EP 120: Business Valuation Calculator Reviews

outro  0:00  
Ed, please, welcome. Please, welcome. Welcome. This is another episode of the defenders of business value podcast, a podcast where we talk about what makes a business valuable. Learn the tips and tactics to increase your company's value that only veteran deal makers know. And now here's your host, Ed mysogland,

Ed Mysogland  0:19  
welcome back to another episode of the defenders of business value. I'm your host, Ed mysogland, and today we're talking about online business valuation calculators. And it's a it's a thing, and there's a number of locations on the Internet that will, if you put in some information, it will spit out some value that people are relying on and and again, you know, as technology has has continued to just go so fast, some of this stuff is pretty good, but at the same time, some of it's not, and that's the the point of today's episode. I wanted to talk a little bit about, you know, the drawbacks of, if you're going to use an online calculator, at least know what you're getting yourself into. So lots of business owners find it attractive. I mean, this is a really private thing to talk about your business, whether it's doing very well or it's doing not so well. And I think it's one of those, one of those things where, if you're doing well, you're proud of it, and you want to show people how, how well you've done. But conversely, a lot of business owners are are doing just the opposite. So here's the drawbacks of traditional business valuations. You know, it's, it's, it's a cost, it's and it can be really expensive, depending on who does the valuations. I mean, you know, the the work we do, you know, it's in the in the lower four figures and but I've seen, you know, well into 15, $20,000 now, you got to remember what it's, what, what it's for. You know, if you're if you're dealing with a a litigation situation, or you're working with the IRS, where the valuation comes under the uniform standards of professional appraisal practice, USPAP, I mean, it's a big undertaking, and that's why there's cost, because of that time. And so speaking of time, it takes time, you know, a while to to do business valuations. Because, you know, we've talked about the what all we do in in generating evaluation, but, you know, there's a lot of research that goes into trying to figure out, you know, the applicability of market data returns and applying that to to a business that you have to have an intimate understanding of, you know, the inner workings. So it takes time. Next is, you know, the it's, it's a complex process. I mean, there's, there's a, you know, the math is fairly easy in business valuation, but the application and the correlation of how the market, how the data that you're using to compare and apply value to that you get out outside of the business. So market data, you know, the like, I would say market data, but as I was talking you're getting returns from the public sector and applying it to private companies. So it's a there's a lot of complexity in the formulation of what you're trying to do in developing Apples to Apples analysis so that so it's a complex process that a good appraiser will be able to communicate, and that takes time, and that takes money. And then lastly, you know, I alluded to it when I just got started, is business valuation. I'm, you know, people are climbing all over your business trying to figure out what the what the value is. And that's a sensitive that's a sensitive topic. I mean, you're, we tend to, you know, think that this is an easy process, and it's not. I, I've worked with many sellers over the years, and, you know, they're really reluctant, because, especially, say solo practitioners, but you know, the smaller businesses where there's, you know, two or three employees, yeah, it's hard to hide behind, you know, decisions that have been made. And so you're, you're looking at somebody's baby and saying, you know, just how cute their baby is. And, you know, maybe they've made decisions and it didn't go so well. No idea. But it is a, it really is a thing that you know, that business owners are really protective of so but now let's look at the. Other side the benefits. It's cost effective 100% there. I mean, it's either either low, low cost or free. And just so you know, both are probably lead gen for for either M, a firm or somebody that's going to try to sell you something much bigger, whether that's consulting or whether it's brokerage, whatever the case is the it's probably lead gen. And I'll and I'll talk as I review these, these ones that I found. You know, I'll talk a little bit about what I think, as far as lead gen speed. You know, you control the pace you put in the information, and the speed for which you put it in is the speed for which you get a result. The privacy, you know, this is privacy is about. It's between you and a computer. So, so you're not working with someone like me that's asking questions and and such, you're the one that's driving the valuation bus. And then lastly, you get immediate results. You put in the information, you get it back out. So the limitations of online calculators is accuracy. You know, we when we do valuation work, we spend a lot of time compiling and analyzing and making sure that the information that we're putting in is good information, and so garbage in, garbage out. In this case. So if you have, if you don't know if the online calculator is not guiding you on specifically what they're looking for, it is going to likely overstate your valuation. Next. It's oversimplification. So when we look at at these online calculators, you know, you're putting in two or three numbers and and out pops a up pops a number, and it's it's disregarding, you know, market conditions and competitive advantages and other drivers of value that make up. You know, make up, especially in the sale world. You know, this is not just a evaluate or a financial exercise. This is more about selling the value you've created in the business, and online calculators at times, just can't do that. And then, and then lastly, lack of human insight I have. You know, over the 32 years I've been in this I have had many conversations where here is here is a valuation, and here's the empirical evidence that supports it, and having the conversation with the business owner and discussing, here's how a buyer is going to look at this business, and here's how they're probably going to structure. So the value is one thing, the structure is another, and online calculators just don't do that. And there's different attributes of a business and different structures that accommodate selling those features of the business. So for me, the lack of human insight is is a real challenge. So now we now, let's move into the into the calculators themselves, and I will have a a link to all of these, all of these online calculators, so you can test drive them yourself. So, so the first one is called calc Xlm, and that's website is calc c, a, l, c, x, M, L, and so this valuation tool, it almost does like in under the income approach, is called the discount future earnings. It you do some forecasting, and it determines your likelihood you know you're based on the income approach, it determines the valuation. Now if you're thinking about selling your business, you know future value or your your ability to forecast your business really is dependent on how well this works. So if I'm you, and I'm looking at selling this probably is not, is probably not the tool, unless you have a real good understanding of your of the future forecast. So for those of you, and by the way, the likely, the likeliness of lead gen, that's probably moderate. I did not get the feeling that they were, they were trying to to pull mark, you know, pull your, your contact information.

Ed Mysogland  9:56  
The next one is the equity net startup valuation calculator, and that. And that's that was a little something for those that are that have startups. And this calculator, you know, it offers a comprehensive method to estimate the value of a startup using, you know, various business valuation approaches. I mean, it from Discount future earnings that we just talked about, book value and comparable market analysis, which is the market approach, it's free, and the likelihood of lead gen is extremely high. But at the same time, I mean, you know, if you're in the startup world, I mean, I I think acquire.com is probably a superior, you know, it's a place where startups are being bought and sold. I think, if I'm not mistaken, they they share market data on their website. To me, if you're, if you're in the startup world, that's probably a good place to hang out. Next is exit advisor, business valuation calculator. The URL is exit advisor with an E, not O, R, so E, X, I T, A, D, V, I S, E, r.com, and so this tool, again, does a another discount of future earning. It appears to do another discounted future earnings method, and it's based on future cash flows and other financial metrics. It is free for initial estimates, but there It also appears that there, for more detailed information, there's associated fees, lead gen, super high you are, that is certainly a way to get your contact information. Again, back to the review, if your business valuation, regardless of whether you're doing a whether someone's doing it for you, or you're doing these online calculators, if you're forced to forecast something a small business, you know, five years into the future, I mean, it the basis of the valuation is really dependent upon how well You can forecast and and see into the future, and over my years, and all the businesses that I've appraised, which is about 3500 now, um, seldom do you see good estimates, especially, especially in you know, your small main street businesses. All right, let's move on, digital exits. So digital exits, D, I G, I T, a, l, e, X, I T, s.com, again, this is a, this is, I like this only because it's it's based on market approaches. On the market approach, it's pulling multiples from from the from sales of similar businesses. For me, it's, it's probably pretty, pretty good. Anytime there you're using market data, it's good. Now the key is the information you're putting in. How accurate is that the cost, like I said, is free. Lead Gen is super high. Hadley capital, Small Business Valuation capital, or Hadley capital Small Business Valuation calculator, that is H, A, D, L, E, Y, capital, c, a, p, i, t, a, l.com, so this calculator, it's free, it base it. It's, it gives a snapshot of the business based on ebi.so earnings before interest, taxes, depreciation and amortization, growth rate, margins. And, you know, it's aimed at the, at the people on this podcast, small business owners. Um, I think, yeah, I the initial estimates free. And if you're going to, if you're going to download, there may be a fee associated with it. Lead Gen again, super high. I like, you know, I like, I like what they're doing. I've seen a number of brokerages offer this similar thing. I think you can, you can even buy a WordPress plugin to do this again. It's, it's lead gen. And the way it works, by the way, when on this lead gen so you fill this out, you put in your information, we call, we I shouldn't say we call. We don't do it this way. But a broker will call up and say, Hey, I see that you you did this analysis. I'd like to pull you in and talk a little bit more about about the findings. And you know your your particular valuation, or the industry would then bring you in and talk to you about your valuation, and then. It, and most importantly, it's selling your business. That's all that is about. So any rate the as as you, as you fill these things out, just know that in these online calculators, you are the product. All right. So the website, this is by national life. This is a a insurance related one, not an insurance industry one, but an insurance based one. So nationallife.com, so n, a T, I O, N, A L, L, I F, e.com, this is again, a future earnings based analysis. They're also evaluated excess compensation and marketability and and the biggest thing is that they're using it for financial planning. So the cost is free, and the likelihood, likelihood that it's lead gen is high. Next is fast valuations. Fast valuations.com. This site, all you have to do is put in, I think, five inputs, and it will spit out a valuation. The cost is free, and the lead gen is high. I I mean, there wasn't much to from. From where I was sitting. There's not much to review. You know, it's again, garbage in, garbage out. Next is biz X, B, I, z, E, x, so biz X, you know, that's a fairly detailed and and free online tool, and it uses the multiple of earnings method to determine the value it again, it's More market driven. So I like, I like that, especially in the for the sale purposes, and then they provide a lot of resources for buying and selling. The cost is free, and the lead gen is, you guessed it, it's extremely high. Next is fit, small business. Fit. Small business is a, it's f, i, t, s, m, a, l, l, B, U, S, I, N, E, S, s.com, so this calculator is based on revenue and profit and and it uses standard industry multiples. And to me, there's a lot of industries, and I'm just, I'm just kind of curious to know where they're pulling the multiples. Now I will tell you that I've done in my research for my book. I do have a a appendix where I do give all of the multiples that that I have found over the years for for the, you know, for the for respective industries. Okay, so the cost is free for basic use, but if you want deep, more detailed analysis, you got to pay $495 lead gen, again, super high biz equity. So I test drove this

Ed Mysogland  18:23  
couple years ago for for my my startup called biz sale by owner. We we pulled in biz equity. And look, it uses an algorithmic type valuation, meaning they're pulling data from lots of different places, as well as from companies that they're, that they're, that they did analysis for, and they're comparing it and compiling it. As far as level of sophistication, I think biz equity is right up at the top. So it is, if you're going to use it, you know it, there's $500 fee, you know, hands down. Now, likeliness of lead gen, a lot of the model with biz equity is that they, they go out and, you know, for example, financial planners are using it instead of, instead of going to a appraiser, they're, they're saying, Look, we can do your we can what we what we want you to do is go to biz equity, fill out this, fill out your your material with you and your accountant, and it'll spit out a number. And then we can sit down and we can, we can plan your future with the information that biz equity provides. Like I said, biz equity is, is probably heads and shoulders above the rest, as it relates to online calculators. All right, the net the next two, Empire flipper, Empire Flippers and Flippa. You know, those are two really good online. Marketplaces for selling online businesses, both of them, it's lead gen, and they're both using the data that they've compiled from from successful sales off their website into providing some valuation guidance. Again, if you're an online business, those are two really good places to hang out, as well as acquire.com Next is Coast app, C, O, A, S, T, A, P, B. That's that is a Business Valuation Tool that focuses on sellers discretionary earnings, which is calculated by net income plus depreciation, amortization, interest plus w2 compensation for one owner, plus discretionary and non recurring expenses. And so it it is. It's used for, you know, from my from where I'm sitting at that's not a bad metrics to use again, garbage in, garbage out, be careful. And you know, it's free to use, you know, for the basics, but for the premium features, there is that they may require a payment, so likelihood of Legion, I couldn't tell, so I'm gonna give it moderate. I mean, normally people don't do anything for just for the heck of it, especially in this world. So the next one is bupos, B, O, O, P, O, s.com, it uses price to earnings ratio to provide a rough estimate of business value. It's free. The likelihood of lead gen is moderate again, so few variables. It probably does not it's kind of like a quick Excel spreadsheet that you put in three numbers and it cranks out the value of your business. So I those are the ones that I've reviewed. To me, there's really no substitute for getting business valuation guidance. There's enough people out there that are that are doing the work most M A firms and brokerages will give you some some guidance as far as what they're seeing in the marketplace. And again, this isn't a commercial for for my services. But again, the biggest thing is you have to understand that beauty is in the eye of the beholder. I mean, we can, we can run financial analysis until we're blue in the face, but until you get into the deal theater, you really have no idea how a buyer is going to be looking at your business. And so no matter what we've done to analyze and and tell you a valuation, you know whether that's through the, through the online sources I just described here, or whether we do, whether we do, you know, the standard business valuation work that you know adheres to, to, you know, standards and associations at the end of the day. You know, again, it's back to, I can provide a a a supported valuation, and this is how somebody should behave toward a business like yours. But again, it's back to once we get once we get into it's one thing to have value, and it's another thing on structure. You know, valuation assumes, makes a lot of assumptions, and we base our analysis on those assumptions. And if those assumptions for whatever reason, it's not necessarily the incompetence of the appraiser, but in the event that it doesn't hold true, the market may have changed, or people may have changed, or they're just things just happen in in doing deals. So, so where I'm heading with this is that, look, if you want to run, run a calculator, and you know, kind of get a ballpark of where you're at, just understand, it's a big ballpark, and if you want to kind of whittle down and do do some planning for for your eventual exit, you probably want to, you probably want to invoke the the help of somebody that that's doing this kind of work. All right, so that's the episode. I hope that you enjoyed it. I hope that, I hope that you found it useful too. One thing I don't often do is promote my newsletter. That newsletter is, is really, you know, it's probably 7000 people. Get it. It has a, you know, if you're ever interested in selling a business, you know, down the road, you know, it's that's all this. It is. It's about the articles I found, some of the the writing that I do on, you know, on on LinkedIn, on Twitter, it's kind of, I kind of curate all that, as well as a lot of articles that that, that I have found and you probably would find interesting. So if you go over to defenders of businessvaluation.com and sign up for the newsletter, I can assure you it's going to make your life better. All right, thanks so much for joining me today. I look forward to hanging out with you again next week.

outro  25:48  
This was another episode of the defenders of business value podcast for more episodes packed with strategies to increase the value of your business. Visit defenders of business value.com For show notes, transcripts and free tools to start you on your journey. Subscribe now so you don't miss any future episodes. You.

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