EP 101: How Your Business Valuation Tells a Story with Charlie Stanton

Ed Mysogland  0:01  
My name is Ed Mysogland, I'm your host. And today, I'm super excited because I'm interviewing a guy by the name of Charlie, Stanton, and Charlie, you know, I, I have followed his work, I follow him on Twitter, I follow him, you know, I get this newsletter. And he's a business appraiser. And he does a lot of estate and gift work. He does a ton of McDonald's of all things, if you ever want to know what a McDonald's is, he's your guy. But one of the things that prompted me to say, you know, what, why don't you come on on the podcast was that he contributed to a book. And the book was, it was called The Art of valuation by the appraisal Foundation. And one of the things that has been a passion of mine is that helping business owners understand what value is. And so it really resonated me with with Charlie, having contributed to that book, is it's really important that you as business owners understand what comprises value in your business, and what creates value and how and all those steps that are necessary in order for you to make a valuable and saleable business. So Charlie has practice or his practices, standard valuation advisors, and I'll have all the information in the show notes, but it was a fabulous interview with with him such a wealth of knowledge, and I'm certain you'll get tons of value out of it. Well, Charlie, welcome to the show.

Charlie Stanton  1:58  
Hey, thank you very much for having me. Pleasure to be on here.

Ed Mysogland  2:02  
Well, it's a delight to have you. And before you came on, I kind of talked a little bit about you and your practice, but I probably didn't do it justice. So why don't you just go ahead and start from, you know, just about, you know, your practice, where, who you're serving and where you're serving?

Charlie Stanton  2:19  
Perfect. Yeah. So my company is Stanton valuation advisors and we are nationally, or provide business valuation nationally. And we offer it to private owners, investors, operators, and we mainly focus on gift and estate tax work, which is typically work where owners are gifting shares of their business to trust sort of family members, or for whatever succession planning purposes they've come up with. Also do estate work when you know, the unfortunate matters happen when a business owner dies. And that needs to be valued for IRS purposes. But also focus on both buy side and sell side if necessary. Succession planning, is something I like to help with owners as well as helping them work on valuation, five years or so before they want to sell. And it's kind of establishing the value and where they think they want it to go to. And also do financial reporting, at times Aesop's, as well. And then, but I've worked in a range of industries, as well. So I've kind of have kind of a generalist in that sense, where I've done a lot of health care and focus on a lot of McDonald's franchises, but I've done pretty much almost every industry, it feels like,

Ed Mysogland  3:37  
nice. So you and I, we were brainstorming on on some questions. And, and the audience is predominantly advisors and business owners. I mean, there's a there's a little sub segment of, of buyside. But generally speaking, it's its owners and their advisors. You know, and everybody wants to talk about business valuation. So I guess, what, why don't we go back to the very beginning on you know, why appraisers exist that All

Charlie Stanton  4:09  
right, yeah. And I think that's, I think a lot of people think the valuation only comes up when you want to sell your business or buy a business. But obviously, valuation is very important, because the business is usually for most owners, their largest asset they own. And so from a general standpoint, I think, for any business appraiser out there listening, understanding the value of their business is important. And so, appraisers exist in the world because, you know, we can we have the standards, the practices, the theories to apply valuation, to value privately held small businesses, right. There's no public market for those for those shares. So, we exist, you know, having that expertise in applying valuation theory. And we exist because there's a whole other world out there of for valuation or for appraiser. So doing like a, we do a lot of gifted estate tax work. And there's a lot of strategies for business owners out there to transfer their interests to the next generation to other people. And so that's a big part of it. There's also financial reporting. So there's a lot of reasons like even loss of profits, where business appraisers come in, under marital divorce or litigation type

Ed Mysogland  5:29  
circumstances. And way back when there was a, there's a guy by the name of ROB Slean, he wrote a book I don't know, you may be familiar with, it's called private capital markets. And one of the one of my biggest takeaways from that book was that, you know, the authority like, for example, you're talking to a state and gift, who's the authority, it's the IRS, right, you know, you know, divorce, it's that judge, you know, you go to sell the business, I, you know, who's the adjudicator of, of, of that value, other than the market? So, so when you when you do that, and that's, that's kind of where we're, where I'm taking the next question is, you know, why, why is it important for the business owner to understand, you know, their valuation is the first thing and, and, you know, how, how do they know they're creating value? Right, right.

Charlie Stanton  6:26  
I think, I think that's the biggest kind of point of it all is that I think one thing that business owners or just anyone in general kind of misunderstand is, as a business appraiser, we follow certain standards. And so one of the standards, when we look at a business, they'll say, how are we going to value that business? Is it going to be fair market value, fair value, or are we going to look at some sort of strategic value for your business. And so from the buy side, people, they're always generally going to be looking at some sort of strategic value, that's usually going to get you the highest price. But, you know, for the IRS, they require fair market value. So that's a different type of appraisal that gets done. It's a willing buyer willing seller, it's not the strategic buyer coming in. And so that what that means for the owners, if an appraiser values your business on fair market value, it's not going to maybe be the highest value you can get. If you say, hey, I want to look at maybe what a strategic price would be for my business, then we start really looking at transactions and premiums that people pay for businesses like yours, and then get gives you that kind of range to say, you know, maybe it's worth X. But if you're, if you find a strategic acquirer near the plate, you know, x plus y to buy your business from you. And I think that clarity is really important for business owners to understand sort of the every business has a range of values, it's not just one value for it.

Ed Mysogland  7:54  
Now, that's a that's such a great point that that you make, and sorry, I have a habit of interrupting the people I bring on. So that's great. I do apologize, but you're right. I mean, that, that, that range of value, that depending on who the authority is, all those numbers can be right. And, and that's what I would I want you to talk about next, not only how value is created, but also, you know, when, how frequently am I supposed to do this? You know, yeah, you know, often, you know, someone shows up with a valuation in my office. And, you know, it's, you know, they, you know, we got divorced two years ago, and now we want to sell the business, here's my appraisal, and let's go. And so and, you know, we have the same conversation. That's not really what its purpose was. But But anyway, back to back to what I was my original question, no value is created, and how do you know it? And then how frequently do you do measure that? Yeah, great. Yeah.

Charlie Stanton  9:04  
So I think I think one of the biggest takeaways is that it's it's kind of funny that values really created from a really basic formula. And it really applies to everything but it's in for businesses, we would call an economic profit, and with the economic profit is, you take your profit effectively, and you subtract out sort of the cost to achieve that profit. So if you raise a million dollars to start your business, and you all your investors want to get a 10% return on it, well, you've got to at least make that you know, $100,000 you know, income off of that million dollars to at least just break even now people who drive pro drive value and create value over time are the ones who say, instead of getting a 10% return, I can do a 15% return so my required costs is 10. And so the difference between the five 15% in the 10%, in theory is what is effectively an economic profit. And that is what's going to drive that value higher, a company that's really good at that is Apple computers, I'd argue today probably as close to an 80% return on their capital, you know, I think their capital is pretty much cheap, you know, and so it's businesses that can take in that capital, and then reinvest it, and keep growing. And I think it's understanding that to grow the business long term and grow the value long term, you have to continue to get a return on your investment, the money, you're retaining in business, reinvesting it and getting a return that exceeds generally your cost of that capital. Now, it gets a little hard with businesses, because you don't always have an explicit cost, like your debt would be explicit, right? You owe the bank every month, but you know, your equity holders. For small businesses, it's a high return, you know, public company might say, eight or 9% return is sort of what our equity we want to get. But a small business can be a much higher return requirements due to the risks associated and the size of that business. And I think it's one of those things where, depending on the type of owner you are, if you're looking to grow value, you know, that's something you should be focusing on, if you're an owner, that's maybe more of a lifestyle owner, you just kind of want to control your time, get an income, you know, as you know, we all want to grow value, but reinvestment, what it takes to truly grow value might not be, you know, your revenues might grow, but everything might be keeping up with inflation, you know, so the true value of the business really isn't growing, even though revenues might be growing, and Bernie's might be growing, you're not necessarily increasing, you know, value long, you know, the value of continuing with inflation, basically, you know, which is nothing wrong with it, that's your goal. So I think, then the timing for owners, you know, it's what your goals are what you're trying to achieve, because some people are suggest get one every year. So you have values kind of growing every year. And we can you can structure evaluation where maybe if you want to start gifting, we can do the value in a way where you know, you can have that valuation, not only tracking value, but for gifting purposes. or In addition, you know, knowing that value if you want to do a liquidity event, go to a bank and try to do a recapitalisation and pull money out if your business has value. You know, there's just a lot of things that owners can do with it that, you know, but it depends on how you know, what they're trying to achieve kind of effectively.

Ed Mysogland  12:41  
Yeah. Well, one of the things that prompted me to not only be a fan, you know, I'm a fan from the standpoint of all the credentials, you know, so the HSA credits, you know, senior appraiser, you know, the CBA, you know, the ABV with the Indiana Siebert, Indiana, the CPA society. You know, it's not I don't want to say it's not often but I want to say it's not often that you see a CFA out there doing business value work, you know, right. And, you know, I know, you know, I, to me, the CFA is probably one of the pinnacles of, you know, command of the, of the domain, so to speak. And so, I guess the reason I bring this question up is because when someone is looking, it's not often that you will see the CFA lopped in together with the other three primary valuation designations. So that's why I want you to talk about that. So can talk about the CFA and, and yeah, just, yeah, what an undertaking that was to get.

Charlie Stanton  13:51  
Yeah, yeah. So the CFA stands for Chartered Financial Analysts that it's a for people who don't know, it's an internationally recognized finance designation. And it's a, it's coveted in the finance world, because it's a grueling three part exam. It's self paced, you basically sign up for it, they send you 3000 pages to read. They say good luck. And we'll see in a year at the testing site, and all of this is fair game. And what it gives you is this massive understanding of the finance world, I mean, it covers every single topic in depth about qualitatively and quantitatively of pretty much everything in finance, you know, it has emphasis on portfolio management and you know, business equity analysis. But to get through each exam early, given about once a year, I think they've changed it up since COVID. But when I was taking it was once a year basically. And if you don't pass you've got to go back the next year and take it and so we doubt a lot of people who are interested in it or wanting to pursue it, but it's a it's a very challenged exam to go through. And so it, it gives the a really strong financial foundation for anybody. I mean, any financial topic you hear about, from a CFA perspective you like, you might not be an expert in it, but you've, you know about it, you have an understanding of it. And you can always reference your textbooks if you need to, to, to at least, you know, handle that kind of issue, but it covers everything in finance. So,

Ed Mysogland  15:23  
yeah, that's it. Congratulations. I mean, that is that is such a huge undertaking. And, and, and so. So, like I said, the point of the question is, I want listeners, when if they see that designation, that that is, there is that should not exclude.

Charlie Stanton  15:44  
Yeah, and you're right, it's not common in the valuation world, there is the AASA, the ABB and the CbV, CVAs. Use me. And those are, those are great, because those you are required to have specific valuation experience to get those. And all of those, I would suggest for anybody out there, if you are looking to hire an appraiser for something, especially if it's IRS related, you want somebody with that background. In valuation, I used to have the ABV I'm actually going for the AASA right now. So we're trying to get, try to get that within the next year or so. But all those required valuation, and they require people checking to know you actually, you actually know what you're doing, so to speak, you know,

Ed Mysogland  16:29  
well, and now swinging from, from the, from the top to the bottom, now we're talking valuation. And, you know, it seems as though valuations getting more and more commoditized. And I'm, I'm, you know, I'm a fan of valuation, I'm, I'm not a fan of now. Gosh, the best way say, I'm not a fan of, of the turn and burn, you know, just dumping a bunch of information. And, you know, I'll have your appraiser your appraisal done, it'll cost you 500 bucks, it'll be done in in, you know, three days, or what pick pick the number. I mean, and so, you know, I I guess I'm the reason I share that is is, you know, what's the big difference now. And when I talked to people about, you know, let's do some market analysis. Let's see what the market is paying for companies like your and, you know, it's like, why is it? So? Why is it so in depth? Why, why is it costing me so much? And so can you talk a little bit about kind of the, the commoditization, and then you know, just what a true appraisal really is?

Charlie Stanton  17:52  
Yeah, yeah, I think the commodity commodity commoditization of the appraisal, business, it comes from the idea that you think it's just, hey, let me give you my most recent p&l and a balance sheet. And from that, I want you to tell me what my business is worth. And I'll tell you this, I have valued many different businesses, I have hundreds and hundreds of businesses, and I valued, let's go to this, the McDonald's that I valued, not every McDonald's is the same. So they are all not going to trade at, you know, point five times revenue, or some sort of or, or point eight times, whatever, you know, they're going to trade I've seen some trade between point two times revenue all the way to 1.3 times revenue, you know, it's just a range. And it's, and what that gets back to, is that an appraiser? Yes, we look at the financials of your business, but we it's the qualitative aspects of that business, that are really what we dig into. And those I don't think just get captured right away from looking at the income statement, the balance sheet, because you could be a leader in your industry, you know, and we're not going to just necessarily pick that right up, just by saying, oh, let's look at the last 12 months and see, or try to do some sort of forecast, you know, it's plays into, you know, risk and growth and all that.

Ed Mysogland  19:18  
But it's funny, you say that, because what, because I was squabbling with a business owner, and he's saying, Well, look, my, my earnings margins are so high. You know, I am, you know, I am, I'm elite. And now granted, you know, it wasn't always that but it was, you know, in the last in the last 12 months, and I'm like, Well, you know, this may be the outlier, you know, somebody, you know, let's line up a few years at this and then we've got something to talk about as far as the eliteness of your business but but yeah, that you know, the but my where I'm heading with is that had somebody you know, put it through To turn in burns, it would it would have rendered, to me probably an overstated value in that company would never sell. Yeah. Yeah. So you bring up McDonald's. And that kind of segues into my, my next question. So, like, um, I, I, and I guess brought up where I'm going with this, I want to know, from a, when do you need a generalist? Versus when do you need a specialist in the appraisal world, I'm, like, I'm talking to, you know, a woman. And she was saying, Look, you know, you know, I've got all kinds of people in my industry that do valuation work, why would I? Why would I use someone like you? And so I'm just curious to know, what what's your answer to specialization versus, versus, you know, just, you know, a generalist that can use the standards and, and use PAP and develop into a, into a defensible analysis? Right.

Charlie Stanton  21:07  
I think what my answer to that is generalists can offer what one is, I would think any appraiser if you're really not sure about the specifics of an industry, they should not take the engagement?

Ed Mysogland  21:21  
Standard, right. That's, that's right. That's USPAP sand, right? You're not competent? You should?

Charlie Stanton  21:26  
Yeah. Okay. And so I think, I think don't, right, and so following, again, it's a good reason why standards are important for hire somebody with those qualifications. But I would say, you know, if you're not in it, if you're not really familiar with that industry, I would say, you know, stay away. And I would ask them their familiarity and try to gauge that, if you're hiring an appraiser, you know, try try to get the sense of it. But I think what generalists can bring to the table, is that they've had exposure to so many industries. And so when you have that exterior, external sort of experience, I think you can kind of draw from those industries and help build context around the industry. Were looking at it because sometimes it's really, really hard to find somebody who's exact an appraiser. In that exact niche, I did an appraisal for I've done a lot of tech companies, but I did one for a company that was a, they basically outsourced software engineers to other software companies. And so is hiring business where, you know, if a company had 80 engineers, and they needed 10, more just to fill in some gaps for six months. And that's a really, really niche business. I mean, it's almost there's no NAICS code for it, there is nothing, you know, there's probably 100 of those. So you're never going to find somebody who's an expert in that, that industry, but that is similar. With a staffing business, that's really what they are. They're just in a really niche staffing business. And so I valued plenty of staffing businesses and understanding sort of the economics that dynamics that drive this the drivers businesses, you know,

Ed Mysogland  23:03  
I get. So you didn't like this question. But and you've never You said you were never asked it. But what are the common mistakes that business owners make when when they're preparing? Or they're going through the appraisal process? And if you can't answer it, I've got a couple

Charlie Stanton  23:22  
for it. Well, I liked the question. And I'm glad I've never been asked it, I think it's a great question. I think it gets back to what we were talking about, I think owners tend to try to they almost commoditize their own business, like, Hey, here's a balance sheet income statement, value my business, and I I want to know everything about your business, you know, I want to understand not only who your customers who are your suppliers? What are your relationships, like with all of them? You know, what are your operations, like, you know, who's handling customer complaints? who's handling all these issues, you know, that gets to key man type issues within the business. But I want to know, everything, you know, with within you, how are you marketing? How are you advertising? What are you doing to differentiate yourself? And so I like to have, you know, hour long, you know, in a perfect world, have hour long management discussions with people, you know, where you come into some owners, and it's like, I don't know, I don't, you know, just tell me what you think it's worth, and I like, you're almost commoditizing yourself, you know, because that's, I need to understand, you know, if I could look at a range of multiples, and I can financially quantify while you're, you know, you should be a certain multiple, maybe the high end or the low end, but maybe there's factors in there that, you know, change that, you know, that maybe you get a warrant at a higher one, maybe you're the only person in your town that does what you do, and nobody else would go there and for whatever reason, caught you've killed the competition or you know, and that's there's a potentially significant value there. And so I think For owners, it's definitely, you know, if someone's appraising your business, give as much info as you can, because I think it's helpful. And if you're an appraiser out there, you're not asking for all that info, then shame on you. So, I'll be interested to hear what you said, or you think,

Ed Mysogland  25:14  
you know, my biggest beef is don't try to influence me, just, you know, that just, it just rubs me wrong. You know, the data is the data. And I mean, there's a certain level of subjectivity that that, you know, 31 years doing it, I have a real eye, you know, I have a pretty good idea of what I'm talking about. But you sitting here telling me, you know, my earning stream is off or, or, you know, and just, just, yeah, just arguing. Yeah, at each step of the way, that, you know, you know, more than what you've hired me to do. Yeah. And, you know, and I'm on sell side stuff. So, now, I, you know, I spend a lot of time and this kind of going into the next question, you know, I spent a lot of time in the market approach, looking for data, whether it's our own, you know, we've done 2200 deals, or I'm not on the databases, looking looking for deals that I can compare and say, this is the behavior. You know, this is the behavior that this this group, you know, exhibited toward this type of investment, and here's you, and here's why you're comparable to it. And I'm going to apply something similar to you. And that's, like, said, the next question was, you know, I, I, I've always said that the income approach is for buyers, you know, don't don't show up, don't show up at my doorstep. If you're selling your business with a with a discount of future earnings, or capitalization burnings. I want to see, I'm looking for deals, I want to know, you know, what they're selling for? So that's my that's my question. You know, do you agree or disagree? Because I'm okay with you. If you disagree?

Charlie Stanton  27:06  
Yeah, I think I think my thought on that is the, I think you're exactly right. I think the income approach is the, if you're buying a business, and you're not doing an income analysis, I Shame on you, right. And so I think you're dead on with that. Because I, I see a lot of people so she like on Twitter, really talking about multiples, and by this, this for EBIT, da multiple? And it's like, are you doing like some sort of full cash flow analysis, like not only income, but working capital as investments, CapEx investments, you know, you're going through that whole process? So yeah, I would say for anybody who's buying a business, focus on the income approach, then reconcile that back to some sort of wherever the market multiple is because the market multiple might be too high, based on what you think you could probably do with the business, you know, so maybe walk away. And then I think you're I think from a business owner selling it, you know, the cashflow, if you're buying a business, you're going to be a controlling owner now, which means you can make controlling owner adjustments. Yeah. And so that means you're going to change the cat probably expense structure. And so I think focusing from the seller standpoint, right? It's the multiple of trying to figure out, are you a strategic buyer? Are you my competitor, and now you're wiping me off. So you go raise prices, 10% on everybody, for instance, and wipe out my entire accounting department, yet? Oh, now I know your costs have really gone down to acquire this revenue, like, I know, you could definitely focusing on that multiple side is saying, Look, I I'm not going to do a DCF for my son, I'm just gonna say, look, the multiple I'm gonna have you at the higher end of that range for multiples, because I know what you're going to potentially do with the business.

Ed Mysogland  29:00  
Well, I, I mean, I always felt that the buyer has different risks that, you know, if you think of the pool of buyers, and you you develop your discount rate or your your cap rate or whatever, that's, that's quantifying risk, and I think each person has a, you know, has has what they perceive as you know, the company's specific risk more so, if you're doing the build up, or whatever, whatever you're choosing to do. You and I, looking at the same business probably have different risk tolerances, depending on our backgrounds and our experience. And that's the only that therein lies the only reason i i shy away from it is because I don't think, you know, I can I can say I you know, this is what a normal person would, would do, I guess, but I but I don't know whether or not you know, is that kind of over understated. Yeah, so anyway, that that was just my to take on, on the income approach.

Charlie Stanton  30:02  
Yeah, no, I mean, I think that's a really good point too, because it is a risk, I mean, business valuations come down to risk and growth run, you know, and so those are like two of the major influences. And you're right, the risk profile of the, you know, the current owner is going to be different than the buyer. And they can be, you know, higher or lower, just depending on who the buyer buyer is. So yeah, you're right, that's gonna, that's gonna change, right. And it gets back to the point that there are multiple values for a business. Yeah.

Ed Mysogland  30:32  
And again, you and I failed to mention and you brought it up, but is the growth I mean, you and I met, maybe looking at the same business and looking entirely different, entirely different from growth. So we agree on our earnings, we disagree on our on, on our, on our risk, and we disagree on our growth. So two out of the three drivers, you know, are the components of value. You and I may differ, and how we see the same business. So that's right, again, but at the same time, if I'm a buyer, yeah, I'm, I am spending all of my life in on that income approach. I don't care what any deal guy or anybody else has said that business is worth it, because that's where the rubber meets the road. Right? Right. Right, so you're an author, too. That's, so you're, you contribute to the art of valuation. So that's, I got an email. And I was like, I had no idea. So let's talk about that.

Charlie Stanton  31:33  
Right. So the appraisal Foundation, which is for the listeners out there, that is the basically a group that basically runs out of the house to really say, but use pap, right, which are the hazony the standards for appraisers. And they're, they're definitely nationally recognized, I can't remember they're internationally recognized, but they for every appraiser, real estate, Gem and jewelry, business valuation, machinery and equipment, appraisers, all of them. Those standards for those professions fall under or use paths or to guides those standards. And so they were coming out with a book called The Art evaluation, and I submitted an article to be considered for it, focusing on the story in the VAT is the basically the story of valuation or how every valuation tells a story. And I don't know if you've had, if you've gotten it, I'll send you a copy for sure. If you don't have it, but the the by subject matter basically is focusing on I come across a really interesting study by an author named Kendall Haven, and he studies brain science and storytelling, and effectively was just coming really talked about now. But all of our brains are hardwired for story. So if I gave you a bunch of facts, most of the time, people are still going to create some sort of story. And I think interesting, appraisers approach evaluation saying, I'm you know, I'm going to be very objective, in fact, base. And they're misunderstanding that when someone is reading that report, or if you're communicating that report to your, your client, they're going to read their own story about what you're saying. And so it's a, it's a concept of that, your, your brain, your mind is going to piece together a story. And if something doesn't make sense to your listener, or reader, they're going to fill in gaps or put in their own understanding or whatever, to make it make sense to them. And so, so there's, there's by eight essential story elements that you have to tell and it's like, you have to have a character and you it's really common storytelling. But once you hit those eight elements, you know, your brain is sort of digested what it needs to inch to fill in a story. And so I think, for any appraiser really anyone doing especially evaluation, because valuation is a great way to trick your people can trick themselves in doing it, right. They tell themselves a really great growth story, you know, one of the next Amazon of whatever, yeah, we're gonna grow be huge, and nothing else lines up with that story. You know,

Ed Mysogland  34:26  
again, you know, it's funny, it's funny, you say that, so we, like years ago, and you know, saying years but it's probably gonna be five, seven years ago, I would prepare these glorious reports. I mean, they were just awesome. And, and, you know, and I don't know if you've ever handed somebody your appraisal, you know, they either look at the first page or they look at the last page, and all that work that you did is just evaporate. So I appreciate the the storytelling and What, what I did was I put right in the DCE in the development of the discount rate I wrote, if you read this, I will give you $100. No questions. And no one, no one took me up on it for an entire year. My

Charlie Stanton  35:21  
Wow, so, so steal that from

Ed Mysogland  35:24  
you know, so. So what I did was I changed, I changed our format. So now. So now I PowerPoint it and I'm and I say all right, basically the same storytelling, and I'm so glad that you did this. But the storytelling is like, look, I'm gonna go through this, how I arrived at the value. And as we go along, I want you to ask as many questions as you want. So when you leave here, you know exactly what I did and why I did it. And then my hand you have the report, and it's gonna say the same stuff. So, so anyway, that's I'm glad I think

Charlie Stanton  36:02  
that gets back to you had asked earlier, and we kind of touched on it was like, what is an appraisal report. And so when you do a full value, there's, there's generally like two types based on standard, you can kind of do a full valuation, and there's like a limited analysis. And so for a full valuation, I mean, we're gonna do a deep dive into your background, the the the economy, your local economy, the industry, we're gonna pull benchmarks for companies, compare your business to your benchmarks, based on profitability, returns on equity and capital, leverage liquidity, and take all that information and synthesize that using the income market and cost approaches to develop a value for your business. And I think many business owners is because when the when they get the reports, they could be voluminous, intense stature. So I don't get them for not wanting to read it. But there's so much information that we we pull from, and hopefully appraisers make it relevant, a lot of times appraisal just dumped in all this economic data, and really has no relevance to the business. But, you know, trying to tie back all these important data points to your business, and what's influencing your business? Where are we think it's going? Because there's always the internal view and the external view and the internal view is, hey, my business is going to be great. And it's going to do well, the external view is that, you know, maybe today there's war breaking out in the world, there's, you know, cyclical decline in certain industries that are adjacent to your industry. And, you know, maybe other things are happening, that we think achieving higher growth might impact your business, for instance. And so we'll always explain everything out in detail. And so I think, to walking people, I try to always walk people through all these kind of key insights, and then especially the benchmark analysis, because it's like, you know, I think from an appraiser standpoint, you can offer a lot of good insights for owners to say, you know, you're lacking in this area, or something's here your cost structure is just a lot higher than the industry, you know, what's going on there? Or, you know, whatever the case is, I think appraisers have a good opportunity to sort of offer advice to owners.

Ed Mysogland  38:28  
Yeah, that's good. So, so the future business valuation? I mean, what's your crystal ball? Say? What do you see coming down the pike with with business appraisal?

Charlie Stanton  38:43  
Okay, so the, probably the elephant in the room is AI? You know, I think, and I say that, because I think AI is probably to take over everyone's job at some point. To a degree, though, you know, there's going to be parts where it helps. But I think for business appraisals, I do see more and more of these sorts of websites, you can go to put in your data, you know, it will spit out a number. Anybody who's done that, I would really advise against it, because it's not really understanding your business at all. Yeah. And then I think, as the industry continues, I think for I mean, for me for do gifted a state work that will be here forever, and that industry will do well, we'll be around as long as the IRS is around, we'll be around. And so, but I think, for appraisers out there, you know, understanding that, you know, or I guess for business owners is not you know, that there are going to be easier tools to come out. There might be some sort of AI tools where you can answer some questions, give some data. I wouldn't doubt seeing that stuff. But I think having a person who can back up what they're saying and why they're seeing it and give them a logic and reason rationale will always be important. But I think the industry in general, is going to have to get to a point where it's not just like you're saying the commoditization, it's offering the advice and then trying to give more, you know, is a consultant to a degree, you know, say, here's what we've come back with. And I think a lot of people don't do that. They say, I'll give you your value, right, three days, 500 bucks, got you your value. And what do you really have from that? You know, probably no, no,

Ed Mysogland  40:29  
no, I get it. And and that's, you know, I have, you know, Chris, Chris Mercer from Mercer Capitol note wrote a pretty policy, essay, scathing, that's probably, that's probably overkill. But I mean, some of some of his thoughts on the future of the profession. Was was pretty, I want to say alarming, but, you know, I think we're, I think the people like you are getting harder to find, you know, what I mean, that, I don't know, if there are as many entrants into the profession, as there. Is there? Yeah. You know, yeah. But, you know, and, and as we're kind of wrapping up, I'm one of the things that I always thought about was, you know, anybody, if you just do any kind of valuation, at least you're starting to think about value. Yeah. And so I was, I was never, you know, I didn't care whether you went to value at or whatever that is, and, or equity or whatever, I, at least you're starting to think about it. And it gives me the opportunity to say, Yeah, you know, what, this guy's full of crap. Or this, this, this online tool is bullcrap. You know, here's your slider, and, yeah, just do this, and this and this, and it'll give you a great valuation. It's not, it's not like that. I think the the biggest for me, I think it's who's going to translate that and I think that's what you were talking about with AI? That, you know, AI is good, probably going to help all of us. Yeah, but somebody's gonna, you're still gonna need Somebody to translate. And you can say, alright, AI translate this into, you know, help me understand is if I'm a third grader, right? I don't I still, you're still gonna need somebody with boots on the ground. Yeah, you're still gonna need somebody like you?

Charlie Stanton  42:20  
Well, and that's why the the book that I contributed to, they call it the art evaluation, because it, we look at it as an art form, it's not an exact science, it if you're inputting stuff into a website, and spit out a number that makes it feel like it's just this, you know, very basic formulaic process. And although we do use a lot of formulas, there are a lot of qualitative factors that need to be considered and really understand the business understanding the industry, to to give you, you know, a reasonable, sensible kind of valuation. So she for whatever purpose that is,

Ed Mysogland  42:56  
yeah. So, one of the, the My last question, and it has been that way for 100 episodes now is what is the one piece of advice that you would give our listeners that would have the most immediate impact on their business and value? What would it be?

Charlie Stanton  43:17  
Okay, I know you asked that. I love that question, too. And I've been thinking a lot about that, because I listen to you. I've been, I've been an original listener of your podcast. Yeah. So I love that question. And also, I want to say congrats. I don't think I said it, but 100 episodes in. So that's big deal. Thank you. So I would say this. This is I've been toying around with what I want to say. But I would say one of them is this is somewhat, it comes down to risk and growth are huge impacts to value, right? higher risk means generally a lower value, let's say. And I would say let's focus in on that. One of the big things I come across a lot when I do like succession valuations for business owners, is there's so much key man risk in the business. You talk to the owner, they say, I'm the one who handles all the sales. I'm the one who handles all the problems with customers. I'm the one who knows how all the systems work. And I would recommend to any owner is assessing that risk in your business is key man risk and trying to limit that I know you had the lady on with who did the SOPs for your business, right? You know, and so it's getting simple as getting your SOPs in it's as simple as maybe giving up some control, getting a salesman in there to help this or maybe it's hiring, you know, maybe an extra, like getting a more of a strategic CFO in there or something to help kind of plan out the business if you feel like you're the one strategizing for the business or something. So there's just a lot of instances where I feel like that is it In a small privately held business, that is one of the biggest risk factors that is really hurting the business. And so streamline that getting that off your plate as much as possible, I think it's something that actually tremendously helps value.

Ed Mysogland  45:14  
Yeah, you know, the funny thing is you would think, because that's a, that's one of the, I don't wanna say the standard ones, but that I mean, it's, it's, it's it there, you're you are the business and you can't be the business and maximize your value. You can, you can get a decent price, but as far as getting the most for your business, I'm not certain you're gonna get there. Alright, well, Charlie, where? How do we connect with you? Oh, great.

Charlie Stanton  45:40  
Yeah. So I have a website. It's www dot Stanton value.com. That's my valuation company. And then I'm pretty active on Twitter. It's at capital for value. And then I'm also I am on LinkedIn under my name, Charlie Stanton. I'm not as active on LinkedIn, I don't really use it as much I think I might. And then I also have a on my twitter link, I have a link to a sub stack I write for. I like to look at publicly traded companies as well talk about that. I think there's a great amount of information to pull from those since everything's available. You can there's a lot to talk about for every type of investor and owner. So you can you can see me on those resources.

Ed Mysogland  46:26  
Okay. And as far as the art of valuation, is that being sold by the appraisal Foundation, or is it on Amazon?

Charlie Stanton  46:32  
It's been sold by the appraisal foundation on their website. I know I'm not sure if it's on Amazon, but okay, the appraisal Foundation has it on their website?

Ed Mysogland  46:41  
Well, I'll make sure that there is a link to wherever it is. So, Charlie, this has been awesome. I have enjoyed our conversation immensely.

Charlie Stanton  46:51  
I have to thank you very much for having me.