Today we welcome Roger Winsby from Axiom Business Valuation.  Roger is going to speak with us about the art of business valuations and why it’s an important part of the planning process for a business that wants to create sustainability.

Like most business owners I have a love/hate relationship with the idea and cost of business valuation.  At the same time, I understand how important it is for a business owner to understand the real value of their business as they think about sustainability options for their business and themselves.

Some of the things we’ll talk about today on this edition of The Sustainable Business is:

  • When business owners typically do a valuation.
  • What kind of information a typical business valuation contains.
  • Why a valuation is about future expectations and risks.
  • How to understand what drives your business value from your business valuation.
  • Why having the right training to get a great business valuation is crucial.


Narrator:         Welcome to the Sustainable Business Radio Show on podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. The Sustainable Business is all about creating great outcomes.

Here’s your host, certified financial planner, student, entrepreneur and private business expert, Josh Patrick.

Josh:                Today’s podcast features Roger Winsby. Roger is president and co-founder of Axiom Valuation Services. When I speak with business owners, they often are confused as to why they should have their business valued and are often put off by the expense with getting a valuation done. Today, we’re going to speak with Roger about why you might want to get a valuation and what getting one can do to add safety to your business plans. So, let’s get right to it.

Hey Roger, how are you today?

Roger:             I’m doing great, Josh. How are you?

Josh:                I’m well. Thanks so much for being on the show. I appreciate it. Why don’t we get right to it? Why would a business owner want to get a valuation of their business?

Roger:             Well, typically, it’s a situation where they’re being told to get a valuation. The bulk of valuations done by us and by the industry are related to either IRS issues, some kind of tax-related issues or they’re related to some kind of legal issue – either a dispute between shareholders or divorces. So, it’s an interesting dilemma because the reason that you would think owners would want to have a valuation done is to know what the value is. It’s likely to be a big part of their net worth. But it turns out that the bulk of their interaction with valuations relates to these tax and legal issues.

And there’s a downside to that because generally in those settings, even though we’re independent valuation people, your client’s always going to say “I’d like you to lean to the low side if there’s going to be a taxable liability.” And so, you get into a situation where they’re looking for a number, they’re not looking for understanding. And that’s too bad because, ultimately, I think business owners, it’s very important for them to understand the value, and what really drives value, and how can they improve value over time.

Josh:                So, if they got a valuation, they might have a better understanding of their business? Can you talk about that a bit?

Roger:             Yeah. If you’re doing a valuation for your own, just kind of thought process, when you think about it, for most business owners, the value of their business could be the largest part of their net worth but they need to know that.

I’ll give you an example, an electrical contractor we’re working with. The owner has always made good money but I think he had this sense that someday he would sell the business for a big number. And contracting businesses generally, there have been a couple of exceptions in the past, but generally do not sell to an outsider for big numbers. There are a lot of reasons why but just generally, they don’t. So, this person was not really doing the kind of planning or working with a financial planner like you, who, I’m sure, would have said to them, “Let’s figure out what this asset is worth because we’re going to try to maximize all your assets – your income over the years plus your investments and then whatever comes from the business” so that’s really when they should be looking at these questions – well before they’re planning to exit. The business owners really should be thinking about “What’s the value of the firm and what are my exit options and my best ways to maximize that value?”

Josh:                Why do you think it is that business owners don’t get these valuations done?

Roger:             Well, I wish I knew. I think some of it is that many of them have a number in their head and they don’t necessarily want to have that number challenged. Business owners are all over the map on this. But in general, I would say that most of the numbers that are in their head are too high.

Josh:                That’s an understatement.

Roger:             Yeah. But the real issue is it’s not just a number because it really does depend. You could take a business today that’s very dependent on the current owner and that’s going to be value limiting. But you, as the owner, could say, “Well, in five years I want to have a couple of people that really can do all the things that I’m doing now so I can take time off and I can start to transition. And then all of a sudden, your options for what you do when you exit, you could sell to these two people, you could sell to another company that says, “Hey, you’ve got two people that can take this business going forward.” That’s good. That’s value creation there. So, it’s very important to kind of tie value into this broader sense of “What’s your exit? What are you planning to do?” Unless, of course, you just have decided you’re going to one day turn off the lights and say, “That’s it.”

Josh:                You just brought up a really interesting point which is value drivers and value detractors in a business. From a valuation point of view, how do you guys help with that?

Roger:             Well, we go through it because, in essence, your valuation is about a future expectation of opportunities and risks. Some of those risks are industry-specific and some of them are economic – general economy, but there are very key ones that are firm-specific. So, we go through with owners and talk about how reliable are your financials? Do you get them audited? Are they just reviewed? Are they just compiled? What about customer dependency? What about supplier dependency? What about key employee dependency, owner dependency? And also, just the degree of competitiveness. Many industries, over the last ten years, the margins have eroded just because competition has become so fierce. And those are your value-detracting circumstances there. And they can, with the proper time and effort, sometimes make a big difference in removing those detractors and creating value enhancers.

Josh:                So, if I was to use you guys four or five years before I actually sell my business, there is a pretty good chance that you’re going to give me some things I need to work on if I want to increase the value or the sale price when I actually do leave. Can you tell us a little bit about that?

Roger:             If you think of a valuation is just a number, you are really just getting a fraction of the value that should come from a valuation because the real issue is – what drives that value, how did you determine it? How does the market determine values here and what are the likely buyers out there? So, we try to work with businesses and owners where we can go into that level of discussion. At the end of the day, you’re still going to get a report and you’re still going to get a number. But what our clients tell us that they particularly like is this broader level of discussion to say “What are the factors over the next five years that my management team and I need to make in order for this business to be more valuable and that translates into easier for due diligence, easier to transition without the owner coming along because most of the time they don’t want to come along for very long and what it will really take to position the business so that I’ve got multiple options?” Because at many times, when we see a business, they don’t have much of an option for an exit.

Hopefully, they can find some managers in the business that may be able to take it on. But, as you know, in those situations, the managers aren’t sitting there with the cash to buy the business. So you, as a seller, are selling the stock to the employees. And then it’s the future income of the business that’s hopefully going to pay you off assuming that they run the business successfully. And if that ends up being your only option, well it’s better than shutting the doors. But it’s much better if you have multiple options to potentially sell to an independent party for a higher value. But also, where those managers that you’ve helped build up see a future for them as well. It’s got to be a win-win.

Josh:                That makes sense. So, if I’m going to hire a valuation firm, what should I be thinking about before I say yes?

Roger:             Well, I think of it much like selecting a surgeon. And I think, you and I and probably most of your target audience here have had some need to make that decision. You want somebody that does this as their primary job. There are a lot of people that do valuations or have a certification or are primarily CPA’s. They’re good people. They’re smart people but there really is an importance to understanding and doing this all the time. It’s a complex activity and each industry has its own unique factors and the more experience you have, the more you’re learning, the more you’re being able to apply this knowledge. So, I think that’s—really, the key is you want somebody that does this primarily as their main activity.

And the second thing, Josh, I would really recommend, is to talk to the person who’s going to be doing the valuation and just ask some basic questions. “Tell me about your experience. Tell me about your experience with my industry.” And you’ll get a sense, I think, of whether that person is a listener or not. Because there are lots of smart people that do valuation but the smartest ones, I think, are the ones that also listen very carefully because each business is unique and it’s important to not prejudge based on all your experience. You want to make sure that you’re capturing the unique aspects of this business and that you listen to management. And especially if they have differing views, you want to be able to make sure you’re factoring that in. I think that’s a very important feature for making that selection that you feel comfortable that you can go through this process.

And the third thing, I would say, is to ask a little bit about the process. I know there are some valuation firms that send owners like a 15-page questionnaire to fill out. That is, I think, the worst possible way to do a valuation. You don’t have to do it face to face but you definitely have to do it interactively – over the phone or face to face, to really get the information with the level of richness that is needed to do a good valuation.

Josh:                Roger, I talk to a lot of business owners about the need for valuation especially when we’re doing family business transfers. They often just don’t want to spend the money. So if you really need an IRS valuation, what happens if you don’t get one from somebody like you?

Roger:             Well, you’re rolling the dice because any kind of sale—now, if they’re gifting shares and they say, “We’re going to set the value ourselves”, then as you know, with the gift tax return you’re going to have to send along some statement of value. If you’re selling shares, that’s going to be reported on the seller’s tax return. So, without that, because it’s a family transfer, the IRS presumes you’re guilty of underselling this until you prove yourself innocent. So, you’re going to get picked up because they’re going to say, “This was a family transaction. There was no justification of value. Hence, we think this value is too low.” Now, you and I know some family transfers, they fight and it’s worse than arm’s length but the presumption is you’re guilty.

Josh:                And if you are low, what kind of penalties and costs could you incur?

Roger:             Well, it’s basically – they’re going to come back and ask you to justify it. And if you’re not willing to do that then they’re going to put a value on the business and then basically assess you that. Your only option is to contest it in tax court. If you’ve got a valuation done by an IRS expert or an outside expert hired by the IRS and lets you then pay to have a valuation done, you’re going to lose. And so, there’s essentially an underpayment of taxes cost. And then of course there are penalties because these things drag out over time. So there’d significant penalties. So you will end up spending a lot more money. But most valuation firms actually don’t go to tax court on any regular basis so you have to pay one that does that kind of work and they’re going to be expensive.

Josh:                So, it’s sort of like a penny wise and pound foolish issue. Get a valuation done or roll the dice and it’s going to cost you a ton of dough.

Roger:             And a lot of aggravation. Because once you’ve opened the door, they can come in and also look at your owner discretionary expenses. , you know, they can go back and do a lot of things. You really invited them in and they can pretty much do a fishing expedition if they feel it’s worthwhile.

Josh:                In the last few minutes we have together, Roger, I’ve got a question about why it’s so difficult to get a number that’s a good number for what the valuation is of a closely held firm? Can you talk a little bit about that?

Roger:             Yes, it really gets to the issue of (1) transferability and that’s the number one risk. For many privately held firms, the biggest risk is “Will the new buyer be able to essentially pick up the goodwill of that company?” You know, goodwill’s an ethereal kind of concept but when we think about it as “If the business that you’re working with is a business that is a brand name and there are products or there are services that people associate with the business and not just with the owner, then it should be transferable and you should be able to value that business in a pretty straightforward way.

The more it becomes tied to the owner or the few key owners then the question really becomes “What kind of discount?” That takes us back to the electrical contractor. That’s a business because generally, it’s a low bid business where there’s virtually no goodwill. So you’ll be thinking to yourself “Well, this company has a good project team but what can I pay if I takeover this business because I’ve got to bid low. There’s no guarantee that the developers that the seller has worked with over the years will cut me any slack.

Because I’m new, they don’t know me. And all of a sudden, you’re really stuck with some assets that you don’t know whether you can really make money with. So, people generally say, “I don’t want to buy that kind of business. I’d rather see that business close down and then I’ll go hire the project people and start from fresh.” So, that transferability issue means that a very successful income‑generating business could literally be impossible to sell. And so, that’s why the value, when it comes to selling it would be very low.

But if that owner is getting divorced, that would be a different standard. They would be say, “Well, if you’re going to continue to run the business successfully, you’re going to continue to generate a nice income so there will be some value there that needs to go as a marital asset. So, it’s a complex set of issues and what we try to do is parse through that with our clients to make sure they understand when the value would be applied and what that range of value should be.

Josh:                Well, this is certainly an unbelievably complicated area. If somebody wanted more information, how would they contact you, Roger?

Roger:             Well, our website is or they can call me at 800‑477‑VALUE or 800-477-8258.

Josh:                Cool. Roger, thanks so much for your time today. I wish we had more to talk.

                        If you have a question on valuation, I’ve worked with Axiom for years and they’re a great firm.

Thanks so much, Roger.

Roger:             Thank you, Josh.

Josh:                You’ve been listening to the Sustainable Business Podcast where we talk about what you need to do with your business if it was to be here 100 years from now. If you like what you heard and want more information, please contact me at 802‑846‑1264 ext 2 or visit us on our website at or you can send me an e-mail at

This is Josh Patrick and thanks for listening. I hope to see you soon for another edition of The Sustainable Business.

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