How to Value a Company: Numbers You NEED to Know When Selling Your Business

Eric Beer 00:00

I think you need to know this at some level to understand business as a whole, right? So, you don’t get caught up in a lot of this stuff. There’s way more information. Like you get into the stock market and learning about that, or, you know, you’re trying to sell your company, or people are selling companies and you hear like, Oh, that guy just sold this company for XYZ. How do they sell for that much? And it comes down to the multiple, right?

I spent the last 17 years building my eight-figure performance business without using any of my own money, working with some of the most brilliant direct response marketers in the world today. Now I’m looking for entrepreneurs to join my affiliate army built on ethics, transparency, and good old hard work. Join me to change the perception of how people view the greatest business in the world, affiliate marketing, and follow along as I learn, apply, and share performance marketing strategies, working with some of the brightest people on the planet. My name is Eric Beer, and welcome to the Performance Marketer podcast.

What's up guys, welcome to the channel. Every day here we talk about lead gen, media arbitrage, performance marketing. My name is Eric, and welcome. Let's do it, baby. Every day we talk about all kinds of stuff. I'm a Performance Marketer all around measuring results, right? We don't do anything without knowing if there's any reaction to what we do, right? Like we don't get paid unless we drive a result. We measure everything - CPAs, CPLs, right? And that’s how we like it, right? It’s the right way to world, right? It’s give you the biggest upside. Well, the thing is here, what I want to talk about today is something I was talking about with somebody earlier, who didn’t know how companies were valued and what the valuable asset is in your company. And I was kind of surprised about it. And I thought to myself, wait a second, maybe more people don’t know. And if they don’t, maybe we should talk about it. So, today, we’re going to talk about how to value your company, what your company’s worth, and how to figure out if a market is right for you, based off of values of companies in the marketplace, and what’s available to you, that you can look for, to determine that. So, stick around, we’re gonna get into it right now. Here’s, here’s the deal, right? We all know that the most valuable thing is your customer list. Right? We all talk about it, right? You ever hear? The money’s in the follow up? People will say, right, so when you generate leads, or sales, following up afterwards with these people is the most important thing so that you can monetize them make money, and scale your business, right? A lot of people make that mistake where they do not do that. Or even do it enough, right? The timing of when you reach out to your leads is so important. I will tell you, it’s proven. OK, take it from me from experience, that the longer you wait to communicate with the person that signed up, the less chance you have in converting a sale, short term, right, you might be nurturing the person. And in that case, if you want to do some sort of nurture where they buy a book and have to read your book, or they’re subscribing to your YouTube channel, or a podcast, so over time, maybe you’ll be able to get them. Right. But if you’re looking to make moves and monetize the first visit, yeah, then you got to you got to follow up. You got to communicate with them immediately. Right? When we used to do things in the past, like they were different programs you’d run we would trigger an autoresponder an autoresponder means like that the lead comes in, and in real time, it’s already set up to send an email one to one ratio. And the difference between doing it in real time and doing it within two minutes, was a massive, massive difference, like serious numbers from if you think about it, like, if you did it in real time, you might have made 750 grands for the month. If you did it. After two minutes, you might make $375,000 for the month. So, like two minutes. Huge difference. And what’s happening is like people are online, right? They’re signing up for things and you want to catch them right when they’re there. So, if you’re in a business that’s looking to communicate and sell somebody, you want to get to those leads and work those leads as fast as possible, and your numbers will go up. If you do that. If you’re somebody that’s waiting till talk to them the next day. They may remember that they signed up for your offer. OK, so we know that that whole thing The list is valuable, right? That’s the asset? Well, when people are looking to purchase your company, right, if you’re selling your company, what are they buying? Right? If you buy something, you’re hoping that it’s going to be worth more later, right? If someone sells their company, they don’t sell their company to somebody who’s like, alright, I’ll give you whatever this is worth, unless the person that’s buying, it thinks that they can either take that company and scale it to make it more valuable. Or maybe it’s something else from like a distressed company or things of that nature, but selling off the assets, but whatever, or it’s a token, you know, so like, other than if anything’s bad, right? A token would be… There is a company that’s already existing, they go and purchase another company, and that company now fills a void within the parent company, right? To make it a bigger, bigger, bigger company, the revenue comes over to this side. So, it scales up business. Right? So, there’s really, ultimately, two ways that they’ll do that. And the reasons why is because they think it’s valuable. But the thing is, is that, how do you know how much it’s worth? Right? Well, I don’t know. So, if anybody’s familiar, like with comps, what they’ll do is they’ll try to look in the marketplace to see what other similar companies sold. And at what comp, did they sell? What multiple? Meaning like, if you had a company in, let’s say, the digital space that generates leads and is sold, let’s say for $100 million? Right? Well, you would look at what were they doing from a revenue perspective? And the question is, were they doing it on the net margin? Or the top line? If anybody does know what that means? Right, like, top line, top line is, is the is the gross revenue. And then there’s the net margin, revenue, which is your, your profits? Right? So, you know, if there’s a company here that’s doing 50 million top line, and their profit is 20 million, right? If they sell for $100 million, I, at least I would, I would do it off the net, if I’m buying a company, right, so if you look at it off the net, because I don’t really care what that number looks like, some companies care, like, if it’s like, you’re going to go public, you have to be a certain number. Or if you want to do certain things, there are times where companies want to pad their top line revenue, to show the size of that company to make it worth someone’s while, right, that happens. But in my scenario, if I were to do that, I’d be looking at this, this number is the most important to me. And, you know, if you look in the marketplace, if this company did that, at 20 million, the multiple, right, you would just take 20 million divided by 100 million equals 5x. Right? So, what they would say is its selling at five times. So, that doesn’t mean necessarily your company is going to do that. But if you’re if you find a company that’s similar to yours, right, and now you’re looking, you’re starting to get an idea of what people are willing to pay for the business, right? So, you can look at things like this, to figure this out. Now, what that means is these people think, in this scenario, that they’re going to be able to take this business and skill it right, ultimately, right here, they’re just getting paid five years in advance. So, when selling your company and saying give me what I made here this month, five years, for five years, is the way I think about it, right? So, five times, so they’re gonna get 20-40-60-80-100, boom, that’s 100. It’s gone. Well, the company that takes it over in hypothetical terms, let’s say that they scale the business and let’s just go in the next five years, right? In year one, they do 30 million. In year two, they do 45 million. In year three, they do 50 million. OK, so right here 30-75-125. So, in three years, they’re going to be profitable is the way they look at it. Right? Because they’re thinking that they’re going to scale because that’s the bet they’re taking. Right? If the guy over here that sells this for 100. Now all of a sudden is able to do this. Maybe it was a bad deal. Right? Maybe it was a bad deal for him, because now this company is worth $15 million, right? Right, no, sorry, it’s not worth $50 million, it’s doing $50 million in net margin, right? If we looked at it and just kept the same multiples, right here, this value is $250 million. So, the person that bought this, right, want, they paid 100 million for when they were doing 20 million, they did a good job, they built up the business to get to 125 million in three years. So, now they’re 25 million in the positive. And if they wanted to sell this company tomorrow, at 5x, multiple, they’re getting another 250 million. So, this business paid back for what they paid for it. And now anything they sell it for at that point is a profit. It’s amazing, right? Well, I mean, listen, this could have been a guy that just wanted to get out of the business, he may have been in the business for 10 years, and just wanted to take his money and go to the next level, do something else with his life, you know, if you’re doing some for 20 years, and you want to get rid of it and take a buyout. I mean, listen, you got the guy got $100 million, right. And if he doesn’t have the passion to stay in, even if this is gonna grow, it’s not worth it. Right? You got a passion for what you do. If he if he could, he could sell it and stay with the company and have upside, right, so you could take some risk off the table. So, this is important for people to understand on what the value of the companies are, because there’s other ways for you to figure this out. Right? One of the ways is, if you’re deciding to go into a market with a new business, right? Let’s pretend like you are going in to market with a new business, you never want to go and do something unless you know that there is a market people buying, like buyers and sellers, there’s a market, right, it’s an exchange. So, you know, one of the cool things that you could do is you can go and look on the stock market, right? The stock market is a place where people buy and sell. And the beauty is there’s these public companies, and they have to report all of their earnings to the public, to the shareholders. So, you can go at any time and open up a 10 Q. Right. And what they do is they report quarterly. So, there’s four times out of the year, that they’re going to report how they’re doing, what their business is doing, what the numbers look like, they can’t lie, right? It’s a public company, it’s owned by the public. And, you know, there’s benefits for being public, right? The people that do it, they do very well, right? Do you can get very wealthy doing this. But there’s things that come with it, you have to answer to the public. And in this scenario, right? Like, you could look to see what other companies are valued at, and what the multiples are, by doing a very simple thing. And I’m going to show you, OK, so that if you’re ever looking to be in a market, and you want to try to get an idea of what that looks like, right? Here’s what you do. You let’s do blue now. All right, the stock market, let’s say, in the stock market, you have a stock, that’s trading, let’s call it XZA, OK. Let’s say XZA, is a public company, and they’re somebody that’s in a market that you want to be involved. Let’s say they’re, you know, their pet supplies. So, let’s say they’re, they’re selling certain pet supplies that you want to get involved in, you want to maybe, you know, obviously, you’re going to create a target niche, so that you can compete against these big players, right. And we always talk about, like, when you’re when you’re doing your surveys, were identifying which segment they belong in. Right? There’s a market, we talk about a market, a stock market, like the market of whatever the market for pet supplies is x, we want to know how big that is. If it’s $2 billion dollars, and there’s, there’s money to be had, right? If it’s, you know, $2 million, and it’s a small market, you don’t want to go into it, right? It there’s no, there’s nothing there. It’s like trying to sell to like a town of 50 versus a town of, you know, 10,000. You could have the best thing, but there’s no market for it. So, were you trying to figure out if there’s a market for a certain category, you can do it with public companies by finding the pet supply company. And ultimately, what you what you’re looking at is, what is the price per earnings, right? You want to see what the valuation is of that company. And you can figure it that out with them. It’s called the market cap by looking at their P/E, which is price per earnings ratio. And it ultimately will tell you to have a number, right like let’s say it’ll be five. Remember, we talked about a multiple, what this is saying is if this company is making X and the stock is trading at Y, then the ratio is 5. Right? The market cap is the value what the stock is trading at? Right? What the value of the stock is. Right? And you can compare that to what they’re actually making. So, it makes sense, right? OK, so let me show you just know, I don’t want to go too far into like, this whole thing. We want to use the other the company, so 100 million, let’s say, OK, let’s say the 100 million. Let’s pretend like that’s what the value is, that’s the market cap, what now is happening is they have some shares, right? Then I’m going to say there’s 100 million, just to make it super simple. Is a few more zeros on that, right. But you get it, put the amends. Right. So, on the 100 million, if there is 100 million now shares, the stock would be trading at $1. So, it makes sense. So, you would take this divided by that, if there was 50 million shares, the stock would be trading at $2. Right? So, the market cap divided by the shares. So, it’s pretty simple right? Now, what this number means is, it’s showing you what the multiple is, of what it’s trading at, versus what the value of the company is. OK? Meaning like, you could be trading, the market cap is at 100 million, but they’re only making, you know, 5 million a year, they’re losing money every year. Will you ever hear like companies lose money? Because remember, like the bubble, right? If there was the internet bubble back in like the 1995, 2000, they called it the bubble, right? The pop. And the reason why it was a bubble was because there were all these people that were buying all these companies that did not make $1. But the thing is, is the way this works, and why I was trying to explain to you earlier, when people buy companies earlier, they buy because they think that they can make more money with it later. That’s the same thing with the stock market. Right? The stock is trading at XYZ, right? If a stock shooting at two bucks, well, that’s great and dandy, but the only reason you would buy this stock at two bucks, is because you think it’s going to go to $2.50 or $3 or $4. Right? So, to figure out if that’s going to be possible, right? You can look at what’s the market cap, what’s it trading at? What what’s a trading at, versus the other companies in the same pet supply? Vertical? Right? If they were at a 5x. And then you find another company, let’s say, you know, company to company, public? Number two. And let’s say that their P/E ratio equals 50x. If all the companies are trading at 5x, and this one’s trading at 50x, you’re gonna want to look and see why. Right? If you can’t figure it out, and you can’t see why that would be trading so high, meaning the value of the company, right, let’s say this company here, let’s say they they’re making, you know, $5 million a year, just using numbers, right? So, here, let’s say this company’s also making $5 million, but these guys are trading 10 times more than this company. So, if you took that, let’s say if everything else was the same, let’s say, all of the shares, let’s say, let’s say they have, OK, let’s say they have 50 million shares 10 times that would mean that the stock is trading at $20. Right. So, you know, sometimes people overpay, sometimes people under pay, and they’ll buy because it’s all about what is in the future for them. Right? So, when you’re thinking about if you’re going to sell your company, you’re thinking about how the market looks? What are the comps against companies that are similar to yours? What’s the multiple, right? If it’s, if it’s not a public company, if it’s private, you may not know those numbers, right? You can, you can talk you can, you know, network and ask around, you know, and sometimes, sometimes they’ll they’ll announce it and other times they won’t, you know, you try to figure out like what that number looks like. So, that then you can now play insurer, try to make some case, whoever’s going to buy it, that your company is worth XYZ, right? So, if, if this company over here is trading at 50x, well, either something’s going on here, either. Either this company is trading below the comps, or this company is way too inflated. It’s not worth 20 bucks, right? Well, that’s the thing, right? So, if this company is worth $2 a share and this company’s worth $20 a share? Well, that’s where like the whole, like traders and Wall Street and hedge funds come into play, right? They would look at this and say, if they identified that this is trading way too high, they would short that, right? Because they’re saying, Alright, it’s trading at 50x, I did research on this company, this company is going to lose money next quarter, it’s not working, whatever, whatever people think is going to happen is not going to happen. This thing’s This thing’s worth $1 to $2. Right? Well, it would short it, meaning they want it to go down. And if it was the opposite, right? And they saw that this was at 50x. And this is trading a 5x. And they see that there’s potential here. And this is legit. Someone would be like, Alright, now, I can see this going another 10x. Because this is trading here. It’s a very similar business. Right? So, you could look at it and say it’s two bucks. So, I can predict that it may be $20 within a period of time, right? It’s the same thing with what we do with cryptos. You look at the market cap, you want to see how much is it worth? It doesn’t matter what the share price is, people get caught up in that. And they get confused. And it’s really, really important that you do not get caught up with what the share price is. It’s very different for each company for each cryptocurrency. Because at the end of the day, it comes down to what that is times how many shares are outstanding? Or how many coins for cryptocurrency is outstanding. Does that make sense? So, that’s why you want to look at the market cap to see where you think something could go if they talk about Bitcoin going to, you know, 100? Well, that’s possible, right? If you go and you look at what the outstanding coins are, I mean, I don’t I don’t know the exact number. I mean, I could look. So, Bitcoin over here. So, the market cap is 800 million 800 billion, sorry. And the circulating supply is 18,000,009 55. So, what they’re doing is right here, they’re taking that number, anybody, they’re taking that number, and they’re dividing it by the 18,000,955 coins that are circulating in the marketplace. And that’s how you get to the $42 per price. Right? And that all comes down to but so, because look at this, right? If this, were to go to $100. OK, if bitcoin goes to $100. And if it’s at 800 billion, that, let’s, let’s say 84,000? Because it’s 42,000 Make it super simple, right? This would go from 42 to $84,000. For Bitcoin, that means that their market cap would be worth 1.6 trillion. Right? So, like, at the same time, there could be something else that could be trading, right at nine cents, or $1, or whatever. And it’s still the exact same thing. Don’t get caught up. You see some here. Like if you look, right, XRP, my baby, it’s at $36 billion in market cap. And it’s trading at 77 cents. Versus if you look here, and you look at like an avalanche, right? This is 20 billion in market cap, but trades at $83. Right? So, it’s not about that price, don’t get caught up in the price. It’s all about how many you’re extending. And then what is it trading at. And that’s where you see what the what the company’s worth, what the coin is worth. And I just want to go over that because I was talking to people about this. And I just thought it was interesting. Because there’s a lot you can learn from these public companies. If you just open up a 10 Q, you can learn about what they’re doing, what they’re what they’re projecting what’s going on their business that can help you. Right, it can help you with what market you want to get into it help you with how they’re doing it, you can help you with what the value of a customer is. Right? I went in, looked at one of them. OK, one company that was close to what I’m looking to do. And I think they had like 400,000 customers that quarter. And they were an average price of $450 per customer. So, it’s like, OK, well, how much did they make? You don’t even need to look anymore. You just have to take how many customers times what the value per customer is. And that’s the revenue, right? And when you see that, you’re like, Whoa, man, OK, there’s a lot of people here is a lot of people interested in this. That’s cool, right? A lot of people interested in surveys. Right? Then I look at the market cap of a company like that and it’s $1,000,000,000 or 2 billion dollars. Well, guess what? That’s a big market for me. Right? I don’t need to be getting all of them, I can get a very small piece of that, and have a nice successful business. Right? I mean, look at it, you know, there’s room for everybody, you can do this, totally, you can sell your company if you want to sell your company. But I think it’s important for you guys to try to get an understanding of like, how that works, when they when someone says, What multiple, that’s just what they’re what they’re saying, the company could be worth versus what they’re making, right? Price for earnings is more on the stock market side. But like, if you’re selling your company, right, which I hope you do one day, if you want to, if that’s what your goals are, then you should be well versed in this and really understand the marketplace. But yeah, I hope this was helpful, I think you need to know this at some level to understand business as a whole, right? So, you don’t get caught up in a lot of this stuff. There’s a way more information like you get into the stock market and learning about that, or, you know, you’re trying to sell your company, or people are selling companies and you hear like, Oh, that guy just sold this company for for XYZ, right? Like we’re talking about here. It’s like, Oh, my God, like, it’s crazy. How do they sell for that much? And it comes down to the multiple, right? Like software, things that are recurring. So, when you say like your asset, right, there’s a big like, is a good thing about if you are investing in something, right? Would you want to invest in a company that has predicted revenue? Or do you want to invest in a company that has these spikes up and spikes down? Right, it’s very risky, you don’t want to do that. So, people are looking for companies that have predictable revenue, that they can forecast over a period of time that’s sustainable, versus the companies that jump up and down, right, that’s where they love the software companies with people that are on these recurring monthly revenue models. They’re paying monthly, right? Because you can now project but in those companies, you don’t want to see a spike, you just want to see a nice trend up. I’ll tell you that was interesting. At one point, I was working with a company, it was in the influencer space he created this this this like search tool for influencers that people can go in and use. And it was a revenue model where it was people paying monthly on a recurring month, a month or more, they paid up front for a year. But he had investors he had, I want to say like he did two or three rounds, maybe like 20 million and another 40 million. And you know, when you start getting into that world of taking money from people, each time you do that you’re giving up a piece of your company, they value the company, right? They It’s not how much you’re making, it’s what the value is, it’s if you were to sell it, right. So, it’s multiple, like, if we wanted to raise money, right? If we were making 20 million, and we valued the company at 100 million, right? Well, how much money you asking for, and then that’s the percentage that a company would get, right. So, like, if you value your company at 100 million, and you want to get $50 million, well, then you’re going to give up 50% of the company based on the valuation that you just gave them. And what was interesting was, I mean, we were talking about different things, that was one possibility, where I could have increased his revenue doing something else that had nothing to do with his current model of people paying on a monthly basis. And it could have been a real number. And he’s like, You can do it, but keep all the revenue, I don’t want it. He’s like, I my investors don’t want to see that. They want to see steady trend of revenue. Right? So, like, if that’s how their businesses, right, it’s like 10 million, 20 million, 40 million, 60 million, versus if it was like this, let’s say they killed it one month doing something different, but then it came back down. Had a bad month, right? They don’t want to see that they get they don’t want invest in these types of companies. Because there’s a lot of risk involved. And when you’re investing with other people’s money, that’s just, that’s something they’re not going to do. So, there’s a lot of things when they’re doing something, if you’re going to sell your company that you got to look into where the person that’s buying it is getting something that they’re going to be able to use for later on. So, that’s why like recurring models with assets of customer list is really valuable. Right. So, guys, hope that was helpful. That’s it. Hopefully you sell your company one day when you do let’s go. Let’s go grab a bite tea. With that said, Guys, I’m going I’m going to hang out my family. Have a good night. I’ll talk to you soon be well good luck. I’m rooting for you.

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