a business back up to the size that it was.
• 19:27
  And, you know, something that might have taken them ten years previously to build, they'll do
• 19:31
  it again in eighteen months.
• 19:33
  And I just think of that, and I'm like, wow.
• 19:36
  Actually, if...
• 19:37
  What if they could have done this maybe five times?
• 19:39
  You know?
• 19:40
  Because often they're doing that at 65, and then they go at 65.
• 19:44
  You know?
• 19:44
  The the...
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  Suddenly, by '69, they've built in their lifetime, they've they've built two £10,000,000
• 19:50
  businesses.
• 19:52
  And...
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  But they actually...
• 19:53
  If they would have just done this every five years, ten years, and sort of said, I'm gonna
• 19:57
  build a business.
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  I'm gonna go on a five year journey or a ten year journey.
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  And And then at the end of that journey, sell it, take some time off, put some money in the
• 20:05
  bank, and then go out in the next level and start again.
• 20:10
  Most of most of business owners I've worked at would be miles more more wealthy than than they
• 20:16
  are now.
• 20:16
  Well, you know, what do they say?
• 20:18
  Youth is wasted on the young.
• 20:19
  Right?
• 20:19
  I mean, you...
• 20:20
  We all we all do things better twenty, twenty five years later than
• 20:24
  you on
• 20:25
  the hard learned lessons at that point.
• 20:27
  So, I mean, you know, that's that's like anything else.
• 20:29
  I wish that I had the body I had twenty five years later with the mind that I have now.
• 20:36
  I would be amazing, right?
• 20:37
  I'm still amazing but you know, it would be like, it would be ridiculous.
• 20:40
  So, my point is that you can't have it all at the same time.
• 20:43
  You can have it all over time.
• 20:44
  Right?
• 20:45
  But here's the thing I wanna ask you.
• 20:47
  What do you think are the biggest mistakes that you see entrepreneurs make without actually
• 20:52
  realizing that they are reducing the value of their business?
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  Refusing to delegate, prioritizing their accounting.
• 21:03
  I haven't really spoken that much.
• 21:04
  I'm I'm an accountant by nature, but I haven't spoken much about accounting.
• 21:08
  The reason why is because there is no deal without good financial accounts.
• 21:12
  You know, if you can't prove the the position of your business, the deal doesn't happen.
• 21:18
  And I think too many business owners I've worked on have lost trust on...
• 21:24
  You know, too many deals that I've worked on.
• 21:25
  Trust has been eroded because of the fact that you can't produce...
• 21:28
  The seller can't produce good financial, reliable financial information, and so that is
• 21:34
  absolutely important.
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  Also, it also shows a lot about the way the business has been run if you don't have up to
• 21:40
  date financial information.
• 21:43
  I think they always focus on sales.
• 21:46
  There's always a focus on getting the team right and...
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  Or, generally, there's a focus on getting the team right.
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  I think the two that really miss out is the the ability to delegate and remove themselves
• 21:56
  successfully from the business and the financials.
• 21:59
  Those are normally the two big risks that I see.
• 22:02
  Alright.
• 22:02
  Well, what's the best business advice anyone has ever given you?
• 22:07
  The the business is a reflection of the business owner that you are.
• 22:12
  So if you are a million pound business owner, and that's your knowledge, that's how you're
• 22:17
  operating at that level, your business...
• 22:20
  Even if you buy a £10,000,000 business, it's gonna shrink down to that level.
• 22:23
  And if you have a 1,000,000...
• 22:24
  Like, 100 k business, it's gonna come up to that level.
• 22:27
  Everything is like water.
• 22:29
  It rises to its natural level.
• 22:31
  And so the most important thing in business is to level yourself up as a leader to be at a
• 22:36
  high...
• 22:36
  If you wanna operate at a high level and get more out in profits, then you have to level
• 22:41
  yourself up first and the business follows.
• 22:44
  I almost feel like that could preach right there, sir.
• 22:48
  Thank you so much, Saul, for being here.
• 22:52
  You, are based in The UK, but anybody can find you on LinkedIn for sure.
• 22:57
  Saul Cohen, your business is really interesting and really cool, and I love what you just said.
• 23:04
  So thank you so much for being here and I can't wait to learn more from you.
• 23:11
  Have you been thinking about adding AgenTic employees to your business?
• 23:15
  Co founder Doubt AI could be a great option.
• 23:19
  Build an AI powered team that can help you research, strategize, market and sell and just
• 23:25
  get more done.
• 23:26
  Put AI to work in your business.
• 23:29
  Visit cofounder.ai and meet your new digital team.
• 23:37
  Thanks for listening to the Small Biz Chat podcast with Melinda Emerson.
• 23:42
  Subscribe to this podcast wherever you listen to podcasts, and join us next Wednesday for
• 23:48
  more fantastic information and interviews.
• 23:50
  You can find more sources and small business success strategies by visiting Melinda's
• 23:55
  website, succeedasyourownboss.com.
• 23:58
  Thanks again for listening, and we'll see you next week.