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We are live, ladies and 
gentlemen, you once again 

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welcome to the Kingdom's 
podcast. 

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And today I have with me 
fighting out of our light 

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Australia by way of Oxford, 
United Kingdom make welcome the 

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undefeated Dario Bates bronzer. 
How are you, Darrell? 

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Well, I'm not sure I can live up
to that hype, but that's a 

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knockout introduction, isn't it?
But we'll give it a go and see 

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what happens. 
Thanks, Adam. 

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Ola and you know. 
Your name. 

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Your name is a weapon. 
So you still live up to the name

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at least. 
OK, OK, OK. 

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But yeah, it is what it is. 
It is what it is. 

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So aside from the fact that your
name is a weapon, you are also a

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weapon to businesses, you know? 
Well, we like to help them get 

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what they're aiming for, that's 
for sure. 

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And especially when it comes to 
their the time where, where 

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business owners are getting to 
the stage where they're thinking

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about their next chapter. 
We want to get involved and help

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make sure that that goes to plan
or goes to their desire by 

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helping them put a plan in 
place. 

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Because the reality is of if 
you've been running and owning 

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an entrepreneurial or or owner 
managed business for, for 

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5/10/20 years and you've built 
some value in it, you want to 

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exit it. 
And, and you want to make sure 

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that you get the most from that 
value and, and get the, the most

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from the work and energy you've 
put into it. 

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And only one in five actually 
get to do that successfully. 

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So we do our best to to see if 
we can influence that stat. 

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But you know, you have helped a 
lot of founders to build skill 

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and of course, exit, right? 
And of course, that has been 

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across continents. 
But what was your first 

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entrepreneurial spark? 
I didn't have one, I, I wouldn't

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consider myself an entrepreneur 
at all. 

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I'm, I'm a, grew up my, my 
father was a career soldier and 

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so therefore, you know, worked 
for, for the government his 

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whole life. 
So therefore, very conservative 

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upbringing. 
My first job I worked for a 

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business owner and in a bike 
shop and I saw how hard he 

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worked and I thought there's no 
way I want to do that, that 

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that's way too hard. 
So I ended up doing mechanical 

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engineering at uni, worked for 
the government and yeah, as an 

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employee, but got bored with, 
with how slow things were and, 

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and wasn't real good at the 
details. 

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So after 10 years I went went 
and joined a management 

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consulting organization, again 
as an employee. 

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I worked with them for a while 
and, and just, you know, again, 

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at seemed all very going through
the motions, if you like. 

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And, and I did my MBA and 
focused on marketing and said, 

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look, we can, we can be 
targeting SMEs. 

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A lot of the work that we do we 
take for granted, but it's, it's

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really useful and valuable 
information to SMA business 

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owners. 
We should be focusing on them. 

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They said to me, you don't know 
what you're talking about. 

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They can't afford it. 
That'll never work. 

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Being young and dumb and in my 
30s, I thought, well, I don't 

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want to die wondering let's 
let's have a crack. 

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I'll give myself a year and if 
it doesn't work out, I'll go get

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a real job again. 
So I kind of fell into it, but 

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yeah, that's yeah in 25 years 
ago. 

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Just like I'd like to know, you 
know, you said your father was a

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soldier and, you know, I guess 
that's name that is weaponized, 

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you know, just fits in properly.
Look maybe back look rumor has a

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family rumor and and an urban 
myth is that the name goes back 

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to the Battle of Hastings. 
So if any, any aristocracy that 

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may have been part of the name 
is long gone so. 

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That's just, yeah, you see how 
the genes passed on. 

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I don't know. 
And then of course, you know, 

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you, you also do at heart and 
you're a mechanical engineer. 

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That's, you know, quite an 
interesting background. 

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I love engineers a lot because 
engineers always have the 

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mentality and the methodology of
offering practical solutions to 

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real life problems. 
Yeah, we're problem solvers, 

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that's for sure. 
And, and very logical and 

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sequential. 
Yeah, I, I guess the downside is

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we like to understand how things
work and, and we like to, you 

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know, piece the puzzle together.
So I do that with businesses in 

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how they're designed and how 
they're structured and build 

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logical structures and 
understand and model things how 

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businesses scale. 
And what are the next problems 

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that are going to be coming up 
for business owners and go, 

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well, look, let's get on the 
front foot and solve this 

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problem before it really starts 
to hurt. 

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And and that's always been an 
approach and always having a 

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methodology to solve each of the
problems that we know are coming

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out. 
Because, you know, engineers are

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process oriented and they are 
all this methodological in terms

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of their approach. 
And they have this advantage of 

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the empirical or would I say, 
yeah, the the empirical method 

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basically in terms of the 
approach to solving problems. 

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And it helps them to strip 
things down and build things up.

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So with that being said, how do 
you think that has actually 

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influenced your leadership style
and. 

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My leadership style, I'm 
probably a rubbish leader if, if

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you are the people around me. 
But look, I am empirical, you're

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right. 
I, I look for patterns and I see

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patterns in, in behaviors and 
processes and and workflows and 

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help people to structure their 
business around those patterns. 

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And when the patterns aren't 
followed, you tend to see 

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mistakes. 
So, yeah, I've got to, I've got 

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to stick with the strengths. 
You know, as an engineer, you're

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probably not the best 
communicator and, and, and a 

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little quiet around those 
things. 

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I, I don't know. 
But yeah, I, I, I can't, I 

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haven't got anything at the tip 
of my tongue that says here's 

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how my engineering strengths 
and, and my problem solving and 

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has translated into a better 
leader. 

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But I know I'm, I'm fairly 
visionary and I, I help paint 

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the picture for, for where we 
need to go or where the client 

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needs to go. 
I help them understand the 

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picture and using questions and,
and guidance and prompting 

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rather than telling to, to help 
them come up and inspire them 

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to, of what's possible and 
arrive at their own conclusions.

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And I think that's, you know, if
you just try and tell someone, 

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here's the answer, they don't 
have any ownership of it. 

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But if you help them find the 
answer and you know through your

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experience and guidance and and 
methodologies and frameworks 

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you're using, then they'll 
arrive at the solution, the plan

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that they own, and they'll be 
more inspired and motivated to 

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want to implement it. 
Interesting. 

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SO in terms of that educational 
background that you have in 

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engineering, how is that 
translated in the way you 

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approach Internet controls 
within businesses and of course 

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providing solutions to 
deficiencies in the Internet 

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controls that exists in the 
SME's that you can solve for? 

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So in terms of internal 
controls, my translation to that

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is I was exposed to internal 
audit and process control and 

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governance in in the corporate 
space. 

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What I know in most SMEs is they
often don't have that. 

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They overlook it. 
Decisions are made from memory 

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and and a lot of instincts. 
Yeah. 

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And by instincts. 
And a lot of the controls and 

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processes reside in the owner's 
heads, which when it comes to 

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value business valuation is just
not transferable. 

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So what we do is, you know, one 
of the roles we play is we go, 

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well, what we need to do if you 
want to, if you want to exit 

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your business and if you want to
maximize the valuation of your 

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business, we need to unpack your
head. 

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All the stuff that you go is 
just intuitive and instinctive. 

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It's not. 
You're following a process 

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subconsciously, you're asking 
yourself a whole lot of 

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questions. 
Yes, no, yes, no, yes, no. 

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And we need to document that 
process that you're following. 

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So we need to slow down the 
process next time it happens so 

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that we can start to document it
and capture a workflow. 

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So we want to know how decisions
are made in your business. 

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What makes your business 
special? 

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Well, just the culture, which is
decision making is part of 

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culture is a big part of that. 
So let's capture that. 

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Let's capture the structure of 
your business. 

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Let's capture how people know 
what decisions they can make 

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and, and which decisions they 
need to refer to a higher 

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authority or, or, or up the 
tree, you know, and, and what's 

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the framework each person has to
make decisions in their role in 

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the business. 
Once we start to document that, 

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we start to have a framework. 
And I'm not even talking about 

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just workflow processes yet. 
This is just decision making 

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when it comes to systemizing the
business. 

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We need a lot of that, excuse 
me, we need to systemize the 

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workflows so that there's no 
rework and so that everyone's 

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doing it the same way. 
And that way it'll be 

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consistent, repeatable and 
reliable. 

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And then we want to apply that 
same methodology that that 

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thinking process to the way the 
business is run, IE how the 

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business plans are set and 
budgets are set every year. 

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And how do we keep the 
leadership team accountable to 

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achieving those budgets so that 
it's not just a fluke. 

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So yeah, I guess I'm very 
structured in the way I do 

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things, but the way you apply 
structure to a small business is

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you don't need reams and reams 
of paper and tight controls like

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you would have in a corporate. 
What we want to do is go look 

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what's the right level of 
structure for this business at 

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this stage of development so 
that it's going to be a help 

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rather than a burden, you know, 
because if it's a burden to the 

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business, it'll just slow it 
down and, and people won't want 

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to be involved and they won't 
follow the process or the 

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structure. 
That's actually very, very 

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correct. 
Only 10 to 40% of businesses 

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that go to the markets actually 
are able to sell. 

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One in one in 520% will get a 
successful exit. 

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And let me let me update that. 
20% will agree a deal. 

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So they'll they'll they'll get 
an exit. 

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How successful it is is yeah, up
for debate. 

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But you know, most of those that
actually get an exit have to 

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agree some sort of terms of earn
out and work through an earn out

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arrangement and those often 
fail. 

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So, you know, I'd say it's more 
likely 10% get a successful 

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exit. 
So you're on the lower end of 

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the range. 
Yeah, interested. 

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You want to prepare, you've got 
to set your business up and I 

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don't want to. 
Yeah, I don't think you can 

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overstate this. 
You really need to prepare your 

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business if you know, and set it
up specifically more than just, 

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you know, running good 
operations if you want to get a 

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successful exit. 
And the key to that is if you're

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a business owner and listening 
to this today and you're 

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thinking, I want to sell my 
business one day, Well, then my 

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encouragement to you is right 
from today, instead of thinking 

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about profit growth, like 
everyone is giving you advice 

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and accountants and, and maybe 
this is advice that you've given

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in the past, but instead of 
thinking, you know, profit 

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growth and every year on you, we
need to increase our profit. 

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I want to encourage people to 
start looking at the valuation 

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of your business, get some work 
and go, OK, so what's the 

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valuation of my business and let
me start thinking of my business

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year on year valuation growth 
because there's so much more to 

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increasing the valuation than 
just the profit. 

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The profit are just the items 
that appear on the financial 

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statements and the balance 
sheet, but the things that 

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increase the valuation are your 
intangible assets. 

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How much does your culture 
influence valuation? 

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Your staff turnover, your staff 
retention, your client 

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retention, your pricing model, 
your, your education, your 

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systems, your IP, your brand? 
How much do those things 

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influence your valuation? 
And you don't see any of those 

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on any of your financial 
statements. 

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So that's why I'm saying think 
about the valuation of your 

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business year on year and 
you'll, you'll be halfway along 

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to setting yourself up to 
getting exit ready or getting 

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exitable. 
And if you make that mindset 

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shift, you've got half a chance.
You've got to do better. 

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Than half. 
So what exactly actually makes 

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businesses attractive to to 
buyers? 

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Well, buyers, when a buyer looks
at your business, right, they're

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going, hey, look, I want to buy 
this asset from you. 

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00:13:06,720 --> 00:13:09,760
So if you're going to buy a 
house, you would assess the risk

226
00:13:09,760 --> 00:13:12,680
to your capital on that house. 
You go, is it in a good street? 

227
00:13:12,680 --> 00:13:14,920
Is it going to flood? 
Is it going to be subject to 

228
00:13:14,920 --> 00:13:17,280
landslides, cyclones or what 
have you? 

229
00:13:17,360 --> 00:13:19,600
Where is it on the street? 
Is it the best house on the 

230
00:13:19,600 --> 00:13:20,960
street? 
Is it the worst house on the 

231
00:13:20,960 --> 00:13:22,120
street? 
Worst house? 

232
00:13:22,120 --> 00:13:24,720
Great, I've got some potential. 
What's the neighborhood like? 

233
00:13:24,720 --> 00:13:26,840
Is it close to schools? 
Is it close to shops? 

234
00:13:26,960 --> 00:13:29,000
What's the public transport 
connections like? 

235
00:13:29,240 --> 00:13:31,840
You're assessing all of these 
things when you're going to buy 

236
00:13:31,840 --> 00:13:35,400
a house and and you're going, 
OK, that's good, that's bad, 

237
00:13:35,400 --> 00:13:37,600
that's got great potential. 
I'd pay more for that and I'm 

238
00:13:37,600 --> 00:13:40,840
going to pay less for that. 
It's the same when you buy a 

239
00:13:40,840 --> 00:13:43,240
business, buyers are looking at 
your business and they're going,

240
00:13:43,240 --> 00:13:46,120
what are the risk factors 
They're going, this business has

241
00:13:46,120 --> 00:13:49,400
grown by, I don't know 20% for 
the last five years. 

242
00:13:49,920 --> 00:13:53,360
What are the chances that that's
going to keep growing at 20% 

243
00:13:53,360 --> 00:13:58,400
when the ownership changes? 
So if, if the ownership, if the 

244
00:13:58,400 --> 00:14:01,400
business is highly dependent on 
the owners of the business, the 

245
00:14:01,400 --> 00:14:07,040
key shareholders in generating 
that 20% growth year on year and

246
00:14:07,040 --> 00:14:09,760
then they want to leave the 
business, then that's hugely 

247
00:14:09,760 --> 00:14:12,000
risky. 
Like there's, there's a really 

248
00:14:12,000 --> 00:14:14,480
low chance that that number's 
going to continue under new 

249
00:14:14,480 --> 00:14:16,360
ownership. 
So I'm not going to pay a lot 

250
00:14:16,360 --> 00:14:20,040
for that business if the owners 
can demonstrate to me that, 

251
00:14:20,080 --> 00:14:22,680
well, look, all of our business 
comes to us because of the brand

252
00:14:22,680 --> 00:14:24,520
of the business. 
It's got nothing to do with me. 

253
00:14:24,520 --> 00:14:27,720
I, I'm just steering it. 
I'm not the chief sales person. 

254
00:14:27,720 --> 00:14:30,640
I, I'm not involved in delivery 
and the business runs pretty 

255
00:14:30,640 --> 00:14:32,400
well without me. 
I've got the management team, 

256
00:14:32,400 --> 00:14:33,880
you have a look, they're running
it. 

257
00:14:33,880 --> 00:14:36,320
I'm just, you know, acting as a 
mentor and a guide. 

258
00:14:36,320 --> 00:14:39,160
They put all the plans in place,
they implement the strategies, 

259
00:14:39,160 --> 00:14:41,600
they do all the sales, they do 
all the delivery, they do all 

260
00:14:41,600 --> 00:14:44,160
the recruitment, they find new 
deals. 

261
00:14:44,160 --> 00:14:45,760
They're they're doing all the 
work themselves. 

262
00:14:45,760 --> 00:14:47,800
This business basically runs 
without me. 

263
00:14:48,320 --> 00:14:52,240
Then from a purchase acquiring 
the business perspective that's 

264
00:14:52,240 --> 00:14:55,680
hugely attractive if it's had 
all that growth and all that 

265
00:14:55,680 --> 00:14:59,120
growth happens without the 
owner's involvement and you've 

266
00:14:59,120 --> 00:15:02,920
got reliable cash flow and and 
the the future revenue is is 

267
00:15:02,960 --> 00:15:06,040
pretty well locked in. 
All these things start to re 

268
00:15:06,360 --> 00:15:10,040
reduce the risk of that cash 
flow changing or that cash flow 

269
00:15:10,040 --> 00:15:13,360
growth or that that finance 
trend changing. 

270
00:15:14,240 --> 00:15:16,720
And the lower the risk, the 
higher the valuation. 

271
00:15:18,720 --> 00:15:22,000
So things to look out, you know,
did you have high staff 

272
00:15:22,000 --> 00:15:23,920
turnover? 
Do you have low staff turnover? 

273
00:15:24,240 --> 00:15:27,360
You know, there's a risk. 
It's like, you know, you know, 

274
00:15:28,000 --> 00:15:30,560
did you have to make separate 
sales every time you sell 

275
00:15:30,560 --> 00:15:31,800
something? 
Or do you have people on 

276
00:15:31,800 --> 00:15:35,240
subscription to extremes there? 
You know, what's your revenue 

277
00:15:35,240 --> 00:15:37,240
look like? 
Do you have IP that people have 

278
00:15:37,240 --> 00:15:40,720
to come to you because you're 
the only access point for the 

279
00:15:40,720 --> 00:15:43,880
IP? 
Or are people coming because 

280
00:15:43,960 --> 00:15:47,160
certain people work there and 
are they coming to the person or

281
00:15:47,160 --> 00:15:49,880
they're coming for the product? 
All these things influence the 

282
00:15:49,880 --> 00:15:53,120
valuation. 
Interesting. 

283
00:15:53,280 --> 00:15:55,520
So why are you speaking about 
these things? 

284
00:15:55,560 --> 00:15:59,560
Being an accountant myself, a 
chartered accountant that has 

285
00:15:59,560 --> 00:16:03,720
been in public practice and also
worked with two of the global 

286
00:16:03,720 --> 00:16:08,360
beefal firms, what comes to my 
mind is the accounting standard 

287
00:16:08,360 --> 00:16:12,840
or an business combinations, 
which is IFRS 3. 

288
00:16:13,560 --> 00:16:20,640
So that actually speaks to the 
process of business combinations

289
00:16:20,640 --> 00:16:24,600
and mergers. 
Acquisitions are forms of 

290
00:16:24,600 --> 00:16:29,120
business combinations. 
And of course the sellout to you

291
00:16:29,120 --> 00:16:31,680
talking about here relates to 
acquisitions. 

292
00:16:31,680 --> 00:16:35,120
And then there's this other 
standard, IFRS 10, which is 

293
00:16:35,120 --> 00:16:40,720
consolidation, right? 
So if you acquire the business, 

294
00:16:41,880 --> 00:16:45,840
IFRS 3 is the reporting standard
that relates to that. 

295
00:16:45,920 --> 00:16:50,960
But IFRS 10 you know, now covers
the point of consolidating that 

296
00:16:50,960 --> 00:16:54,400
business that you've acquired. 
Of course, you've bought the 

297
00:16:54,400 --> 00:17:00,240
equity in that business and it's
now it's now a part of the 

298
00:17:00,320 --> 00:17:04,160
group, right? 
It is now a subsidiary to the 

299
00:17:04,160 --> 00:17:10,079
parent entity that is buying it.
So when you're accounting for 

300
00:17:10,079 --> 00:17:14,040
the new company or the company 
that has actually been bought, 

301
00:17:14,040 --> 00:17:17,240
right? 
So you need to compute the net 

302
00:17:17,240 --> 00:17:21,560
assets, right? 
And then you compare the net 

303
00:17:21,560 --> 00:17:25,040
assets to the purchase 
concentration. 

304
00:17:25,359 --> 00:17:29,120
So the purchase concentration is
what you're paying for that 

305
00:17:29,120 --> 00:17:34,520
company. 
So they're usually 2 scenarios. 

306
00:17:35,800 --> 00:17:38,760
It's either the purchase 
consideration is higher than the

307
00:17:38,760 --> 00:17:42,400
net assets, right? 
So if it's higher than the net 

308
00:17:42,400 --> 00:17:46,680
assets, it means that you're 
actually paying a premium for 

309
00:17:46,680 --> 00:17:49,000
that business that you're buying
and that relates to the 

310
00:17:49,000 --> 00:17:51,480
intangible assets. 
No, you're not. 

311
00:17:52,600 --> 00:17:56,080
And that premium is actually 
referred to as goodwill. 

312
00:17:56,520 --> 00:17:58,200
Yeah, but it's not a premium, is
it? 

313
00:17:59,080 --> 00:18:01,000
It's, it's pretty much a 
premium, right? 

314
00:18:01,000 --> 00:18:02,400
It's a. 
Premium from an accounting 

315
00:18:02,400 --> 00:18:04,760
perspective and you said you 
wanted a conversation, so it's a

316
00:18:04,760 --> 00:18:06,400
premium from an accounting 
perspective. 

317
00:18:06,520 --> 00:18:08,360
From an accounting perspective, 
right? 

318
00:18:08,640 --> 00:18:10,320
And you know when. 
Evaluation. 

319
00:18:11,080 --> 00:18:18,040
When you actually pay less than 
the the value of the net assets 

320
00:18:18,080 --> 00:18:22,600
of that company that you're 
acquiring, which is called the 

321
00:18:23,480 --> 00:18:25,440
the acqui. 
Is it acquiry? 

322
00:18:25,480 --> 00:18:28,280
Yeah, the acquiry, right, 
Because the acquire is the 

323
00:18:28,280 --> 00:18:31,080
buyer. 
The acquiry is, you know, the 

324
00:18:31,080 --> 00:18:34,880
company that has been sold. 
It's called a gain on banking 

325
00:18:34,880 --> 00:18:36,960
purchase. 
Yeah. 

326
00:18:37,440 --> 00:18:40,240
Because you're purchasing that 
business at a banking. 

327
00:18:41,520 --> 00:18:46,640
So from you looking at things 
from the lens of the business 

328
00:18:46,640 --> 00:18:48,680
seller? 
Right, I'm looking through a 

329
00:18:48,680 --> 00:18:51,880
commercial lens. 
I'm looking at things from the 

330
00:18:51,880 --> 00:18:55,720
lens of the business buyer, you 
know, I'm the current company. 

331
00:18:57,320 --> 00:19:00,440
You're also looking at it from 
an accounting perspective, which

332
00:19:00,440 --> 00:19:02,400
I'm going to argue is 
irrelevant. 

333
00:19:03,080 --> 00:19:08,520
Why? 
So if let's just take it to the 

334
00:19:08,520 --> 00:19:13,600
most basic level, OK of value, 
who determines value, the buyer 

335
00:19:13,600 --> 00:19:16,800
or the seller? 
You're going to go buy a new 

336
00:19:16,800 --> 00:19:18,880
pair of jeans, right? 
The buy absolutely. 

337
00:19:18,880 --> 00:19:20,480
You're going to go buy a new 
pair of jeans. 

338
00:19:20,800 --> 00:19:24,480
There's a branded pair with 
designer label jeans for 200 

339
00:19:24,480 --> 00:19:28,680
pounds, $200, whatever it is. 
And and you can get another pair

340
00:19:28,680 --> 00:19:32,480
of jeans possibly made in the 
same factory with no designer 

341
00:19:32,480 --> 00:19:35,040
label on them. 
So very similar from a 

342
00:19:35,040 --> 00:19:39,360
functional perspective for £10 
or $10 that you can get in Asda 

343
00:19:39,360 --> 00:19:46,200
or or Walmart or wherever you 
are, two almost identical items,

344
00:19:46,640 --> 00:19:50,320
different brand. 
So the cost to produce them 

345
00:19:51,280 --> 00:19:54,800
possibly similar. 
Now there's marketing costs, a 

346
00:19:54,800 --> 00:19:57,920
whole lot of marketing costs to 
one that that that's inflatable 

347
00:19:57,920 --> 00:20:01,160
increased, I won't say inflated,
but increase the, the cost. 

348
00:20:01,360 --> 00:20:03,280
So and they sell them for a 
higher price. 

349
00:20:03,640 --> 00:20:07,400
Now you might, one person might 
come along and go look 1. 

350
00:20:07,560 --> 00:20:10,920
You know, why would I pay $200 
for a pair of jeans where I can 

351
00:20:10,920 --> 00:20:12,960
pay 10? 
That's just no value at all. 

352
00:20:12,960 --> 00:20:15,800
That's RIP off. 
Someone else will go $200 for 

353
00:20:15,800 --> 00:20:17,720
for this pair of jeans. 
That's fantastic value. 

354
00:20:18,120 --> 00:20:21,360
So as you say, it's the buyer 
that determines value. 

355
00:20:21,360 --> 00:20:24,840
I did not say the buyer, I said 
the markets because I remember 

356
00:20:24,840 --> 00:20:27,800
my first degrees in economics. 
You know the price. 

357
00:20:29,240 --> 00:20:33,440
The price of any item, why you 
look at it from a holistic 

358
00:20:33,440 --> 00:20:36,840
perspective is actually 
determined by the market forces 

359
00:20:36,840 --> 00:20:40,120
of demand and supply. 
That the price is the price. 

360
00:20:40,120 --> 00:20:42,640
The buyer determines if it's 
value and they'll pay for it. 

361
00:20:43,440 --> 00:20:45,240
But then you're looking at it in
it. 

362
00:20:45,280 --> 00:20:48,560
Tells us the average. 
Yeah, the market tells us the 

363
00:20:48,560 --> 00:20:50,600
average, right? 
And remember, it's not all the 

364
00:20:50,600 --> 00:20:52,680
time that you just have a single
beader. 

365
00:20:53,400 --> 00:20:57,000
Sometimes you have multiple 
beads for the same company and 

366
00:20:57,000 --> 00:20:58,520
you're probably selling to the 
highest beader. 

367
00:20:59,680 --> 00:21:01,360
Well, depending on what we're 
selling, but yeah. 

368
00:21:01,360 --> 00:21:04,280
And it depends, depends on how 
much competition there is. 

369
00:21:05,440 --> 00:21:07,400
Yeah. 
So I'm, I'm not coming from an 

370
00:21:07,400 --> 00:21:09,840
accounting perspective at all. 
I'm, you know, I'm just coming 

371
00:21:09,840 --> 00:21:12,960
as, as someone who runs business
and looks at business and go 

372
00:21:12,960 --> 00:21:16,400
look, you know, everyone else, 
you know, all of your 

373
00:21:16,400 --> 00:21:18,240
competitors are selling. 
I don't know, let's say you're 

374
00:21:18,240 --> 00:21:20,520
selling a service and they're 
selling for $200.00 an hour. 

375
00:21:21,600 --> 00:21:24,480
There's always someone out here 
who's selling for $1000 an hour.

376
00:21:25,240 --> 00:21:26,880
And we can go, well, the markets
200. 

377
00:21:26,880 --> 00:21:28,840
Well, how is this guy doing it 
for 1000? 

378
00:21:29,360 --> 00:21:32,160
That, that shouldn't be possible
in the market because the market

379
00:21:32,160 --> 00:21:34,680
rate is 200. 
Well, that's what niching is 

380
00:21:34,680 --> 00:21:37,040
and, and that's what the 
intangible assets are. 

381
00:21:37,040 --> 00:21:40,440
And that, that's a good example 
of brand value and positioning 

382
00:21:40,440 --> 00:21:43,480
in the market and, and sales 
skills. 

383
00:21:43,800 --> 00:21:47,280
And now if, if you've got a 
rubbish product and you're 

384
00:21:47,280 --> 00:21:51,360
selling 200 a £1000 an hour, 
then you're going to get found 

385
00:21:51,360 --> 00:21:53,680
out and you won't get many 
resales and you'll lose your 

386
00:21:53,680 --> 00:21:56,280
reputation. 
But if you deliver a really good

387
00:21:56,280 --> 00:21:59,640
product and you're charging 1000
hour, 1000 an hour, the market 

388
00:21:59,640 --> 00:22:02,320
will come to the point where 
it's expensive but worth it. 

389
00:22:02,720 --> 00:22:05,400
Bit like was it L'Oreal? 
The, the shampoo, they will go. 

390
00:22:05,400 --> 00:22:08,080
There's always room in the 
market for a whole range and a 

391
00:22:08,080 --> 00:22:10,120
whole spectrum. 
And you don't want to be in the 

392
00:22:10,120 --> 00:22:12,560
middle because in the middle you
get lost and you disappear. 

393
00:22:12,760 --> 00:22:15,320
And in either ends of the 
spectrum, you stand out and you 

394
00:22:15,320 --> 00:22:18,360
can differentiate yourself. 
To me, that's commercial and, 

395
00:22:18,360 --> 00:22:21,280
and it's not a, it's not a 
spreadsheet evaluation. 

396
00:22:21,280 --> 00:22:24,000
It's just a commercial how 
things work in the in the 

397
00:22:24,000 --> 00:22:26,720
reality of the market. 
OK, so. 

398
00:22:27,680 --> 00:22:31,680
So if we go back to the to the 
valuation of a company 30-40, 

399
00:22:31,680 --> 00:22:35,640
maybe even 50 years ago, 
businesses were sold based on 

400
00:22:35,640 --> 00:22:38,240
their asset value from their 
balance sheet and they would 

401
00:22:38,240 --> 00:22:41,480
start, so back in the 70s they 
would start to be a little bit 

402
00:22:41,480 --> 00:22:44,440
of, you know, oh, hang on a SEC,
the business sold for more than 

403
00:22:44,440 --> 00:22:47,600
that, the value of the assets or
even the depreciated assets. 

404
00:22:48,040 --> 00:22:50,400
How do we account for this in 
accounting terms? 

405
00:22:50,760 --> 00:22:53,480
That's goodwill. 
We'll have to call it goodwill, 

406
00:22:53,480 --> 00:22:56,440
absolutely. 
And back then goodwill was like 

407
00:22:56,440 --> 00:23:01,720
10% above of the the the asset 
valuation of the business. 

408
00:23:02,560 --> 00:23:06,040
If you have a look at it in 
today's terms, how many 

409
00:23:06,040 --> 00:23:09,040
businesses sell for 10%, you 
know goodwill, the goodwill is 

410
00:23:09,040 --> 00:23:11,960
more like 90% now. 
It depends. 

411
00:23:11,960 --> 00:23:14,800
It depends on on the situation 
basically. 

412
00:23:15,000 --> 00:23:18,600
But if we're looking for 
averages and why is it, why is 

413
00:23:18,600 --> 00:23:24,400
the goodwill value so high now? 
Well, the reason being is, and I

414
00:23:24,400 --> 00:23:27,280
think, you know, the example is,
you know, Bethany, I think it 

415
00:23:27,280 --> 00:23:30,680
was Bethlehem Steel that the, 
the case study and the example 

416
00:23:30,680 --> 00:23:34,240
where I, I took my learnings is 
all the plant and equipment was,

417
00:23:34,240 --> 00:23:38,160
you know, worthless. 
But you have to know what to do 

418
00:23:38,160 --> 00:23:41,760
with the plant and equipment and
how to use it and how to market 

419
00:23:41,760 --> 00:23:43,960
the product that you're 
producing with the plant and 

420
00:23:43,960 --> 00:23:46,600
equipment, which is where the 
real value is. 

421
00:23:46,760 --> 00:23:49,960
If I liquidate my business, I'll
be lucky to get scrap value for 

422
00:23:49,960 --> 00:23:52,560
my, my plant and equipment. 
Well, no one's going to sell a 

423
00:23:52,560 --> 00:23:55,640
going concern for that. 
So, so if you have a look and 

424
00:23:55,640 --> 00:23:58,560
and I know we can always find 
exceptions to the rule, but on 

425
00:23:58,560 --> 00:24:01,640
the whole businesses sell for a 
whole lot more than 10%. 

426
00:24:01,640 --> 00:24:04,320
No business valuation, sure, 
we'll find some. 

427
00:24:04,600 --> 00:24:07,840
But on the whole valuations 
aren't based on asset value. 

428
00:24:07,840 --> 00:24:11,720
It's a multiple of the profits, 
which is how most businesses are

429
00:24:11,720 --> 00:24:15,360
valued today, profit times or an
EBITDA times a multiple. 

430
00:24:15,800 --> 00:24:17,360
That's got nothing to do with 
assets. 

431
00:24:17,440 --> 00:24:20,400
It's how you use the assets. 
It's how you're leveraging the 

432
00:24:20,400 --> 00:24:23,640
assets that determines the 
valuation of the business. 

433
00:24:24,440 --> 00:24:26,960
And in my experience. 
OK. 

434
00:24:27,040 --> 00:24:28,200
I appreciate the conversation 
though. 

435
00:24:28,720 --> 00:24:31,560
Yeah, definitely. 
I am very much off flowing with 

436
00:24:31,560 --> 00:24:35,040
you. 
But it seems like you probably 

437
00:24:35,040 --> 00:24:38,440
think I'm countering your 
argument, but I am just bringing

438
00:24:38,440 --> 00:24:41,080
like different lenses, you know 
in other two. 

439
00:24:41,480 --> 00:24:44,840
Yeah, yeah, shed light on on 
this, right. 

440
00:24:44,840 --> 00:24:48,880
So the accounting perspective, 
right, is about the recognition 

441
00:24:48,880 --> 00:24:54,200
of the value basically, you know
accounting basically it's about 

442
00:24:54,200 --> 00:24:58,040
recognition, measurements, 
presentation and disclosure. 

443
00:24:58,840 --> 00:25:02,600
Those are the guidance that 
accounting standards give you. 

444
00:25:03,880 --> 00:25:09,640
So in terms of the real 
substance over form of these 

445
00:25:09,640 --> 00:25:15,680
transactions, you would have to 
look at it from an economical 

446
00:25:16,560 --> 00:25:21,400
perspective and also a 
commercial perspective like 

447
00:25:21,440 --> 00:25:24,640
yourself. 
So fortunately for me, I am both

448
00:25:24,640 --> 00:25:27,040
an economist and an accountant, 
right? 

449
00:25:27,040 --> 00:25:31,480
So in terms of that recognition 
of that value, you're talking 

450
00:25:31,480 --> 00:25:35,600
about the goodwill. 
So it's that invisible that 

451
00:25:35,600 --> 00:25:40,400
intangible assets, right, which 
is you don't like, you don't 

452
00:25:40,400 --> 00:25:43,880
like the concept, but 
unfortunately it's is actually a

453
00:25:43,880 --> 00:25:47,720
premium, right, Because if you 
were to strip those assets 

454
00:25:47,720 --> 00:25:52,000
apart, right and send sell them 
individually, you would sell 

455
00:25:52,000 --> 00:25:54,960
them for that less amount, 
right. 

456
00:25:55,320 --> 00:25:57,240
You agree You'd. 
Fill the asset, sure. 

457
00:25:57,280 --> 00:25:57,840
And that's. 
Yeah. 

458
00:25:57,840 --> 00:26:03,160
Because they're bundled right 
within that business, we're able

459
00:26:03,160 --> 00:26:08,320
to sell it for higher than what 
their market price is. 

460
00:26:08,720 --> 00:26:11,760
It's only because you've got a 
whole lot of employees who know 

461
00:26:11,760 --> 00:26:14,320
what to do with the assets, and 
that's what we're selling. 

462
00:26:14,560 --> 00:26:17,000
We're not selling all of the 
plant and equipment together 

463
00:26:17,000 --> 00:26:18,680
because that's how accountants 
treat it. 

464
00:26:18,680 --> 00:26:21,560
They're going, hey, how do we, 
how do we bundle this? 

465
00:26:21,560 --> 00:26:23,480
Well, we're just looking at the 
physical assets. 

466
00:26:23,640 --> 00:26:26,880
The accounting industry haven't 
hasn't caught up and figured out

467
00:26:26,880 --> 00:26:30,000
how to value well the intangible
assets. 

468
00:26:30,120 --> 00:26:33,080
So the accounting standards 
don't account for that. 

469
00:26:33,400 --> 00:26:36,520
There is a whole accounting 
standard on intangible assets. 

470
00:26:36,760 --> 00:26:42,280
I think that's IS38. 
But you can't account for brand 

471
00:26:42,600 --> 00:26:45,520
until you've paid for a brand, 
right? 

472
00:26:45,520 --> 00:26:48,240
If you bought a brand, if you 
bought a business and you go, 

473
00:26:48,240 --> 00:26:51,080
hey, look, we paid this much for
the brand, well then you can put

474
00:26:51,080 --> 00:26:51,960
it on your balance. 
Sheet. 

475
00:26:51,960 --> 00:26:55,040
Yes, exactly, if you've got. 
A business yourself and you've 

476
00:26:55,040 --> 00:26:58,440
built up and you've created a 
brand value and you can 

477
00:26:58,440 --> 00:27:00,960
demonstrate that all your 
customers are coming to you 

478
00:27:01,160 --> 00:27:04,360
because of your brand. 
You can't account for that. 

479
00:27:04,360 --> 00:27:05,960
On the way. 
Do you know why? 

480
00:27:07,680 --> 00:27:09,320
You know what that is in 
accounting, right? 

481
00:27:09,480 --> 00:27:13,000
So there is a concept in 
accounting called the prudence 

482
00:27:13,000 --> 00:27:16,480
concept or also known as 
conservate. 

483
00:27:16,560 --> 00:27:18,080
Is it conservatism? 
Yeah. 

484
00:27:18,120 --> 00:27:24,400
Basically it's about you taking 
caution in terms of the 

485
00:27:24,400 --> 00:27:29,000
valuation of your assets and 
your liabilities, right. 

486
00:27:29,080 --> 00:27:33,560
So from an accounting 
perspective, it is actually 

487
00:27:33,560 --> 00:27:39,800
favorable for you to under 
undervalue the assets than 

488
00:27:39,800 --> 00:27:45,160
overvalue them because there is 
a risk of misrepresentation when

489
00:27:45,160 --> 00:27:49,280
you overvalue your assets, right
and when you overstate revenue, 

490
00:27:49,760 --> 00:27:53,400
right. 
So they would rather would I 

491
00:27:53,400 --> 00:27:56,920
say, err on the side of caution,
right? 

492
00:27:56,960 --> 00:27:58,040
Yeah. 
So. 

493
00:27:58,880 --> 00:28:02,040
If you, if you allow people to 
start going about, you know, 

494
00:28:02,200 --> 00:28:04,520
valuing the brands, do you know 
what kind of, you know, 

495
00:28:04,720 --> 00:28:07,720
astronomical figures will be 
flying around in the air on 

496
00:28:07,720 --> 00:28:11,160
financial statements? 
And it's worth noting that the 

497
00:28:11,160 --> 00:28:15,040
businesses that we work with are
privately held businesses. 

498
00:28:15,280 --> 00:28:16,960
They're not corporate. 
They're not listed. 

499
00:28:16,960 --> 00:28:19,960
They're not, you know, large 
corporate organizations that 

500
00:28:19,960 --> 00:28:22,680
have a whole lot of shareholders
that they need to report to. 

501
00:28:23,360 --> 00:28:27,080
I'm talking about privately held
businesses that you know, that, 

502
00:28:27,080 --> 00:28:29,840
that you know, all the 
shareholders are known to each 

503
00:28:29,840 --> 00:28:33,280
other generally and they're 
working together and, and they 

504
00:28:33,280 --> 00:28:36,920
don't have public reporting and,
and accounting and auditing that

505
00:28:36,920 --> 00:28:39,160
they need and standards that 
they need to adhere to. 

506
00:28:39,440 --> 00:28:43,960
So I appreciate that there's 
differences there and there's an

507
00:28:43,960 --> 00:28:47,200
element of governance and 
diligence that is required for 

508
00:28:47,200 --> 00:28:49,680
fairness and for people to make 
it. 

509
00:28:49,720 --> 00:28:52,000
Well, from decisions. 
Yeah. 

510
00:28:53,160 --> 00:28:55,760
But from a commercial 
perspective running the 

511
00:28:55,760 --> 00:28:59,680
business, most business owners 
almost couldn't care less, you 

512
00:28:59,680 --> 00:29:02,320
know, as long as they're making 
a profit and their business is 

513
00:29:02,320 --> 00:29:04,840
growing and they're acquiring 
more clients. 

514
00:29:05,360 --> 00:29:07,920
They, they, they, they, a lot of
them just leave it to their 

515
00:29:07,920 --> 00:29:10,560
accountant to go look, we need 
to get this, this new, we need 

516
00:29:10,560 --> 00:29:13,360
to buy this new plant. 
Can we afford it? 

517
00:29:13,600 --> 00:29:16,920
How do we pay for it? 
If, if you write it off in the 

518
00:29:16,920 --> 00:29:20,080
asset value of it, we couldn't 
care less because we're just 

519
00:29:20,080 --> 00:29:23,000
using it and just let us know 
when we need to replace it. 

520
00:29:23,000 --> 00:29:25,240
You know, we'll let you know 
when we need to replace it 

521
00:29:25,520 --> 00:29:28,040
because it's no longer 
productive or we found a new one

522
00:29:28,040 --> 00:29:31,640
that's so much more efficient. 
And the value of the plant, 

523
00:29:31,640 --> 00:29:34,600
they're not even looking at, 
right, because they're just 

524
00:29:34,600 --> 00:29:38,760
running their business, building
their business from a commercial

525
00:29:38,760 --> 00:29:40,560
perspective. 
They are. 

526
00:29:41,960 --> 00:29:43,240
Yeah. 
They want to know that they're 

527
00:29:43,240 --> 00:29:44,920
compliant. 
They're legally compliant, and 

528
00:29:44,920 --> 00:29:46,560
they're paying all the right 
taxes. 

529
00:29:46,560 --> 00:29:48,960
And they're, as I say, they're 
legally compliant. 

530
00:29:50,840 --> 00:29:53,640
But at the end of the day, you 
know, these are not the things 

531
00:29:53,640 --> 00:29:56,880
they're focusing on from a 
day-to-day basis because they've

532
00:29:56,880 --> 00:29:59,880
got an accountant who who looks 
after that and ensures that 

533
00:29:59,880 --> 00:30:02,360
they're, they're, they're, 
they're compliant and paying the

534
00:30:02,360 --> 00:30:04,320
right taxes. 
OK. 

535
00:30:04,320 --> 00:30:08,000
So basically I understand that 
you are worried about a 

536
00:30:08,000 --> 00:30:12,040
traditional financial accounting
not taking into account the 

537
00:30:12,040 --> 00:30:17,160
value of our brands and the 
value of internally generated 

538
00:30:17,200 --> 00:30:21,480
intangible assets, right. 
So that is not permitted in 

539
00:30:21,800 --> 00:30:24,640
traditional financial reporting.
And of course that is why we 

540
00:30:24,640 --> 00:30:27,240
have management accounting, 
right? 

541
00:30:27,320 --> 00:30:29,920
Yeah. 
And in terms of the management 

542
00:30:29,920 --> 00:30:33,720
accounting, management 
accounting reports are used for 

543
00:30:33,960 --> 00:30:38,240
internal consumption, internal 
consumption, for internal 

544
00:30:38,240 --> 00:30:41,360
decision making. 
So you could bring the value 

545
00:30:41,680 --> 00:30:45,320
evaluation experts, you know, 
and to value the brand, to value

546
00:30:45,320 --> 00:30:48,920
the intangible assets, 
internally generated intangible 

547
00:30:48,920 --> 00:30:53,000
assets off, you know, an entity 
and put that in the management 

548
00:30:53,000 --> 00:30:57,640
report and nobody is going to 
arrest you for that, right? 

549
00:30:57,640 --> 00:31:03,040
So for yeah, entities that are 
forward-looking that are 

550
00:31:03,240 --> 00:31:09,120
proactive and are commercially 
driven, they are allowed to do 

551
00:31:09,120 --> 00:31:11,800
that, right. 
And that is separate from the 

552
00:31:11,800 --> 00:31:16,080
financial statements, which is 
the traditional financial 

553
00:31:16,080 --> 00:31:21,960
reports that are governed by the
rules, Yeah, of the financial 

554
00:31:21,960 --> 00:31:26,440
reports and standards. 
So, yeah, look, I think yeah, so

555
00:31:26,480 --> 00:31:29,720
and I, I want to make sure that 
I'm not dismissing financial 

556
00:31:29,720 --> 00:31:31,280
reports. 
I think every business should 

557
00:31:31,280 --> 00:31:34,560
have a financial controller and 
a CFO at the right stage. 

558
00:31:34,560 --> 00:31:38,240
And we're big fans of getting 
them in and using the financials

559
00:31:38,240 --> 00:31:40,920
to help business owners make 
better informed decisions and 

560
00:31:40,920 --> 00:31:43,440
know what's affordable. 
And CFOs can do some really 

561
00:31:43,440 --> 00:31:45,800
clever stuff. 
And interestingly, the guy on 

562
00:31:45,800 --> 00:31:48,560
the last episode was actually a 
fraction of CFO. 

563
00:31:49,400 --> 00:31:50,760
Right. 
And we work with a lot of 

564
00:31:50,760 --> 00:31:53,320
fractional CFOs. 
And I know that, you know, and 

565
00:31:53,400 --> 00:31:56,680
I've worked a lot with the CFO 
center and, and they have taught

566
00:31:56,680 --> 00:32:01,600
me a hell of a lot around the 
clever stuff that CFOs can do in

567
00:32:01,600 --> 00:32:04,480
leveraging the money and getting
the debt equity, but ratios 

568
00:32:04,480 --> 00:32:06,520
right and, and the right level 
of funding. 

569
00:32:06,520 --> 00:32:08,880
And yeah. 
And what's available because 

570
00:32:08,920 --> 00:32:12,680
without what business, what many
business owners tend to want to 

571
00:32:12,680 --> 00:32:16,080
do by default is I go, well, we 
haven't got any debt, so we're 

572
00:32:16,080 --> 00:32:19,080
doing much better. 
Whereas, and you get ACFO in and

573
00:32:19,080 --> 00:32:21,200
they'll go, well, no, let's get 
some debt in place because we 

574
00:32:21,200 --> 00:32:24,160
can really leverage the business
up and accelerate the growth. 

575
00:32:24,160 --> 00:32:27,320
And it's a good thing to do. 
Whereas the default mindset is 

576
00:32:27,320 --> 00:32:30,760
debt is bad. 
So don't get me wrong, I'm not 

577
00:32:30,760 --> 00:32:33,840
against good financial reporting
and financial controls. 

578
00:32:33,920 --> 00:32:37,640
I'm just saying my suggestion is
that valuing a business based on

579
00:32:37,640 --> 00:32:40,920
assets is, is not a real 
reflection of the market 

580
00:32:40,920 --> 00:32:42,880
valuation of, of what a business
is. 

581
00:32:42,880 --> 00:32:48,080
And the the goodwill factor is, 
is it's almost it's meaningless 

582
00:32:48,280 --> 00:32:52,720
and or it's not meaningless, but
it's not helpful, I don't think 

583
00:32:52,800 --> 00:32:55,200
compared to a market based 
valuation. 

584
00:32:55,200 --> 00:32:59,120
And then you know to throw more 
confusion in, you get strategic 

585
00:32:59,120 --> 00:33:02,400
buyers who'll come in and 
they'll go well, I value the 

586
00:33:02,400 --> 00:33:05,600
business a whole lot higher 
because I can buy that business 

587
00:33:05,720 --> 00:33:10,560
as a going concern, plug it into
our operations. 

588
00:33:11,040 --> 00:33:14,440
And if I plug this business into
our operations, I'm up and 

589
00:33:14,440 --> 00:33:17,320
running so much quicker then it 
would take me to build a 

590
00:33:17,320 --> 00:33:20,480
business of that scale and size 
because it would take me years 

591
00:33:20,480 --> 00:33:24,080
to get up there. 
So there's an opportunity cost. 

592
00:33:24,800 --> 00:33:27,800
If I plug it into my business 
and then use their operations 

593
00:33:27,800 --> 00:33:31,080
and put my product through their
operations, I'm going to make so

594
00:33:31,080 --> 00:33:33,840
much more money from a value 
perspective. 

595
00:33:33,840 --> 00:33:35,400
They'll go, that's worth more to
me. 

596
00:33:35,640 --> 00:33:39,400
So they'll pay more than perhaps
a trade buyer would or a 

597
00:33:39,400 --> 00:33:41,200
financial buyer would for that 
business. 

598
00:33:41,200 --> 00:33:44,840
And so, so that's why we're 
saying before value is in the 

599
00:33:44,840 --> 00:33:47,960
eyes, it's the buyer who 
determines the value of any 

600
00:33:47,960 --> 00:33:50,520
sale. 
I believe that's from what I see

601
00:33:50,520 --> 00:33:52,720
in the marketplace. 
OK. 

602
00:33:54,080 --> 00:33:55,680
We've got a little bit off 
track, haven't we? 

603
00:33:56,480 --> 00:33:58,520
Yeah. 
But then I think I, I would 

604
00:33:58,560 --> 00:34:02,200
partially disagree with you on 
the part where you say the buyer

605
00:34:02,280 --> 00:34:09,159
is the determinant, right? 
Because I believe that is 

606
00:34:09,159 --> 00:34:12,480
partially correct. 
And I would actually would I 

607
00:34:12,480 --> 00:34:17,760
say, try to expertise on that. 
Interestingly, I am going to be 

608
00:34:17,760 --> 00:34:21,639
at UFC London tomorrow and the 
UFC is a brand that is very, 

609
00:34:21,639 --> 00:34:25,080
very dear to my heart. 
The White and the Fatito 

610
00:34:25,080 --> 00:34:29,560
brothers. 
They bought the UFC in 2001 and 

611
00:34:29,560 --> 00:34:34,719
you know it was just the UFC 
logo and an old ragged and 

612
00:34:34,719 --> 00:34:38,840
ratchet Octagon. 
They bought the UFC for 

613
00:34:38,840 --> 00:34:44,840
$2,000,000 and there was a 
company that had the right. 

614
00:34:44,840 --> 00:34:46,520
What was the asset value? 
They what'd you say? 

615
00:34:46,520 --> 00:34:48,679
They bought it for 2 million. 
Yes, the value for 2. 

616
00:34:48,679 --> 00:34:50,560
Million. 
What was the asset value of, you

617
00:34:50,560 --> 00:34:53,120
know, on the balance sheet at 
the time of that transaction? 

618
00:34:53,120 --> 00:34:56,080
What was the asset value? 
It was pretty much Neil, pretty 

619
00:34:56,080 --> 00:34:58,800
much rubbish because basically 
they just had some fighter 

620
00:34:58,800 --> 00:35:03,360
contracts and an Octagon that 
was not even in proper shape, 

621
00:35:03,360 --> 00:35:09,600
but they saw the value. 
Right potential, Right potential

622
00:35:09,600 --> 00:35:11,320
over credential is what they 
saw. 

623
00:35:11,320 --> 00:35:13,920
So the buyer determined that it 
was worth 2 mil. 

624
00:35:14,760 --> 00:35:17,120
Right. 
What's the marketplace? 

625
00:35:17,240 --> 00:35:20,880
It was the buyer who said if we 
pay 2 mil for this, we can turn 

626
00:35:20,880 --> 00:35:23,040
it into this. 
And that's our opportunity. 

627
00:35:23,440 --> 00:35:26,200
Because they had no assets, they
had a brand, they had a 

628
00:35:26,200 --> 00:35:29,400
reputation, they had a contact 
list, and they had a bit of a 

629
00:35:29,400 --> 00:35:31,160
history. 
And they've gone, yeah, the 

630
00:35:31,160 --> 00:35:32,800
history's not gone the way we 
want. 

631
00:35:32,800 --> 00:35:35,480
We reckon we can leverage it and
through our contacts and our 

632
00:35:35,480 --> 00:35:37,760
networks we get an amazing 
return. 

633
00:35:38,920 --> 00:35:41,040
You know, at the time, you know,
it was called human cock 

634
00:35:41,040 --> 00:35:43,160
fighting. 
And of course you saw the likes 

635
00:35:43,160 --> 00:35:47,000
of Senator John McCain as 
strongly advocating against, you

636
00:35:47,000 --> 00:35:50,600
know, the UFC in America. 
They were finding it difficult 

637
00:35:50,680 --> 00:35:54,040
to get sanctioned, you know, 
across different states in in 

638
00:35:54,040 --> 00:35:59,360
America, but they had to put in 
that work to get it to very easy

639
00:35:59,360 --> 00:36:00,240
day. 
And it's. 

640
00:36:00,240 --> 00:36:04,040
Not a world I know, but I'm just
sort of trying to apply some 

641
00:36:04,040 --> 00:36:08,000
commercial logic as as to. 
Yeah. 

642
00:36:08,520 --> 00:36:10,440
So it I think you wrote 
something. 

643
00:36:10,760 --> 00:36:17,640
In 2016, they were able to sell 
that brand to, I think it's a 

644
00:36:17,640 --> 00:36:21,920
Zoofer, so they sold it to Zoo 
for $4 billion. 

645
00:36:23,640 --> 00:36:25,760
And how many? 
What was the balance sheet value

646
00:36:25,760 --> 00:36:29,480
then? 
I I'm not close to the details. 

647
00:36:29,640 --> 00:36:31,480
We could find out, but I'm not 
close to the details. 

648
00:36:31,680 --> 00:36:36,040
But the balance sheet value is 
probably all cash in the bank or

649
00:36:36,040 --> 00:36:37,720
or the balance, I don't know, 
no. 

650
00:36:38,040 --> 00:36:42,040
Definitely as a 2016, definitely
they had, you know, like lots of

651
00:36:42,040 --> 00:36:44,640
land and property. 
You know, they have the UFC Apex

652
00:36:44,640 --> 00:36:47,120
in Las Vegas, they have the 
UFCPI. 

653
00:36:47,200 --> 00:36:51,880
So definitely they already had 
like solid tangible assets, 

654
00:36:51,880 --> 00:36:54,160
right, But they store. 
Properties. 

655
00:36:54,920 --> 00:36:58,080
Definitely yes, yes, definitely.
Did they have property to their 

656
00:36:58,080 --> 00:37:00,120
name right? 
But the properties that wouldn't

657
00:37:00,120 --> 00:37:02,160
have been, what'd you say it 
sold for 2 billion? 

658
00:37:02,320 --> 00:37:04,160
I don't think it's up to 2 
billion, right. 

659
00:37:04,600 --> 00:37:08,640
And that is? 
There's a whole lot of goodwill 

660
00:37:08,720 --> 00:37:10,360
there isn't. 
There, that's the intangible 

661
00:37:10,360 --> 00:37:12,960
asset, right? 
Because you see, you see how big

662
00:37:12,960 --> 00:37:15,520
the UFC brand is right now, 
right? 

663
00:37:15,920 --> 00:37:18,240
Yes, huge brand, huge brand 
value. 

664
00:37:18,720 --> 00:37:21,880
Very, very, very huge brand 
value, right. 

665
00:37:22,200 --> 00:37:28,440
But you see the thing with 
traditional accounting area on 

666
00:37:28,440 --> 00:37:32,200
the side of caution, right? 
That's what you need them to do.

667
00:37:33,360 --> 00:37:35,520
Yeah. 
It doesn't mean that it is 

668
00:37:35,560 --> 00:37:40,440
irrelevant, right, Because it is
just an aspect, you know of 

669
00:37:40,520 --> 00:37:43,320
reporting. 
And remember what I told you 

670
00:37:43,320 --> 00:37:47,680
about traditional financial 
reporting, It is about four 

671
00:37:48,040 --> 00:37:52,280
things, recognition, 
measurements, presentation and 

672
00:37:52,280 --> 00:37:54,640
disclosure, those four things, 
right? 

673
00:37:54,800 --> 00:37:56,840
And, and maybe you 
misunderstood, I didn't mean to 

674
00:37:56,840 --> 00:37:59,120
say traditional accountants were
irrelevant. 

675
00:37:59,760 --> 00:38:00,840
OK. 
And I hope that didn't. 

676
00:38:00,840 --> 00:38:02,600
Come across now we're 
convergence. 

677
00:38:03,280 --> 00:38:06,280
Yeah, I think some of the report
like, and as I say, I'm a big 

678
00:38:06,280 --> 00:38:07,800
fan. 
Look, everyone needs to get 

679
00:38:07,800 --> 00:38:09,760
their financials in order. 
They need to know what they can 

680
00:38:09,760 --> 00:38:12,040
afford because most businesses, 
you know, if they don't get 

681
00:38:12,040 --> 00:38:15,880
their cash flow right, they'll 
grow and and cripple themselves 

682
00:38:15,880 --> 00:38:18,880
with growth because they'll grow
too fast, they can grow too 

683
00:38:18,880 --> 00:38:21,840
fast. 
So yeah, I'm a big fan of 

684
00:38:21,840 --> 00:38:25,360
getting the numbers right. 
I just don't think the the 

685
00:38:25,360 --> 00:38:29,160
traditional, the old style ways 
of valuing a business is very 

686
00:38:29,160 --> 00:38:33,320
helpful in a modern marketplace.
I don't think of an asset based 

687
00:38:33,320 --> 00:38:37,520
valuation model is the right 
model in most situations. 

688
00:38:38,000 --> 00:38:40,640
I'm sure we'll find a we can 
find a way to go look at an 

689
00:38:40,640 --> 00:38:43,560
asset based valuation is the 
right way to value a business. 

690
00:38:43,760 --> 00:38:45,800
I think it's more the exception 
than the rule today. 

691
00:38:46,440 --> 00:38:49,440
I agree with you on that. 
An asset based valuation is, let

692
00:38:49,440 --> 00:38:53,760
me say a net asset based 
valuation, right is not always 

693
00:38:53,760 --> 00:38:55,880
the correct way to value a 
business. 

694
00:38:56,160 --> 00:38:58,200
That is absolutely correct, 
right? 

695
00:38:58,400 --> 00:39:04,440
Because the business is beyond 
just the physical assets, right?

696
00:39:04,440 --> 00:39:09,920
And that is why there is a whole
accounting standard aesthetic 

697
00:39:09,920 --> 00:39:13,880
that addresses intangible 
assets, right? 

698
00:39:13,880 --> 00:39:16,160
However, the constraint, you 
know, when it comes to the 

699
00:39:16,160 --> 00:39:21,720
financial reporting side is the 
fact that it does not allow you 

700
00:39:21,720 --> 00:39:27,800
to value those assets until a 
buyer has put a value to that 

701
00:39:27,800 --> 00:39:31,200
asset, right? 
And let's not come to the aspect

702
00:39:31,200 --> 00:39:34,440
where we talk about the buyer 
determining the value, right? 

703
00:39:34,440 --> 00:39:37,000
And of course, I think that is 
partially correct, right? 

704
00:39:37,480 --> 00:39:41,240
Why is that partially correct? 
Because the market forces of 

705
00:39:41,240 --> 00:39:45,160
demand and supply is what 
actually determines the value. 

706
00:39:45,480 --> 00:39:49,560
You know, we you are probably 
adopting A simplistic model 

707
00:39:49,560 --> 00:39:52,800
wherein you have just one buyer,
right? 

708
00:39:53,040 --> 00:39:55,960
But it's not in all cases 
wherein there's just one buyer. 

709
00:39:56,360 --> 00:40:02,480
Sometimes, you know, a brand is 
so is so attractive that it has 

710
00:40:02,480 --> 00:40:04,800
multiple buyers. 
And of course you know you would

711
00:40:04,800 --> 00:40:08,320
probably have beads and in the 
process of beading. 

712
00:40:08,960 --> 00:40:13,040
The brand to the business would 
actually go to the highest 

713
00:40:13,040 --> 00:40:14,640
bidder. 
And of course that's where your 

714
00:40:14,720 --> 00:40:18,440
economics comes in, right? 
Of course you have macro 

715
00:40:18,440 --> 00:40:20,000
economics, you have micro 
economics. 

716
00:40:20,120 --> 00:40:23,680
And of course you know there are
economic factors, right that 

717
00:40:23,800 --> 00:40:26,680
determine the price of a 
business. 

718
00:40:26,720 --> 00:40:33,600
So for example, the price of a 
business pre COVID is probably 

719
00:40:33,600 --> 00:40:37,320
higher of most businesses 
actually was actually higher 

720
00:40:37,320 --> 00:40:40,160
than what it was as at the COVID
era. 

721
00:40:40,160 --> 00:40:44,440
And the brand of certain would I
say tech companies right pre 

722
00:40:44,440 --> 00:40:50,120
COVID, right grew astronomically
after COVID. 

723
00:40:50,520 --> 00:40:54,960
So basically the market forces 
of demand and supply is what 

724
00:40:54,960 --> 00:41:01,080
truly determines the price are. 
You referring to stock prices? 

725
00:41:01,720 --> 00:41:05,120
And not stock prices. 
I'm talking about the valuation,

726
00:41:05,160 --> 00:41:06,600
right? 
You know, valuation actually 

727
00:41:06,600 --> 00:41:10,920
changes over time, so sometimes 
you have an increase in 

728
00:41:10,920 --> 00:41:14,880
valuation, right at a point in 
time and due to certain 

729
00:41:14,880 --> 00:41:18,400
circumstances, right, you could 
have also a fall in that 

730
00:41:18,400 --> 00:41:21,240
valuation. 
You have gains and losses in 

731
00:41:21,240 --> 00:41:23,920
valuation. 
But that's only visible for a 

732
00:41:23,920 --> 00:41:26,600
listed business. 
It's not visible in a private 

733
00:41:26,600 --> 00:41:29,720
business unless they are getting
evaluation that is not. 

734
00:41:29,800 --> 00:41:32,280
Visible. 
Well, unless they're getting 

735
00:41:32,280 --> 00:41:37,160
evaluation every year from a 
consistent source because 

736
00:41:37,240 --> 00:41:39,720
because their their accounts 
aren't published and then they 

737
00:41:39,720 --> 00:41:43,040
don't have a liquid marketplace 
for buying and share buying and 

738
00:41:43,040 --> 00:41:45,960
selling of their the business 
through shares. 

739
00:41:47,560 --> 00:41:52,000
Most, like private businesses, 
the the market for their shares 

740
00:41:52,000 --> 00:41:55,760
is closed. 
Yes, that that is very true. 

741
00:41:55,760 --> 00:42:00,000
But the fact that a valuation is
not done does not mean that a 

742
00:42:00,000 --> 00:42:02,600
valuation does not exist. 
Do you agree? 

743
00:42:02,600 --> 00:42:06,200
No, no, that's what I just said.
It's not visible unless they're 

744
00:42:06,200 --> 00:42:09,760
getting a valuation through the 
same source, the same consistent

745
00:42:09,760 --> 00:42:12,080
source of valuation year on 
year. 

746
00:42:12,280 --> 00:42:14,920
Exactly. 
Which I've never seen happen is 

747
00:42:14,920 --> 00:42:17,320
very rarely they. 
Really happens. 

748
00:42:17,480 --> 00:42:20,640
We're private businesses, right?
Yeah, that's what, yeah. 

749
00:42:20,960 --> 00:42:22,880
And and that's, and I'm just 
wondering if we're getting 

750
00:42:22,880 --> 00:42:26,240
confused by comparing listed 
businesses where, where they 

751
00:42:26,240 --> 00:42:29,440
have full transparency and they 
have to comply with a whole lot 

752
00:42:29,440 --> 00:42:33,160
more accounting regulations so 
that we can equalize things and 

753
00:42:33,360 --> 00:42:37,000
compare them similarly to small 
businesses that, that are 

754
00:42:37,000 --> 00:42:39,640
privately owned or or I should 
just say privately owned 

755
00:42:39,640 --> 00:42:42,840
businesses where they don't have
those obligations or 

756
00:42:42,840 --> 00:42:47,160
requirements placed on them. 
They've got some requirements 

757
00:42:47,160 --> 00:42:51,120
that they need to comply with 
obviously, but their valuation 

758
00:42:51,120 --> 00:42:54,720
is is just not readily visible. 
OK. 

759
00:42:55,400 --> 00:42:57,320
Unless they're, they're selling 
shares. 

760
00:42:57,320 --> 00:43:00,480
You know, an exception that I'm 
familiar with, which that I'm 

761
00:43:00,480 --> 00:43:04,000
seeing is, is if there's a 
market, an internal market 

762
00:43:04,000 --> 00:43:08,760
within the business where 
employees are buying shares for,

763
00:43:08,760 --> 00:43:12,080
through an employee share 
ownership plan, which is 

764
00:43:12,120 --> 00:43:15,520
becoming more popular and, and, 
and big advocate of that, by the

765
00:43:15,520 --> 00:43:17,960
way. 
But again, you know, every year 

766
00:43:17,960 --> 00:43:21,000
we, we'd, we'd look at the 
financials, we, we might compare

767
00:43:21,000 --> 00:43:24,200
evaluation then and you'd, you'd
have a look at what the 

768
00:43:24,200 --> 00:43:27,080
valuation is and hopefully the 
valuation's grown and then all 

769
00:43:27,080 --> 00:43:30,040
the employees can see, well, the
shares we bought last year have 

770
00:43:30,040 --> 00:43:32,880
increased in valuation. 
I'm keen to go again, buy some 

771
00:43:32,880 --> 00:43:34,400
more. 
And then the founders are 

772
00:43:34,400 --> 00:43:38,560
gradually selling down through 
this mechanism, this internally 

773
00:43:38,800 --> 00:43:42,480
created market that they've 
stimulated which wouldn't 

774
00:43:42,480 --> 00:43:45,680
normally exist otherwise. 
OK. 

775
00:43:45,960 --> 00:43:50,120
So I think in some way we've 
actually reached a London, 

776
00:43:50,120 --> 00:43:53,480
right. 
So I sort of agree with you, 

777
00:43:53,560 --> 00:43:59,400
right, that the buyer does 
determine the price, right, but 

778
00:43:59,680 --> 00:44:02,960
does not independently determine
the price, right? 

779
00:44:02,960 --> 00:44:07,040
Because the price that a buyer 
would actually throw at a 

780
00:44:07,040 --> 00:44:11,760
business or for a business is 
actually informed by certain 

781
00:44:11,760 --> 00:44:14,920
factors, right? 
And what actually informs that 

782
00:44:14,960 --> 00:44:22,320
buyer to put or to peg a 
particular price on that 

783
00:44:22,320 --> 00:44:25,400
business? 
Look, I might be being pedantic 

784
00:44:25,400 --> 00:44:28,600
here, but and it could be a 
language piece. 

785
00:44:29,080 --> 00:44:33,520
So the price is like we go back 
to the pair of jeans example, 

786
00:44:33,760 --> 00:44:37,800
the price that the seller 
determines the price, whether 

787
00:44:37,800 --> 00:44:42,280
it's $10.00 for the jeans at 
Walmart, Asda or if it's $200 

788
00:44:42,280 --> 00:44:45,040
for a pair of jeans with a 
designer label, The seller said 

789
00:44:45,040 --> 00:44:48,800
I'm going to sell them for $200.
The buyer can then come along 

790
00:44:48,800 --> 00:44:52,440
and say I think it's worth $200.
I'll buy it or they'll go, I'm 

791
00:44:52,440 --> 00:44:54,160
not paying $200 for a pair of 
jeans. 

792
00:44:54,160 --> 00:44:56,120
That's ridiculous. 
I don't see value in that. 

793
00:44:56,440 --> 00:44:59,800
They won't buy it. 
So that's what I mean when I say

794
00:44:59,800 --> 00:45:02,600
look, the seller sets the price 
and determines the price. 

795
00:45:02,880 --> 00:45:06,080
The buyer determines if that, if
they think that price is 

796
00:45:06,080 --> 00:45:10,560
valuable when it comes to 
selling a business, it's a bit 

797
00:45:10,560 --> 00:45:13,600
more of a negotiation as as you 
were alluding to earlier. 

798
00:45:14,000 --> 00:45:16,440
And it's, you know, it's a one 
off business. 

799
00:45:16,440 --> 00:45:18,280
You've only got 1 business that 
looks like this. 

800
00:45:18,280 --> 00:45:20,720
We've got to come to agreement. 
Well, I'm happy to sell it for 

801
00:45:20,720 --> 00:45:22,840
this price and you've got to 
make an offer and I'll go Yeah. 

802
00:45:23,560 --> 00:45:27,080
And we'll, we'll do a bit of 
horse trading in between and 

803
00:45:27,080 --> 00:45:30,920
and, and I really like your 
point of we really want to get 

804
00:45:30,920 --> 00:45:34,120
the business to a point where 
it's attractive to more than one

805
00:45:34,120 --> 00:45:37,720
buyer because if you've got more
than one buyer or more than one 

806
00:45:37,720 --> 00:45:38,600
person. 
Interested. 

807
00:45:38,600 --> 00:45:40,600
You have that invisible hand in 
action. 

808
00:45:40,600 --> 00:45:43,280
Yeah, yeah, you get some 
competitive tension, which 

809
00:45:43,280 --> 00:45:48,760
though it's more likely they 
will spend or they'll pay their 

810
00:45:48,760 --> 00:45:52,200
true valuation because they'll 
have done, they'll, they'll look

811
00:45:52,200 --> 00:45:54,640
at all of your, they'll do due 
diligence on your business and 

812
00:45:54,640 --> 00:45:56,680
they'll look at all that, 
they'll pick it all over. 

813
00:45:56,680 --> 00:45:59,280
They'll really want to 
understand your business and I 

814
00:45:59,280 --> 00:46:01,800
need to be able to learn about 
your business by pulling your 

815
00:46:01,800 --> 00:46:04,680
financials apart. 
So you absolutely need good 

816
00:46:04,680 --> 00:46:08,960
financial record keeping to to 
the standards and, and they'll 

817
00:46:08,960 --> 00:46:12,520
want to have a look at your 
accounts and they'll go based on

818
00:46:12,520 --> 00:46:16,760
this and the opportunity that we
see of buying this business, 

819
00:46:17,040 --> 00:46:20,440
it's worth this much to us. 
We're, it's a bit like an 

820
00:46:20,440 --> 00:46:22,760
auction, I guess. 
They'll go, we're prepared to 

821
00:46:22,760 --> 00:46:26,240
pay this much for the business 
10/20/50 mil, whatever it is. 

822
00:46:26,480 --> 00:46:28,720
We're prepared to pay this much.
We're not prepared to pay 

823
00:46:28,720 --> 00:46:31,840
anymore. 
And if the seller says I'm not 

824
00:46:31,840 --> 00:46:35,040
going to sell it for that much, 
then they won't achieve a deal. 

825
00:46:35,720 --> 00:46:38,360
If the seller says, yeah, you're
going to give me that much, 

826
00:46:38,360 --> 00:46:40,880
Yeah, that's, that's with what I
think it's worth. 

827
00:46:40,880 --> 00:46:43,960
I want to sell it for that much.
And and then there's a chance 

828
00:46:43,960 --> 00:46:46,480
that they'll they'll, they'll 
agree a deal and they'll, you 

829
00:46:46,480 --> 00:46:49,120
know, the seller thinks it's 
good value and the buyer thinks 

830
00:46:49,120 --> 00:46:51,600
it's good value. 
And when you achieve that 

831
00:46:51,600 --> 00:46:54,800
harmony, you know, you'll get a 
deal and everyone will walk away

832
00:46:54,800 --> 00:46:57,320
happy. 
But there's a lot more tension 

833
00:46:57,320 --> 00:46:59,840
and chewing and froing when 
you're selling a business 

834
00:47:00,640 --> 00:47:03,160
compared to a nice simple 
example of a pair of jeans. 

835
00:47:04,000 --> 00:47:07,240
But that never. 
I'm just trying to explain where

836
00:47:07,240 --> 00:47:11,000
we're hoping, where, where I 
guess our perspectives are 

837
00:47:11,000 --> 00:47:13,520
slightly different, which is we 
are actually. 

838
00:47:13,520 --> 00:47:15,800
Converging right now and of 
course, I love what you just 

839
00:47:15,800 --> 00:47:19,800
said, right? 
Because you are just alluding 

840
00:47:19,840 --> 00:47:24,000
and corroborating with the 
market forces of demand and 

841
00:47:24,000 --> 00:47:29,040
supply, right? 
The buy, the seller set a price,

842
00:47:29,160 --> 00:47:35,040
the buyer sees it and says 
whether he agrees with that or 

843
00:47:35,040 --> 00:47:37,720
not, right. 
Market forces of demand and 

844
00:47:37,720 --> 00:47:41,880
supply simple in action, right? 
Even in the situation where you 

845
00:47:41,880 --> 00:47:46,920
have just one buyer, right, it's
still the market forces of 

846
00:47:46,920 --> 00:47:50,240
demand and supply because. 
And they definitely if it's. 

847
00:47:50,240 --> 00:47:52,240
Just one buyer. 
It means that it's not 

848
00:47:52,240 --> 00:47:54,280
attractive enough to the other 
to other buyers. 

849
00:47:55,200 --> 00:47:56,400
For sure. 
Yeah, yeah, yeah. 

850
00:47:56,800 --> 00:47:58,720
Still market forces of demand 
and supply. 

851
00:47:59,600 --> 00:48:02,040
OK. 
You see, we should landed. 

852
00:48:04,280 --> 00:48:06,840
I'm not I'm not sure we we have 
finally used to landed. 

853
00:48:06,880 --> 00:48:11,920
You get it, you know, it's 
economics, you know, in commerce

854
00:48:12,600 --> 00:48:15,920
playing out. 
Basically it's the invisible 

855
00:48:15,920 --> 00:48:19,080
hand. 
If a business is is attractive 

856
00:48:19,080 --> 00:48:23,000
enough, right, there will be 
multiple buyers beaten and of 

857
00:48:23,000 --> 00:48:26,880
course that final value that 
they would even arrive at is 

858
00:48:26,880 --> 00:48:35,800
still worth that equilibrium 
price, which is decided by the 

859
00:48:35,800 --> 00:48:38,520
market forces of demand and and 
supply. 

860
00:48:38,680 --> 00:48:44,840
So let's talk about, you know, 
the risk in you often talk about

861
00:48:44,840 --> 00:48:48,480
the risk in the deal. 
So what are the biggest risks 

862
00:48:48,480 --> 00:48:51,160
you know buyers see in founder 
LED businesses? 

863
00:48:52,280 --> 00:48:55,480
Well, I think we've touched on 
them, but to to recap, so the 

864
00:48:55,480 --> 00:48:58,760
risks are what are the 
likelihood of the revenue 

865
00:48:58,760 --> 00:49:00,440
pattern. 
So a buyer will look at the 

866
00:49:00,440 --> 00:49:03,920
revenue pattern from the last 
few years and go what's the 

867
00:49:03,920 --> 00:49:07,520
likelihood of that revenue 
pattern continuing under new 

868
00:49:07,520 --> 00:49:10,360
ownership? 
So the biggest risks is how much

869
00:49:10,360 --> 00:49:13,760
involvement do the current 
owners have in that revenue 

870
00:49:13,760 --> 00:49:16,440
generation pattern or that 
profit generation pattern. 

871
00:49:16,840 --> 00:49:19,960
So there's the biggest risks and
then the things that influence 

872
00:49:19,960 --> 00:49:24,640
that, that that outcome, that 
pattern, the management team, 

873
00:49:24,720 --> 00:49:27,080
how robust and how strong is the
management team? 

874
00:49:27,320 --> 00:49:29,760
And what's the likelihood of 
that management team playing 

875
00:49:29,760 --> 00:49:32,120
staying in place after a change 
of ownership? 

876
00:49:33,480 --> 00:49:35,240
How was your revenue 
constructed? 

877
00:49:35,240 --> 00:49:38,320
Is it is it one off purchases? 
Is it subscriptions? 

878
00:49:38,320 --> 00:49:40,520
Is it contracts? 
What's the nature of your 

879
00:49:40,520 --> 00:49:45,640
revenue, your staff turnover? 
How how skilled and, and how 

880
00:49:45,640 --> 00:49:47,760
loyal are your staff? 
How long do they stay? 

881
00:49:47,760 --> 00:49:49,760
And what's the culture of the 
organization? 

882
00:49:50,520 --> 00:49:53,240
Are they all motivated and 
aligned and incentivized to the 

883
00:49:53,240 --> 00:49:56,240
same outcomes? 
Have you got any IP? 

884
00:49:56,240 --> 00:49:58,440
Are you known for anything in 
the marketplace? 

885
00:49:58,440 --> 00:50:02,480
Are people being attracted to 
your business because of your 

886
00:50:02,480 --> 00:50:04,560
people, specific people in the 
business? 

887
00:50:04,560 --> 00:50:07,120
Or are they attracted to the 
brand or the IP, the 

888
00:50:07,120 --> 00:50:09,200
intellectual property that 
you've got in your business? 

889
00:50:09,440 --> 00:50:13,080
So, so there's a, a quick, you 
know, rundown of, of some of the

890
00:50:13,080 --> 00:50:17,360
key influences to to have that 
valuation will will stick and 

891
00:50:17,640 --> 00:50:20,720
attract attract people to want 
to keep talking and and perhaps 

892
00:50:20,720 --> 00:50:24,880
find a deal. 
So talking about the N outs, 

893
00:50:24,880 --> 00:50:27,120
right? 
So why do so many business 

894
00:50:27,160 --> 00:50:32,960
owners end up regretting them? 
And of course, like how can they

895
00:50:32,960 --> 00:50:37,880
avoid being stock post exits? 
OK. 

896
00:50:37,880 --> 00:50:40,680
So I guess we need to clarify 
the difference between an earn 

897
00:50:40,680 --> 00:50:44,280
out and a deferred payment. 
So a deferred payment is locked 

898
00:50:44,280 --> 00:50:47,240
in and it just will get paid 
over time assuming everyone's 

899
00:50:47,240 --> 00:50:51,240
credible, but they're they're 
not contractually at risk. 

900
00:50:51,320 --> 00:50:54,560
An earn out is when we go, hey 
look, you want to sell your 

901
00:50:54,560 --> 00:50:57,520
business for this number, I 
think it's worth a lesser 

902
00:50:57,520 --> 00:51:01,520
number. 
But if you stay and help achieve

903
00:51:01,800 --> 00:51:06,000
these these goals over the next 
couple of years, the next two or

904
00:51:06,000 --> 00:51:11,680
three years is a common period. 
Then we will pay you these sort 

905
00:51:11,680 --> 00:51:14,520
of bonus payments that will get 
you up closer to the number you 

906
00:51:14,520 --> 00:51:17,960
think. 
Now the problem is that most 

907
00:51:17,960 --> 00:51:21,280
business owners have and the 
struggles where these occur is, 

908
00:51:21,320 --> 00:51:23,320
is they fall into two camps. 
Really. 

909
00:51:24,000 --> 00:51:26,920
The first camp is that the owner
is no longer the owner. 

910
00:51:26,920 --> 00:51:29,400
They're now an employee working 
for someone else. 

911
00:51:29,720 --> 00:51:32,160
And they don't agree with the 
direction or the way that the 

912
00:51:32,160 --> 00:51:35,040
new leadership team, the new 
ownership are handling and 

913
00:51:35,040 --> 00:51:37,520
running the business. 
And they can no longer call the 

914
00:51:37,520 --> 00:51:39,160
shots. 
They're used to, you know, being

915
00:51:39,160 --> 00:51:41,600
in control and running the 
business themselves. 

916
00:51:41,880 --> 00:51:45,520
They can no longer call the 
shots on how, you know, 

917
00:51:45,520 --> 00:51:47,000
decisions are made in the 
business. 

918
00:51:47,280 --> 00:51:49,840
And they get frustrated with 
that and they'll, they'll walk 

919
00:51:49,840 --> 00:51:51,560
away and leave money on the 
table. 

920
00:51:52,640 --> 00:51:54,120
That's one way they get 
frustrated. 

921
00:51:55,080 --> 00:51:58,800
The other big area, the other 
area that that can be risky for 

922
00:51:58,800 --> 00:52:03,080
business owners who agree to an 
earn out is they go, they don't 

923
00:52:03,080 --> 00:52:06,200
get clarity around what the earn
out terms are. 

924
00:52:06,240 --> 00:52:08,480
They're just vague, open 
promises. 

925
00:52:08,480 --> 00:52:12,080
And, and the problem with that 
is there's no clarity and the 

926
00:52:12,080 --> 00:52:15,120
new owners can move the goal 
posts, they can change the way 

927
00:52:15,120 --> 00:52:17,520
they're running the business, 
which is totally within their 

928
00:52:17,520 --> 00:52:21,520
right, which then ends up making
it impossible or very difficult 

929
00:52:21,520 --> 00:52:23,760
for the old owners. 
The founders to achieve the 

930
00:52:23,760 --> 00:52:26,880
targets that that they had to 
try and achieve to get their 

931
00:52:26,880 --> 00:52:30,440
achieve the earn out payments. 
And so that's the second area 

932
00:52:30,440 --> 00:52:33,040
that the rules of the game have 
changed effectively. 

933
00:52:33,160 --> 00:52:36,240
And so again, if we're an earn 
out, all the risk is on the 

934
00:52:36,240 --> 00:52:40,280
founders of the business and 
they very rarely are successful.

935
00:52:40,800 --> 00:52:46,160
So are you are being an expert 
in helping businesses? 

936
00:52:46,200 --> 00:52:51,560
You know the founders with the 
exits process, but there has to 

937
00:52:51,560 --> 00:52:57,480
be a mindset shift where you are
switching from running a 

938
00:52:57,480 --> 00:53:00,080
business to preparing it for 
sale. 

939
00:53:00,720 --> 00:53:05,720
So what are the mindset shifts 
that these entrepreneurs have to

940
00:53:05,720 --> 00:53:09,400
take on? 
So the first one is, is the one 

941
00:53:09,400 --> 00:53:12,880
we've touched on already where 
they need to make that shift 

942
00:53:12,880 --> 00:53:15,560
from. 
And this is the big one, you 

943
00:53:15,560 --> 00:53:18,320
know, from thinking about profit
growth to valuation growth. 

944
00:53:18,760 --> 00:53:21,640
And the only way that happens is
if they are getting regular 

945
00:53:21,640 --> 00:53:25,680
valuations from a third party, 
an independent valuation 

946
00:53:25,680 --> 00:53:30,080
specialist who does valuations 
all the time and and they're 

947
00:53:30,080 --> 00:53:33,400
using a consistent approach. 
So they're reliable experts. 

948
00:53:34,560 --> 00:53:36,560
So they're doing it from a 
valuation performance 

949
00:53:37,120 --> 00:53:39,760
perspective rather than a 
taxation perspective, for 

950
00:53:39,760 --> 00:53:43,400
example, and to try to create 
that market valuation through a 

951
00:53:43,400 --> 00:53:46,520
buyer's lens. 
Now, if they're doing that 

952
00:53:46,520 --> 00:53:49,440
regularly, then they can see the
valuation growth each year and 

953
00:53:49,440 --> 00:53:52,200
then they'll start looking at 
all of the things that the 

954
00:53:52,200 --> 00:53:55,440
business owners need to do to be
working on their business rather

955
00:53:55,440 --> 00:53:58,920
than working in the business. 
And it's, it's all the things 

956
00:53:58,920 --> 00:54:00,840
we've already discussed. 
It's going how do I build a 

957
00:54:00,840 --> 00:54:02,760
brand? 
How do I build some intellectual

958
00:54:02,760 --> 00:54:06,400
property and process methodology
that people will be attracted to

959
00:54:06,400 --> 00:54:10,120
that rather than coming to the 
people in the business because 

960
00:54:10,320 --> 00:54:12,200
Tom, Dick or Harry work in my 
business? 

961
00:54:12,720 --> 00:54:15,720
How do I build the culture of 
the organization so that I get 

962
00:54:15,720 --> 00:54:19,120
people performing at a higher 
level and, and being more loyal 

963
00:54:19,120 --> 00:54:22,280
and staying longer? 
How do I, what are the things I 

964
00:54:22,280 --> 00:54:25,120
need to do to improve my 
marketing so that I get a better

965
00:54:25,120 --> 00:54:28,680
flow of clients who are ready to
do business with me because they

966
00:54:28,680 --> 00:54:31,280
know what's special about my 
business and they want to do a 

967
00:54:31,280 --> 00:54:34,200
business with me rather than 
just shopping around and and 

968
00:54:34,200 --> 00:54:37,040
comparing prices. 
So all of the things that 

969
00:54:38,000 --> 00:54:42,920
improve brand and improve cash 
flow, reliability and retention 

970
00:54:43,080 --> 00:54:46,320
are all the sort of things we're
looking at and and things and 

971
00:54:46,320 --> 00:54:51,200
eliminating owner dependence. 
So basically, Ward separates 

972
00:54:51,200 --> 00:54:54,840
those owners who walk away 
satisfied from the deal and 

973
00:54:54,840 --> 00:54:57,040
those owners who end up being 
disappointed. 

974
00:54:57,120 --> 00:55:00,920
I think the ones who walk away 
satisfied have prepared their 

975
00:55:00,920 --> 00:55:02,760
business. 
They've done some preparation. 

976
00:55:02,800 --> 00:55:05,600
They have a realistic 
perspective of how their 

977
00:55:05,600 --> 00:55:09,080
business will be valued from an 
external perspective rather than

978
00:55:09,080 --> 00:55:11,760
from their perspective. 
And they know they've they've 

979
00:55:11,760 --> 00:55:14,720
done some education and they've 
learned what's required to go 

980
00:55:14,720 --> 00:55:17,720
through an exit transition. 
So they know what's coming, They

981
00:55:17,720 --> 00:55:20,800
know how long it's going to, and
they know they've prepared the 

982
00:55:20,800 --> 00:55:26,120
business to minimize their earn 
out and ongoing obligations, so 

983
00:55:26,440 --> 00:55:28,720
they're more likely to have 
their expectations met. 

984
00:55:29,120 --> 00:55:32,000
They'll be happy. 
Those that are unhappy are the 

985
00:55:32,000 --> 00:55:33,880
ones who have done no 
preparation. 

986
00:55:34,160 --> 00:55:36,920
They just get to a .1 day and 
they go right, I want to sell my

987
00:55:36,920 --> 00:55:38,680
business. 
They'll find a broker, a 

988
00:55:38,680 --> 00:55:41,840
corporate finance, MA specialist
and they'll just put their 

989
00:55:41,840 --> 00:55:44,440
business on the market. 
They've done no preparation, so 

990
00:55:44,520 --> 00:55:48,520
everything that happens is a bit
of a surprise and they'll 

991
00:55:49,200 --> 00:55:52,200
they'll go through the process. 
It'll be quite a painful process

992
00:55:52,200 --> 00:55:54,920
because they haven't done any 
work in preparing it and and 

993
00:55:54,920 --> 00:55:57,640
they are unlikely to, because 
their expectations are 

994
00:55:57,640 --> 00:56:00,240
unreasonable. 
They'll be unlikely to achieve a

995
00:56:00,240 --> 00:56:04,360
deal that they expect to happen.
So they'll they'll end up 

996
00:56:04,360 --> 00:56:09,240
feeling disappointed. 
But there's something a lot of 

997
00:56:09,240 --> 00:56:15,080
business owners who want to make
an exit like to say, and that is

998
00:56:15,120 --> 00:56:21,680
exiting on your own terms. 
So, in your own words, or your 

999
00:56:21,680 --> 00:56:25,120
own definition, or your own 
experience, what does it truly 

1000
00:56:25,120 --> 00:56:29,280
mean to exit on your own terms? 
To exit on your terms is, is 

1001
00:56:29,280 --> 00:56:31,000
that former that we just 
discussed. 

1002
00:56:31,000 --> 00:56:33,520
It's when you've done the 
preparation, so you know what's 

1003
00:56:33,520 --> 00:56:36,400
coming. 
So you set the time frame. 

1004
00:56:36,880 --> 00:56:38,280
You know, you've prepared your 
business. 

1005
00:56:38,280 --> 00:56:41,840
Your business is exit ready. 
You're ready for exit. 

1006
00:56:41,840 --> 00:56:43,720
You know what? 
You're gonna move on to it. 

1007
00:56:43,720 --> 00:56:46,160
You, you, you've got a plan. 
You've got a vision for what 

1008
00:56:46,160 --> 00:56:48,080
you're gonna do next in your 
next chapter. 

1009
00:56:48,480 --> 00:56:51,000
You're you're not just gonna be 
sitting on the beach drinking 

1010
00:56:51,000 --> 00:56:53,720
pina coladas because you'll get 
bored with that after a couple 

1011
00:56:53,720 --> 00:56:55,760
of weeks. 
You know what's happening after 

1012
00:56:55,760 --> 00:56:59,800
that and you've got a realistic 
valuation of the numbers. 

1013
00:56:59,920 --> 00:57:02,520
So the numbers are going to work
for you because you've done some

1014
00:57:02,520 --> 00:57:05,600
personal financial planning, 
you've probably spoken to a 

1015
00:57:05,600 --> 00:57:08,760
wealth manager and you know 
what, how much investments you 

1016
00:57:08,760 --> 00:57:11,400
need to live the lifestyle you 
want. 

1017
00:57:11,400 --> 00:57:14,400
After you exit the business, 
you've transferred the assets, 

1018
00:57:14,400 --> 00:57:17,560
you've got a plan in place. 
You know it's on your terms. 

1019
00:57:18,080 --> 00:57:21,640
If you do no preparation, that's
when you're selling your 

1020
00:57:21,640 --> 00:57:26,280
business to someone who's likely
bought businesses before, you've

1021
00:57:26,920 --> 00:57:30,600
unlikely sold a business before.
And so therefore, if you're 

1022
00:57:30,600 --> 00:57:33,120
selling it to someone who's 
bought many, they know the 

1023
00:57:33,120 --> 00:57:36,600
tricks of the trade. 
And, and if you're not prepared,

1024
00:57:36,600 --> 00:57:38,280
you'll get pushed around 
somewhat. 

1025
00:57:38,280 --> 00:57:40,320
If you haven't done your 
homework, you get pushed around,

1026
00:57:40,320 --> 00:57:43,320
you get bullied and and you're 
you're going to be doing it on 

1027
00:57:43,320 --> 00:57:45,320
their terms more so than your 
terms. 

1028
00:57:45,920 --> 00:57:47,320
So they're calling the. 
Shots. 

1029
00:57:47,600 --> 00:57:51,480
So, so from your experience, are
you able to share like a real 

1030
00:57:51,480 --> 00:57:56,040
life case where a founder was 
able to transform their business

1031
00:57:56,040 --> 00:58:01,160
from an unsellable brand to 
something that is highly 

1032
00:58:01,160 --> 00:58:03,560
desirable and they had a good 
exit? 

1033
00:58:04,880 --> 00:58:06,880
Yeah. 
So, so there's one in particular

1034
00:58:06,880 --> 00:58:08,840
that I can think of and 
obviously I can't give you any 

1035
00:58:08,840 --> 00:58:10,360
names. 
And no names required. 

1036
00:58:10,360 --> 00:58:14,600
Please anonymity. 
And they, they were, they were 

1037
00:58:14,760 --> 00:58:17,200
pretty much as I'll say they're 
a service business. 

1038
00:58:17,200 --> 00:58:19,680
They, they, they work with 
people and, and placing 

1039
00:58:19,680 --> 00:58:24,400
expertise, but they had no brand
recognition that the owners 

1040
00:58:24,400 --> 00:58:27,080
were, were living from hand to 
mouth and taking money out of 

1041
00:58:27,080 --> 00:58:30,760
the business and then as much as
they could as regularly as they 

1042
00:58:30,760 --> 00:58:34,040
could. 
So they didn't have any control 

1043
00:58:34,040 --> 00:58:36,880
of the finances. 
So one of the first things we 

1044
00:58:36,880 --> 00:58:39,120
did is we said right, we need to
get the business to the point 

1045
00:58:39,320 --> 00:58:41,400
where we've got control of the 
cash flow. 

1046
00:58:41,680 --> 00:58:44,640
So you know, you've got a 
visible runway of what's 

1047
00:58:44,640 --> 00:58:47,320
happening with the cash flow. 
So we bought that under control.

1048
00:58:47,320 --> 00:58:50,000
We we got them caught up with 
their tax payments because they 

1049
00:58:50,000 --> 00:58:52,440
were getting behind with those 
because they they were spending 

1050
00:58:52,440 --> 00:58:56,040
the cash flow and that they were
just spending the money by gut 

1051
00:58:56,040 --> 00:58:58,080
feel. 
So they now had a runway of the 

1052
00:58:58,080 --> 00:59:01,600
cash flow based on the contracts
and the work they were getting. 

1053
00:59:01,840 --> 00:59:06,920
We got in a dedicated MD type of
person who facilitated. 

1054
00:59:06,920 --> 00:59:11,400
So he and the fractional finance
person were running the business

1055
00:59:11,400 --> 00:59:14,560
from a controlled perspective 
and producing regular reports, 

1056
00:59:14,560 --> 00:59:19,040
both financial and operational 
reports to the shareholders were

1057
00:59:19,040 --> 00:59:21,800
who were involved on the board. 
And we really got the business 

1058
00:59:21,800 --> 00:59:25,200
operating functionally and from 
a controlled perspective. 

1059
00:59:25,200 --> 00:59:28,400
So it was no longer being run 
from memory and from gut feel. 

1060
00:59:28,800 --> 00:59:32,480
Everything was through reports 
and plans and, and informed 

1061
00:59:32,480 --> 00:59:37,880
perspective that enabled them to
create budgets and keep the, the

1062
00:59:37,880 --> 00:59:41,160
MD accountable to the budgets 
and set plans because he knew he

1063
00:59:41,160 --> 00:59:43,680
had the cash flow available on 
what he could do and how he 

1064
00:59:43,680 --> 00:59:46,240
could run the business. 
And that business, I think we've

1065
00:59:46,240 --> 00:59:49,200
got like a like it was a fairly 
small business to start with, 

1066
00:59:49,520 --> 00:59:53,560
but over three years they 
tripled in size from a revenue 

1067
00:59:53,560 --> 00:59:56,400
perspective and their valuation 
went up four times. 

1068
00:59:56,960 --> 00:59:59,760
That's yes. 
That's the mandate of controls 

1069
00:59:59,760 --> 01:00:02,040
in place. 
That is really tremendous. 

1070
01:00:02,240 --> 01:00:06,480
But you know, have you ever seen
a business that is deemed too 

1071
01:00:06,480 --> 01:00:11,000
late in its life cycle to 
salvage for a good exit? 

1072
01:00:12,480 --> 01:00:14,960
Oh yeah, all the time we get 
often we get approached by 

1073
01:00:14,960 --> 01:00:17,840
business owners you go, hey, I 
want, I want to help prepare my 

1074
01:00:17,840 --> 01:00:19,960
business for exit. 
And we go great, what's your 

1075
01:00:19,960 --> 01:00:21,720
timeline? 
What's your, your runway look 

1076
01:00:21,720 --> 01:00:23,280
like? 
Oh, we want to sell it this year

1077
01:00:23,800 --> 01:00:27,600
and you go good luck because you
know to get exit ready. 

1078
01:00:27,600 --> 01:00:29,400
Yeah. 
Look, we can, we can work with 

1079
01:00:29,400 --> 01:00:32,120
an accountant and tidy up your 
financials or a CFO. 

1080
01:00:32,120 --> 01:00:35,280
You can get your financials 
tidied up and and they can make 

1081
01:00:35,280 --> 01:00:38,600
some adjustments, but and 
that'll tweak your 

1082
01:00:38,600 --> 01:00:40,920
profitability. 
You're not going to get any 

1083
01:00:40,920 --> 01:00:44,200
opportunity to tweak the 
multiplier that will be applied 

1084
01:00:44,200 --> 01:00:47,840
to evaluation because the 
multiple on your profitability 

1085
01:00:47,840 --> 01:00:50,680
is, is a factor. 
It's a measure assessment of 

1086
01:00:50,680 --> 01:00:54,280
risk and your business, if 
you're involved in the business,

1087
01:00:54,280 --> 01:00:56,920
it's too dependent on you. 
Everything's in your head. 

1088
01:00:57,160 --> 01:01:00,280
You're doing it from memory. 
When you go, all that history 

1089
01:01:00,280 --> 01:01:03,840
disappears with it. 
So you know the new owner 

1090
01:01:03,840 --> 01:01:07,720
doesn't have a handbook, so to 
say, speak to go here's how I 

1091
01:01:07,720 --> 01:01:10,240
run the business. 
So if you buy a new iPhone, you 

1092
01:01:10,240 --> 01:01:12,920
get an owner's manual with it 
and a quick start guide. 

1093
01:01:13,120 --> 01:01:15,720
So you know, for new users, you 
know how to you know what you 

1094
01:01:15,720 --> 01:01:19,000
need to do quickly to get up and
running and if you want to learn

1095
01:01:19,000 --> 01:01:21,440
the advanced features. 
So you've got a complete owner's

1096
01:01:21,440 --> 01:01:24,440
manual there. 
Too many business owners are 

1097
01:01:24,440 --> 01:01:26,880
actually trying to exit their 
business without providing a 

1098
01:01:26,880 --> 01:01:29,320
quick start guide or an owner's 
manual. 

1099
01:01:29,680 --> 01:01:33,400
And and that's detrimental to 
the valuation of their business.

1100
01:01:33,400 --> 01:01:36,240
They'll they'll end up leaving 
because they they haven't 

1101
01:01:36,240 --> 01:01:40,400
captured the value because it's 
just too risky for a new owner. 

1102
01:01:41,280 --> 01:01:45,240
Speaking of a quick start guide,
I would like for you to provide 

1103
01:01:45,360 --> 01:01:50,680
us some advice to young business
owners and of course you know 

1104
01:01:50,960 --> 01:01:53,600
early stage founders before you 
leave. 

1105
01:01:53,960 --> 01:01:59,000
So for those kind of individuals
that are listening or watching 

1106
01:01:59,200 --> 01:02:04,240
us today, what are three things 
they can start doing today to 

1107
01:02:04,240 --> 01:02:09,000
ensure their business becomes a 
valuable asset tomorrow? 

1108
01:02:11,880 --> 01:02:14,800
Create a structure, a functional
structure for your business that

1109
01:02:14,840 --> 01:02:17,200
captures everything that needs 
to happen. 

1110
01:02:17,200 --> 01:02:19,960
And that's going to be the same 
functions for many businesses. 

1111
01:02:19,960 --> 01:02:21,720
You're going to have accounting 
and finance, you're going to 

1112
01:02:21,720 --> 01:02:24,200
have HR, you're going to have 
systems, you're going to have 

1113
01:02:24,200 --> 01:02:26,400
all of your operations. 
You want your sales, your 

1114
01:02:26,400 --> 01:02:30,160
marketing, your onboarding of 
new clients, your, your how do 

1115
01:02:30,160 --> 01:02:32,280
you deliver clients? 
How do you keep them happy? 

1116
01:02:32,440 --> 01:02:34,880
What's your marketing look like?
What's your recruitment look 

1117
01:02:34,880 --> 01:02:36,320
like? 
What's your training look like? 

1118
01:02:36,720 --> 01:02:38,880
And then what's your business 
planning look like? 

1119
01:02:38,880 --> 01:02:41,400
You know, what's your vision, 
your, your culture and your 

1120
01:02:41,400 --> 01:02:44,920
products strategy. 
If you start to structure all of

1121
01:02:44,920 --> 01:02:48,360
those things on a chart and 
identify what needs to happen, 

1122
01:02:48,600 --> 01:02:51,640
you might not have a number of 
people to fill those boxes yet, 

1123
01:02:51,880 --> 01:02:54,560
but all the boxes won't change 
as your business grows. 

1124
01:02:54,800 --> 01:02:57,720
As your business grows, you'll 
just spend more time in each box

1125
01:02:57,720 --> 01:02:59,800
and therefore you'll need more 
people in each box. 

1126
01:03:00,080 --> 01:03:02,360
So that's let's call that a 
functional structure for your 

1127
01:03:02,360 --> 01:03:04,320
business. 
There's, there's Step 1 towards 

1128
01:03:04,320 --> 01:03:08,040
documenting your business. 
Then you want to document your 

1129
01:03:08,040 --> 01:03:10,720
workflow practices. 
How does workflow, what's your 

1130
01:03:10,720 --> 01:03:14,680
standard operational workflow? 
Your primary workflow is what I 

1131
01:03:14,680 --> 01:03:18,200
call it from from marketing all 
the way through to client 

1132
01:03:18,200 --> 01:03:21,080
fulfillment, delivery, whatever 
you call it in your business, 

1133
01:03:21,440 --> 01:03:24,840
document that workflow as your 
primary workflow as your first 

1134
01:03:24,840 --> 01:03:29,160
point to ensure consistency and 
reduce rework and so that 

1135
01:03:29,160 --> 01:03:30,960
everyone knows how to do the 
job. 

1136
01:03:30,960 --> 01:03:36,760
And so what's the third thing I 
would say, depending on the size

1137
01:03:36,760 --> 01:03:38,800
of your business, get a 
fractional CFO. 

1138
01:03:38,960 --> 01:03:41,160
They'll make a huge difference 
into into your business. 

1139
01:03:41,480 --> 01:03:43,640
And now you're making me happy. 
And of course, you're making 

1140
01:03:43,640 --> 01:03:47,880
that the last guest on the show 
happy because he is a really, 

1141
01:03:47,880 --> 01:03:52,440
really solid fractional CFO. 
But how about those founders who

1142
01:03:52,440 --> 01:03:57,480
are probably considering selling
within the next 12 months to two

1143
01:03:57,480 --> 01:03:59,160
years? 
So what should they be doing 

1144
01:03:59,160 --> 01:04:02,640
now? 
So if they haven't done those 

1145
01:04:02,640 --> 01:04:05,840
things we just talked about, get
them done because it's, you 

1146
01:04:05,840 --> 01:04:08,880
know, the sooner you get that 
done and then document 

1147
01:04:08,880 --> 01:04:10,560
everything that happens in your 
business. 

1148
01:04:10,560 --> 01:04:13,320
So there's that. 
OK, make sure. 

1149
01:04:14,360 --> 01:04:17,200
OK, you wanted to give them 
additional advice. 

1150
01:04:17,600 --> 01:04:20,440
OK, Yeah, I'm getting there. 
Then the next thing you want to 

1151
01:04:20,440 --> 01:04:22,560
do is, is document your 
marketing machine. 

1152
01:04:23,000 --> 01:04:25,240
What are your various routes to 
market? 

1153
01:04:25,400 --> 01:04:27,880
How do you, how do you leverage 
that? 

1154
01:04:27,920 --> 01:04:31,120
So let's call that a talent 
machine and sorry, a marketing 

1155
01:04:31,120 --> 01:04:33,200
machine. 
So we'll get all of our various 

1156
01:04:33,200 --> 01:04:35,800
channels because we, we don't 
want our clients coming from 

1157
01:04:35,800 --> 01:04:38,600
just one source. 
We want to demonstrate that 

1158
01:04:38,600 --> 01:04:42,640
we've got three or four sources,
3 or 4 routes to market where 

1159
01:04:42,640 --> 01:04:45,680
our clients come from that we're
able to target. 

1160
01:04:45,880 --> 01:04:48,000
We know who our ideal clients 
are. 

1161
01:04:48,320 --> 01:04:50,800
We know where to find them and 
how to find them. 

1162
01:04:51,000 --> 01:04:55,280
And we know how to message them 
that engages with them and that 

1163
01:04:55,280 --> 01:04:57,760
they they want to be be 
interested in in having 

1164
01:04:57,760 --> 01:05:01,280
continuing conversations with us
and learn about how we can solve

1165
01:05:01,280 --> 01:05:03,400
their problems. 
So there's the marketing 

1166
01:05:03,400 --> 01:05:06,360
machine. 
The next one is we need to 

1167
01:05:06,360 --> 01:05:08,560
balance up, you know, going back
to earlier part of our 

1168
01:05:08,560 --> 01:05:12,440
conversation, but within our own
business, supply and demand 

1169
01:05:12,440 --> 01:05:15,520
within our own business. 
So the whole idea of the 

1170
01:05:15,520 --> 01:05:19,320
marketing machine is to create 
demand out in the marketplace 

1171
01:05:19,600 --> 01:05:23,280
for our solution, our product to
whatever it is the problem we're

1172
01:05:23,280 --> 01:05:25,560
solving. 
We want to create demand for 

1173
01:05:25,560 --> 01:05:28,480
that. 
Now if we keep creating demand 

1174
01:05:28,480 --> 01:05:31,280
and we don't have enough 
capacity to fulfill it, we're in

1175
01:05:31,280 --> 01:05:33,720
trouble. 
So we need to build a talent 

1176
01:05:33,720 --> 01:05:37,120
machine, which is identifying 
new talent that can help us 

1177
01:05:37,680 --> 01:05:41,520
recruit that talent, get them on
board in our organization, train

1178
01:05:41,520 --> 01:05:44,720
them in our ways of doing things
and make sure we've got enough 

1179
01:05:44,720 --> 01:05:47,800
capacity to meet the demand that
we're creating. 

1180
01:05:47,800 --> 01:05:51,360
And if we can get that imbalance
in harmony, we've, we've really 

1181
01:05:51,360 --> 01:05:54,200
hit the jackpot because we've, 
we've, we've mastered that. 

1182
01:05:54,200 --> 01:05:56,200
So the talent machine and the 
marketing machine. 

1183
01:05:56,720 --> 01:06:00,880
So they've got those two 
systemized systems happening 

1184
01:06:00,880 --> 01:06:04,040
now. 
And the next one, the third one 

1185
01:06:04,040 --> 01:06:07,240
that I would be looking at is if
I've got a management team in 

1186
01:06:07,240 --> 01:06:11,240
place, I would set up what I 
call an agile management system.

1187
01:06:11,480 --> 01:06:14,840
But it's, it's similar to, well,
it's the agile management system

1188
01:06:14,840 --> 01:06:19,120
is where my leadership team go. 
Hey, we understand the vision 

1189
01:06:19,120 --> 01:06:21,800
that the owners have set. 
The owners want the business to 

1190
01:06:21,800 --> 01:06:23,720
look like this and head in this 
direction. 

1191
01:06:24,160 --> 01:06:27,640
Let's take that vision and the 
strategy that they've set and 

1192
01:06:27,640 --> 01:06:30,760
the strategy being the product, 
the market, the, the position in

1193
01:06:30,760 --> 01:06:34,880
the market, the pricing and 
package approach and position 

1194
01:06:35,120 --> 01:06:37,640
and how do we reach them. 
Let's take those strategic 

1195
01:06:37,640 --> 01:06:43,000
elements and go right, what can 
we achieve this year to drive us

1196
01:06:43,000 --> 01:06:46,080
in the direction of that vision 
using that strategy And we'll 

1197
01:06:46,080 --> 01:06:48,920
put our goals in place. 
So we will systemize our 

1198
01:06:48,920 --> 01:06:52,800
leadership approach to achieving
those goals, you know, so 

1199
01:06:52,800 --> 01:06:56,960
budgets and goals and business 
plans and then have a systemized

1200
01:06:56,960 --> 01:06:59,560
approach that keep the 
management team accountable. 

1201
01:06:59,560 --> 01:07:02,920
And, and we've got the right 
sort of reporting and back 

1202
01:07:02,920 --> 01:07:06,600
mechanisms in place to keep us 
on track to achieving those 

1203
01:07:06,600 --> 01:07:09,640
goals. 
Because if we don't do that, it 

1204
01:07:09,640 --> 01:07:12,840
tends to just be, well, we'll 
set a budget this year and we 

1205
01:07:12,840 --> 01:07:14,200
just run the business for a 
year. 

1206
01:07:14,200 --> 01:07:16,200
And then we look back and go, 
oh, look, how about that? 

1207
01:07:16,200 --> 01:07:18,800
We, we hit it or we didn't, how 
about that? 

1208
01:07:18,800 --> 01:07:22,320
It becomes haphazard. 
So I really want to, you know, 

1209
01:07:22,320 --> 01:07:25,800
the third thing is let's get the
agile management system in place

1210
01:07:26,040 --> 01:07:29,520
that keeps the leadership team 
accountable for driving business

1211
01:07:29,680 --> 01:07:33,680
towards division. 
I think that is actually a very,

1212
01:07:33,680 --> 01:07:38,800
very robust recommendation and I
very, very much appreciate that.

1213
01:07:38,840 --> 01:07:43,240
So it is always hard to say 
goodbye, but I would find a 

1214
01:07:43,240 --> 01:07:45,760
reason to keep you for a little 
bit longer. 

1215
01:07:45,760 --> 01:07:47,760
I'm going to play a quick game 
with you. 

1216
01:07:47,760 --> 01:07:49,920
It's called the rapid fire 
section. 

1217
01:07:50,720 --> 01:07:56,000
And I'll ask you a few questions
and he just give very brief 

1218
01:07:56,000 --> 01:07:58,560
quick fire answers. 
Are you ready to rumble? 

1219
01:08:00,000 --> 01:08:01,440
Well, hopefully it won't be a 
knockout. 

1220
01:08:02,120 --> 01:08:05,040
OK, Yeah, well, come on, it 
can't be a knockout, especially 

1221
01:08:05,040 --> 01:08:07,440
with a man whose name ends with 
a cert. 

1222
01:08:09,000 --> 01:08:13,600
You are up to it. 
So let's go number one. 

1223
01:08:13,600 --> 01:08:16,800
What role does intellectual 
property play in boosting 

1224
01:08:16,800 --> 01:08:20,640
business value? 
I'm good. 

1225
01:08:20,760 --> 01:08:23,960
What role does it play in in in 
business valuation? 

1226
01:08:24,279 --> 01:08:26,840
A boosting, Yeah, a boosting of 
these. 

1227
01:08:27,880 --> 01:08:30,319
Yeah, it's a significant role. 
Whether it be. 

1228
01:08:31,880 --> 01:08:33,760
I reckon there's two types of 
IP. 

1229
01:08:33,840 --> 01:08:35,600
You might like this. 
You might think I'm an idiot. 

1230
01:08:35,920 --> 01:08:39,840
The first type of IP is KFC. 
I call it KFC IP. 

1231
01:08:40,279 --> 01:08:45,000
Wow, I did eat. 
KFC yesterday, so I guess that's

1232
01:08:45,040 --> 01:08:49,319
the reason why you call it. 
Right, so KFC has a secret 

1233
01:08:49,319 --> 01:08:52,120
recipe right? 
No one knows the exact recipe, 

1234
01:08:52,399 --> 01:08:55,200
but they are known for their 
recipe for how they do chicken 

1235
01:08:55,200 --> 01:08:57,439
and it's that southern style 
fried chicken. 

1236
01:08:57,439 --> 01:09:01,000
Cocolor as well, you know. 
Yeah, and, and it's fantastic, 

1237
01:09:01,000 --> 01:09:03,520
right. 
So that's, that's one type of 

1238
01:09:03,520 --> 01:09:04,960
IP. 
It's a secret formula. 

1239
01:09:04,960 --> 01:09:07,840
It's protected, it's locked 
away, and only a few people have

1240
01:09:07,840 --> 01:09:11,040
access to it. 
The other type of IP I call 

1241
01:09:11,040 --> 01:09:13,680
Subway IP, as in the Subway 
sandwich. 

1242
01:09:14,080 --> 01:09:16,560
So it's Subway sandwich. 
It's just a salad sandwich, 

1243
01:09:16,560 --> 01:09:18,160
right? 
There's nothing special about it

1244
01:09:18,800 --> 01:09:21,240
except for the way they put it 
together. 

1245
01:09:21,520 --> 01:09:25,080
And, and, and what you're buying
there is the process because you

1246
01:09:25,080 --> 01:09:28,560
know when you get a Subway 
sandwich, you know exactly what 

1247
01:09:28,560 --> 01:09:29,640
you're getting. 
You design it. 

1248
01:09:29,640 --> 01:09:32,479
The experience is exactly the 
same in every restaurant you go 

1249
01:09:32,479 --> 01:09:34,680
to. 
And it eliminates the risk of 

1250
01:09:34,680 --> 01:09:37,960
going to a local deli that 
you've never been to before and 

1251
01:09:37,960 --> 01:09:39,520
you're never sure what you're 
going to get. 

1252
01:09:39,600 --> 01:09:42,120
So if you go to a new place and 
you go, I'm hungry, I need some 

1253
01:09:42,120 --> 01:09:44,960
lunch, I need to, what do I do? 
Well, there's a subway there, I 

1254
01:09:44,960 --> 01:09:46,840
know what I'm going to get. 
Or there's a deli there, it 

1255
01:09:46,840 --> 01:09:49,080
looks independent. 
I'm not sure what it's going to 

1256
01:09:49,080 --> 01:09:50,960
get. 
And there's not much of A queue 

1257
01:09:50,960 --> 01:09:52,760
there. 
So I'm a bit cautious. 

1258
01:09:53,080 --> 01:09:57,480
So it doesn't matter what type 
of IP you've got, as long as the

1259
01:09:57,480 --> 01:10:02,520
marketplace knows about your IP 
and they know the value of of 

1260
01:10:02,520 --> 01:10:05,800
that IP to them, then then it's 
a significant part in the 

1261
01:10:05,800 --> 01:10:07,200
valuation. 
Interesting. 

1262
01:10:07,400 --> 01:10:10,800
So how much does leadership 
succession matter in exit 

1263
01:10:10,800 --> 01:10:14,400
planning? 
Again, significant because if 

1264
01:10:14,400 --> 01:10:17,160
you've got the leadership team 
in place and people know how to 

1265
01:10:17,160 --> 01:10:19,880
come through the business and 
you can demonstrate that you've 

1266
01:10:19,880 --> 01:10:23,040
got the next leaders in place 
and that the the current 

1267
01:10:23,040 --> 01:10:26,000
leadership team are actually 
driving and running the business

1268
01:10:26,000 --> 01:10:28,280
and the owners have a steering 
role. 

1269
01:10:28,280 --> 01:10:32,080
Only then your business is going
to be worth so much more than if

1270
01:10:32,080 --> 01:10:35,440
you're involved and you're a key
person in the business and 

1271
01:10:35,520 --> 01:10:37,360
business relies on you every 
day. 

1272
01:10:38,440 --> 01:10:41,560
Interesting. 
So next one, is it possible to 

1273
01:10:41,560 --> 01:10:44,440
sell a business without stepping
away immediately? 

1274
01:10:45,280 --> 01:10:49,480
Sure, sure you can. 
Now the dream scenario that I 

1275
01:10:49,480 --> 01:10:53,240
think is that you sell the 
equity in the business and then 

1276
01:10:53,240 --> 01:10:55,920
you do a separate role where or 
you might not sell all the 

1277
01:10:55,920 --> 01:10:59,000
equity because you could sell it
to a PE and do a nice deal that 

1278
01:10:59,000 --> 01:11:00,320
way. 
But you can sell some of the 

1279
01:11:00,320 --> 01:11:02,720
equity in the business and you 
go, right, OK, that deal is 

1280
01:11:02,720 --> 01:11:04,880
secured. 
We've sold, sold that amount of 

1281
01:11:04,880 --> 01:11:06,360
equity. 
I've got this money for the 

1282
01:11:06,360 --> 01:11:07,920
equity. 
There's nothing contingent on 

1283
01:11:07,920 --> 01:11:08,960
that. 
I've got my money. 

1284
01:11:09,280 --> 01:11:11,960
Now you've put some money in the
business as well. 

1285
01:11:13,240 --> 01:11:16,080
Okay, now I'm an employee in the
business, but we're now in 

1286
01:11:16,080 --> 01:11:18,680
partnership. 
Let's keep going and I'll 

1287
01:11:18,680 --> 01:11:22,040
operate as an employee. 
And that's how PE often works. 

1288
01:11:22,400 --> 01:11:25,760
Or you could just act, even if 
it's just a small private deal. 

1289
01:11:25,960 --> 01:11:28,560
You could act as a consultant to
the business where you go, hey, 

1290
01:11:28,560 --> 01:11:32,320
look, I'm on the tools now the 
leadership team are running, but

1291
01:11:32,320 --> 01:11:36,280
I'm, I've sold my equity, but 
I'm happy to keep playing and 

1292
01:11:36,280 --> 01:11:39,480
participating for a while. 
Let's do a separate deal, an 

1293
01:11:39,480 --> 01:11:42,720
employment deal now on, on how 
that's going to work. 

1294
01:11:42,840 --> 01:11:46,320
It's it's definitely possible to
to sell the business and stay in

1295
01:11:46,320 --> 01:11:48,160
the business and do it 
successfully. 

1296
01:11:49,040 --> 01:11:52,200
Interesting. 
So when should business owners 

1297
01:11:52,200 --> 01:11:54,880
ideally start preparing for 
exits? 

1298
01:11:56,000 --> 01:11:58,560
The day they start. 
I love that answer. 

1299
01:11:58,760 --> 01:12:02,320
I love that answer. 
So I think my final question to 

1300
01:12:02,320 --> 01:12:05,240
you would be, it's not business 
related. 

1301
01:12:05,240 --> 01:12:10,360
Don't worry. 
If you were to go on a date with

1302
01:12:10,720 --> 01:12:16,320
our business leader, dead or 
alive, who would it be and why? 

1303
01:12:16,360 --> 01:12:17,440
I've. 
Learned a hell of a lot from 

1304
01:12:17,440 --> 01:12:20,400
Warren Buffett. 
I like the way he approaches and

1305
01:12:20,400 --> 01:12:23,040
understands business and does 
his research. 

1306
01:12:23,360 --> 01:12:25,400
He's very methodical, so there's
that. 

1307
01:12:25,440 --> 01:12:27,280
Michael Gerber would be fun as 
well. 

1308
01:12:27,480 --> 01:12:30,400
I reckon I'd learn a lot from 
Michael Gerber, so there's a 

1309
01:12:30,400 --> 01:12:35,520
couple of options. 
OK, interesting. 

1310
01:12:35,520 --> 01:12:40,000
So I guess I have no reason to 
keep you any longer. 

1311
01:12:40,200 --> 01:12:44,000
You know, this is hard to say 
goodbye, but you know, I think 

1312
01:12:44,000 --> 01:12:50,920
we've had a really. 
Really insightful conversation 

1313
01:12:51,120 --> 01:12:55,880
today. 
We've had a lot of in depth and 

1314
01:12:55,880 --> 01:13:00,480
thought provoking conversations.
You know, it's full of insights,

1315
01:13:00,480 --> 01:13:02,680
hindsight and of course, our 
foresights. 

1316
01:13:04,560 --> 01:13:08,160
They say the SI you need of 
measuring life is time. 

1317
01:13:08,160 --> 01:13:10,960
And of course, if somebody 
shares their time with you, they

1318
01:13:10,960 --> 01:13:14,080
have shared their life with you.
And of course, for me, I always 

1319
01:13:14,080 --> 01:13:16,640
love to say that gratitude is 
good attitude. 

1320
01:13:16,640 --> 01:13:20,640
And for me, to you, it's a love 
and respect to you. 

1321
01:13:20,920 --> 01:13:24,560
Thank you very, very much for 
sharing your time and your life 

1322
01:13:24,560 --> 01:13:27,520
with me. 
And of course, my wonderful 

1323
01:13:27,560 --> 01:13:31,120
audience today. 
I very, very much appreciate 

1324
01:13:31,120 --> 01:13:33,800
you. 
And before you leave, do you 

1325
01:13:33,800 --> 01:13:38,400
want to leave us with where the 
audience can catch up with you, 

1326
01:13:38,520 --> 01:13:42,920
ask you questions, patronize 
you, and do you want to leave a 

1327
01:13:42,920 --> 01:13:46,600
shout out for anybody? 
The best way to find me and I've

1328
01:13:46,600 --> 01:13:49,680
really enjoyed the conversation,
Adam Ola So the best way to find

1329
01:13:49,680 --> 01:13:53,040
me is is my name's on the 
screen. 

1330
01:13:53,440 --> 01:13:56,880
There's only one of me in the 
planet with that name, so. 

1331
01:13:57,720 --> 01:13:59,720
Don't worry, it's it's going to 
be the discussion. 

1332
01:13:59,760 --> 01:14:02,320
It's going to be the discussion 
on YouTube. 

1333
01:14:02,640 --> 01:14:04,960
And that is Daniel the. 
Best way to find me is on 

1334
01:14:04,960 --> 01:14:09,840
LinkedIn that's where I spend my
time in terms of social but 

1335
01:14:09,840 --> 01:14:12,320
succession dot plus is the 
website. 

1336
01:14:12,320 --> 01:14:15,000
But find me on LinkedIn, that's 
the best way to get in touch. 

1337
01:14:15,680 --> 01:14:18,520
OK, fantastic. 
A shout out. 

1338
01:14:18,680 --> 01:14:19,920
Are you leaving a shout out for 
anybody? 

1339
01:14:22,720 --> 01:14:26,400
Just the team that I work with 
is a session plus they support 

1340
01:14:26,400 --> 01:14:29,680
us and it's not just me, it's a 
whole team that bring everything

1341
01:14:29,680 --> 01:14:32,800
that we do to help business 
owners prepare for exit, make 

1342
01:14:32,800 --> 01:14:35,760
sure the business is exit ready 
when the owners are ready to 

1343
01:14:35,760 --> 01:14:38,400
exit and with the numbers that 
are going to work for them. 

1344
01:14:38,560 --> 01:14:42,840
So it's a team effort. 
Teamwork makes the dream work. 

1345
01:14:42,920 --> 01:14:43,560
Wow. 
Sure. 

1346
01:14:43,560 --> 01:14:45,080
And. 
Of course, you know you guys, if

1347
01:14:45,080 --> 01:14:48,200
you have come to the end of 
today's episode, what are you 

1348
01:14:48,200 --> 01:14:51,680
waiting for? 
Please go like, subscribe, share

1349
01:14:52,160 --> 01:14:54,680
surest love support, join the 
channel. 

1350
01:14:55,000 --> 01:15:00,000
And of course, I will keep 
working tirelessly to bring in 

1351
01:15:00,000 --> 01:15:04,320
fantastic individuals like Daryl
on the show to educate us, to 

1352
01:15:04,320 --> 01:15:06,680
inspire us. 
And of course, I have would like

1353
01:15:06,680 --> 01:15:12,920
to still Darrell's time again so
that we can have another debate 

1354
01:15:13,040 --> 01:15:15,680
very still in the future. 
Thank you very much guys. 

1355
01:15:15,680 --> 01:15:17,120
And of course, thank you very 
much, Darrell. 

1356
01:15:17,120 --> 01:15:19,640
I very, very much appreciate 
you. 

1357
01:15:19,640 --> 01:15:21,360
God bless you. 
Cheers. 

1358
01:15:22,920 --> 01:15:23,240
Whoa.