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Episode Summary
You’re sitting on a million dollars of dump trucks, skid loaders, and inventory, and the business is kicking off maybe twenty grand a year. That’s a 2% return on assets, and you’re working seventy hours a week to earn it. Treasuries pay more than that and don’t call you on Saturday. Brandon Hall has done over 1,500 valuations across more than 100 industries, mostly on the SBA side where the cash flow has to actually service the debt. So we got into the version of valuation that owners can actually use: normalized cash flow times a multiple, the buildup that gets you to that multiple (risk-free rate, size premium, industry premium, and the company-specific risk that owners actually control), and the ten-year debt service test that exposes whether the number on the page is real. We dug into the three approaches (asset, income, market), why the deal purpose changes everything (a divorce, an estate gift, a partnership buyout, and a strategic sale all start at the same cash flow and end in completely different places), and the moment Brandon asks a seller stacking inventory on top of EBITDA: how do you generate that cash flow without the inventory it’s already baked into? The honest version of what your business is worth, from someone who’s had to defend the number in court.
Top 10 Takeaways
- If your business cash flows enough to service a ten-year SBA note and still pay you, you’ve found your valuation floor.
- Valuation is a range, not a number. Twenty to twenty-five percent swing depending on who’s buying and why.
- The multiple is one divided by your cap rate. The cap rate is built up from risk, layer by layer.
- Company-specific risk is the one line in the buildup you actually control. Everything else is published.
- If your asset value exceeds your cash flow value, ask why you’re holding the assets at all.
- Stop adding inventory on top of cash flow. The inventory is already inside the cash flow that produced it.
- Two owners, same EBITDA, same salary. One works seventy hours, one works ten. Only one of those is an asset.
- Exit planning is a useless phrase until you name what you’re exiting: the job, the asset, or both.
- A divorce or partnership buyout valuation has to leave a business that can still cash flow on the other side.
- Before you sell, run the calc on where the proceeds go. Taxes, inflation, and a 12% hurdle are waiting.
Sound Bites
“100% of the companies on the planet that I’ve ever met are underpriced somewhere. There’s something you could charge more for, and at the end of the day, there’s a simple, stupid common sense valuation that should be done.” (@TBD) — Brandon Hall
“Why would I buy your business? I would buy your assets. I would liquidate them. How many employees you got? How many hours you working? Sign me up.” (@TBD) — Brandon Hall
“Do real estate investors exit plan? Exactly. They buy good real estate, grow it, and sell it in a tax-advantaged way when it makes sense.” (@TBD) — Ryan Tansom
“We’re capital allocators if we want to get out of our job. That’s really what we’re trying to do.” (@TBD) — Ryan Tansom
“Valuation is not black and white. It’s a range of value. There’s a lot of moving parts, and you’ve got to figure out where in that range your circumstances actually put you.” (@TBD) — Brandon Hall
About This Episode
Brandon Hall is the founder of BGH Valuation, a firm that has completed over 1,500 business valuations across more than 100 industries, with a specialty in SBA-backed transactions for small and mid-sized businesses. He started his career in public accounting and corporate finance (Polaris, Best Buy) before walking away to build a valuation practice from the ground up nine years ago. His brother, a 15-year CPA, joined the firm two years ago. Brandon also bought a bookkeeping business along the way, learned the hard way that bigger isn’t better, and brings the perspective of an operator who’s defended valuations in court, in divorce proceedings, and across every messy partnership buyout you can imagine.
Resources Mentioned
- BGH Valuation — Brandon’s valuation firm. Email: brandon.hall@bghvaluation.com
- Virtual Bookkeeping — Brandon’s bookkeeping company
- Strategic Associates / Roger Roundy — Tax mitigation work Ryan and Brandon are both doing with owners post-transaction
- Adam Webb — Mutual connection who reconnected Ryan and Brandon
Connections
Phase + Module:
- Module 2 — Expand Knowledge — The valuation literacy every owner needs before any deal conversation
- Module 4 — Sustainable Financials — The cash flow that drives the valuation lives here first
Milestones:
- Milestone 4 — Owner’s Value (DCF) — Cash flow times the multiple, built from the inside out
- Milestone 5 — Market Value — Where the deal purpose, buyer type, and discounts/premiums show up
- Milestone 6 — Transaction Value — Net proceeds after taxes, debt, and the ten-year service test
Concepts referenced:
- Normalized EBITDA — The proxy for cash flow that anchors the income approach
- The Multiple & WACC — The buildup: risk-free, size, industry, company-specific
- Weighted Average Cost of Capital (WACC) — Same idea real estate calls a cap rate
- Three Lenses of Value — Asset, income, market: same business, three different answers
- Capital Allocator — The seat the owner has to take to make any of this matter
- The Owner-Operator Trap™ — Same EBITDA, two owners, one is an asset and one is a job
- Free Cash Flow — What’s left after CapEx, working capital, and debt service
- Cash Conversion Cycle — The working capital that gets fought over in every partnership buyout