Ep. 305 — Pat Hobby: Stop Confusing Your Job With Your Asset

7 min read

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Episode Summary

You walk in at 7am wearing two hats and don’t know it. You’re the CEO answering the payroll question. You’re the owner who quietly assumes the business will be worth a few million when you’re done. The number on your personal financial statement is a guess. Your paycheck has more to do with the tax bill than what the job is actually worth. The cash you took out last year may have nothing to do with the cash the business actually generated. Pat Hobby and I sit down to pull these strands apart. We get into the difference between running a lifestyle business and growing a valuable asset, why conflating ownership and management is the source of so much of the resentment and anxiety owners feel, and the three financial targets that calibrate the whole picture: your ideal annual income, your assets outside the business, and the value of the business itself. Then we walk the waterfall: enterprise value, equity value, net proceeds. Real example, $1M EBITDA at a 5x multiple, $3M of debt, $500K of cash, transaction costs, taxes. The $5M number on the country club napkin becomes $1.75M in your pocket. That gap is where the work lives.

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## Top 10 Takeaways
  1. A lifestyle business solves for annual income. A valuable asset compounds. Pick one before the trade-offs pick you.
  2. Most owners blur the owner hat and the employee hat, and the conflict you feel lives inside that blur.
  3. Your wage should match the market rate for the job, not the equity split or the tax strategy.
  4. Three financial targets calibrate ownership: your ideal annual income, assets outside the business, and the value of the business.
  5. Enterprise value is the top-line price. Equity value is what’s left after debt. Net proceeds is what actually hits your bank.
  6. Two businesses with the same $5M enterprise value can produce wildly different net proceeds once debt, taxes, and fees clear.
  7. Intrinsic value comes from the risk of your cash flow today. Strategic premium is a separate conversation.
  8. EBITDA is your proxy for cash flow. The multiple is the market’s read on the risk of that cash flow.
  9. Without a statement of cash flows, you can’t tell whether operations are actually generating cash or burning it.
  10. Project all three statements five years out and you can see whether the growth plan funds itself or starves you.

Sound Bites

“It’s in my opinion, the number one thing holding people back is they’re viewing the business as a lifestyle business and as a job, as opposed to probably their largest asset.” (@TBD) — Pat Hobby

“If you have a million dollar EBITDA and a five multiple, it’s worth $5 million. If you have zero cash and zero debt, your equity value is $5 million. If you have a half million dollars of cash and $3 million of debt, now your equity value is two and a half million dollars.” (@TBD) — Pat Hobby

“It’s just that growing an asset and being an investor, I think it kind of almost eliminates the exit planning jargon, because it’s like I just want to grow value and have the ability to optimize the transaction when and how I want to do it.” (@TBD) — Ryan Tansom

“You’re not building the Mars Rover here. It’s just, you know, it takes some effort, a little bit of effort, but it’s not difficult to do.” (@TBD) — Pat Hobby

“It went from this fragmented, kind of confusing world to, one of our clients is like, it was like taking the red pill in the Matrix. You can just see the zeros and ones.” (@TBD) — Ryan Tansom

About This Episode

Pat Hobby is Ryan’s business partner at Arkona and a longtime fractional CFO with decades of experience inside owner-operated companies. He spent years as a fractional CFO before joining a growing company that ran an acquisition strategy, sold to its employees through an ESOP, and was later acquired by a private equity firm. He then served as Director of Shared Services at a Twin Cities private equity firm before partnering with Ryan to build the Intentional Growth methodology and Arkona. This episode kicks off Theme 2 of the series: are you running a lifestyle business or creating a more valuable asset? Pat and Ryan teach the financial mindset and the math behind viewing a privately held company as the largest asset on your balance sheet.

Resources Mentioned

  • Arkona Fractional CFO Services — Strategic financial partner who runs the value growth plan with you. — arkona.io
  • Intentional Growth Financial Assessment — 22 questions, no financials needed. Results page includes Pat and Ryan walking through a case study. — arkona.io
  • Dr. Craig Everett, Pepperdine University — Earlier Intentional Growth episode on intrinsic vs. strategic value and cost of capital
  • Ali Nasir, The Business Owner’s Dilemma — Featured in the next episode of Theme 2 on illiquid assets and wealth management
  • Rob Dubay & Cindy Banshee — Arkona clients featured later in Theme 2 on building toward a more valuable asset
  • Matt (Arkona partner) — Referenced via Ep. 300 on partnership, ownership, and compensation structure

Connections

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