The Wise Exit

Sarah Greifenberger - Episode 59 | CASHING OUT M&A PODCAST

00:00:00:21 - 00:00:22:22
Sarah Greifenberger
It's so uplifting to go and meet with business owners who have started these businesses, often from nothing or maybe from a smaller operation than a family member was running and turned them into like great enterprises that support their families and their employees families. And I'm like, you know, we live in a great country that that people can go and do this kind of thing.

00:00:23:00 - 00:00:44:12
Todd Sullivan
Welcome to the Cashing Out podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. We're doing something a little different today to bring our audience more education around specific elements of the M&A process.

00:00:44:14 - 00:01:14:17
Todd Sullivan
We're calling this segment Exitwise Office Hours. Today, my guest is Sarah Greifenberger. She's the CEO of Arbor Valuations and Consulting, a business valuation service, helping business owners understand the fair market value of their companies. Sarah is going to help educate us on how business valuations are created and in what situation business valuations are valuable and appropriate. I do want to take a moment to thank Sarah for the last business she referred to Exitwise in order to help the ownership group sell their company.

00:01:14:18 - 00:01:35:12
Todd Sullivan
The company Sarah referred was Fathead.com. Sarah introduced us to the ownership group who built a fantastic business and just decided it was time to sell. Sarah is an exit wise ambassador and she earned a sizable referral check for referring the owners of Fathead to us. Now on to our episode of with Sarah Greifenberger.

00:01:35:13 - 00:02:00:07
Todd Sullivan
Sarah, thank you so much for joining me today. Very excited about our episode. Typically, we're talking to founders who have built a business and sold a business, and we're talking about M&A. But occasionally we run into like true experts in a field that touches M&A and yours around valuation, evaluating business, giving valuations to businesses. For us, we are getting that question all the time.

00:02:00:07 - 00:02:24:07
Todd Sullivan
It's typically the first question, “How much is my business worth?” And I think our audience is just going to get a ton out of the explanation of what is a business valuation, all the different things that go into that work and how important what you do is to out of the M&A world. I also want to point out to our audience that you are also you have the number one spot in our leaderboard for referrals.

00:02:24:09 - 00:02:46:20
Todd Sullivan
And in fact, a business that you referred earlier this year just sold last week, really, really cool business. A lot of people have heard of it called Fathead the Wall Sticker Company with lots of licenses with the NFL, lots of professional sports. And it was a really fun deal to work on because a bunch of professional athletes got together, some really, really famous names came together to buy this.

00:02:46:22 - 00:02:51:15
Todd Sullivan
And so you got a really nice referral check a couple days ago. So congratulations on that.

00:02:51:17 - 00:03:13:07
Sarah Greifenberger
Well, thanks. That was that was really fun. And I know none of those professional athletes, so it was fun. And I really just enjoyed making the referral to you guys because I came across somebody that I thought could use your expertise and advice in helping to direct him into the right way to sell his business. And I think you guys did that.

00:03:13:09 - 00:03:26:09
Todd Sullivan
It worked out really well. So I think everyone is very appreciative all the way around. So maybe where we could start is if you could tell us a little bit of your background and really what got you into valuation work, that would be helpful.

00:03:26:12 - 00:03:47:16
Sarah Greifenberger
Well, so I actually have a background as an engineer and then I kind of went to business school and learned a lot about finance. And I was working at United Technologies Corporation, which was it doesn't exist anymore, but it was based in Hartford, Connecticut. And at one point in time I found myself a director of financial planning at the corporate office.

00:03:47:16 - 00:04:18:00
Sarah Greifenberger
And one of my jobs there was to independently value businesses that our divisions wanted to buy. And, you know, it was kind of after it would go for a certain dollar amount it had and go to corporate. And, you know, I was the first stop at corporate and it could make me very popular or not. And so but it was a great experience and learning how to model and value things, building in synergies and figuring out what price we really could pay for a company.

00:04:18:02 - 00:04:39:05
Sarah Greifenberger
And so that's where I started. And then I also did a lot of work with our tax guys, our international tax people, because we did business all over the world, 183 countries. So we were constantly changing corporate structures. And when you do that, you have to know the value of the equity. You're moving into these different structures. So I got a lot of experience valuing our own companies too.

00:04:39:07 - 00:05:14:13
Sarah Greifenberger
You know, that's kind of how I got started in it, but it's very different than going out and being a credentialed evaluator where that's my primary service that I do at offer. And I got started in that because I had a lot of lawyer friends. I lived in Connecticut at the time. I think you lived in Connecticut too, at one point and they suggested that I get certified because they all worked in litigation and they said there were no women in the state of Connecticut who were evaluators and that I would be hired by so many divorce attorneys and so on.

00:05:14:15 - 00:05:37:09
Sarah Greifenberger
And so I got certified. And then I thought about it and I thought that is about the last thing that I want to do is be involved in people's divorces. So I took my my valuation credential in a different direction. So I tend to work mostly with business owners who don't know the value of their company and want a place to start and someone to help them figure that out.

00:05:37:11 - 00:05:54:00
Sarah Greifenberger
I also do a lot of stuff that goes to the IRS, get to state tax stuff all a whole by sell agreements. I work a lot on those. So kind of all over the map, but most of the things I'm involved in I think are happier than litigation. So.

00:05:54:02 - 00:05:55:23
Todd Sullivan
Got it. In the name of your firm today.

00:05:56:02 - 00:06:09:03
Sarah Greifenberger
Arbor Valuation and Consulting. And I should also point out I'm a partner in a business called Q5 Experience, which helps business owners plan for their ultimate transition out of their businesses.

00:06:09:05 - 00:06:29:03
Todd Sullivan
Yeah, that's a great service. We love those types of businesses because so many business owners come to us and when we try to understand the value of their business in the market, they could do just a few things that were really changed their trajectory and ultimately the value that they could sell for. So we really like lean on companies like Q5.

00:06:29:05 - 00:06:47:06
Todd Sullivan
All right. So can you talk to us about why somebody would need a valuation? Certainly we know when you're going to take a company to market understanding what the value of that business would be in. The market is really important, but there's lots of different ways and reasons that somebody would need a valuation. Can you talk about your work in that regard?

00:06:47:08 - 00:07:13:08
Sarah Greifenberger
Yeah, and interestingly enough, when I started out, I don't even think I knew all the different reasons why someone would need it. And so it's and learning for me is as I grew my business. But obviously M&A is sort of an obvious one. But when you talk about any kind of transfer of shares to a family member, to someone that you're gifting shares to, you need a valuation Y because the IRS requires it for gift tax reporting.

00:07:13:10 - 00:07:39:10
Sarah Greifenberger
Estate planning generally involves or larger estate that involves privately held companies that also generally involves valuations as people move shares into trusts. So I work a lot with estate planning attorneys. Management buyouts are usually done based on valuation. Analysts value ESOPs every single year. They got to get revalued by a valuation analyst litigation, which is what I don't do.

00:07:39:10 - 00:08:05:14
Sarah Greifenberger
But that's a big area divorce business divorces by sell agreements. So if you have more than one owner, usually there's some type of agreement where the price is set by an independent evaluator. And then there's also like stock options. You don't have to be set below fair market value. So all of these things that I've just mentioned, everything except for M&A basically is done at what we call fair market value.

00:08:05:16 - 00:08:10:12
Sarah Greifenberger
And so that's usually something that involves a credential evaluator.

00:08:10:14 - 00:08:29:03
Todd Sullivan
Can I ask you specifically about Aesop's you brought that up. So employee stock ownership programs, is that what it is? So for those that is a part of M&A. It's a it's a great way for a lot of business owners. We see construction companies that like to use that, where the employees are going to get ownership over that business.

00:08:29:05 - 00:08:34:10
Todd Sullivan
How is valuation done differently for ESOPs? Because that is an M&A mechanism we're familiar with.

00:08:34:12 - 00:09:01:12
Sarah Greifenberger
Right? So the primary difference is that there's going to be, you know, oversight by a trustee and so on. And that valuation is done at what we call fair market value, and it is probably not going to be as much as the owner might be able to get out. You know, in the open marketplace where, you know, there may be an auction or, you know, strategic buyers buying the business.

00:09:01:12 - 00:09:29:14
Sarah Greifenberger
So that's one of the primary differences. Oftentimes, You know, you'll also hear about ESOPs being sort of an expensive route. I mean, I'm a fan for certain companies where there's a lot of really great culture within the company that they're trying to keep. It can be more expensive because there's a lot of administration. One of the aspects of that is an annual valuation that's got to be done, and there are firms that specialize in ESOP valuation.

00:09:29:16 - 00:09:48:18
Todd Sullivan
So you're focusing mostly on fair market valuation, whereas US as a firm exit way is taking companies to market are we're really looking for that strategic value, right? So usually significantly higher. Do you see a correlation between fair market value and strategic value?

00:09:48:20 - 00:10:08:14
Sarah Greifenberger
Well, I guess the only correlation I could say is that the fair market value is generally the floor of what you should expect if you're going to go out and sell your company. You know, so like if you looked at a potential range of multiples, you know, the fair market value is probably going to be at the low end of that range.

00:10:08:16 - 00:10:15:07
Sarah Greifenberger
But really, it's so specific to the the individual company that's being considered, you know. Yeah.

00:10:15:09 - 00:10:21:16
Todd Sullivan
So who should a business owner talk to or consider to get a valuation done?

00:10:21:18 - 00:10:45:18
Sarah Greifenberger
So it kind of depends on why they need the valuation. So if it's for one of these sort of more official purposes, like, you know, reporting to the IRS, that kind of thing, you absolutely have to have a credentialed evaluator. You don't want to be sending something to them that that your Uncle Bob put together. Right. So but the people that I would say don't necessary need to run out and get a valuation.

00:10:45:18 - 00:11:04:14
Sarah Greifenberger
Are people just looking to sell their company. So if you know, hey, I want to go to market six months from now, you know, I do have people that come to me and talk to me about it, and I explain to them that, you know what a fair market valuation is, that they should expect more than that sometimes.

00:11:04:14 - 00:11:28:01
Sarah Greifenberger
I actually have even worked with people on trying to model synergies that these are people who kind of have a very specific idea of who's going to buy them. So we actually go through the panel and we actually model out what some of the synergies are. So I have tried to do strategic valuations before, but when I'm talking about fair market value and strategic value, those are what we call the standard of value.

00:11:28:01 - 00:11:47:02
Sarah Greifenberger
So in a report that gets issued, it says right up front what the standard of value is. And it's pretty rare that you see a valuation report that isn't fair market value. But so the people who don't need to just run out and get a valuation analyst to value their business are the people that are going to market because people like yourselves.

00:11:47:02 - 00:12:08:22
Sarah Greifenberger
Todd, you're out there, you're working with all the investment bankers. You're up to date on what's going on in different market segments. Know I'm going to be working with slightly dated data. You know, things have actually transacted and it's not always, you know, as current as what you guys might know. Yeah. With boots on the ground, I mean, you know helps.

00:12:09:00 - 00:12:33:16
Todd Sullivan
Yeah, that's a really interesting point. But you know, first as a business owner, you know, I've had four businesses and had to do 409 evaluations to mostly for for stock options, issuing stock options at the right fair market value price. And those are reports that you would submit to the IRS to justify the stock option price that you're you're giving out to employees.

00:12:33:18 - 00:12:40:07
Todd Sullivan
So really wasn't reflective, in our opinion, of the actual value of the businesses. So that's an example of fair market value, correct?

00:12:40:08 - 00:13:02:15
Sarah Greifenberger
Right. Yes. Yeah. And, you know, and that's something where correct me if I'm wrong, you were out in California, right? You see a lot more of those out west to Silicon Valley and so on. And, you know, and you're going to be using generally, you know, forecasted earnings and, you know, not so much on the history because a lot of these companies don't have any profitability.

00:13:02:17 - 00:13:06:03
Sarah Greifenberger
So, you know, it's just it's a different animal that is.

00:13:06:05 - 00:13:34:13
Todd Sullivan
Yeah. And you also you brought up something really interesting in that, you know, in our space valuation really is a bit of a reflection of the of the times in the market and the the transaction that happened two weeks ago. Right. So having investment bankers, we have over 300 of them on our platform and we get really firsthand insight into what companies are not only trading for, but what's important, what is driving valuation.

00:13:34:15 - 00:13:57:15
Todd Sullivan
And we've actually tried to reflect a lot of that real time knowledge on our site through a valuation calculator, which I know you have had some influence on helping us and of create that. I'm really excited for that particular product. I think it's going to give founders directionally what their business could sell for. It really is chasing that that strategic value in real time.

00:13:57:17 - 00:14:04:20
Todd Sullivan
Okay. Sarah, can you take us through what the steps are in running evaluation process for a business owner?

00:14:04:22 - 00:14:30:15
Sarah Greifenberger
Yeah. So once I get a assigned engagement letter, my first order business is to collect a mountain of documents and or, you know, a hard drive of documents. And then I do what I call the deep dive. Deep dive is where I go. And I like to be present at the business's location and I spend anywhere, I think the shortest deep dive I did was about two and a half hours.

00:14:30:15 - 00:14:51:02
Sarah Greifenberger
The longest was 9 hours without lunch. And that's where I learned all about the business. I really sort of get my head wrapped around what makes them unique, what makes them special. And then I come back and I do something sort of may sound unusual. I write it up. So it goes into about like 8 to 10 pages of a write up about this company.

00:14:51:02 - 00:15:18:07
Sarah Greifenberger
And that seems kind of odd. Like a business owner isn't paying me to tell them about their company, but I feel it's really important for them to have an understanding of my knowledge of the company and to feel comfortable that I know what makes them tick. And it's just it's a really great way to sort of set the stage so that they feel comfortable that I am not out of my element and trying to use models to come up with a value in their company that are based.

00:15:18:07 - 00:16:04:23
Sarah Greifenberger
The models have to be rooted on what I learn. And so anyway, that's the next step. Then I do the financial analysis, I compare the company against peers in their industry on liquidity metrics, operating metrics, just to get a sense of how good are they or not. And then I get economic information, industry information, and then I do something called normalizing, which is where basically, to put it delicately, we get the crap out of the balance sheet and the and the panel and we we look to see if there are things that are non-operating operating in nature, highly discretionary expenses that could be like an owner paying themselves way too much or way too little.

00:16:05:00 - 00:16:28:14
Sarah Greifenberger
So I generally run a compensation report if something looks kind of weird. So what I do is I then create adjusted financials. Why do I do that? I do that because we want to understand what kind of cash this business is giving off. And so, you know, you can't really get at that if there's a bunch of junk in the pencil.

00:16:28:16 - 00:16:55:15
Sarah Greifenberger
So that's the point of that. And then then it's time to do the valuing. And we evaluators usually have to approach it from a number of different ways or at least consider it from usually three different approaches. And those are called the asset approach, the income approach and the market approach. The asset approach is essentially like a book value with 50 million derivatives of it, but that's basically what it is.

00:16:55:17 - 00:17:17:04
Sarah Greifenberger
The income approach is where you use financial models to come up with the present value of the future. Cash flows of the business is going to give off. And then the third way is what I think most listeners are probably familiar with, and that's the market approach, and that's where you use multiples that pertain to businesses that are similar in nature, size, industry.

00:17:17:06 - 00:17:43:18
Sarah Greifenberger
And you see, well, what do they sell for? And then you compare it to either revenue or earnings before interest and taxes and depreciation and amortization and, you know, whatever, there's a million different multiples and you have to pick the ones that are sort of most meaningful to that company. So, for example, if you're a Silicon Valley company that's never made a dime of profit, it's probably not very meaningful to have an EBITDA multiple.

00:17:43:20 - 00:18:08:20
Sarah Greifenberger
And likewise, if you're a business that's been generating solid cash flow for 50 years, it's really probably not a business you want to use a revenue multiple for, it's probably better to use and Ibid. multiple. So you know, but you get the idea so you do it that way and then you kind of, you kind of look at the company and decide which approach is the most proper for that particular company.

00:18:08:22 - 00:18:32:10
Todd Sullivan
Can I ask I want to just go back to the PNL and the adjustments that you're talking about. Right. So can you give some examples beyond the salary example? Because I think most owners are I know, hey, if I'm paying myself $2 million a year, you can take some of that salary or the majority of that and push that back into what is essentially profit or cash flow to the business.

00:18:32:12 - 00:18:47:06
Todd Sullivan
And you're going to get a multiple of that when you go to sell the business. But there are certainly other things, right? Family expenses, one time expenses. Can you talk a little bit about that so people have a good idea of what they could look at as an adjustment to their current EBITDA?

00:18:47:08 - 00:19:07:09
Sarah Greifenberger
Yeah. So, I mean, well, the first indication is when you pull up in the parking lot and there's three Range Rovers and a Porsche. Yeah, it's like, okay, yeah, yeah. I don't think you're you're using those actively in the business now are you. Yeah. And, and then it goes from there. I've seen everything from taking the entire family on a vacation cruise.

00:19:07:13 - 00:19:33:18
Sarah Greifenberger
Cars and meals are the big ones and travel cars, meals and travel and, you know, I mean it gets to the point where it's like, I'm not going to sit there and, you know, nickel and dime every meal and every you know, it's not like that. I just I, I work with the owner to sort of guesstimate how much of this is is legit business expense and how much is you and your wife going to dinner on Friday night and running it through, you know, through the company?

00:19:33:18 - 00:19:40:09
Sarah Greifenberger
PNL. So and again, it's a big one to everybody's children, runs their gas cards through the business.

00:19:40:11 - 00:20:06:23
Todd Sullivan
That's what I like to point out to business owners, is that, yeah, you might have a niece on a payroll that really doesn't necessarily work there and you're helping family out. And I feel like, you know, a lot of that, that's okay. The buyers, when they go to buy businesses, they understand these situations. So it's really important when you're going to sell your business, when you're talking to your investment banker, to share all of this stuff, you really open.

00:20:06:23 - 00:20:27:23
Todd Sullivan
I know a lot of people are hesitant to it because they think, Oh, am I doing something that the IRS wouldn't like Every buyer understands that business owners treat me. The majority of them are treating their businesses like family piggy banks, and that's okay. We can make those adjustments. But that's exactly what I was looking for. Sarah I wanted to have that right in addressed topic here.

00:20:28:01 - 00:20:40:02
Sarah Greifenberger
I mean, my advice to people is always just if you've got a couple of years clean it up, clean it up so that you don't have to rely on other people to try to do gymnastics around the optics.

00:20:40:04 - 00:20:49:09
Todd Sullivan
Yep. Can I ask the asset approach of valuing a business? Can you give me an example of where you might use that?

00:20:49:11 - 00:21:17:14
Sarah Greifenberger
So the asset approach is almost never used. It is the absolute floor pretty much, and it would be used for like a holding company, particularly like a real estate holding company where the value is really in tangible assets. Another example is a business that isn't doing well, and I only ever used it once here in Michigan, valuing a company and it wasn't doing very well and it was kind of a pain.

00:21:17:14 - 00:21:39:17
Sarah Greifenberger
I mean, we had to literally go through all of the tangible assets of the business and get the values of them. So for the valuation analyst, it's just sort of a measurement metric really. I think, you know, to just say this is the lowest value that could be for this business. But it's amazing, you know. Todd People, people trade their businesses based.

00:21:39:19 - 00:21:52:21
Sarah Greifenberger
And I'm like, are you kidding me? Really? You know, they do. And they you know, that just they don't know any better. And they they you know, and they'll have fixed assets that are hugely depreciated and then they're still trading on a book value.

00:21:52:23 - 00:22:07:20
Todd Sullivan
Yeah. All right. So can you maybe tell us about that, the end product, when you're done giving your report, what does that look like and what would business owners really need to expect when hiring you for a valuation?

00:22:07:22 - 00:22:36:15
Sarah Greifenberger
So every valuation analyst sort of has their report. That's the end result of it is a report. And I see a lot of them because I review cases for the National Association of Certified Evaluators. So I see a lot of styles and everybody's got their own unique one, but I do what's called a detailed report. It is there are generally no pictures and it is long and if you had trouble sleeping at night, it would be a good thing to put it next to your bed stand.

00:22:36:15 - 00:23:03:18
Sarah Greifenberger
So you might say, Well, why do you spend all your time doing that? Well, for a very simple reason, because valuations are the type of thing that people can poke at after the fact. Oh, that's too high, that's too low, whatever, you know. And so I go through painstaking details to lay out my methodology. And it really helps me to have six months later somebody asks a question, you know, I can go through and I can very easily see exactly what was followed in doing something.

00:23:03:20 - 00:23:19:10
Sarah Greifenberger
And so that way, if there's any questions, you know, it's completely defended in the document and, you know, I don't ever want to be on a witness stand, but I like to defend things as if I had to be on a witness stand. Why did I come up with this cost of capital number? How did I do it?

00:23:19:12 - 00:23:29:07
Sarah Greifenberger
What were the steps I took to do it? So I want full transparency. So it tends to be long. It's like 60 to 90 pages, depending on the company and the complexity.

00:23:29:09 - 00:23:53:15
Todd Sullivan
Yeah, that's helpful. And I think our listeners really need to understand you very much are focused on fair market value, right? The litigation, gift tax reporting, family transfers, right. Things that, you know, could be end up in court, not that that M&A can end up in court as well. But for us, you know, a valuation could be, you know, seven, eight pages.

00:23:53:15 - 00:24:13:23
Todd Sullivan
And what we're doing is talking to the best investment bankers in the space and giving them, you know, everything about the company that we know. And then they're using their knowledge of the market and current transactions and the buyers that they know. And really looking at very specific elements of a business that might get overvalued by a particular buyer and then coming up with a range.

00:24:13:23 - 00:24:27:12
Todd Sullivan
And when we do that with multiple bankers, we tend to get, you know, some agreement of where that valuation range would be. And to us that is very much a strategic value that we're looking for. So really it really is two different.

00:24:27:12 - 00:25:01:21
Sarah Greifenberger
Worlds and it's, you know, so I'm a certified exit planning advisor and when I went through their coursework, I remember this investment banker was running a class and he said, Don't ever go to a valuation analyst, you don't need that. And I was highly insulted by this. And, and but the more I came to understand what he meant by it, I get what he was saying, which is, yeah, you don't need what I do if you know you're going to market and you know there's a lot of particularly if you're in a hot space where there is there are a lot of potential buyers.

00:25:01:23 - 00:25:19:09
Sarah Greifenberger
You know, I don't always value a lot of companies like that, though. Sometimes I value a lot of companies that are really, really specialized and you kind of sit there and scratch your head and you go, Oh my gosh, is there a market for buyers for this? And, you know, and in that case, fair market value may be more appropriate.

00:25:19:11 - 00:25:33:12
Todd Sullivan
Yeah, you never agree. So how often do you think a business owner should be getting a valuation? I know they're coming to you for certain instances, but is this something that should be a regular course of business?

00:25:33:14 - 00:25:57:05
Sarah Greifenberger
Well, I think that the main thing is that you capture changes in the business. So COVID, obviously there was a lot of change with that. So for better or for worse, some companies really thrive during COVID and others got lambing. So, you know, I just valued I had an exit planning client that I was working with, and their latest valuation was 2018 and there's five owners.

00:25:57:05 - 00:26:25:14
Sarah Greifenberger
And this this valuation was to set the price for sale of shares between the owners. Well, that's pretty old. So, you know, just it's got to be reflective of the current conditions of the company. Now, that being said, I have some clients who just almost every year they call me and they want to repeat valuation because, you know, some things have changed in the business and they just want to you know, they know the metrics, they know how it's been done before, and they just want to see how it's changed.

00:26:25:16 - 00:26:31:07
Sarah Greifenberger
So but it's not an inexpensive process. So you don't you know, you don't want to overkill it.

00:26:31:09 - 00:26:46:15
Todd Sullivan
Know I know you you and I have had some fun conversations about this next question, but can you talk about some of the common misnomers about valuation and how what business owners really need to understand about the value of their company before they even start talking to you?

00:26:46:17 - 00:27:13:10
Sarah Greifenberger
Oh, yeah. I mean, there's a lot of them, let's say. Well, first of all, everybody uses the word fair market value with not really a lot of knowledge about what that is. And I think we just went through that and beat the dead horse on that one. Another one that drives me crazy is when people use multiples that have absolutely no relevance to their company, their industry, anything about them.

00:27:13:12 - 00:27:39:18
Sarah Greifenberger
I had one client who sent me some investment banks research report with all the multiples for all of like the S&P 500 companies in their industry and this was a company with $5 million of revenue. And I'm like, I think I said, not for you. Yeah, it's just it's just irrelevant because, you know, small companies don't enjoy that kind of marketability.

00:27:39:20 - 00:28:02:05
Sarah Greifenberger
There's a premium for being able to have shareholders go in just turn their shares into cash tomorrow if they want. And so and, you know, small companies don't get that benefit. Another one that drives me crazy is when I have, you know, more than one owner and I'm being asked to value the company because one of them is buying the other out.

00:28:02:10 - 00:28:27:23
Sarah Greifenberger
And usually one person takes on the job of finding the evaluator and engaging and signing the person up and bringing them in. But then the other person inevitably thinks I'm their evaluator and they're going to have to go and hire their own now. And I'm here to tell you everybody, that's not how it works. If you're hiring a credentialed evaluator, we have to swear a million ways to Sunday that we are objective.

00:28:27:23 - 00:28:45:11
Sarah Greifenberger
So I very well could come up with a number that the person who engaged me wants to throw up on and the other person loves. It's just the nature of the beast. So we don't go into it with any preconceived idea. We don't have any skin in the game. I would never take an engagement where I did have skin in the game.

00:28:45:12 - 00:29:14:05
Sarah Greifenberger
So, you know, it's it makes it kind of easy to be objective. I guess one other thing is that a lot of people think that valuations are sort of this exact science and they are certainly not. I think I mentioned that I review all these cases and it's kind of interesting because it's a set case that's given to people who want to become credentialed and it's everybody gets the same facts all the same financial information.

00:29:14:05 - 00:29:35:19
Sarah Greifenberger
And you would just you just could not believe how many different variations come out. But there is generally a range of the final numbers. And so if I pick somebody, report up and it kind of looks outside of that range, I'm like, oh, they probably did something wrong. And that range tends to be about, like I'll say, plus or minus off of the center point.

00:29:35:19 - 00:30:03:19
Sarah Greifenberger
So some of them are 10% higher, some of them 10% lower. But it's not an exact science. There's subjectivity in several areas in an analysis, and that's why I put so much effort into the detail and writing it all out, because there is that subjectivity. So I feel compelled to defend it, you know, like if I, if I say you're a little extra risk because you only have three customers, you know, I'm going to write that all out and explain it and why that's a risk.

00:30:04:00 - 00:30:25:05
Todd Sullivan
Yeah, You know, there's a good I think one of my favorites really is when a business owner comes to us and says, Well, my buddy sold his business for 22 times EBITA and then you say, Well, what kind of business does he have? And it well, it was a health care I.T. business and you say, but yours is a staffing company.

00:30:25:09 - 00:30:51:05
Todd Sullivan
The multiples on EBITDA are drastically different from industry to industry. And so when we tell him he's going to be somewhere between six and eight times, you know, he's all you guys, it must be terrible because my buddy says it's 22 times that. That is a tough thing. I think a lot of business owners, they do get anchored in kind of the rosy picture that somebody else painted for them.

00:30:51:07 - 00:31:13:00
Todd Sullivan
And I would just really encourage people to to try to understand this, like the professionals like Sarah really are running a process and they are credentialed in doing this. And so when you're hearing these numbers, this is it is a range rate. It is a bit of an art and science, but they're far more accurate than what you're going to learn playing golf with a buddy who has sold his company.

00:31:13:01 - 00:31:16:00
Sarah Greifenberger
Yeah, absolutely.

00:31:16:01 - 00:31:29:10
Todd Sullivan
So, Sarah, you know, this kind of leads into my next question. Any like, unusual stories or fun businesses that you've been able to give valuation to that that our listeners would like to hear?

00:31:29:12 - 00:31:46:15
Sarah Greifenberger
Well, so part of the thing that isn't fun is I can't name names, but I've done a few famous ones and those are always fun because, you know, you get to see what goes on behind the curtain. I'm just interested in anything unusual. I'm a lifelong learner, so I love to get in and sort of see what makes a business tick.

00:31:46:15 - 00:32:16:23
Sarah Greifenberger
So I have done everything from food manufacturing to toxic waste sites. And I just I love the variety of the businesses that I go and I see. And it's I'm really kind of corny about this, but it's so uplifting to go and meet with business owners who have started these businesses, often from nothing or maybe from a smaller operation than a family member was running and turned them into like great enterprises that support their families and their employees families.

00:32:16:23 - 00:32:34:15
Sarah Greifenberger
And I'm like, you know, we live in a great country that that people can go and do this kind of thing because you can't do that everywhere. And so I just I love the people that I work with. Absolutely love it. I don't think there's a person that I've worked with yet that I haven't just enjoyed meeting and learning about their business.

00:32:34:17 - 00:32:54:18
Todd Sullivan
I think we're really similar in that it gets me so fired up to see all the different ways people support themselves and their families, the different types of businesses, business models, different industries. It's really phenomenal. And I just I have so much admiration for the people that have built these successful companies because there are so many others. Right.

00:32:54:18 - 00:33:23:19
Todd Sullivan
That didn't work out. And in the adversity that these business owners have had to endure in order to get where they are. So for us, yeah, a real pleasure to be able to hear these stories and then help them out at the end of that entrepreneurial journey. Sarah I think this has been really, really helpful. Is there anything else about valuations specifically that where you know, you want to share any advice or something that maybe we glossed over too much that needs more detail?

00:33:23:21 - 00:33:48:18
Sarah Greifenberger
I think for the business owners out there, you know, I think you intuitively know the things that could be keeping your value back and you know that they're not rocket science. You know, do you have a diverse range of customers? Do you have a diverse range of of products? Do you have able bodied lieutenants to step in in the event something happens to the ownership?

00:33:48:20 - 00:34:15:19
Sarah Greifenberger
All these types of things and I will share they they do work their way into the numbers. You know, they it's something called company specific risk. And if you have those types of risks, it will you know, we put the we factor those into the numbers. So to the extent that you can get yourself ready before you talk to Todd about selling your business, you're going to be in a better situation.

00:34:15:21 - 00:34:50:13
Todd Sullivan
Yeah. Sarah, I think it brings up a key point in that, you know, the valuation, the number, right, is, is really important. But what's as important is what is affecting that number, what is happening in your business beyond financial metrics, right? Because whether that's reliance on too few suppliers or customer concentration or you a growth rate, but it's not really what the industry is used to seeing, all of those things really matter and and maybe we don't have as as business owners true visibility into what is affecting our valuation.

00:34:50:17 - 00:35:09:18
Todd Sullivan
And that's why I'm very excited about our valuation calculator, because it gives that insight. It tells you what is affecting your value. And and then when you understand it, you're essentially getting a strategy or a playbook of what are the things that I can do beyond growing my business to make it more valuable when I go to sell it.

00:35:09:20 - 00:35:32:07
Todd Sullivan
So I would encourage people, you know, not only to fully understand the services that that you offer, but, you know, go to exit wise and check out the valuation calculator and really understand how you can change the your your personal ROI by just adjusting a few things in a business and affecting your your valuation when you go to sell the business pretty significantly.

00:35:32:09 - 00:35:54:06
Todd Sullivan
Sara I want to be respectful of your time. I really appreciate that. This I think is really informative and and such a nice coincidence that we plan to have this conversation and then bam, the referral that you make sells and you got a really nice check and you've told me how you're going to spend it. And I don't think I don't want to put that out there.

00:35:54:06 - 00:36:08:16
Todd Sullivan
You should be going to Vegas and having a party. And I don't know, you may be too conservative for my taste, so you got to go spend this year, but I will leave it there.

00:36:08:16 - 00:36:11:17
Sarah Greifenberger
But thank you. Really. My husband. Yeah.

00:36:11:18 - 00:36:15:00
Todd Sullivan
It is. Really appreciate it, Sarah.

00:36:15:00 - 00:36:20:20
Sarah Greifenberger
Thank you. Thank you, Todd. It was great. I really enjoyed being on the show.

00:36:20:22 - 00:36:43:01
Todd Sullivan
Thanks again for listening to the Cashing Out podcast. For more founder exit stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember to Exitwise.com and the Cashing Out podcast are for entertainment purposes only. This should not be relied upon as the basis for investment decisions.