Mike Carter - Making Business Valuation Accessible & Affordable (K0617)

Welcome to the Exit Coach radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their best tips, strategies, and precautions so you Can be well planned and don't miss our one minute exit coach tip of the day on exitcoachradio.com. And now here's your host, the exit coach Bill Black. Thanks so much for joining us and welcome to the show. It's, you know, what a fascinating group of guests we have today. Uh, and before we get to our next guest, I just want to remind you that at Exaoachradio.com we have archived over 750 interviews from um advisers, authors, and thought leaders. We have 40 different topic file folders, everything from running a A family business to uh valuing your business, increasing the value of your business, life after exit, a wide variety of topics. So please join us and listen in and listen to the brilliance of our um our guests who are just amazing. My next guest is Mike Carter and he's joining us from Biz Equity LLC. This is a fantastic company. Biz Equity is democratizing business valuation knowledge, and Biz Eity's valuation as a service or VAAS system was created to to democratize business value valuation knowledge for all business owners and the Advisors who serve them and their vision is to value every private business in the world and to make business valuation affordable, accessible, and real time, thus ushering in the next great cloud-based software and big data company for small business. No small feat. Mike, welcome to the show. Thanks for joining us. Hey Bill, how are you? Thanks for having me. Doing great, Mike. I, I love what Biz Equity is doing. It's a, it's one of the last black boxes out there for business owners, and they really need to know about business valuation. So tell us how you got the concept and got started as founder and CEO of Biz Equity. Yeah, no, thank you, Bill, and pleasure to be with you and, and we really value what what you're doing because we think what you're doing is similar. You're democratizing this knowledge for how exit planners can help, you know, the 10 million small businesses that are looking to change hands in the next 10 years, but. Um, to your question, so I, in between selling, creating and selling my last software company called Dashboard Systems. My mentor in the business in the private equity and venture capital business is kind of a legend here on the East Coast, a gentleman by the name of Pete Musser. Pete was the founding investor of Comcast, which now owns NBC, as we know, QVC and Novell, and I'd worked at a series of muster companies and then created companies. Um, in funds associated with Pete, and there was, uh, I had this idea in my head around business valuation knowledge and why a lot of the companies we would meet at the end of kind of them briefing us and looking for financing. Pete would, you know, we'd have a round table almost kind of Charlie Rose style if anybody's ever seen Charlie Rose on PBS and Pete would say, so what do you think your business is worth? And, and everyone would kind of stutter regardless of what industry they were in, how, you know, um, how smart they were, how old they were, everyone kind of started that question. There was one company in particular we looked at in upstate New York, in Amherst, New York, near Buffalo, that was a lithium ion battery maker, pretty good sized business, um, top line approaching 5 million profitable. Um, uh, you know, like 20-25% to the bottom line. I remember asking the founders what they thought their business was worth, and they said, oh, I don't know, you know, uh, 2 times, uh, maybe 3 times, and, you know, I was thinking revenue, and they said no, no, no, earnings. So I remember boarding the little US Airways commercial flight, you know, the propeller planes that we've all been on, um. And thinking to myself, how is it possible that these two successful businessmen in their late 50s didn't know that the business was worth, you know, much more than they thought. And I thought to myself, well, if they were in Boston and not Buffalo or, you know, Los Angeles and not Buffalo, um, maybe they would have access to that knowledge because of the advisers that they would have around them. And then, you know, if you think about it, and this is going back 56 years. You know, there's, there's Zillow for real estate. There's TrueCar and other services for for other asset classes like cars, but just making it very simple. How come there's not an easy way online that's affordable for any business owner around the world, let alone just in the United States, to know what they were worth? And that began the journey, and that was the seed of the idea was 6 years ago, and we launched in earnest a little more than 4 years ago. That's amazing. That's a, that's a great story, and the why of that really rings out, I think, for people that might be listening because let me tell you something. I mean, I, I belong to these exit planning groups and you know, the first thing they say is you have to know where you're starting with your valuation if you want to know where you end up, but business owners are reluctant to go out, especially if they don't have a. You know, if they're not going to sell right away for planning purposes, they don't want to go out and spend, you know, 5 figures for a for a number for a valuation number, and with biz equity they don't really have to do that. They, they can get that information through their advisers very quickly and easily, and that's what I love about it. Um, why is biz equity so important to advisors? So I've I've kind of mentioned that as an adviser, it's, I think it's, it's as a tool, it's fantastic. But why, why is, what's your take on it? Yeah, so, so especially for exit planners, CNBC did a great study a few months ago, and you know this stuff cold, which is the fact that 10 million business owners are looking to sell their business in the next 10 years, yet 78% of those business owners think they're going to fund their retirement, 80% to 100% from the sale of those businesses, yet less than 20%. Have a clue and they use nicer words than that, but have a clue of to what their business is worth. So right there, right, there's that's a huge opportunity for everyone in the exit planners out there to help the small business owners understand their net worth and to understand or their true net worth and understand their business value. And to be quite honest, right, there's not enough exit planners out there to fulfill the demand. Of helping those, if you think about it, 8 million of the 10 million businesses figure, figure, figure that out. So our notion from the beginning was not just to build, and I like your expression, build the black box is not just to build, you know, the essential black box that we have 60 patents and inventions filed for 7 patents granite, and, you know, hopefully soon, right, as we're becoming more and more the industry standard for evaluation. And it's not to distribute it direct to business owners, you know, we're not GoDaddy. We don't do Super Bowl commercials and we don't have attractive models doing our Super Bowl commercials. We're a software company, so our goal is to get this in the hands of business owners, but through the channel and through distribution partners. And you know, if you think about it, not, no distribution partners more direct or overt to the need than the exit planner. So what what's so unique is with the new adviser office product that we launched in May and we're up to now over 450 different advisers and 60 firms using it, any exit planner out there can white label slash private label our product with their branding. Have their own console, have their own link to send to clients, so it looks like theirs powered by us, all the disclaimer language being us, and in real time be able to generate a valuation report in less than 5 minutes literally and in real time show that value for a fraction of the cost and we're bringing down the cost for the exit planner if you think about it on a per report basis to like $90 and those reports, as you know, for business valuation. You know, costs thousands of dollars. So we're putting the power in the hands of exit planners, wealth advisers, community bankers, accountancies that are using the product almost as their operating system to do business valuation. So I think to answer your question, it's so important. A, it's obvious because of the need, right? There's so much need for this knowledge and people haven't been able to afford it, and I'll get back to that in a minute. And 2 is it's our distribution strategy. 95% of our revenue and 100% of our focus is the indirect channel, which is working with exit planners, wealth advisors, banks, insurance agents, and the like. Now I know several people that are valuation specialists, and they certainly stay busy with the work that they do, but I think that there's a lot of hesitancy in the smaller business owner who won't go and engage those folks because they don't see, you know, they say, what, $10,000 there's a lot I can do here with $10,000. I would rather get a a close number or something that that I can use as a planning tool. So for people that are out there that are valuation specialists already, are they, are they, is it, is it infringing on their territory a little bit? Is it, is it, uh, it's not gonna replace them, is it? or or or what do you see happening there? Yeah, no, great question. Yeah, and I love this question. No, not at all. It's not going to replace them, but there's a really interesting research study called IbisWorld, um, which is a research firm, and they did a study on the business valuation market. And this is, you know, really sums it up. The business valuation market is estimated to reach this year $7.8 billion. 7.8 billion just in the US and you said the numbers were correct, Bill, which is, you know, on average close to $10,000 is the cost of a valuation report. It takes 4 to 6 weeks and one of the apprehensions, in my opinion, right, is the fact that it's a highly intrusive process. That being said, it's close to an $8 billion with a big B dollar market. But guess what? Less than 2% of companies, small businesses, predominantly value themselves. And why? So, so think about this. Tell me a name of a market opportunity, and this is not why we built it and it just kind of every year I kind of and every day I kind of get more excited about what we've built in the market we're in. Tell me a market that's $8 billion that has 98% opportunity to penetrate further. So meaning, so they are, I believe there's 8000 certified business valuation professionals out there. And what their biggest fixed expense, because a lot of them don't have uh offices, right? The biggest fixed expense is the data that they access and on average they pay $5000 for a database. So of those 8000 certified practitioners that service the 2% on average they have 1.7 databases. So an example of that is a database for retailers or a database for companies between $5.20 million dollars or a database of high growth multiples for companies that have sold for certain transactions. That's what I mean by databases. Our view of it and we think why the valuation specialists that are out there are beginning to embrace us more and more, and especially the accountancies that do valuation is this whole term of big data. We've created a black box. And, and with a kind of big data science behind it, with hundreds now approaching thousands of data sources and databases. So, you know, there's no way that They should try to compete with that because you know they have, you know, the ability to buy 2 or 3 or 4 different data sets. To, you know, to make sure that the comps are accurate, they don't have the ability to buy hundreds, let alone thousands of data sets. So our view of it is we're not encroaching so much on their business because we're not in the business of doing a certified valuation report to say that the data entered is accurate. We're in the business of our software is accurate and good data in good data out, bad data in bad data out so. It's an interesting model now that accountants have embraced and some valuation specialists where they can use our system almost as an operating system if that makes sense, so they can plug in the customer they met with, plug in all the requirements. They get more accurate data, and it's actually less licensing us is less than one database they would acquire, and they get access to hundreds of databases, but So they put in the requirements and and the 7 step process on Biz Equity in their own private labeled adviser office edition of Biz Equity with their logo at the end they get a result. Then what they would do is do a cover letter. And maybe instead of charging $10,000 they can charge less to serve that client better. And when I mean less maybe it's $2500 or something. But guess what? They can do hundreds more now, not just, you know, the one or two they could get to a month. So I think that's the big difference. So by democratizing it, we're going after the 98% of the unserved market. And we think we can partner with these 8000 certified valuation specialists by being their behind the scenes operating system. That's a fantastic concept. And again, as a planner in the exit world here, I know that a lot of exits that need to be planned stall out at the beginning process because the owner doesn't want to go out and pay for an expensive evaluation. So it's not like a lot of these valuation experts were going to get that business anyways. They're stalled out because they're Saying look, you know, I'm not going to pay that for a number up front. Yeah, maybe when I'm going to sell my business or if I'm going to an ESOP or some other type of a tax, you know, qualified arrangement, then I might want to do, so you're not trying to serve all markets with this, but it's a fantastic service. And the other thing I want to mention is for if you're an adviser that's listening or business. Owner, the report that you get with the evaluation is fantastic. I mean, it's, it tells you how and why businesses are valued in certain ways and what you can do to increase. It compares your metrics against others in your industry. It's a fantastic value for just the report itself. So it's great work there. Can you tell us a little bit more about that? Yeah, in terms of the actual report. Yeah, and you know, you know, a lot of people are used to getting these valuation reports and it talks about the industry and a little bit of background, but yours is more like a course for small business owners about how to increase the value of their business and really breaks down the metrics. Yeah, no, definitely, thank you for that question. Yeah, so it's a 29 page business valuation and performance report and, and I always say I don't do a good enough job explaining the performance side of the evaluation report and. So I appreciate the question. And our thought on it is not only are we helping the 98% know their value, but oh by the way, you know, these small businesses that couldn't afford the $10,000 and take the 4 to 6 weeks and the highly intrusive nature of somebody coming in and probing them literally, now they can get their evaluation quickly in a quick report. But to your point, we also create almost this executive summary of their business. Um, that contain a lot of the things that management consulting firms would do for larger businesses. So we've been called McKenzie for Main Street. Um, the idea being the ability to compare a business to their peers. So in the debt to equity ratio, you know, what does that mean? Why should it matter? Give me an example. And then we say whether they're underperforming, outperforming on an average with their peer group. And where we're moving with this is really exciting, where, you know, the next edition of our product in a few months is going to actually have a stack rank to say, you know, you're the 3rd most underfunded Chinese food restaurant um in um Kalamazoo, Michigan, or you're the 2nd most profitable, you know, um, chain of flower stores in, you know, Lake Forest, Illinois, or whatever the case may be. So we really view, you know, performance data, you know, we kind of take it as valuation number and valuation is kind of the tip of the spear, but the wood kind of behind the arrow is all this performance data and and we view this as, you know, bringing McKinsey-like knowledge to Main Street businesses that couldn't afford this before and Your point that you made earlier, one of our clients in the wealth management space who's also an adviser that helps a lot of um companies looking to sell. That's where they get a lot of the assets to manage. They basically said this to us, um, they said if you think about it, what you guys are doing is like, you know, I always say to people, you know, you would never plan you, you would never plan for retirement. The day you retire and similarly, you know, everybody will sell their business one day or everybody will try to sell their business one day or exit their business to use a better example. Everybody will exit their business. It's just for how much and how are they going to exit their business? Are they going to pass it on? Are they going to have to shut it down? Are they going to be able to sell the business? And You know, planning for your exit and knowing your value the day you try to sell that business is like planning for retirement the day you think you're going to retire. So I always, you know, think about it this way. There's all these categories of software for everything imaginable, right? storing a prospect in the cloud, um. You know, doing customer service, doing different productivity, but there before us there wasn't a category of software really to help business owners answer the most important question that should really drive every day of the life of the business. Am I increasing the value of this business? Am I decreasing the value of the business, or is it just flat? And our vision for the future is, you know, that's hopefully going to be us, and we're kind of opening up this whole world for business owners. You know, in the sports analogy would be, let's say you're a business owner and you've been doing it for 2025 years and you're at your last 5 years, you're, you're basically at the end of the third quarter of your, of your business life. You need to know what the score is because if You're running behind and, and the advice that comes with the Biz Equity report shows you how to catch up if you're running behind, how to make that final sprint so you exit with style. It's fantastic information. Uh, let me ask you one last question, Mike. Where do you see biz equity in 10 years? Yeah, so, um, we see, uh, we see our kind of continued geographic penetration right now we're the global leader in terms of number of businesses valued and we've pre-valued over now 29.429.3 million and changed businesses. In the United States, in the United Kingdom, and in Singapore, we'll be moving into some major markets including India, Australia, and other parts of Europe and Brazil in the next 12 to 18 months. So our vision remains the same. We want to be able to value every business in the world and help business owners through their advisers like exit planners. Um, discover their value, monitor and manage that value, and over time optimize that value, and we want to be the industry standard way to do it. So, you know, just like people say now I guess it's, you know, I'm going to Uber a car. We want people to say, you know, what's your biz equity value, um, and you know we think we're well on our way to do that and you know our whole mission at the company. It is to democratize that knowledge, not make it the most expensive knowledge, but bring it down to the people and enable everybody to have the same advantages as kind of the 1% of businesses do that can hire a Goldman Sachs. We want to help the 99% of businesses, which are the small businesses out there that are creating. The jobs and that are the heartbeat of the economy understand what they're worth and we want to be that democratization force and you know we admire what you're doing, Bill, in spreading that knowledge to exit planners with all the different folks that you interview and we're, you know, we're we're honored to be, you know, the valuation and performance folks that you brought on and we look forward to continuing conversations with you and all your listeners. Well, Mike, it's my pleasure, and as, as you know, listeners can find information about Biz Equity at my website exitcoachradio.com. We're very proud of our affiliation and our relationship with Biz Equity and the work that we're doing together, but tell us, our listeners how they best get in touch with you if they want to find out more about a relationship with Biz Equity. Yeah, no, thank you, um, yeah, or, or the adviser office product from Biz Equity to get your own white label of the solution. Um, my email address, best way to probably get me his email, it's Mike M I K E at biz equity.com. And also we have an exit planning uh head of business development for us um and he's available and his name is Brent Hefflin and his name, his email address is uh uh rent at bizequity.com, um B R E N T at bizity.com. Fantastic, really interesting. I'm so happy to have you on, Mike, and I hope that maybe we can talk again in the future and maybe talk about some examples of business of the findings that you're, you're coming up with because the database of information you're creating is, is fantastic, and I wish you all the best and thank you so much for joining us again today. Oh thank you. We're gonna take a short break we'll be right back after this, so please stay with us. You're listening to Exitoachradio.com, the information station for age 50 plus business owners, where we're interviewing top advisors for their best tips, ideas, and precautions so you can be well planned. We upload new one minute tips every day. Exitcoachradio.com. Come listen for a minute. Business owners, if you came back from lunch and there was a resignation letter on your desk, which employee would you really, really not want it to be from? What are you doing to prevent this from happening? At Exit and Retirement Strategies we design plans that attract, motivate, and retain key employees for a free consultation, called Bill Black, the exit coach at 866-370-3774. Call today. Thank you for listening to Exit Coach Radio.