Latest / Founder Talk with Alex Sheridan / What’s Your Business Really Worth With Henry Kaskov

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What’s Your Business Really Worth With Henry Kaskov · Founder Talk with Alex Sheridan

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  You're the guy companies call when they want to sell their
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  business and figure out how much it's worth or they have, you
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  know, something related to that, right?
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  You're the guy they call in. So I, I, and then obviously
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  some, there's some financial things that go along with that
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  and some aspects to consider. When is the right time to sell
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  your business? How do you evaluate a business
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  and know how much it's actually worth?
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  All that type of stuff we're going to get into today.
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  I first wanted to just talk about 'cause this is Round 2 for
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  you. You were here back, you know,
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  about a year ago as we were saying at that time you were
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  you're growing the business. I know things are going well.
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  You had mentioned a couple things about hiring people and
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  kind of taking yourself out of the day-to-day as a founder and
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  trying to put yourself in positions where you can generate
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  the most ROI for the company. How is that going?
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  It's an ongoing challenge, right?
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  Because as a founder, as, as, as you know, if someone puts their
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  name on the door into the face of the business, it's always
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  challenging to take a step back and entrust someone.
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  And so that's why hiring people is so important because you're
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  essentially giving away responsibility and you're
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  trusting them. They're going to take that and
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  handle it in the same way that you would as a founder.
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  That's a huge level of trust. I've been very fortunate.
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  I have an amazing team. I just hired my 5th employee a
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  couple months ago. She's doing fantastic and, and
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  really the, the qualities that I'm looking for.
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  Yes, I want the financial knowledge and you know, the
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  skills that they have that. But more importantly is do they
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  have the drive and, and that kind of that little hunger of an
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  entrepreneur, maybe not necessarily in the traditional
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  entrepreneur sense, but hunger to learn, hunger to expand and
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  to take ownership of a project. I have an amazing team.
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  I am very fortunate on that end. And, and they have allowed me to
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  pass on some of the responsibilities to then allow
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  me to keep developing the business, developing a little
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  more, you know, the, the brand and company recognition and take
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  a step back from the, from the minutiae details and be more
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  strategic in what I do. It's, it's a for all founders.
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  It's an ongoing challenge, but you know, but I, I, I'm taking
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  steps and I think we'll go in the right direction.
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  No doubt about it. And Henry Kaskov, Kaskov
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  evaluations is the company just for everyone listening now,
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  we'll link everything up in the show.
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  But how do you go about if you if you found anything that works
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  really well from like, how do you hire great people you know,
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  that are proactive, that are, you know, have a little bit of
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  an entrepreneurial problem solving mentality?
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  Yeah, what I have found, every single person that I've hired
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  has come through some part of my network.
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  I did the, you know, the the LinkedIn blast and kind of
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  resume and you get, you know, dozens, hundreds of resumes in
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  it. Yeah, I'm in.
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  India, and I'd love to. It's like this is on site.
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  This is not, you know. Yeah, it's, it's, it's that's a
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  challenge. But what I found is like I
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  connected with people on my network and, and said, here's
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  the job description that I'm looking for.
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  He's an individual. Do you know someone?
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  And so I was able to connect with people that knew someone
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  that knew someone, and that's how I got connected to it.
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  And then so because there's a, anytime you make an
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  introduction, yeah, you're kind of trusting that that person
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  that you're connecting with is going to be a good reflection on
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  you, right? And so.
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  If you don't make the introduction, if you're like,
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  this person sucks, I'm not going.
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  To it's going to look bad on me, right?
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  So I've been, you know, when people connected, you're
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  generally connecting with like minded or good people.
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  And I've, I've been able to find and when I do my interview, you
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  know, yes, I'm doing some technical questions, but really
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  I want to understand how they think when they get a problem,
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  when they're, you know, finish their project, they're just
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  going to sit on their hands and wait until I tell them something
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  to do or they can say, hey, I'm done with this.
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  But I also thought we can get XY and Z done as well.
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  And you take that ownership and push yourself.
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  That's the quality that I want to look at.
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  But how do you find that quality?
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  Do you give them like a little test today?
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  Little, little. Yeah.
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  Little, little like little, you know, case studies, right?
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  I want to understand are they the type of person that just
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  give me the tasks and I'll do it or the type of person that I
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  want to learn the why? Yes, I'm doing XY and Z, but why
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  am I doing it? And then this is the kicker.
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  What is the impact of doing this on the next step?
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  Because I understand these things, but I'm doing this
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  because I know it'll impact the valuation here.
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  I know it'll impact the analysis in this way.
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  And that's when you start to see how a person can develop into a,
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  a, a very logical and an, an appraiser type mentality where I
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  make a couple adjustments and, you know, assumptions here, but
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  that ripples into the value of the business here.
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  And once you'll start to connect those dots or have the, the, the
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  analytical ability, that's what I'm trying to look for.
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  It's tough. Not a lot of people have that.
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  Some people are are more, you know, I just give me a task and
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  I'll do it and I'll be done. That's fine.
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  It's just not the role role that I'm looking.
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  For especially this smaller company start up that kind of
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  stuff like, you know, Scrappy or just you got a smaller team,
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  like you need people to kind of wear multiple hats.
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  You know, like, yeah, we did an interesting thing in the last
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  hire that we made for a client where I'm sure there's probably
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  other companies that do assessments and that kind of
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  stuff. But for us, it was unique where
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  instead of like we had two interviews with two people for
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  content managers roles, and both of them interviewed really well,
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  one or one girl, I would almost say potentially interviewed
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  better. And then we gave them a quick
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  test and we said, here's a project, we're going to pay you
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  to do it if you're up for it. It's only going to take three
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  hours. And they both submitted the
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  project, which was to, you know, break down a video, create a
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  blog post, a video clip, you know, everything optimized for
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  AI search and SEO. This whole thing, we didn't
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  expect it to be perfect. We just wanted to see how their
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  minds worked on and how they actually got shit done and how
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  long it took them. The girl interviewed pretty
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  well, like just kind of flopped on the on the project.
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  Just had a clip in there where the first couple seconds would
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  never be something we'd post on social media.
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  And if you know social really well, you would know that.
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  And the other person like it was like, she gets it right away.
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  You could tell. And it was just like, well,
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  there you go. I mean, they both interviewed
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  well, one maybe even a little better, but it was like we got
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  to see the work. And it was like, I see how she
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  thinks about that. That makes sense that she put
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  this here and not that there. And so I would encourage people
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  listening to do some type of assessment or mini project or
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  put them through a hoop or two because everyone's going to tell
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  you they're this or that, but when you get on the job, it's
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  sometimes a different story. People that are great
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  interviewers or professional, yeah.
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  Absolutely. But it's, do you actually know?
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  Yeah. Besides the answer that you've
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  memorized, do you actually know? How do you think?
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  Cuz that's more important. It's not.
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  And then you think about, you look at the resumes.
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  Did they work at the big firm? Did they go to the big college?
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  Those things, that doesn't really matter as much to me, you
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  know, I don't need you to go to the top schools of the work at a
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  BIG4 accounting forum like that. That's great if you have that
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  experience, but I just want to know what's your drive?
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  Are you that person that's driven?
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  Do you understand it? How's your brain work?
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  That's the quality I'm looking for most.
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  What do you feel like you can do as a founder that your team
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  can't do right now? Because that seems to be the gap
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  that most founders are trying to close, right?
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  And and maybe it's not always going to be 100%, but it's like,
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  how do we get a 80? Yeah, You know, right now the
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  way the business works is I'm the business development side,
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  the front end bringing the work. In demand, yeah.
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  And then I'm also doing the final review and sending the the
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  final valuations out the door. That's close to how we're.
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  And so we're trying to be. I, I can be the bottleneck more
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  so on the on the on the finish side, because if I have a couple
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  reports and valuations I need to review, I haven't got to them,
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  you know, I'm, I'm the one holding it up.
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  Yeah, I have a good mix of staff between experienced and mid and,
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  and, and, and junior staff. And so some more my experienced
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  people are starting to take on more of that final review.
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  They're getting to a level where they could start signing reports
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  as alongside myself and maybe eventually without me.
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  So then that bottleneck at the end gets opened up and so we can
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  get more out the door. So, and then on the front end,
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  you know that in terms of sales or business development, you
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  kind of have to want to do that. You want to you have that drive
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  to be network and some people are just not they're more
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  introverted, they don't want to meet people and do, you know,
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  bring in work? Totally fine, right.
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  But if you're more you want to do some development, I'm I'm.
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  A Co founder that does like that if you don't like doing that
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  stuff or. Something but you know, I've,
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  we're starting to get some of my senior staff to do some business
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  development, some networking and they, you know, they're, they're
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  getting into that world because as you know, it's a long term in
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  relationship in my business. I'm not going to have coffee
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  with you, shake hands, and expect you to feed me work.
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  Like that doesn't work. No, you meet someone, you get to
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  know them, you like them, you trust them.
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  Over the years, you do a project.
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  Oh, you did a good job. OK, I'll get the next one.
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  And so it's a very long term. So, you know, I'm trying to
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  manage that. I mean, it's a small firm with
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  literally my name on the door. Like there's a, there's a lot
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  that is going to be on me. But as you develop A-Team it's
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  you can start to offload some of those next level
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  responsibilities and free up my time.
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  And do you want to sell the business at some point or have
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  you thought about? It, you know, they say that
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  every person that goes into business should think of the
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  exit, have a thought about it at onset and whenever you're making
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  any big decisions, when you think about, you know, do I
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  expand anyway? Do I hire another person?
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  Do I buy this factory? Do I expand this product line?
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  You always think of how is this going to grow the value of my
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  business and, and, and eventually for, for me, I'm
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  still relatively young. I could see myself doing this
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  for a very long time. So if I sell the business,
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  great. Do I sell it to an outside
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  party? Do I sell it to my staff?
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  You know, do I have? I have two young boys today.
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  You wanna get into the business down the road.
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  Like, how old are they? 10 and eight?
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  Yeah. So we got some time.
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  A little bit time you can put them on your payroll.
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  Now we can have them start doing.
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  There, you know, I've given them some like organization that's a
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  founder. Tip right there.
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  You can actually write that off in taxes.
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  Yeah, it's gotta be legit. They gotta be doing some work.
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  But yeah, I've thought of that. Count and put them in, yeah.
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  And that they're close. No, not yet.
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  I think they a little bit older, but yes.
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  And I've, I've heard that you can, I'm not a financial
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  advisor, but take whatever earnings they make, throw it
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  into an IRA, a Roth IRA, it's tax free and have it grow until
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  they're retired. And that could talk about
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  compound interest, you know, that can grow over time.
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  So. So there's a tip.
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  Did you know you can put your kids on your payroll as a
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  founder legally? And make sure that you're doing
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  the work. And we're not financial
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  advisors, just to be clear here. So seek financial professional
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  help. You got to say that now, right?
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  But if you look it up, I've done some research on it and from my
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  own personal research, I found that you can, I think it's
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  somewhere around the neighborhood of like 15,000 a
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  year per child or something like that.
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  But again, check everything, do your homework, fax, all that
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  stuff. But check with your CPA or
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  wherever you go to. But but that's pretty cool.
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  I mean, if they're really doing work and I thought next year,
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  you know, I hire content directors for the summer to do
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  summer internships like gym. Next year I was like, maybe I'll
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  have Nadia my, she'll be 12 by that time and I'm like, have her
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  legit fill me and get exposed to the business.
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  More importantly, she'll pick up skills and learn things and
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  develop habits. Right.
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  You know what's great is what I was the way I was.
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  Talking. I'll get a tax write off, yeah.
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  I was trained by by joke around being a sponge.
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  Yes. You just sit and you absorb your
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  interactions, client communications, how other people
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  work. Yeah.
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  And I've always done that whether I'm in a networking or
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  business development group or just like a young trainee
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  watching my managers, we all learn by through osmosis,
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  through taking things in. And so that's, yeah, sure, young
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  kids would should use us as role models, right?
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  Yeah. You know, we know a little bit,
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  you know, we got some wisdom. You know, what do you think?
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  What's the what's the number one place that a founder can spend
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  their time on that would drive ROI in your opinion, if you had
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  two hours a week to spend on one thing and that's all you could
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  do? Yeah, well, there's a lot that
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  could fall into that bucket. I think constantly working on
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  the business side in the business, right.
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  So developing your, your, your, your brand, right?
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  Your, your presence in the marketplace, reaching out and
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  developing relationships with other, you know, centers of
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  influence that Dr. referrals in my business.
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  There's always going to be time where you could do your admin or
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  your taxes or your payroll and like, sure, but that's not value
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  add, you know, So taking a step back and and when you think
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  about valuation, right, ultimately, what is a person
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  buying when they buy a business, they're essentially buying
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  future cash flows. They're buying future profits,
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  OK. So to the extent that you can
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  make those future cash flows more predictable, less
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  uncertain, that's going to drive value higher.
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  OK, So what can you do to get that?
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  Well, get a pipeline of workflow referrals coming in, work on
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  your brand recognition work and on, you know you're deliverable
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  that is high quality and you have a process that your team
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  can follow, right? Getting on those value added
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  things that reduce the risk to the buyer.
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  By reducing the risk, you're going to increase the value.
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  That's it, man. That's it, That's it.
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  Valuation one-on-one, right, So. Right into what I want to cover
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  next, which is what is your, you kind of touched it a little bit
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  there, but what's your process on evaluating how much a
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  business is truly worth? Yeah, it's, it's so again, we,
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  we, I value every business as if I, Henry want to buy that
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  company. If I'm going to buy it, what do
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  I need to know? And so I'm looking at the
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  historical financial performance.
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  I'm looking at, you know, five years, seven years, as much as I
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  can get of, of financial data, tax returns, etcetera.
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  And we look at those cash flows and then we adjust them to
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  market levels. What does that mean?
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  Let's say, you know, the, the owner is taking $0.00 in salary
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  and there's zero expense on the books.
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  So we got to put in a salary expense to get it to market
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  levels. Let's say the owner owns the
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  building and they're paying themselves a huge rent 'cause
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  they're the landlord or we're going to lower that rent to get
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  to market levels. So we essentially want to get to
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  adjusted profits, right? Some owners pay their kids on
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  the payroll when they're not working out the.
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  Business. That's not good.
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  That's not good. So we've seen that.
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  What we do is we just adjust those salaries out.
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  Again, if I Henry and I'm the owner and I buy your business,
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  I'm not going to have these people on my payroll.
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  So you get to have just I don't want to look down my shoulder
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  and worry about the IRS. Clean.
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  Yeah, it's called clean adjusted normalized profits.
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  So once we know what the business has done historically,
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  then we could start forecasting the future.
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  And So what I mentioned earlier is one of the ways we value a
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  business is based on its future profits.
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  So we forecast the profits in essentially into perpetuity.
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  The way the math works is the years way down the line matter
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  or less 'cause they're so uncertain, you know?
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  Can I stop you real quick on, on the, the first part that
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  mentioned the expenses and looking at the, I'm sure it's
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  got to be like a wide range of what you see.
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  But how do you, how do you bounce some of it's like, what
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  is this? This is not an expense, but how
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  do you weigh? Because like a business like
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  mine, right? Like maybe I take a trip with
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  somebody that's a a business owner and we talk a lot about
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  business on the trip. It's kind of a mini mastermind.
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  But like the if you're buying the business, you might look at
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  that and go, you don't need a trip with an entrepreneur to
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  talk to business for two days on a weekend.
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  Yeah. There's right.
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  And so that's, you know, there's always a grey right?
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  I mean what I'm? Really like my, you know, my we
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  have, you know, branded shirts and I do a lot of camera works
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  like this is my work stuff, right?
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  No, that's they might look at that and be like, is that part
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  of that? No, I think that's that's
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  acceptable because it's related to the business what I'm.
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  Most look at that and say we don't need a necessary like we
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  if we buy your business we would eliminate that.
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  Possibly, right. They could, they could look at
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  that. You know what you're trying to
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  say is this related to the businesses?
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  It's necessary for my operations, right?
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  So if I'm going on a trip on a mastermind to work on my
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  business, I think that's absolutely, you know,
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  defensible, right, right. You know, if you're selling the
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  business, you may want to spin it saying, yeah, that's more for
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  me, personal development, not for the business.
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  So take that expense out, which increases profit.
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  What I'm mainly looking for though is like the family
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  vacation to Disney World that was expense to the business.
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  Right. People really doubt that's
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  hilarious. I've seen, you know, Country
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  Club memberships. I've seen race car teams.
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  Let me ask you a question. What if your wife was part of
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  your business? Your girlfriend, husband,
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  whatever it was, is is helping you run the business?
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  So that's different, right? So if you're, you know, if your
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  wife, for example, is on your board of directors, you can go
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  to weekend and you know, it's kind of like a couples trip, but
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  you guys are working on what if you bring.
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  Your kids. You could do part of it, OK, you
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  know, so if you, if you guys go leave the kids with a babysitter
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  or grandma or grandpa and then you guys work, it's being
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  reasonable. One, obviously for for tax
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  purposes, you want to make sure you're accounting appropriately.
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  But two, you know, it's, it's ultimately what you want to get
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  through that adjustment process is get things out of the
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  financials that are non business operations related or non
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  recurring. For example, if you're in a
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  manufacturing plant, there's a huge flood and you have to spend
• 15:32
  50 grand fixing the equipment. That's an expense that happened.
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  But we're going to adjust it out because it's a one time non
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  recurring event, right? You remember years ago, you
• 15:41
  know, some businesses got the PPP loans for you to keep the
• 15:45
  doors open during the pandemic, huge influx of cash.
• 15:47
  Well, that's a one time event. We're going to adjust that out.
• 15:50
  So we want to adjust your financial statements to to again
• 15:52
  to be that normalized level. So it's OK.
• 15:55
  How long does that take? Is that something you're running
• 15:56
  through AI now or it's? Like, no, gosh, you know what
• 15:58
  it's it's not that smart yet. We're using AIA little bit.
• 16:02
  To. Are you sure about that?
• 16:05
  It's well, I haven't seen it yet in my evaluation world.
• 16:07
  How about that? It might exist, I don't know.
• 16:09
  It will eventually I. Feel like that's what it's.
• 16:11
  Best well, but but there's. There's nuance.
• 16:13
  But there's nuance, right? It's like, how does AI
• 16:15
  understand that, you know, this is normal, but this isn't this,
• 16:17
  you know, and we, the way we parse that out though is we have
• 16:20
  a management interview with the owner.
• 16:22
  So they sent us the financials. I sit down with the owner, we
• 16:24
  talk about the business, we talk about the operations, we talk
• 16:26
  about the history and then the financial statements.
• 16:29
  And I'll say, OK, I see this expense has bounced around each
• 16:32
  year. What happened?
• 16:32
  And then they tell me and I say, OK, well, based on what you told
• 16:35
  me, that's normal, that's normal.
• 16:36
  We'll make an adjustment here. All right.
• 16:38
  So you ever get people out just lying like you kind?
• 16:40
  Of possibly, I mean, we do a little bit of work in the, you
• 16:43
  know, divorce space or shareholder dispute space and
• 16:46
  it's a lot of litigation. And so, as you can imagine,
• 16:47
  parties are adversarial. And we're going to talk about
• 16:51
  divorce a little bit, too. But anyway, so after we make the
• 16:54
  adjustments, right, the whole thing then is future, what's the
• 16:57
  future look like? And that's what businesses are
• 16:59
  valued on. What are your future profits
• 17:01
  look like in today's dollars? What another you'll hear a lot
• 17:05
  about valuation multiples. So EBITDA you'll hear a lot.
• 17:09
  So that's earnings before interest, taxes, depreciation
• 17:12
  and amortization. Can you break that down real?
• 17:14
  Quick, yeah, it's essentially think of it as your pre tax
• 17:18
  profits of a business and then you you add back any
• 17:21
  depreciation expense or interest which are are non operating
• 17:24
  expenses. So it's it's think of it broadly
• 17:26
  as a level of profitability. And what you what we do is we
• 17:30
  look at the sales of other companies in the industry.
• 17:32
  So let's say you manufacture microphones, right?
• 17:35
  Yeah, let's say you manufacture microphones.
• 17:40
  We'll look at sales of companies that manufacture lighting,
• 17:42
  audio, visual equipment. What have they sold for?
• 17:45
  Meaning what level of EBITDA multiple do they sell for?
• 17:49
  What revenue multiple do they sell for?
• 17:51
  And then how do those companies compare to your business, right?
• 17:54
  So if I'm smaller and less profitable, I'm not going to get
• 17:56
  the same multiple of EBITDA as some of these bigger ones.
• 17:59
  But conversely, I'm crushing it. My business has huge margins.
• 18:02
  We're growing like crazy. We're going to get a higher than
• 18:05
  average. So that's, you know, to answer
• 18:07
  your question from a few minutes ago, how do you value it?
• 18:08
  You're essentially looking at the market, putting a multiplier
• 18:11
  in the business to get to value that.
• 18:14
  Recurring revenue How important is recurring revenue to selling
• 18:17
  your business? Huge.
• 18:18
  Huge. This has been a trend for
• 18:19
  several years now. Where?
• 18:21
  Why is it just now a trend? I feel like that should always
• 18:22
  be a trend. Right.
• 18:23
  I agree with you. Yeah, I agree with you.
• 18:25
  And it's just. Predictable revenue is what
• 18:27
  we're talking about. Right, exactly right.
• 18:28
  It's, it's, it's the more certain or the, the, the more
• 18:32
  risk you could remove from the equation, the more confident as
• 18:35
  a buyer. And so we've seen this in
• 18:36
  industries that have a lot of recurring revenues like
• 18:39
  financial advisory practices, insurance brokers, right?
• 18:43
  Think about all your software subscriptions.
• 18:44
  Now they're all you're paying a monthly fee, right?
• 18:47
  And so as a buyer, I'm coming in, I'm saying, wow, these
• 18:50
  customers, there's very little churn.
• 18:52
  I'm gonna, I know what my revenues are gonna be.
• 18:55
  How long does the customer need to be on for it to be considered
• 18:58
  recurring? You know, a good recurring.
• 18:59
  Yeah. I mean a couple, you know, well
• 19:01
  there's a couple of questions. One, sometimes you have
• 19:04
  customers for larger companies that sign multi year contracts,
• 19:07
  right. So, OK, I know that the next
• 19:08
  five years, I know what I'm getting.
• 19:12
  You know, if you're on a monthly subscription, most of the kinds
• 19:14
  I work with are going to be on an annual, right?
• 19:16
  Think of like a financial advisor practice, right?
• 19:17
  You're, you, you go with an advisor, you pay them quarterly.
• 19:20
  After you're around for a year or two, you're kind of there,
• 19:24
  right? You're, you're not going to
• 19:26
  people switch advisors, but it, it's, it's called a sticky
• 19:28
  customer, right? They're not going to move, you
• 19:30
  know that much. And so once you could prove have
• 19:34
  a proven track record of revenues and growth, right, that
• 19:38
  is very attractive to buyers. And after you get to a certain
• 19:41
  level, there's no hard rule, but if you get to up two to 3
• 19:44
  million in that EBITDA level, private equity starts to look at
• 19:48
  you, right and then you your pool of buyers.
• 19:51
  Probably know you're at that level.
• 19:52
  Dude. Well, I mean.
• 19:53
  The reports they look at or. Something, you know, they, they,
• 19:55
  they kind of. Just come out of the woodwork,
• 19:57
  just I heard you're at 2 to 3 million.
• 19:58
  Times I mean you I talked to some of my business owners like
• 20:00
  they get emails every day you were looking to.
• 20:03
  Find a way I don't know. Yeah.
• 20:04
  That's their business model, that's their marketing, right?
• 20:06
  Because they need to feed the machine of inflow, right?
• 20:10
  What if I'm 2:00? What if I'm doing 2 to 3,000,000
• 20:12
  but my recurring revenue and average customer sticks around
• 20:14
  for six months, but it's higher taken it's several grand a month
• 20:17
  or something. What do you how do you think?
• 20:18
  That yeah. So 6-6 months is the life and
• 20:20
  then they they're done. So let's just say, for example,
• 20:22
  I mean, it's, you know, that's. But it's higher revenues.
• 20:25
  It's higher revenue. 678000 a month.
• 20:28
  That right, so that's good. I would say that the fact that
• 20:31
  they leave after six months wouldn't really put it in a
• 20:33
  recurring revenue bucket. But if you're about a year, but
• 20:37
  if you're but if you're about a year, that's you know, but
• 20:39
  again, think about it as a process, right.
• 20:40
  If I buy your book, your book now of this business.
• 20:43
  All gone in a year. In a year, I got to refill the
• 20:44
  bucket, right? So, and we find this with a lot
• 20:47
  of founder operated businesses whenever they looking are
• 20:51
  looking to sell, there's usually what's called an earn out
• 20:54
  provision or or the business owner will stay on for a certain
• 20:57
  period of time after the sale to help transition the operations,
• 21:00
  right? Why is that?
• 21:01
  Well, for your example, you know, if my book is a year, I
• 21:04
  need to train the per the buyers that are coming in.
• 21:07
  All right, this is what I'm doing to get these customers on
• 21:10
  board, you know, and it's a the seller would stay on for a year
• 21:13
  or two years and and they're incentivized to keep this going
• 21:16
  because part of their payout is tied to performance.
• 21:19
  But and then the secondary goal is, well, show the buyer how to
• 21:22
  how it's done. So then they can take over and
• 21:24
  go on. So it it's every industry is
• 21:27
  different. I think the, the ultimate thing
• 21:31
  that you're trying to do is have growth, you know, show
• 21:33
  consistency in the business, generate profits and you know.
• 21:38
  In multiples like it probably depends on what you know, if
• 21:40
  it's a software and you have, you know, average customer
• 21:42
  duration, it's three or four years.
• 21:43
  That's obviously could be a 5 to 10 multiple, right?
• 21:46
  Where? And what's crazy is some of
• 21:47
  these companies, they're not selling on EBITDA multiples,
• 21:50
  they're selling on revenue multiples.
• 21:52
  So some of these buyers don't even care about your profits.
• 21:55
  Why would they not care about that?
• 21:55
  Because a lot of these, especially if you think of the
• 21:57
  tech startup world, right? And then the software, the SAS,
• 22:00
  yeah, world, you're growing like crazy to try to get your top
• 22:03
  line and you're taking all your profits and you're pushing it
• 22:05
  back into the business to grow very costly to.
• 22:07
  Get that model going. It is right and then the the
• 22:09
  theory is once you reach a certain level right, then you
• 22:12
  turn on the profits, make it and then it rolls.
• 22:13
  Down Amazon, Tesla, like those are the big ones, but that's a
• 22:16
  good example of like they're not making money for a long time.
• 22:19
  But if you can ride this out and see it through, you're gonna
• 22:21
  make a lot of money. Exactly.
• 22:23
  So, so for those industries, right, it doesn't make sense to
• 22:25
  do an EBITDA multiplier because there's no yeah, it's great.
• 22:28
  So they're selling on a multiple of revenues.
• 22:30
  You know, think of like a an insurance broker, right?
• 22:33
  If I'm a big insurance conglomerate, I'm going to take
• 22:35
  on this business. Yeah, you're making profit.
• 22:37
  But I know that once I roll the book in, I'm going to make my
• 22:39
  level of profit. So I don't really, I'm not
• 22:41
  looking at your profit necessarily as much.
• 22:43
  I want to know what your revenues are and your
• 22:44
  predictable ARR annual recurring revenue.
• 22:47
  So I could roll it into my menu value based on a revenue
• 22:50
  multiple. Yeah, that's that.
• 22:51
  They didn't used to exist until a lot of these subscription and
• 22:55
  tech companies started it like 5-10 years ago.
• 22:58
  But now it's it's the prevailing method to value these firms.
• 23:01
  And how do you know if your business, how do you know if
• 23:03
  you're ready to sell your business or not?
• 23:05
  Like what's a good color? A couple things that you should
• 23:07
  look at. So it's, it's a, it's a great
• 23:09
  question, right? A lot of, you know, my main
• 23:11
  focus is on small and mid sized businesses.
• 23:14
  And so a lot of these owners, you know, it's the the profits
• 23:19
  and the salary they're making from it are supporting their
• 23:21
  lifestyle. So let's use some numbers,
• 23:23
  right? Let's say the business owner
• 23:25
  pulls out half $1,000,000 a year from the business between
• 23:27
  profits and salary, right? And they could doing that each
• 23:30
  year, maybe they're getting closer to retirement, right?
• 23:33
  Let's say we do evaluation and hypothetically, hypothetically I
• 23:36
  say it's worth $2,000,000. OK, so the owner asks and this
• 23:40
  is the typical small business owner dilemma.
• 23:41
  We see this across industries, across sizes, but essentially
• 23:44
  for small businesses. Why would I sell for 2,000,000
• 23:48
  today when I could just run it for four more years, get the
• 23:51
  same 2,000,000 and then sell it down the road?
• 23:53
  That's a good point. Right.
• 23:54
  And then 2 million it's. Pre Tax More Pre.
• 23:56
  Tax, right? So you got to pay tax on that
• 23:58
  first. So it's so and, and so and then
• 24:01
  you have to budget, right? So if you're used to living on
• 24:03
  that much cash flow a year, you have to be able to, you know,
• 24:07
  maintain retirement or whatever your next stage in life is.
• 24:09
  So the first way to answer your question is, you know, Are you
• 24:15
  ready to hang it up and then be done?
• 24:17
  And can you financially support that lifestyle, right?
• 24:20
  I know a lot of business owners and people that sell that in six
• 24:22
  months, 12 months, 18 months, they're bored out of their
• 24:25
  minds. There's only so much golf they
• 24:26
  could play. There's only, you know, and,
• 24:28
  and, and, and I used to be part of this like mastermind type
• 24:30
  group. And, and I was a sponge because
• 24:33
  a lot of the people in that group were older and closer to
• 24:35
  retirement. And I was on the younger,
• 24:36
  earlier side of my career. And they, the, the, the moderate
• 24:39
  of the chair always said this. They said whenever you're
• 24:41
  retiring or selling a business or doing something, make sure
• 24:44
  you're doing it towards something, not away from
• 24:46
  something. Meaning if you're thinking about
• 24:48
  retirement, what are you returning towards?
• 24:50
  Are you going to do philanthropy?
• 24:51
  Are you going to try out? You know, because if you're just
• 24:53
  going to sit around and play golf, sounds miserable,
• 24:56
  especially for a business owner that's been grinding for their
• 24:57
  entire career, right? Purpose fulfillment needs.
• 25:00
  Something exactly. So if you think about selling a
• 25:02
  business in your early career, mid career, OK, great, you cash
• 25:04
  out then what, Right, right. See, I would already have the
• 25:07
  other things lined up. Like I would already be
• 25:09
  thinking, if I sold this in two years, what else would I really
• 25:11
  love to do, right? I'd be thinking about that
• 25:13
  transition. What's the, what's the next
• 25:15
  drive? Right?
• 25:16
  Because there's some, you know, we find this with people that
• 25:18
  find businesses or founders, they get it to a plateau level,
• 25:22
  whether it's 10 million or 100 employees or two, whatever the
• 25:25
  plateau is. And they say, look, I started it
• 25:26
  from zero to X, but I'm not passionate about taking it from,
• 25:30
  you know, this level to $100 million level.
• 25:33
  It's a different game, different.
• 25:34
  You're managing a lot of people, bureaucracy, investors, all
• 25:36
  that. So that's just not their thing.
• 25:38
  So their goal is to get it from zero to X, sell it, start over
• 25:42
  0, you know, and so that it's, there's no right answer.
• 25:46
  It's just what is what drives you?
• 25:47
  What's your passion? Right.
• 25:48
  Because I think about like as a business owner, it's like you
• 25:51
  don't want to sell your business at the wrong time.
• 25:54
  And like you could have made somewhere done so much more, but
• 25:56
  then you also don't want to sell it where it's like maybe too
• 25:59
  late. And now it's like, I'm gonna
• 26:00
  sell. I'm not gonna sell my business
• 26:01
  now, but maybe the marketing conditions and everything is
• 26:03
  favorable. And then you wait to sell in
• 26:05
  three years and not like some new technology or some other
• 26:08
  market circulation. Recession.
• 26:09
  You never know, right? And.
• 26:10
  All of a sudden now it's like it, man, that business was worth
• 26:12
  10 million and now it's worth 1. Yeah, I mean it.
• 26:15
  Did you? Probably see that happen, right?
• 26:16
  We saw, we saw it a lot kind of right around that.
• 26:20
  Well, we didn't know what was going to happen around COVID,
• 26:21
  right? And then even before that, you
• 26:22
  have a financial crisis. But it's, you know, especially
• 26:25
  if you're a business owner closer to retirement, right?
• 26:28
  Do you want to take another cycle down and build it back up?
• 26:31
  That could be 3-4, five years or or do you cash out?
• 26:34
  And if you're a big enough business, there's ways where you
• 26:38
  sell and then you retain a portion of equity in the buyer
• 26:40
  company. So you can, you know, get a
• 26:42
  second bite of the apple if they ever sell down the road.
• 26:44
  I mean, this is, you know, you have to find the right situation
• 26:47
  for that to make sense. Would you get like preferred
• 26:50
  founder stock or common stock or what?
• 26:52
  What? Typically we see the common
• 26:54
  stock in in the acquisition entity or if private equity buys
• 26:57
  it, you know you get acquiring Co and you get 10% in this new
• 27:01
  acquiring Co that that holds on to it.
• 27:03
  And so the. Payout and then the stock.
• 27:05
  Yeah, Yeah. So you're, you're cashing out
• 27:06
  usually three ways. One, they give you cash upfront,
• 27:09
  OK, that's your most certain I'm going to get that. 2 is that
• 27:12
  earn out, you stick around for a year or two, you, your company
• 27:14
  hit some metrics. If they hit these metrics,
• 27:16
  you'll get the next chunk payment.
• 27:18
  And then three, you get equity in this new business that we as
• 27:21
  private equity venture capital, we're trying to build it, build
• 27:24
  it, build it, sell it. That's their model, right?
• 27:26
  So the theory is, well, you own this equity when we sell it a
• 27:30
  few years down the road, you get a second bite at the apple you
• 27:33
  get, you get another payout. Just had a founder on the exact
• 27:36
  same thing happened. They're getting like months away
• 27:38
  from selling the the company that acquired him.
• 27:40
  Now they're selling that company and yeah.
• 27:41
  Awesome. So that's, yeah, a lot of
• 27:43
  uncertainty with that, right, if things don't go right.
• 27:45
  It could go. Wrong.
• 27:46
  So it's not guaranteed. So we always advise for, you
• 27:49
  know, when you're selling the business, take as much of that
• 27:51
  first chunk, get as much cash upfront guaranteed because you
• 27:54
  know you're going to get that the earn out a little more risky
• 27:57
  the second bite a lot risky and it could be down the road,
• 28:00
  right? So to get on a specific example
• 28:03
  here, yeah, our company helps 7-8 figure companies build in
• 28:07
  house content teams. We do a lot of coaching,
• 28:08
  strategy training. The ideal scenario is we get
• 28:11
  them to a point where they can do their own marketing for them
• 28:13
  and that's six months, 12 months.
• 28:14
  You know, we could be on there before we have some customers.
• 28:16
  We've been on for 16/17/18 months, but it could be as short
• 28:19
  as six months. Yeah, right.
• 28:22
  I'm looking at the marketplace right now and I see a lot of
• 28:24
  marketing agencies and I think their whole model is getting
• 28:27
  disrupted very quickly with AI, with the fact that we can shoot
• 28:29
  phone in your own office, like we have here a set up of
• 28:32
  smartphones, like the technology, you have people
• 28:35
  abroad that you can hire for cheaper.
• 28:37
  You've got AI that does a lot of stuff for us.
• 28:38
  So like that whole model of we're going to charge 10 grand a
• 28:41
  month and do marketing. It's like, you know, we can kind
• 28:43
  of do this ourselves, but they need people to come in and and
• 28:45
  train them and strategize and coach their team to develop
• 28:48
  their people, which is something AI cannot do right as well.
• 28:52
  How would you be looking at our like, what would you be maybe
• 28:54
  thinking about in our business? If you're looking at down the
• 28:56
  road, there's going to be a bigger market, marketing
• 28:58
  conglomerate or company that says, all right, Alex, your
• 29:01
  guys's model is like what could potentially put us out of
• 29:03
  business? But at minimum, it's probably a
• 29:06
  good like revenue stream for us that we could say, hey, if you
• 29:09
  don't, if you want to do it yourself, you could go this
• 29:11
  route or we can do it for you. Knowing that the kind of the
• 29:14
  done for you is starting to kind of go away a little bit.
• 29:16
  Like what do you, how would you, what might you be thinking
• 29:19
  about? Well, from your perspective,
• 29:20
  yeah, I mean, keep growing exactly what you're doing
• 29:23
  because that's because you're you're you're proving that
• 29:25
  thesis of you could do it better, cheaper, you know, for
• 29:29
  and have a huge impact, the same impact or better impact than the
• 29:31
  traditional model. And that's innovation.
• 29:33
  That's our capitalist system is I have a better widget.
• 29:35
  I could do it better. So hire me.
• 29:38
  You know, the, the thing that AI and, and, and a lot of these
• 29:43
  things that you said will never replaces the individual, the
• 29:46
  touch, the, the human knowledge, the, the way you could coach
• 29:49
  someone to do something. But a lot of business processes
• 29:52
  are moving towards this fractional model.
• 29:54
  You have a fractional CFO, fractional CEO.
• 29:57
  I'm not saying you're fractional marketing, we're similar, but
• 29:59
  you're like a consultant that helps you're branching out and
• 30:02
  developing the team to then be replacing you, right.
• 30:04
  So you're on the right trend because I could hire a head of
• 30:09
  marketing and an assistant and have, you know, 200 and 5300
• 30:12
  thousand in salary burden. It'd be way less for us to bring
• 30:14
  us in, or way less. Right.
• 30:16
  You know, so I mean, the the value proposition to your
• 30:18
  clients makes so much sense. Yeah.
• 30:20
  And then in terms of competitive landscape, you're right.
• 30:22
  If you're if someone's charging 10 grand a month and you're
• 30:24
  charging half that, yeah. And you're getting the same
• 30:26
  results, I mean, that's, that's, that's disruption in industries
• 30:28
  and that's yeah. So then you either again run it
• 30:31
  or you another an ad firm says, yeah, we agree you're the right
• 30:35
  way. So we're going to make you our
• 30:37
  do it yourself department, you know.
• 30:39
  Would you to increase customer lifetime?
• 30:43
  Well, not maybe not all the time value, but lifetime duration.
• 30:46
  Would you think about lowering fee structures to go longer
• 30:48
  contracts maybe instead of you know, 678 grand a month, like
• 30:51
  whatever it is a month, maybe in 6 to 912 months, 18 maybe.
• 30:55
  Now let's say we do kind of a two year window and it's, you
• 30:58
  know, 3 grand a month. You know what?
• 30:59
  I. Mean maybe we have a kind of
• 31:00
  like a, like a step down, right? Our heavy workload or the this
• 31:03
  for initial project is this and then we go into a maintenance
• 31:06
  phase, right? And then and you're kind of
• 31:08
  staying on to help with other stuff and you could find for
• 31:11
  present or, or find other projects or ways they can
• 31:14
  improve. That's, that's on the on the on
• 31:16
  the tail. So what you're trying to do is
• 31:17
  extend the life of the contract? Yeah, cuz things change so fast
• 31:19
  in this industry, social media, AI, like video content, it's
• 31:22
  like the stuff we're teaching three months ago is.
• 31:24
  You guys, you guys are great at this.
• 31:26
  Now, have you seen this? Yeah.
• 31:28
  Have you have you tried this? This is a new trend.
• 31:30
  Have you done? And so you're you're, you know,
• 31:33
  and maybe to get some kind of a phase two, phase three and yeah,
• 31:35
  lower the price a little bit on those maybe and, and and and but
• 31:39
  you know, again, if you're the business right, the the
• 31:42
  difference between 5 grand a month and eight grand a month,
• 31:45
  it that's nothing, right? When you think about a marketing
• 31:48
  department spend or big ad, you know, so I don't think the you
• 31:52
  tell me, but you know, I don't think the clients are really
• 31:54
  balking at the price. It's what am I getting?
• 31:57
  And then OK, once we have this project is there, what else can
• 32:00
  you provide, right. Oh, I have this whole catalog of
• 32:02
  services. Yes.
• 32:03
  OK, let's keep you rolling. And that's it man.
• 32:05
  They don't balk at the price. It's like, and I think what you
• 32:08
  said is accurate. We could hire go out and try to
• 32:10
  hire a chief marketing officer or VP of marketing marketing
• 32:13
  manager. That's gonna be 100K plus easily
• 32:15
  if not 200 if we're getting into the CMOS.
• 32:17
  The problem is do most CMOS don't know social media video at
• 32:20
  like we do like cuz I'm on the front lines, I'm living all this
• 32:23
  stuff. So I'm like real life
• 32:24
  application in the weeds. I know how to exactly how to get
• 32:27
  your results where a lot of these folks have been around for
• 32:29
  a while, but it's like, yeah, we knew A blog post website SEO and
• 32:33
  like still relevant, but it's like, but you got to know how to
• 32:35
  do social on a podcast and this and the AI search now.
• 32:38
  And so, yeah, it's changing. I appreciate that.
• 32:41
  How do you, when you look at companies that are like using AI
• 32:45
  very heavily, does that impact the way they're evaluated now,
• 32:50
  like if they're it's starting? To.
• 32:51
  And does it take away from some that are not because it's like,
• 32:54
  hey, your model's kind of going to be?
• 32:55
  Disrupted. It's absolutely starting to
• 32:57
  because you know, it depends on the industry, right?
• 33:00
  Like if you're a metal fabricator, right?
• 33:02
  Not much. Humanoid robotics coming out of
• 33:05
  a factory. You know which is coming.
• 33:06
  It's. Actually, we read the news,
• 33:07
  actually. Here and now, but scale.
• 33:11
  That's pushing that aside, right?
• 33:12
  You know, if you're a business, you know, that has a lot of
• 33:16
  processes, right? We found out AI is very good at
• 33:21
  shortening those processes, right?
• 33:22
  So, so where does we see that in differentiation in the financial
• 33:26
  statements and we see that in labor costs, right?
• 33:29
  Instead of hiring two or three new people for each contract, I
• 33:33
  keep my Staffs the same, but I grow the top line and there's
• 33:37
  more efficient and productive because now they're using AI.
• 33:39
  That's where we're really starting to see it is are you,
• 33:42
  you know, maintaining or your costs or lowering your costs
• 33:46
  while growing the business because that extra cash flow
• 33:48
  just goes straight to the bottom line.
• 33:50
  And so that's how you differentiate again to to a
• 33:53
  potential buyer. I mean that's really attractive.
• 33:56
  You have a company that has done things the same way for 40
• 33:58
  years. You have a company that's
• 33:59
  transitioning into the new world.
• 34:02
  Obvious choice. There's no like data that says,
• 34:05
  well, you know, this gives you a direct 2 plus increase on your
• 34:08
  multiple. It's more subjective, obviously
• 34:09
  is what is the market going to price it at?
• 34:11
  But you know it's. Division and leadership is what
• 34:13
  I would like, you know. It's qualitative, right?
• 34:15
  Exactly. Yeah.
• 34:16
  Yeah, for sure. I was gonna ask you another
• 34:19
  question on that. What about are you seeing
• 34:20
  companies get nervous about AI or like are you seeing certain
• 34:24
  business models or businesses getting disrupted by AI?
• 34:26
  They're. Getting disrupted, you know,
• 34:29
  there there's some industries that.
• 34:30
  It's like impossible not to, I mean.
• 34:32
  Marketing is a perfect one. Marketing, advertising.
• 34:35
  I mean, there's, you know, make this deck for me, you know, that
• 34:38
  highlights these, you know, product features of this new
• 34:41
  drug. I don't know, making stuff up,
• 34:42
  right? You have that in the AI.
• 34:44
  They could be millions of pages in minutes and send you this
• 34:47
  marketing deck, or you could spend 3 weeks an analyst doing
• 34:50
  it and then you know. So, and that's that's exactly
• 34:53
  what we're doing. We're.
• 34:53
  Doing right, So there's real world application of it and
• 34:57
  businesses are evolving and they're starting to, to use and,
• 34:59
  and learn that. But what's fascinating though is
• 35:02
  is we've been talking a lot on the seller side.
• 35:04
  What if you're a buyer, right? If you're a buyer that's using
• 35:08
  AI and doing these processes very efficiently.
• 35:11
  And I have a target company that I want to buy that'll grow my
• 35:14
  business, right? 1st, we develop well, what is
• 35:18
  the value of the company I'm buying as it exists today?
• 35:22
  The second valuation I'm doing is what is this thing worth to
• 35:25
  me if I run it the way I run it? And it's kind of what you said
• 35:27
  earlier, right? If I run this business, I know I
• 35:29
  could, you know, it'd be efficient here, maybe cut costs
• 35:31
  there and grow revenues there. So to me, it's worth more than
• 35:35
  fair market value, right? But of course, I'm only going to
• 35:38
  pay the seller what it's worth today because I'm not going to
• 35:41
  pay them for what I'm bringing to the table, right?
• 35:44
  So you know, when, when, when you're thinking about an
• 35:47
  acquisition from the buyer's perspective, their goal is to
• 35:49
  pay obviously as little as possible, but fair market value
• 35:52
  for the business as it is today. And then what am I going to do
• 35:55
  with it? Because I'm going to take it,
• 35:56
  I'm going to pour gasoline on the fire, grow it, and now it's
• 35:59
  worth more to me. And that's, that's, that's what
• 36:01
  you're thinking from the acquisition side.
• 36:03
  Now, as a seller, you're trying to get as much of that, you
• 36:06
  know, potential, but you know, you know, that that's not always
• 36:11
  going to come back to me as the seller because that's not what
• 36:13
  exists today. Right.
• 36:15
  Do you, how do you see AI kind of disrupting or changing what
• 36:18
  you guys do or? Has it's it's going to.
• 36:21
  I'm not naive enough to think that you can't do valuation.
• 36:23
  It'll figure it out if it, you know, there's already models in
• 36:26
  the marketplace that are starting to do it.
• 36:29
  From what I found, they're still lacking and they're not as
• 36:31
  accurate, sometimes very inaccurate.
• 36:35
  But what I think that some of the number crunching, if you
• 36:39
  will, yeah, some of the modeling, they maybe could do
• 36:42
  that reviewing documents maybe could do that.
• 36:44
  What you really need to do is tie it together, right?
• 36:47
  Because there's one thing to run the numbers and get an answer to
• 36:49
  an equation. The the the the value that I
• 36:52
  bring and that we, you know, bring is does this make sense?
• 36:57
  Does this jive with what is experienced in the marketplace?
• 37:00
  And it would it happen if the company were to sell?
• 37:04
  You know, part of what I do is some expert witness work in
• 37:06
  court, right? AI can't set up and testify in
• 37:10
  trial. OK, so that's that's another
• 37:12
  thing. But you know, and and and really
• 37:13
  explaining it, right, because there's one thing to show a
• 37:15
  beautiful projection model and get to a number, but but
• 37:18
  explaining what it means, Why is this number converted into
• 37:22
  value? That's what is is going to
• 37:26
  remain in my business. Will we be more efficient and
• 37:28
  get more stuff done with it? Yes, we absolutely will, but I
• 37:31
  don't think it'll replace kind of that human, you know, opinion
• 37:36
  and feel for a business, right? If you own a business and you're
• 37:40
  getting a divorce, what does that usually look like from your
• 37:43
  lens? Yeah.
• 37:44
  So it deals with a lot of those. Yeah.
• 37:46
  A good amount of of my work is in that space.
• 37:48
  And it's, it's typically there's one of the spouses or both they
• 37:51
  have a business. And so when you're thinking of
• 37:54
  separating marital assets, just like a house or your retirement
• 37:56
  accounts, the business is another asset.
• 37:58
  And so we get brought in to value that.
• 38:01
  Sometimes we're brought in jointly, but most often it's one
• 38:03
  spouse hires us, another spouse would hire someone else, right?
• 38:07
  And as you can imagine, if you're the business owner
• 38:09
  spouse, you think the business is worth very low and if you're
• 38:11
  not the business spouse? It's not really worth anything.
• 38:13
  I think it might shut down tomorrow actually.
• 38:15
  Now I'm looking at it. So she's like, I think it's
• 38:17
  worth everything. It's so depending on which side
• 38:19
  you're on, right? The client has that perspective.
• 38:21
  For me, I don't care what it's worth for me, you know, at the
• 38:24
  end of the day, I'll be testifying to a judge or jury
• 38:26
  saying I professionally think that this thing is worth X and
• 38:29
  so. Do people pay pay you in just
• 38:32
  like a container fees or like you get a portion of like what
• 38:34
  you guys? Said, yeah, great question.
• 38:36
  Never on a contingency. I can't work on any success or
• 38:39
  anything like that. It's always the way I structure
• 38:41
  it is it's a flat fee for the report, the appraisal and then
• 38:44
  if we have to go to court or depositions, then it goes to an
• 38:47
  hourly model. All right, So it's from the
• 38:49
  client's perspective, they know exactly what they're paying for
• 38:51
  the valuation product and then yeah, cuz each trial.
• 38:54
  So what about? Recurring revenue for you guys
• 38:56
  very little, OK. Yeah.
• 38:57
  So my industry is, I have some clients that have recurring
• 39:01
  projects. We have clients that come back
• 39:04
  and do like annual evaluations as like a tool to gauge
• 39:08
  performance of executives. We have the clients that, that
• 39:11
  we, you know, we do annual reviews for, but the majority is
• 39:15
  new, new engagements because we finished evaluation.
• 39:17
  It's for a specific need and it's done for me.
• 39:20
  The, the lifeline is my referral sources, right.
• 39:23
  My centers of influence is, you know, the accountants, the
• 39:25
  attorneys, the bankers, the advisors, the coaches.
• 39:28
  That's who yeah, I build relationships with because they
• 39:30
  have the clients. Then when their clients need
• 39:32
  evaluation, that's what they that's so.
• 39:34
  True. Yeah.
• 39:34
  OK, back to divorce. Sorry to derail.
• 39:37
  So, so in, in, in Illinois and in about half the states,
• 39:42
  there's this thing consideration called personal goodwill.
• 39:48
  They get sent taken into account when you value a business and
• 39:50
  you determine how much it's worth for the marital estate.
• 39:53
  The personal goodwill is how much of the business value,
• 39:56
  let's say value of business at X, how much of that X is is
• 39:59
  related to the individual versus the business enterprise and the.
• 40:06
  Amount that's related to the individual that personal
• 40:09
  goodwill is actually considered a non marital asset that gets
• 40:12
  taken away and only the marital the enterprise goodwill remains.
• 40:17
  So let me give you an example. Let me give.
• 40:19
  You an example, right? Let's say you're a heart
• 40:21
  surgeon, right? And you're a world renowned
• 40:23
  surgeon, right? And you have this surgery LLC
• 40:26
  that you've run all your operations through, OK, I could
• 40:28
  come in and I could value that thing at $20 million, OK.
• 40:32
  But if you're the only surgeon and, and the people come to you
• 40:35
  because you're the expert and something happens and your hands
• 40:37
  get cut off, right? There's no value in the
• 40:40
  business. The entirety of the inflow of
• 40:42
  the business, the processes, the reason your people work for you
• 40:44
  and the people hire you is your reputation.
• 40:47
  That's your personal goodwill. So it could be worth 20 million.
• 40:49
  But if the argument is 100% or 95% or 85% personal goodwill,
• 40:55
  that chunk of that value gets pushed aside.
• 40:58
  So I didn't know. That yeah.
• 40:59
  So, you know, so it's it's it's very it comes into play with
• 41:02
  again, very high professional reputation type industries,
• 41:06
  right when the person is like the sole rainmaker and and and
• 41:10
  the business wouldn't function without them and a process side,
• 41:14
  right. If you run like an automotive
• 41:16
  repair shop, right? Yeah, it's less like not as
• 41:19
  much, right. There might be some right.
• 41:21
  I mean, people trust you. They come to you that you may
• 41:22
  get. Some system employees and it's
• 41:24
  pretty right, right? Yeah.
• 41:25
  So it's very depending on the industry and depending on the
• 41:30
  individual, that personal goodwill piece really can impact
• 41:33
  how much is in the marital estate.
• 41:34
  So if I'm a one person coach or consultant and I have my own
• 41:37
  business, yeah. And I get divorced, Yeah.
• 41:39
  And the business pretty much runs through me and I know the
• 41:42
  client work and you Take Me Out, the business doesn't run.
• 41:44
  You're saying that my spouse would not get that business?
• 41:46
  It would be in terms of value of an asset like your house is
• 41:49
  worth X, the business would be worth very little.
• 41:52
  OK. All right.
• 41:52
  Where I would just be able to take that business and go with.
• 41:54
  It now where where it may come into play and this depends on
• 41:57
  each divorce is if there's a support or maintenance payment
• 42:00
  right. So any salary you make that
• 42:04
  could be considered as part of the calculation for support for
• 42:06
  the other spouse, right. Depending on this, there's a
• 42:09
  whole equation of formula. So that that's separate there.
• 42:11
  But yeah, it's, it's, it's interesting right now.
• 42:15
  It's you have to be careful because every business owner,
• 42:17
  every founder is going to say, well, without me the business
• 42:19
  wouldn't exist. Of.
• 42:20
  Course, right. I mean that's that that makes
• 42:22
  sense. But if you're, you know, you
• 42:24
  have a team and you have a process and people are bringing
• 42:26
  in business and reviewing work and yeah, you may have a
• 42:28
  reputation and you bring in some of the work.
• 42:30
  Well, it's probably not 100% personal goodwill.
• 42:32
  Maybe there's a little bit of something there.
• 42:35
  And we have business owners that started it, their name's on the
• 42:37
  door, but they're not involved in day-to-day.
• 42:39
  They're vacationing 6 months out of the year.
• 42:41
  You know, OK, it's probably not a lot of good.
• 42:44
  So it's a case by case. So.
• 42:46
  But that's a unique situation wrinkle.
• 42:50
  Do you see, do you see business owners putting their business in
• 42:54
  a trust like an offshore trust or anything?
• 42:56
  Like that, not, not too much. I mean, we, we do business
• 43:00
  owners do put ownerships in trust for a state planning
• 43:05
  purposes if they want they, we see them putting into trust and
• 43:08
  then gifting it ownership interest to, to possibly the
• 43:11
  kids or the next generation. You know, there's a whole way
• 43:14
  you value that minority interest a little bit differently than
• 43:17
  the majority interest, but that you mean get a great estate
• 43:23
  planning attorney and, and, and if you're if you're, you know,
• 43:25
  business is of scale where you really need to start protecting
• 43:28
  and think about estate taxes. Is that something that's huge
• 43:31
  value add? What usually happens to a
• 43:34
  business when it gets passed down to the next generation in
• 43:36
  your experience? So the statistics are are
• 43:39
  fascinating. When you go from Gen. 1 to Gen.
• 43:41
  2 to Gen. 3 to Gen. 4, I think only less than 110th of 1% of
• 43:46
  businesses get to Gen. 4. Why do you think that is?
• 43:50
  That's a great question. Some of it is, you know, Gen.
• 43:53
  one or Gen. 2 build it to a point where they could sell it
• 43:55
  and, you know, they can move on, right?
• 43:57
  I mean, you need to have kids and grandkids that want to be in
• 44:00
  the business, right? I mean, I have a lot of business
• 44:02
  owners that are in the, you know, the, the heavy
• 44:04
  manufacturing space or agriculture space.
• 44:07
  And like my kids don't want to have anything to do with
• 44:09
  machining or, or livestock, right?
• 44:12
  Well, then you got to sell it, right?
• 44:13
  So and then there's always, you know, the Gen. 2 isn't, you
• 44:17
  know, has different mental drive than Gen. one, right?
• 44:21
  Gen. 1 built it from the ground. Gen. 2 is like, well, Gen. 3
• 44:24
  maybe even more, you know, could be entitled and like, Oh well,
• 44:27
  my name is so and so. So we're going to be successful
• 44:30
  and. Well, it's kind of like if you
• 44:31
  didn't, if you know, if you were given a car at 16 versus having
• 44:35
  to like work for it and pay for it yourself.
• 44:37
  It it is a different perspective.
• 44:38
  Not to say that it can't. Obviously there can be a lot of
• 44:40
  different scenarios and it can work, but it's a different
• 44:42
  perspective when you build it from Ground Zero and you went to
• 44:44
  the first five years of the business, which are the hardest.
• 44:46
  100% and, and just because someone's related to you doesn't
• 44:49
  mean they have the skills and the drive and, you know, so you
• 44:52
  need to have genetic, you know, and, and the way to, to raise
• 44:55
  kids to have them have the same mentality because, you know,
• 44:57
  think of a corporation, right? This executives, they're not
• 45:01
  related. They're all the best to be
• 45:03
  brought in, right. So you really have to work
• 45:05
  against the statistics to have not only family, but then have
• 45:08
  the skills and abilities to keep running it generation after
• 45:11
  generation. Yeah.
• 45:13
  I want to ask you about you do a lot of in person networking
• 45:15
  events. So how we met actually was in
• 45:17
  the Saint Charles group that you run and I thought it was a
• 45:19
  really cool and good group and a lot of insights and stuff that
• 45:22
  come from that. And I think you're you, you seem
• 45:24
  very much into that versus even social media and the virtual
• 45:27
  side of things. But I think you see value in
• 45:29
  both. But what?
• 45:30
  Why are you so into the in person and what has it done for
• 45:32
  your? Business it's that's the sole,
• 45:35
  you know, business development piece that I have and we have,
• 45:37
  you know, we don't really do paid advertising and I needed to
• 45:40
  get better at social and and media and what you do is
• 45:43
  fantastic and I need to do a little more can.
• 45:45
  I give you a quick tip, I think a goldmine strategy for you
• 45:48
  bring the in person events and networks and conversations that
• 45:52
  you're having already. Capture it.
• 45:54
  Capture and video on that. So I'm telling you, man, I'm
• 45:56
  telling you that is the number one key.
• 45:58
  Because here's why, you know, to answer your question, why do I,
• 46:00
  why do I think that, you know, my in person has benefited me?
• 46:06
  People hire professional services, employees or services
• 46:10
  based on the reputation of the person.
• 46:12
  And do you like and trust the person you're going to work
• 46:14
  with, right? Whether it's your accountant or
• 46:16
  your attorney, any service you're hiring, you want to know
• 46:19
  and like and trust that person. And so for me, getting in a room
• 46:23
  and getting coffee or lunch or drinks with someone, meeting
• 46:27
  them multiple times, showing them this is the person I am,
• 46:29
  right? Here's the, you know, so and so
• 46:31
  well, I've worked with so and so.
• 46:32
  And you can kind of vouch for me, right?
• 46:34
  Once you know and you trust someone, giving them a referral
• 46:38
  is is extremely easy, right? Like we've met a bunch of times.
• 46:43
  I know I like, I trust you. If someone needs the work, I
• 46:44
  feel extremely confident saying talk to dogs.
• 46:47
  And so the, I've spent my, you know, career 15 plus years just
• 46:51
  going out and just meeting people, whether it's people and
• 46:54
  family law, mergers and acquisitions, estate planning,
• 46:57
  you know, very different groups that I know that they work with
• 47:01
  clients, business owners that needs valuation services
• 47:05
  sometime down the line. And it's always long term,
• 47:07
  right? I keep saying this because
• 47:08
  you're planting a seed and you're hoping it grows.
• 47:10
  Down the Rhine. Because I've met people and we
• 47:13
  may not talk for a year or two years, but then they have a
• 47:15
  client saying, oh, I know a guy evaluations and they come out of
• 47:18
  the water work. I'm like, man, I haven't talked
• 47:20
  to this person in two years. And yet we still had a great
• 47:22
  connection. But they remembered it.
• 47:24
  I would have done the same for you.
• 47:25
  If someone was like, who does business?
• 47:26
  I'd be like, dude, Henry. So, so that's, so that's the
• 47:28
  thing. So, you know, in, in, in person,
• 47:30
  it's very easy to build that trust over time for sure.
• 47:33
  You know, online you have to be probably a little takes a little
• 47:36
  more, a little more touch points, a little more
• 47:39
  engagements, videos, whatever it is.
• 47:41
  But that's, that's where I focused, that's where I started
• 47:44
  my career. Now to take it, you know, do I
• 47:46
  want to take the next level, add some more?
• 47:49
  There's absolutely room for improvement and and.
• 47:53
  Well, leaving stuff like this is a good example of you just being
• 47:55
  able to talk, yes, you know, about what you do and how you
• 47:57
  help customers and. I mean, you listen if I, you
• 48:00
  know, if I had a podcast on valuations, the only people that
• 48:02
  would listen to it would be other appraisers, right?
• 48:04
  Like, well, you would. Well, that's why I don't have
• 48:06
  one on marketing, right? So you know you have one on the
• 48:09
  Saint Charles entrepreneurs. Group or something, right?
• 48:11
  Yeah, Executive group or something, right?
• 48:13
  Yeah, cuz I mean, you know, you're only gonna think about a
• 48:15
  business valuation if there's a triggering event and you need it
• 48:18
  totally right. But at that point, it's almost,
• 48:21
  you know, I need to be in front of that person before that event
• 48:24
  happens, right? And I need to be in front of
• 48:25
  that accountant or attorney or, you know, and sometimes you have
• 48:27
  business owners that find me online or, oh, I saw a podcast,
• 48:30
  you did it. It's completely different on
• 48:31
  marketing. It's like, Oh yeah, I need
• 48:33
  evaluation. Totally.
• 48:34
  So, you know, it's, it's, I call it the shotgun approach of
• 48:37
  business development. Meet as many people, get as many
• 48:39
  relationships as you can. I think the the because you're
• 48:42
  mostly localized, right? I mean a.
• 48:44
  Lot of my referral sources are like out in the Chicago area,
• 48:46
  but we have clients all over the country, all over the world.
• 48:48
  So that's. I think a local 1 where you just
• 48:52
  make it about, you know, whether it's entrepreneurs and and
• 48:55
  Chicagoland, right, or something like that.
• 48:56
  I think that's so good. So there's so much great.
• 48:59
  And then you'd find a bunch of business owners that you can
• 49:01
  work with. When the time has come, you get
• 49:03
  a bunch of content. You could now ask people instead
• 49:05
  of like, hey, you're gonna have a business evaluation.
• 49:07
  You could just be like, you should come on the podcast, man.
• 49:09
  It's awesome. Yeah, We'll get.
• 49:10
  Yeah. They added to my To Do List.
• 49:12
  I gotta get to it and. You know what I gotta do?
• 49:14
  To be honest, I gotta do more of what you're doing to get a
• 49:16
  little bit more in person. You know, the content, the video
• 49:19
  stuff is good for getting people off social and into person, But
• 49:22
  I think just doing a little bit more in person stuff matters
• 49:25
  too, you know, creating a community and a network.
• 49:27
  It's all of the above. It's not exactly.
• 49:29
  It's all of the above and not over.
• 49:31
  Yeah, for sure. Is there anything we didn't
• 49:34
  cover that you think is important in terms of just
• 49:35
  what's happening like right now? Is the marketplace good for
• 49:38
  selling businesses? It's like.
• 49:39
  Surprising, right? I mean, we've had an early, you
• 49:41
  know, first half, second-half of the year or first quarter,
• 49:44
  second quarter of the year. You know, we've had a lot of ups
• 49:46
  and downs, a lot of stuff in the news, trade, all that stuff,
• 49:48
  right. But I mean, when you look at the
• 49:50
  market, you know, the stock market is hitting highs, right?
• 49:53
  OK, that's doing great. We're still, we're still seeing
• 49:56
  exactly we're still seeing business owners do succession
• 49:58
  planning, thinking about selling right.
• 50:00
  And, and that that portion of our business where a lot of our
• 50:03
  clients come to us and they're may not be ready to sell now,
• 50:06
  but they're thinking, you know what, in two to three years,
• 50:09
  we're going to want to transition the business.
• 50:11
  Let's get a sense of what it's worth now, because every
• 50:13
  business owner has a number in their mind of what it's worth.
• 50:16
  And just like your house, it's usually higher than what it
• 50:19
  actually is worth, right? We've had the occasional
• 50:21
  business owner that undervalues their company, but most are
• 50:24
  going to be above market. And so having a realistic
• 50:28
  opinion of what the business is worth allows you to make a
• 50:31
  realistic plan going forward, right?
• 50:34
  Where one with your financial advisor right now, you have an
• 50:36
  actual number for the business. They can actually make a plan
• 50:38
  for you of what you're going to get after taxes.
• 50:40
  And can I live off of that number or do I need more, right
• 50:44
  versus making a plan off of some aspirational number that you,
• 50:47
  you know, you're never going to get 2.
• 50:50
  Let's say I come in in a value and you're like, wow, it's I
• 50:52
  need it to be better. Well, you have a few years to
• 50:54
  build it up. And then where I could bring in
• 50:57
  extra value is connect them with someone to help with their
• 51:02
  marketing and advertising, connect them with someone that
• 51:04
  could help with their sales team, connect them to someone
• 51:05
  that could help with their technology and get that in
• 51:08
  process for one or two years and then re evaluate it then.
• 51:12
  Because one, it takes time to make changes and two, it takes
• 51:16
  time for those changes to be reflected in the financial
• 51:18
  statements. Because for me, it all goes back
• 51:20
  to the financials and the profit loss statement, right?
• 51:22
  If I say, well, I've got a new marketing plan and this and
• 51:24
  that, well, it's just a plan, but it's, I had a plan and we've
• 51:27
  executed in two years and look what's happened.
• 51:29
  Boom, our numbers are bigger, value's bigger.
• 51:31
  Well, now you get a higher value in the marketplace.
• 51:33
  So you know, planning doing this early enough in advance where
• 51:37
  you can get professionals in to help you and get the business
• 51:41
  ready to sell. I think that's a huge.
• 51:43
  It's an extra value add of of doing the valuation is is is
• 51:47
  being able to position it. I've heard there's going to be
• 51:49
  huge transfer of wealth in the next decade with baby boomers
• 51:53
  retiring, selling their businesses, wanting to get out
• 51:56
  of them. How does that factor into what
• 51:58
  you guys do? Because that is that true, first
• 51:59
  of all, and what do you like? What do you see?
• 52:01
  Yeah. I mean, there's, you know, this,
• 52:03
  I think it's 10,000 a day retiring from that generation,
• 52:05
  right? Think about that, 10,000 people
• 52:07
  a day, right? So how many of those owned
• 52:09
  businesses, right, that they need to transition or gift to
• 52:12
  the next generation or flat out sell.
• 52:14
  So there's definitely demand for wealth transfer.
• 52:18
  And so the, you know, a lot of those people that are retiring
• 52:22
  may not have businesses, but those that do will absolutely
• 52:25
  need evaluation. Right.
• 52:27
  Even like we have a lot of clients that are selling to
• 52:29
  their kids, OK. And what you can't do is, well,
• 52:33
  I'm going to sell to you for a dollar because one, just like
• 52:37
  any stock, if you sell a business, it's capital gains and
• 52:40
  what you started it for. So you have to make sure you're
• 52:42
  transferring it at fair market. Value.
• 52:43
  Interesting. So we say, look, even if you're
• 52:45
  selling it to kids, you want to sell it at fair market value,
• 52:48
  you can. Just pass it down.
• 52:49
  Just say you. Could gift it right.
• 52:50
  You absolutely can gift it right.
• 52:51
  You have to file a gift tax return and on that gift director
• 52:54
  tax return and says what is the fair market value of the asset
• 52:56
  you're giving? Oh, so you gotta put in?
• 52:58
  They always find the way, you know?
• 52:59
  Yeah. So, yeah.
• 53:00
  And the theory is you're passing on this asset and you got to set
• 53:03
  the value of it for the next generation, right, Right.
• 53:05
  So it always comes into play whenever ownership is in motion.
• 53:09
  We get a lot involved a lot when people pass away and they own a
• 53:11
  business. And so on the state tax return,
• 53:14
  they say, well, they owned all these assets and this is what
• 53:16
  the business is worth, right? And so we, we do a lot of stuff
• 53:19
  for that. So yes, there's generationally,
• 53:21
  there's a lot of wealth being transferred and a lot of that
• 53:23
  will need the, the, the appraisals, but there's a ton of
• 53:26
  wealth being created. It, it by, I mean, millennials,
• 53:31
  we're getting old, right? So the, the, the, the, the next
• 53:33
  gens are 40. Yeah, I hear you.
• 53:37
  The next Gen. is, is using this AI and they're creating
• 53:39
  businesses from a computer and a microphone and it's generating
• 53:44
  huge cash flow. And I mean, look at influencers.
• 53:46
  I mean, that business model didn't exist 10 years ago.
• 53:49
  So it's, it's, it's fascinating. It's gonna keep evolving.
• 53:52
  And I think like you mentioned, the AI is going to pour fuel on
• 53:55
  the fire and things are gonna change quickly.
• 53:57
  And if you're not nimble enough, man, it's not going to be good
• 54:00
  for. You, your ability to adjust is
• 54:02
  and be, yeah, and be scrappy and adjust with the times and learn
• 54:06
  as you go. That's going to be key, man.
• 54:08
  Regardless of what you do, it doesn't matter because AI is
• 54:11
  going to disrupt everything. Absolutely, man.
• 54:13
  This has been an absolute pleasure round too.
• 54:14
  I think it was better in the first round, to be honest.
• 54:16
  All right, the first round was good.
• 54:17
  That's a high bar. Yeah, it was good, man.
• 54:20
  Where can people find you, connect with you, learn more
• 54:22
  about you and what you guys do? All my contact info is on my
• 54:24
  website kaskovvaluations.com. If you search Henry Kaskov
• 54:30
  KSKOV, you'll find all my contact info.
• 54:34
  I always you know if client, business owner or someone wants
• 54:36
  to talk to me, I always I'm happy to chat, happy to explain
• 54:38
  the valuation process, see if it makes sense for me to get hired
• 54:42
  and then what scope of work makes sense, right?
• 54:44
  Do we need the full blown valuation?
• 54:45
  Can we do something more limited and cost effective?
• 54:48
  I'm here to help out I. Love it.
• 54:51
  Awesome man. I appreciate you being on the
• 54:53
  show. We'll definitely link everything
• 54:54
  up in the description. We'll have a bunch of amazing
• 54:56
  content clips that come out from the show.
• 54:58
  Awesome. You brought the energy.
• 54:59
  You brought it today on the Founder Talk podcast.
• 55:00
  Thank you guys for listening. Appreciate.
• 55:02
  Thanks for having man, appreciate.
• 55:03
  It appreciate it.