Secrets of Valuations for Business Owners w/Bharat Kanodia
All right ladies and gentlemen boys and girls. We are in the virtual building once again with the authority project. And i have my new frontier barack kennel. He is here. he says to help us. Discover the secrets of valuations for you. The business owner is that right. Barack i will do my best bryan. Thank you again for having me great. Well we shall see episode the authority project. Ladies and gentlemen boys and girls. Beastie is eyes tune your ears. it's that time again. We are live with another episode of the authority project. It's the video. Podcast streamed on facebook. Youtube twitter and periscope where we talked to digital marketers business coaches and creators of all kinds on how they've built authority airfield. And how you could mimic their success developing authority building your audience and attracting clients to your own business now without further ado. Let's bring to the virtual stage your host brian s arnold virtuous data. Once again minute. Barack cananea visit the authority project. You're the project we wanna slap authority to your name so you can sell more what you're great at. And today we are talking about the secrets of valuations for you. The business owner. And i'm excited about this. Because i have no clue about this whatsoever so this this is this is gonna be exciting for me. I'm hoping it's going to be setting for you as well. So yeah i'm excited. Get to it but right how you doing today doing well. Exciting for me to great great. Then we knew this nothing better than just sharing my knowledge and helping few people along the way i love it so this start first of all before we dive in about. Let's talk about who you are personally and professionally personal. Do wanna get home so anyway. I'm barat the kanodia. I m a valuation professional I live in the san francisco. Bay area Father husband business owner and been in valuation twenty years. I have done all kinds of different kinds of assets as in machinery and equipment. Real estate commercial residential Large companies small companies public sector private sector Large tech companies like airbnb weird assets if you will liked brooklyn bridge. Okay atlanta airport. Mta system of the city of new york. I've been very fortunate. It's unfortunate if you will. They're just saying okay. So do you have. You have a current project. You're working on at the moment that you wanna share. I'm sure now. I'm working for cannibus client That is in three states and they revenue is about two hundred million so not crazy big. Pretty big for canopus And they are looking to expand and race capital so they needed my help to understand what their current businesses worth so that they can raise capital accordingly awesome. I have a sneaky question for you do you do you have any is my head earlier. You have any dreams of one time. Being on the sean on the shark tank you gave me dreams of that at all. I watch shark tank. Abbott and many times disagree with the way they come up with because frankly there's really not much science behind the valuations They offer a lot of. It is just touchy feely And got off the investor or maybe their perception of what the inventor or the founder except So yes i watch shark tank avidly favorite shows so awesome. So what does what does your daily routine. What is it that often the here. Does this stuff. So what is your daily routine. If you that i'm a routine guy and ever since the pandemic working from home i have become more of a routine person otherwise you know you get in trouble so i start by early. I start my calls from five five fifteen. Am now given. I live on the west coast. So that's almost late for you. That's like eight o'clock your time but I start my calls earlier on five. Five fifteen and i start out east stow. I have clients in asia. I start there than do europe. And than i do east coast and then i sort of keep moving out west And nowadays just the way how businesses in the world is i'm on zoom for like six to eight hours a day and then in the afternoon spend some time with my children I don't get a chance to work out in the mornings. So i work out after i played with my kids and then My don't do much. After how i do work for a little bit in the evening otherwise i just hang out with my family so great so very very routine very routine. Great stuff okay. Great we got all the other way. So let's get down to business. Let's start talking shop here so give us the secrets evaluations now. Is it really a secret. Is it really a secret bra. Let's say it this way. It's a secret in plain sight. Okay so it's right there in front of you but you wouldn't know what you're looking at until somebody told you that. Hey what about this You know it's kind of like a puzzle right one of those puzzle where you see the old lady on the young lady at the same time so you might see the old lady but then somebody has to say. Look how about this. Do you see the young lady now. so the secrets are very simple. There will really only two secrets. Evaluations buyers are looking for two and only two things when they're looking to buy a business and when i talk valuations i'm here. I'm focusing on businesses. I've done commercial real estate and other type of assets as well but for now i'm talking about businesses buyers off. Businesses are really looking for two things one is they want consistent cash flow so if business consistent cash flow not the ups and downs. No business consistent cash flow. That business is worth a lot of money. If your business has consistent kaslo and runs on autopilot as in the owner does not have to do much. The owner does not have to put in the eighty hours a week to run that business. The owner only asked put in like ten fifteen hours a week to make that business run. That business is worth a lot of money because of the owners have to put in sixteen eighty hours a week. That is really not a business. That's a job right right. So but but do you see that people who do violations or c. c. was on the books basically and they see that because i've heard people buying stuff buying things that you know the not making as much money but you know. They think that they can fix it. And do all these types of things to make it a real business. What what about that. That is very much there. But i am talking. Existing business that has clients and the real cash flow coming in if the owner if the current owner the seller. If you will can make the castle most consistent as they should be able to predict that. Okay i'm gonna make so much in january so much in february so much in march so on and so forth and the owner does not have to do much to enjoy that kaslo that businesses worth a lot of money now turnaround businesses. That's another story so safe. For example if a business is not doing so well and you're able to buy that business for say Twenty cents on the dollar. Well yeah then. There's definitely an upside off. Revamping as that business. Because you already twenty cents on the dollar so you know as mr buffet says right so you make money when you buy not when you sell so if you're already paying twenty cents on the dollar for your business you really have a big upside okay. All right so. I see that there are places where people can someone real quick. How how long should you wait before you even thinking about. Sonia business question so selling a business is very different than sending house you know nowadays. You know if you want to sell a house you'll you can sell a house within two days or within a month. Ride the house. The goal like this but if you want to try and sell your business this preparation period. There's a ramp period. You need to clean up your books. You need to clean up your operation and that can take anywhere between one to three years depending on how Lean and mean businesses There are many companies that even spend four or five years prepping themselves or their business four sale and their coaches. And i'm anne advisers who can help you with these things. I am evaluation expert. So i look at businesses all day every day and i know exactly what businesses are worth and what levers to push or pull to maximize the value of the business for owner. Okay so there you go. So that's what i wanna hear. That's what i wanna hear delivers. Okay don't let the levers what should companies be doing or is there like a constant on these leverage. We say. will you need this. This and that in order for this to have this result or or everything's received companies new. You like no. This doesn't work in because this that net is not not right. Is there things that you know from first glance that this is yes this is now yes there are two things i really look for so again going back to basics right because if you leave your fundamentals it becomes difficult to understand valuation so the fundamentals in with simple. You want the business to have consistent casual and you want the business to run on autopilot right now. No business can run. One hundred percent autopilot. But how close can you bring it to the autopilot right. Eighty percent ninety percent and there are two things. There are two levers that you can pull or push to make casual consistent and to make it business. Run on autopilot For making casual consistent. I am always looking for customer loyalty. How loyal are your customers or your client by that. I mean if you're running a restaurant how much of your businesses repeat clients repeat customers. Sixty seventy percent for restaurant. I'd be looking for the sixty to seventy percent if not more. If you're running a law firm while how much of businesses from nuclides versus old clients i am looking for recurring revenue from the same clients. That's one thing. I'd look for inconsistent casual second thing i look for is to make a business on on. Autopilot is how well are you. Leveraging technology in your business are all your processes manual are you generating reports accelerate day. Or do you hit a button and you get a bunch of reports. So i really look for two things one. I wanna see recurring revenue from existing customers or clients and i want to see strong. Technology integration in the operations of the business. now that could be marketing. that could be finance. It could be operations all that combined. I wanna see. Heavy technology integration because technology now technology integration is not that expensive you have sas software available for everything you can twenty fifty one hundred bucks a month and get everything So if somebody is still old school and they say oh no no no no no. I need a secretary. You know who. I wanna pay or an assistant do of executive assistant who i wanna pay fifty or one hundred thousand dollars a year and you know he or she does everything for me. Yeah you can get a software to do a lot of that few softwares do a lot of that so say if you need a assistant to schedule your meetings well. You don't need an assistant. You can just subscribe to candy cal cavalry and set up a meeting. You don't need to pay somebody fifty thousand dollars a year so these are the kind of things i look for that. How lean and mean is their operation. Okay how much relying on technology. Okay okay. so you'll you'll let the real shark. You like the you like the original show. You like the guy a are people question. Our people scare you when you when you when they you know right now when you walk in the room but now when you see you on video so you want zoom or are they like you know soft talking to you like a business or i feel like people come to you. And they're like nervous because they because they they have evaluation in their mind. And i i would think right. Give come to you and then you have something i would say probably will be mostly different. Let's just say people are very nice to me until the disagreed with me because if they disagree with me it's their opinion against mine. Guess who wins. Yeah yeah exactly. Exactly that got it got it. So he's a crazy question. You ready lit on me. Brother do people cheat in their evaluations of the company. And your experience good question. They try to then try to. Alan and my job is to assume that all the information that i'm receiving i need to see it from a different lens and i need to make sure that all the information that is going in my dough for baking the valuation for you know making the valuation is parallel to each other. So if somebody says that is this year. My revenue is five million. And we're going to grow at forty percent a year but next year my revenue is going to be ten million Like okay those are two different things out the understand that so. This is where you know. I can cut through the bs if you will. Because i am trained to peel the onion. So i am you know. I'm not an expert on most businesses. So save somebody calls me tomorrow. And says i want you to appraise my Furniture manufacturing business right. I don't know anything about furniture. Manufacturing what i need to make myself an expert in furniture manufacturing very very fast. And how do i do that. Because i need to understand their business so i become really good at asking questions. Kind of like an attorney attorneys. Don't all business attorney all transactions but the figure out by asking questions so as an appraiser my biggest training is to understand what questions to ask and then relate those answers to numbers and then come up with a number. Okay okay so. I'm glad i'm glad you brought numbers. Because i you know i watch shark tank and i and i see them scribbling things down and the the scribbling you know. Yeah forty percent. You're not into four percent of the company so for the for the novices around here and there are many listened to the show describing down. What is the formula that they're that they're looking at that. They're looking at to think that this could be profitable or not great question. So the formula that these investors and most investors and that could be venture capital a private equity or angel or seed. Whatever you wanna call it right. I mean they're all just different dogs of the same fleas. What they're really scribbling. Down is one. What is the current revenue of the company as in. Does it have any traction. he's there any attraction. Is anybody buying this yet. They wanna see some traction fifty thousand one hundred thousand two hundred thousand so if he sees shark tank. Let's focus on shark died because you know you've you mentioned that you and i enjoyed that show. So let's talk about from a shark tank perspective k. One thing the always ask. Do you have any traction traction as do you have any revenue or is it just a pie in the sky right now in your head if they have revenue. Great the love that that means. It's not just something you've cooked up. There are actually paying people paying customers. That's always a positive okay. Second question they want to know is how much do they need to invest to get a piece of the pie. So will they get ten percent for one hundred thousand dollar investment or will they get twenty percent and that's usually what the negotiate on. So that's the thing. Second thing they asked for the third thing they're trying to understand. Maybe that's what this scribbling down is. How much money do they need to put in after the forest investment so if they by ten percent of that company for one hundred thousand dollars well that's not going to be the end of it all right. They're going to have to put in more money to make that into something right right so say for example when you plan to seed we don't just plant the seed and walk away and expect you know a fruit tree to bloom right to go to water it right so they want to know. How much do they need to water. After the initial seed money to get a fruit tree or get a fruit out of it. Okay and then the fourth thing. They're trying to figure out by asking questions to the owner or the founder is if they sell his company two years four years five years ten years or whatever. How much can they sell that company for so safe. They invest hundred thousand for ten percent of the company. If this sell that company after five years for one hundred million. What's their return. These are the four things that they're looking for. They're looking for traction number. One was the revenue how much they need to invest and what percentage of the company. they'll get third. How much do they need to invest more. How do they do water after the first initial seed round and fourth. How much can they sell the company for in how much time these are the four things investors understand. And if somebody tells you otherwise call bullshit on it. So that's great. I love a lonely dancers. Mazing stuff man so people here who might just be into. Maybe they're mid. They're thinking about sunday. Businesses thinking about maybe in the future are there. Any resource is going to you directly beloved. It would be easy for them just to be better but other any software or tools out there that you think could have helped them before they get to you to help them evaluate did business at all. That's nervous when they get to you brian. I've been very fortunate. And i've had a very fruitful career and One of the things. I try to do is educate people on way. Shes valuations is a dark art in our darkroom in a black box. And it's designed this way so that schmucks like megan. How job now. I'm doing okay. So my whole crusade if you will is to educate people on valuations lift avail explained to them. How valuations work. And that's why. I can explain valuations the way i'm explaining to you because i break it down for layman's i mean i can be talking fancy things too. I can talk for whack and equity risk premium and discounted cash flow and discount for like you know. Did that make any sense to you. Know so my talent is to break down something very complex such valuations and explain that to real business owners and one of the ways i do that is via my youtube channel called. What's it worth on youtube Where i'm just breaking down egg everyday regular businesses like cpa practice your body shop your hvac contractor roofing contractor. Your law firm. You know business owners can go to my youtube channel and pull up their business. If they are a a winemaker they can pull up and say. Hey how do you value a winery. What is my winery worth today. And they can sort of get back of the envelope calculation themselves. They don't need me now. If they need something more solidified they can reach out to me. Or i can afford them to somebody. I mean you know. I can't do all the valuations in the world. But i'm very vast network. And i'm on the board of american society of appraisers so i can refer them to some of the best appraisers in the country. Great stuff man gray steph so two questions for your first one. Is this got you into this field. Anyway what led you to this point. What will lead you to like. Oh i liked doing this. You know being a young kid. Growing up in new delhi india. I would look up at the stars and dream about one day coming to america and becoming an appraiser No that's not how it works. to You know graduated from college. And that's the first job. I got and turned out. I enjoyed it. And i am good at it. So hey if it ain't broke. Why mess with it. So i just kept going great stuff. Awesome one last question for you and access of all of my guests. Go something like this. They see you nowadays listening to you And they've like what you're saying. They have maybe they may have similar interests in the goals as you and they want to do what you're doing. They wanna be like barack right in did looking for maybe one or two words and i'll put you center one or two words that you can give them advice on how they can become an authority in this space. Become an authority. Yeah that's it don't think about becoming one become one act like you are the authority. And that's not what i meant by just act like you know as an bullshit your way through no truly. Do your research truly become really really good at what you do but becoming really really good at what you do doesn't mean making things complicated and talking and we are terms so that people don't understand as einstein said if you don't if you cannot explain it well enough you don't understand it well enough so if you can explain what you do in plain sink simple language you know what you're doing and then you become an authority if you see all the authorities in the world. They don't talk and big fancy languages or terms. They talk in very very simple words but they words carry weight. Great stuff great stuff to go a good thing. That is just perfect. I have no other words. That goes because this is your field. I this is this is great so please tell people where they can find you again. After the show is they can learn from you again. Absolutely the best way to reach me is go to youtube and put my name barack or a. What's it worth and might channel will come up and Hopefully you learn from the channel. And if you have more questions or if you would Like to partner up on something Send us an email and of it. That's great stuff. Everybody i hope he got the blueprint right. There i was i was. I'm so excited to have you on the show. I know be able to get you on a little earlier than usual in got you on so very almost almost the end of the year people almost twenty twenty thank goodness and i'm so glad to have you on the show and excited that you're able to get this this particular topic out to the people here so please please. If you have any other words of inspiration or motivation for get outta here. We can do that. Get out of here. I guess we're good brian. Thank you for having me so much. And i hope your audience Get something out of this evaluation of simple But they're important. Think of them as a scorecard you all day every day on your business. But how do you know if you've actually added value. That's why you need evaluation and i always ask people to get done every year. This way you know if you increase your businesses value or you decreased it and not necessarily just by putting in eighty hours a week and increasing top line revenue your increasing your business value. Think about that great stuff. Great stuff man. Beautiful just wonderful so before we get out of here everybody. Just go to you. Go to the authority letter dot com. Get on that list. We help you build your platform much. Like barack is done for himself and get you going with the tools resources. I guess some videos on there to help you along as well so happy holidays. Take here you still have two more days if finish the year. Strong for twenty twenty one arrives in. We restarted right. So do that and become the authority in your space. All right take care. Building share it. They will come up. And that's rapper. This episode of the authority projects. Thanks so much for tuning in and if you like what you heard we want to hear from you. Subscribe rate and give an honest review share until your friends so they can hear to an per. Even more authority building. Tactics be shared a sign up at the authority letter dot com get free weekly content and ongoing digital product giveaways to help you on your entrepreneurial journey we certainly hope you got a key takeaway or maybe an aha moment from today broadcast. Just remember your authority. Build it charite and they will come until next time.