Dave Lorenzo:
John Alfonsi is the managing director of Cendrowski Corporate Advisors, and he brings over 30 years of experience in tax and advisory services. He focuses his practice on business valuation and economic damages, as well as tax planning and consulting for pass-through entities. John is a recognized financial expert in federal and various state circuit courts, and he's also an adjunct associate professor where he teaches master's degree courses in taxation and valuation. He's a contributor to the Value Examiner and various other publications, and he's appeared at numerous business conferences. Please put your hands together for the valuation professor, John Alfonsi. Good morning, John. Great to have you with us today.

John Alfonsi:
Thank you, Dave. As you were going through that, it reminded me of the little lead up when you do your Dating Game kiss at the end. It sounded like the Dating Game introduction at the beginning,

Dave Lorenzo:
You know, John, I try to punch these things up to keep it interesting. So today we're talking about valuation, and here's the reason why Nicola and I wanted to have you on to discuss valuations with you. We work with business owners in the mid-market space, and we're defining mid-market, John, as 10 million to 300 million in annual revenue. And our focus with them is to get them to continuously improve their business strategy. And in doing so, we're helping them achieve more options when they're ready to exit.
So for example, if you've got an outstanding management team, a management buyout is a great option for you when you're ready to exit. If you've got a dedicated team of employees, you might want to do an ESOP or an employee ownership trust, and that's another option for you when you exit. If you take the lead in your industry and you are a high profile person in your industry and you're number one or number two for market share and a specific segment in your industry, you're probably going to be ripe for a buyout from a competitor. You may even be ripe to be a platform for a private equity firm.
So by focusing on your business strategy throughout the life of your business, you give yourself, you give your company more options when you're ready to exit. But what we've found, John, and it's so concerning and it's so distressing, is that there are people who right now today are barbers and tomorrow they're going to be valuation experts, because they're going to go and take an online course and they're going to be a certified business value advisor for the barber industry or something. So it seems like everybody and their brother can be a business valuation expert.
So what I wanted to do today, and Nicola and I had this conversation, is we want to give the people in our community the straight scoop, the inside BS, if you will, on what valuation really is, how to do it the right way, the different types of valuations, and why who you get for a valuation is so important. So I'm honored and thrilled that you've chosen to join us, and without any further hullabaloo, I am going to get right into the questions that we have for you. So first and foremost, John, explain for us valuation fundamentals. So give us an overview from a layman's perspective, from a non-CPA perspective, give us the business owner's overview of the key principles behind business valuation, please.

John Alfonsi:
Sure. So the valuation of a business is much the same as similar type assets in that it's the present value of a future economic benefit. What is it that we're going to receive in the future? What is that worth today? So when valuing closely held businesses, that future economic benefit is cashflow. So what we're talking about is what's the future cashflow for this business discounted back to today's date? So the biggest components in that, obviously it's two factors. One is what's your cashflow, or most importantly, what's your future cashflow going to be? And then what's the appropriate discount rate that reflects the risks and rewards inherent in generating that cashflow?
I don't want to make it sound that easy because what goes into those two components takes a lot of knowledge and expertise, but essentially it's a present value calculation. It's not as easy as somebody... I had a client and I was working on some litigation with them, and he's like, "How much time do you have to spend on this? My business is worth three to five times EBITDA." Well, that's a pretty wide range, I mean, first off, but it's not that easy. You can look at different industries, you can look at different times of what those multiples are, but just to throw out three to five times doesn't do anybody any good. So the principles are future economic benefit, future cashflow, discounted back to today's date at a rate that reflects those risks.

Dave Lorenzo:
All right, Nicki G, you got the next question. Go for it.

Nicola Gelormino:
Good morning, John.

John Alfonsi:
Good morning.

Nicola Gelormino:
John, when we're talking about valuations, there are often key terms that are used and you've already used one of them. So I'd like to... And particularly when we're talking about the approximate value of cash flow. So I'd like you to first identify what EBITDA is as well as seller's discretionary earnings, and then tell us when they're used in valuations.

John Alfonsi:
Sure. So EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization. Essentially it's a proxy for cash flow from operations, and what we're trying to do by eliminating interest expense is we're trying to get to free cash flow. So for purposes of comparing businesses, we want to remove the effect of leverage. It wouldn't be correct to compare earning or cash flow after interest expense, say Dave uses a lot of debt in his business, but you, Nicole, don't use any or hardly any.

Dave Lorenzo:
That sounds about right actually. That actually sounds perfect, yeah.

John Alfonsi:
So I chose correctly. So the cash flows aren't going to be comparable, but if we look at the cash flows one level up, before debt service, then we can get an idea of how things compare. So it's for purposes of comparability, EBITDA before debt, we're trying to remove depreciation and amortization, which are non-cash expenses or non-cash charges. They don't directly have an impact on cash flow. An indirect impact, but I know we're going to get to it a little bit later, but what does impact cash flow is capital expenditures. But from an earnings perspective, that's why we like to use EBITDA. That's become the benchmark for comparing entities or using cash flow from operations.
Seller's discretionary earnings is one step above EBITDA, which is we are going to take those earnings from operations, as we've called it EBITDA, and now we're going to add back owner's compensation. So implicitly included in EBITDA is a deduction for officer compensation or owner compensation. If I own a closely held business, I can receive cash flow in two capacities. One for my employment capital, for the fact that I'm providing services to the entity, and I should be compensated for that, just like every other employee should. The other then is what's left over after paying me a reasonable or a market compensation, is my return on my investment capital. That's what we're trying to differentiate with respect to EBITDA. So what's deducted in there is owner compensation.
If we're trying to look at it before that. So one of these proxies is seller's discretionary earnings, which is we'll take EBITDA and we'll add back owner's compensation. The idea is if I'm looking at a business, I just want to know how much cash flow the business in total generates without regard to differentiating between what's being paid to me as employment capital, a return on my employment capital, versus a return on my investment capital. So it's essentially EBITDA plus officer compensation and benefits. When do we use each one?
Seller's discretionary earnings are usually used for smaller businesses or single owner businesses. It's where somebody a lot of times is looking to buy a business for a paycheck rather than this looks like a great investment. So typically seller's discretionary earnings are small, one owner businesses. The standard, the benchmark for any other type of a business, even for a single owner business is, I'll call it, adjusted earnings before interest, taxes, depreciation, and amortization. That's going to give you the most comparability.

Dave Lorenzo:
All right, so let's talk about the different types of valuations. All the time I regularly see people saying, "Oh, I'm going to get a divorce, so I need a valuation," or, "There's a partnership dispute and they need a valuation." I know Nicola has worked with you in an instance similar to that. That's really a different type of valuation than a valuation of a business for a retirement, say, plan or for insurance planning. And both of those are different types of valuations than a valuation for the purchase or a sale of a business. So John, give us the rundown on different types of valuations, because the valuation that was done for your business when you got divorced, that doesn't mean that you can sell that business tomorrow for that number. That just means half of that you're going to be given away. So talk about the different types of valuations and why there are distinctions and how we should think about each of them.

John Alfonsi:
Sure. Let me just give a broad view in that. There are three generally accepted ways of valuing a business. The approach. The most common is an income approach, and that's what I was explaining, which is that discounted present value concept of future cash flow. There's a market approach, that says what have other people in the marketplace priced similar or comparable companies? And we can look at it two ways. We can look at is there a comparable or a guideline public company that we can look to. If we're on broad basis. So if I'm a tech company, I can take a look and say, "Let me see how much Microsoft is trading for," if I feel that's comparable to my company and I can look at it as a multiple of revenue, a multiple of EBITDA, those are typically the most common, and I can apply that to my business.
All we're doing is taking a shortcut that says the market has already priced out or valued what that present value of the future cash flow is, because that's what the publicly traded value represents. I'm just taking that and saying, "Okay, somebody's done that work for me. I can apply it to my business." Or I can look at comparable or guideline transactions in the industry in the similar or comparable type companies, usually privately held companies, there's databases out there that give us that information. There's studies that everybody, when I say everybody, a lot of people publish. And we can look that says, "Okay, if a similar type company sold for eight times EBITDA, then my company should be valued at eight times EBITDA potentially." So the approaches... The third, I'm sorry, is an asset approach that says, "Let's look at our historical balance sheet as whatever our valuation date is and adjust every recorded and unrecorded asset and liability at what the applicable standard of values," and I'll just throw out fair market value, because that is what you're really asking about.
So those are the three methods. And as valuation professionals, I'm supposed to consider all three. I don't have to rely or apply all three, I just have to consider them and explain why I used one versus the other. So what you've really asked though, Dave, is what's the difference in the standard of value? So every valuation, regarding of what method you use, there's two things that are implied in there. There's a standard of value and then an operational premise. An operational premise is, is it value in exchange or is it value to a specific person, the current holder. The more critical piece, though, is the standard of value. We all kind of float out there fair market value. That's a term of art for us valuation people. So fair market value is the price that would be paid between a hypothetical buyer and a hypothetical seller, both having all facts and neither being compelled to act. And typically it's extended and says it's a price paid in cash.
So what's critical in that is I don't know who my buyer is, I can't presume who my buyer is, and I can't presume who the seller is. So I can't take into consideration familial relationships, that if I'm selling to my wife or my daughters, it shouldn't matter that I'm selling to them as compared to selling to you and to Dave. So that hypothetical kind of removes the specifics. It's a notional market. It doesn't exist. Nobody operates in a world where everybody has the same facts and nobody's being compelled to sell. We all work in an industry where we're all looking for leverage and a leg up. I'm a University of Michigan graduate, and we went through this. Apparently Connor Stallions thought he was getting a leg up by stealing signs, by scouting out other teams. Whether that was proper or not, I'm not going to get into that, but in the real world, people are looking for an advantage somehow.
So that's that broadest fair market value. So typically in a fair market value analysis, we're looking at what we refer to as a financial buyer. Somebody that's looking to buy the business as a good investment, that says, "I may work in it, I may not, but it's like I want to get out of the CPA industry and I want to go into widget manufacturing, so I'm going to go look for a widget manufacturer that looks like a great investment, that's going to give me a return on my money as an investor." Investment value is value to a particular buyer, and we're doing that. That's typically the value we use in an M&A transaction. We're looking for, or we're trying to value it to a specific buyer or a type of buyer. That typically leads to a strategic value.
There's something that I have that somebody else wants, or I know that if it's an add-on or some sort of a strategic involvement, that they can eliminate expenses. There's synergies between the two organizations and the value of my business or the price that you're willing to pay for my business, then, should reflect those synergies. It may be worth more to Dave than it is to you, but that would make it investment value to each one of you. Anything that's IRS related, whether it's a state tax compliance or planning, gift tax, 409(a), granting equity as compensation, an ESOP, the standard of value is fair market value. This hypothetical buyer, hypothetical seller.
In an M&A transaction or a sale to a strategic buyer, it's clearly going to be investment value, and typically investment value is going to be higher than fair market value. So I've talked about before to people when they're planning on an exit, and whether that exit includes succession planning makes a difference because, exactly, just pointing to the Exit Success Lab, if I want to ensure the continuity of my business, I may say an ESOP or a management sale might be the best answer, but if I don't care about the... And I may have to leave dollars on the table because I'm not going to get that strategic value or investment value from a competitor or somebody else.
The price you pay for extracting that additional value or potential value or cash is the business may lose its identity or family may no longer have an involvement in the practice, the firm or whatever. So part of what people have to think through is almost what's more important to them, dollars or legacy? I'm not saying you can't have both, but a lot of times those two kind of butt heads with each other and you may not be getting the highest price that you could if you opt for a legacy transaction versus a sale of the business. You're muted, Dave.

Dave Lorenzo:
Of course I was muted. We got a question in the chat from Andre, and it's a question that you and I, we were talking about and we heard a lot when we were at the conference with the M&A guys last week, and Andre's asking how do you value a business when it increases your market share? And you and I, we heard this question when PE funds are buying a business as a platform and then they buy add-on businesses or bolt-on businesses to really gobble up the market share. You as the purist, you don't have an emotional investment in the transaction. You as the purist, how do you value, "Hey, Nicola is going to buy Dave's business and Dave was the number two provider, Nicola was the number one provider, now together they're going to end up with 50% of the market share in that market." How do you do evaluation when that's what's going to happen?

John Alfonsi:
Sure. So that's a strategic acquisition. That would represent investment value. So somehow what we want to capture is that increased market share, what does that mean to that particular buyer? Is it just adding businesses? We talk about platform versus a bolt-on to a platform in the PE world. It's what is somebody willing to pay for that additional market share? And there might be other synergies included in there, meaning I don't need two CFOs, I don't need a second accounting department, I no longer have to have their marketing. I can eliminate all of those expenses. So what we're looking at is... And it's both in those pieces that I talked about, how does it impact the future cash flow and what's that appropriate discount rate? Is it less risky now because I have this increased market share versus if this was a standalone business that I was just buying?
So both of those, there is no magic formula that we can do. It's discussions with management, what is it that they're looking for, why are they buying it, and what's the appropriate level of risks that should be reflected in that purchase? It's still coming back down to present value of future cash flow. Again, I can look to market transactions where there have been similar type deals. In the world we think of private equity as a financial buyer and strategic buyers, and that's not always the case, but in the public markets. And we can see that there's a difference between the market multiples that PE firms pay versus public companies or typically every public company that acquires a company, it's a strategic acquisition.
So that's what we look at from a comparison purpose that says... I can go to CapIQ a database that'll tell me what did public companies pay for similar type companies? Arguably those are all strategic acquisitions. Versus I can go to PitchBook or GFData, that tracks private equity transactions to say, "What did they pay for those?" And as I was explaining at our conference last week, traditionally strategic multiples that are higher than what financial buyers are paying for it. So those are just data points that I'm going to look at, but at the end of the day, it's still got to make sense from the company's perspective.

Dave Lorenzo:
All right. Nicola has the next question, and this may be... Although we're still pretty early in this interview, this may be my favorite question in the interview. Go for it, Nicola.

Nicola Gelormino:
John, there are a number of qualified valuation experts out there today, and they're in different categories. So most of us who are listening to this interview have heard of business brokers, have heard of M&A consultants and financial advisors and folks like you. What I'd like to do with you is to have you walk through each of these categories, we'll do you last, but I'd like you to talk to us about the benefits and the drawbacks of some of these advisors when they're providing valuations. So let's start with business brokers.

John Alfonsi:
All right, so a business broker knows or has information on what they think they can sell this company for. If there's business brokers that are listening to this, I don't want to bad mouth anybody. Same thing with IB, investment bankers. But they're profit motivated. They have a vested interest because they take a percentage of the deal. Whatever they sell it for, typically they'll take a percentage of that as their fee. So they have an interest in trying to get the highest value possible. I would use a business broker when I have a very small business. I don't want to say very small, but typically they're dealing with... We defined middle market as 10 to $300 million in revenue. What I see business brokers are typically less than $10 million in revenue that are going out there trying to sell those companies.
So they're a great resource for small businesses. They have a pulse of what's going on in the marketplace, but a lot of their data points may not be particularly applicable to your type of business. So you've got to fully understand it. One again, and I don't want to make this sound bad because we're all salespeople, but they're salespeople. They're not technicians, if you will. But it's a great place to look at... I've done-

Dave Lorenzo:
The thing that strikes me, John, is it's in the broker's interest for your valuation to be high so they can sign you up and then for them to come back to you when you get a lower offer and they say, "Oh, you know what? You didn't tell me that you didn't have this thing, which this person is looking for. So we need to adjust the valuation down now that you've already signed a contract with the broker." So when somebody has a dog in the fight, you always got to be suspect of their valuations.

John Alfonsi:
Absolutely.

Dave Lorenzo:
What was the next one?

Nicola Gelormino:
[inaudible 00:27:21].

John Alfonsi:
The business broker a lot of times doesn't have the best feel for what's going on from a financial perspective. And that gets into this when I... Early on, I called it adjusted EBITDA rather than just EBITDA as reported because a lot of times there's adjustments that we make to the reported financials in order to get to what a normalized amount is going forward. But I'm sorry.

Dave Lorenzo:
Hang on. There's a question from Bridget directly related to this. She wants to know if you think that gives the... I'm assuming, Bridget, SB is small business. Do you think that gives a small business leverage in a deal if it's a strategic buy if they do not have a broker who will take a fee. Does it give them leverage?

John Alfonsi:
It's possible, but again, a business broker's going to know who the buyers are in that market and they may be able to find somebody quicker and more efficient than you trying to go out and sell the business on your own. If you've got a buyer in mind, you know who you want to sell it to, why use a business broker? It's like if I'm going to sell a car, if I don't want to deal with the hassles or I don't know who the buyer is, I'm going to go to a dealer or a dealership and say, "Used car lot, buy my car from me." It's the difference between wholesale and retail value.
Versus if I know who's going to buy my car, why would I sell it to a used car lot at a wholesale price who's going to turn around and sell it at a retail price? So yes, there is some leverage, there is some benefit, but if you don't know who you're going to sell to, you're at a disadvantage right now and that's where a business broker is going to provide some value. It may be worth it to use them in that situation.

Nicola Gelormino:
How about, John, the financial advisor? So oftentimes the business owners are already engaging with them because they're working on their retirement plan, so this is someone who's sophisticated in terms of the planning, and they'll be engaged as an analyst for what the value of the business is. Tell us about the drawbacks and the benefits of using a financial planner associated with your valuation.

John Alfonsi:
Sure. So financial advisor already has information about your business. They know the financial side of things for the most part, depending on what kind of an advisor they are. I know one of the things you talked about is me. The last one we want to talk about, but I have kind of... A not everybody is a me, and I'll explain that in a little bit as we talk about CPAs. But a financial advisor is already starting off in a good spot because they understand the business, they understand the financials. A financial advisor, though, isn't always well-versed in the nuances of evaluation, how to come up with that discount rate, or what's going on in the marketplace or in other types of transactions to take a look at that. So they're great on the financial side as far as analyzing things, but then they're relying on typically, and again this is very broad brushed, it's not the same for everybody, that they're relying on, I'll call it anecdotal information in order to base a value.
And that's key to a lot of these things, in that anytime you use an average, when you go out and take a look... I was talking last week, and everybody wanted to know what was going on with multiples of selling business. So yes, they were bound from 2022, especially in the second half. But every time we look at that, it's either a median or an average. If you apply that to your business, you're assuming that your business is average. You're just like every other middle-of-the-road company that went into developing those statistics. I may be way better, I may be way worse.
As I was telling Dave when we were sitting around talking, it's like if I have two businesses and they both generate a million dollars in EBITDA cashflow, and let's just assume that the market median was five times that would say, my business is worth $5 million. But if I have two businesses, one that it takes $10 million in order to generate that million dollars of EBITDA and it only takes another one $5 million of revenue to generate that million dollars of EBITDA, which one's worth more? I'd argue the one that it only takes $5 million of revenue to generate it because it's way more efficient. They don't have as high a cost structure, expense structure as the other company. So would I just want to take that five multiple and say, "Yeah, they're both worth $5 million." So that's the problem. Unless you're in tune with that and looking at those specifically, you're going to miss out on some of those nuances, which the financial advisors tend to again go down that middle of that road.

Dave Lorenzo:
John, real quick, there was a question in the chat, and you addressed this when you did you did your talk at the Dealmakers Conference, talk about the relationship between interest rates and valuations because there was a question in the chat that asked specifically about that.

John Alfonsi:
Oh, absolutely. Interest rates have a huge impact on value. If the cost of borrowing goes up, your discount rate goes up, it becomes riskier. The higher your discount rate, the lower the value. So again, what we're looking at is what future cash flow is going to be. We saw a huge drop off in valuation multiples in the second half of 2023 when interest rates went up, because everyone's going to say, "The cost of borrowing is now more expensive. It's going to cost me more." Even if you don't use leverage as part of your business, your valuation model, maybe the buyer does or needs to and therefore the price that they're willing to pay is going to go down because it becomes more expensive for them to buy that company. So everyone was talking about what's going to happen in 2024. I wish we all had a crystal ball.
The general consensus was interest rates were going to go down, but probably not until at least the second half. So because valuation is a prophecy in the future, we deal with a valuation date as of today. It depends on what your expectations are with respect to interest rates. We had two people on a panel. One was optimistic, and one, she said, "I'm not as rosy as what everybody said. I'm looking at doom and gloom for 2024." So what's the right answer? It depends on who you subscribe to and what people's thoughts are with respect to what's going on. It's got to be credible type evidence, but yes, interest rates are going to have an impact on value. As interest rates go up, cost of capital goes up, which means values decline.

Nicola Gelormino:
So the next valuation expert I have, John, are licensed certified public accountants. And again, I don't mean you, because you have your own category and we will get to that, but for CPAs I expect what you'll say is there's going to be a similarity between that and the financial advisor in the sense they're not attuned with what's going on with the valuation market, although they are experts in the financial themselves.

John Alfonsi:
Yes, absolutely. So a CPA is probably the person, especially somebody that's involved in the business or does work for the business, has the greatest amount of knowledge information. I rely heavily on the company's CPA in order to provide me information when I'm valuing a company. So they're in a best position to do that. But again, they may not be valuation people. Somewhere in between, we kind of skipped over it, I refer to them as IB, investment bankers or an M&A type of a person. They're greatly in tune with what's going on in the marketplace and we have different ways of valuing certain things, and if you want to get into details of specifics, we can talk about that, a discounted cash flow, what that exit multiple is going to be under traditional valuation theory versus a exit type value. But CPAs are great financial people. CPAs though tend to be stuck in the past. We look at historical information, we base everything on historical information.
That's not what a buyer is buying. A buyer is buying future cash flow. So projections, forecasts, that becomes critical. So to the extent a CPA has knowledge or can prepare a forecast or a projection, and there is a difference between the two, again, terms of art, people use them interchangeably. A projection is a what if scenario. What if this happens? Whereas a forecast is the most likely outcome. What do we expect the most likely outcome to be? You start with a forecast and then you start tweaking it that says, "Well, what if we were to change this?" Then it becomes a projection. Again, terms of art, but generally we use those interchangeably.

Dave Lorenzo:
John, how do you do that, though? So you made such a great point that CPAs are looking in the rear view mirror, and this is to Andre's question that he asked earlier, how do you project? How do you forecast future cash flow?

John Alfonsi:
Great question. And like any good CPA, I will typically look to the past as a representative of maybe what's going to happen in the future. That works well if you've got an established business where cash flows have generally stabilized or you've got a business cycle that you can look at. There's always going to be ups and downs in any sort of a business, unrelated to the business itself, but because of general economic conditions. So if you can see my hand, if that graph, if you drew a trend line throughout those business cycles, you can see, "Okay, it grows on average 3, 4% a year." Well then I can use that data that says, "Absent anything significantly changing, I would assume that future cash flow is going to grow at 3 to 4% a year."
When you've got a company that is significantly changing, the most common is going to be a startup company, what's happened in the past has absolutely no bearing or representative of what's going to happen in the future. So typically we have that J curve or that hockey stick that says, "Okay, cash flows are down here, but we expect a large upturn." Well, the thing is, I can't expect that huge upturn to continue in perpetuity. Going back to the very first question, the premise of a business valuation, it's cash flow in perpetuity. In an exit model, a lot of times we'll take into consideration an exit value, but that exit value is no different than cash flow in perpetuity. It's just saying, "Whatever the buyer, what do they expect to happen in perpetuity? That's what I'm buying."
So if you expect cash flows to generate or to grow, this was the example I was giving you, Dave, 30% a year, they may occur in 2, 3, 5 years you can sustain 30% growth, but you can't sustain that in perpetuity. It's impossible. The little thing that I gave you is that there's this assumption of long-term growth. So when we're doing our models, we look at long-term growth. We have certain parameters that we look at. Generally long-term growth shouldn't be any less than 3% a year, because traditionally inflation runs about 3% a year. Yeah, we're in 8%, we were at the end of 2023, but we were in times of deflation, if you will, where it was only running at less than 1%. But if you look at the long-term, historical average of inflation, it's grown about 3%. If you can't generate or sustain 3% growth a year, you're eventually going to go out of business. You can't keep up with inflation.
On the opposite side, 6% is what the GDP traditionally has grown at in perpetuity. That's the long-term GDP growth. So if you tell me that you are going to grow in perpetuity more than 6% a year, you are not only going to leapfrog the US economy, you're going to become the US economy, because you're going to grow faster than the US economy. That can't happen. So long-term growth after that initial jump or spike in your cash flows can't be more than 3 to 6%. So again, when we look at that historical, how we kind of do that, those are the kind of things that we have to take into consideration. I was given a set of projections or forecasts from a CPA that was great, and it was for a five-year term. Everybody asked us, "Why do we use or look at five-year periods?" Well, typically five years should capture a business cycle, should have the company's high, should have the company's low, so that we can otherwise average it.
If your business cycle in your industry though is longer than five years, I want to look at something longer than that. So anyway, he gave me this five-year forecast and I said, "Okay, does that mean that at the end of that five-year period, that's where cash flows stabilize? That's where we had this huge growth and now they're going to leverage off or level off to more normal type inflationary plus some real growth?" And they said, "Oh, good question. Let me send you a new set of forecasts that takes that into consideration." So how do you do that, Dave? You sit down with management and you've got to get a realistic expectation of what you think is going to happen in the future.
Just real quick. Valuation is a prophecy of the future. I tell my students when I was teaching this, my job is much like a weatherman, but it's way better. We're both predicting what's going to happen in the future. The difference is with a weatherman, you're going to know whether or not they were right just by waiting. I can tell you what they were predicting the weather was going to be today, yesterday, and we're going to know today whether or not they're right. When I'm valuing a business, for whatever reason, I may never know if I'm right because that company may never, ever sell. If I'm doing this for estate planning purposes or for gift purposes, we may never have a transaction in the company, so I have no idea if that's the right value. So my students always ask me, "Well, how do you know when you got it right?" I get it right when me and whoever's on the other side, the other valuation person, the buyer, the IRS, somebody that says, "We can come to a meeting of the minds and we can agree that that's what we think the value is."

Nicola Gelormino:
John, I want to wrap up on valuation experts, because we have one left that you briefly touched on. Let's talk about the M&A advisor.

John Alfonsi:
Sure. So that's where I view that as kind of an investment banker, but they're not necessarily going to be involved in ultimately whatever that value is. A lot of times M&A advisors work on one particular area of getting you prepared for sale, or for exit, I should say. I work with a lot of M&A advisors that say, "In the best possible world, I need about three years to get you ready." How do you know if you've done your job? A lot of times you get a valuation of the company before that process to say, "What was my business worth before I started this process and what did I do then during that 1, 2, 3 year timeframe, sometimes even longer, in order to grow the value?"
And there's two ways, as we call it, three ways in which we can increase value, increase the top line, grow revenues, a lot of M&A advisors will help with that, reduce expenses so you're growing the bottom line, that's one way of doing it, or reducing the risks in the business that says it's now less risky than other businesses and therefore command a higher multiple, if you will. So M&A advisors are great on that, but eventually you got to know where you're starting at to know where you want to end up at. So M&A advisors are good on that, they're very much in tune with market multiples, that market method of valuation. They may not be the best on a income approach or a discounted cash flow. So I worked with a lot of M&A advisors in order to establish an initial value, or I've looked at what they've done and I've told them, this is why I think you're wrong on certain things, but they are a great resource. Absolutely.

Dave Lorenzo:
So what John just hit on, and those of you who are members of Exit Success Lab have heard Nicola and I say this a million times, is that the 10 drivers of enterprise value address making money, saving money, and reducing risk. That's why we boil down what we teach business owners to those 10 drivers. And what our goal is for our clients, our goal is to help them have the core exit strategy options, but also to create their own market. If you create your own market, you're going to get a great number for your business. If you're the number one provider in your segment, or if you dominate a specific niche area, you're going to be the platform that PE decides they want to buy, or you're going to be the company, if you're a niche company, you're going to be the company that the top provider in the industry buys because they want to dominate the niche that you're in.
So if you're thinking about valuations and you don't want to go through a hundred years of school like John did, make money, save money, reduce risk. Make money, save money, reduce risk, the 10 drivers of enterprise value. All right, so John, we can do an entire two hour interview on this next question. So I want you to just touch on the tops of the exit strategy influence on valuation. So here's what I'm going to do. I'm going to pitch you a type of exit strategy, and then I want you to give us two or three bullet points on how that exit strategy impacts the valuation. I got four, so we need to move through this. So first and foremost, because you talked about this a lot already, a strategic sale, like a strategic sale to a competitor, how would that impact the valuation?

John Alfonsi:
So immediately when I hear that my standard of value is going to focus on investment value. So I am not going to look at what financial buyers, that would almost set a floor for what I'm doing, but then I want to quantify what that strategic value is. Is it a change in revenue? Is it a cost cutting measure? There's something there that I need to quantify because now I'm valuing this company for a specific buyer rather than the general public.

Dave Lorenzo:
All right, so next up is a sale to employees, so ESOP or an employee ownership trust. This is one of the core exit strategies that we like our clients to look at so that they have this as an option. How does an ESOP or an employee ownership trust impact a potential valuation?

John Alfonsi:
So especially in an ESOP, because that's a qualified retirement plan under DOL and IRS purposes, the standard of value now has to be fair market value. That hypothetical buyer, hypothetical seller. And with an ESOP, you've got a trustee for the ESOP that has to abide by the rules, you got the DOL looking over the shoulders, so you're not going to get strategic value for your business when you're selling it to an ESOP. But as I said, on the flip side, you've got some... Especially on an ESOP, you've got a ready buyer for the seller's shares. So I don't necessarily have to sell all of them, but anytime anybody wants to sell, I've got a ready market now that will buy those, albeit at fair market value.
Employee ownership trust, it's a little bit different. It's not a qualified plan. Employees don't otherwise own shares, it's owned by a trust for the benefit of all the employees, but they're not required to buy them out. It's not a retirement plan. So they share generally in the upside. But it's a way of transferring ownership to the employees or to management in order to ensure the continuity of the business. And especially if you've got a great management team. Sometimes you may not have a great management team, but you've got wonderful employees that you want to reward for their long-time service. That's where an ESOP works. Just my thoughts on selling to employees or key management.

Dave Lorenzo:
All right, so the next one I had was management buyout. So if you've got a killer management team and you've cultivated them and you have them ready to go, the business can run without you, how does that impact, how does a management buyout potentially impact the valuation?

John Alfonsi:
We've got a management buyout, they're probably not going to pay strategic value, but they're going to pay maybe something little more than fair market value. It's going to ensure the continuity, but typically, management doesn't have a lot of access to capital or the borrowing power that a company has. So typically seller financing is going to have to come into play, where you're going to have to act as the bank for them, at least for some time in order for them to either refinance the debt or you're going to be a debtor rather than... Excuse me, a creditor rather than a shareholder of the business for a while. So that's something that you otherwise have to take into consideration. You're not going to get typically all your cash up front.

Dave Lorenzo:
Can you get a higher multiple because you're going to carry back the loan or you just get interest? Can you extract in a negotiation, would you think you can extract a higher sale price than the current valuation because you're carrying back that note?

John Alfonsi:
Yeah, so now we're actually valuing two different securities, if you will, the stock and the debt. So I can play games with the purchase price. I can lower the purchase price and take a higher return on the debt, or I could do vice versa. So one of the things that you were mentioning is that risks, if you will, are generally... Sometimes they're reflected in both pieces of it, but it's going to be on the debt side of things. What happens if they're not able to make the payment and then I have to foreclose and I get the business back? So there's more risk in the debt if it's not otherwise recourse or if it's secured non-recourse, and yes, I do have some risks because of selling it, and I may have to take it back, so I may not get that highest price either.

Dave Lorenzo:
All right. So the last point I have on this are what we consider at ESL the advanced exit strategies. So if our clients wanted to do an IPO, we would work on the drivers of enterprise value with them to get the maximum value for the business, but we'd turn it over to an investment banker and have the investment banker pick it up from there. I'm fascinated by sale to private equity because there's two approaches that I've seen, and I'm curious as to how they impact valuations with a sale to PE. So a sale to PE can go... The fastest sale to PE that we see is when PE's buying the platform, they want a company as a platform, they want to get them on board quickly. It's as much due diligence as is necessary to make sure they can use them as a platform, and then you get a good offer and it comes on board.
So I'm curious about if they're a platform, how that impacts the valuation in PE, as opposed to a bolt-on. If they're the bolt-on, sometimes these PE folks will take the due diligence and just drag it out six months, eight months to try and drive the price down while they're aggregating additional businesses and bolting them on. How does a sale to PE, using those two as a guide, how does a sale to impact the valuation of a business?

John Alfonsi:
So you hit on it, and I think I talked about it a little bit earlier, which is typically a sale to a PE is considered a financial buyer. But if they are looking to build a platform, then they're going to be more in the nature of a strategic buyer, and therefore those multiples are going to be higher. We saw that play out in 2023. In 2021, 2022 multiples paid by PE firms were extremely high, and they rivaled, I believe, in 2021 or 2022, I forget which year, they were actually higher than what public buyers, arguably the strategic public companies were paying for it. So that made them more in the nature of a strategic buyer.
Once they have a bolt-on, yeah, now there's less involved, it's not as critical. The prices, the multiples that they're paying are going to come down, and we saw that play out in 2023, because most PE firms weren't spending the money on platforms, they were using bolt-on. So we see that there's a decrease in value. So knowing why the PE firm wants to buy you can have a direct impact on the value of the business because now you have to look at them, are they a strategic buyer or are they doing this as a financial buyer? And as I said, strategic buyers typically have a higher value, or companies that they're buying have a higher value to a strategic buyer than they do a financial buyer.

Dave Lorenzo:
So before we move on to the next question, I really just want to highlight this last segment. When you go back and you listen to this, if you're thinking about selling your business or you're working with somebody who's thinking about selling their business, go back and listen to this last segment again, because the exit strategy you select has an impact on your valuation. So if somebody's telling you, "Oh, I got a..." John and I, we were going through a case study, he took us through a case study this past week where a guy got an 18X, I am not joking with you, an 18X multiple for his business. Nobody gets an 18X multiple for their business. This person got an 18X multiple for their business because a PE, a private equity firm really, really wanted that business as a platform for other businesses in the sector, service business, home services industry. They really wanted that business as a platform, so they went overboard to get them.
So the exit strategy you choose, if that guy had done a management buyout, what would he have gotten? He definitely wouldn't have gotten 18X, he might've gotten 8X. So if he would've sold to his ESOP, he might've even gotten 4 or 5X. So that to me is... That's why Exit Success Lab exists. We exist to help you with these options so that when you're ready to exit, you get the best deal, whether the best deal means continuing your business as a legacy and selling to your employees for less money, selling to your management team and getting a payout for the next 20 years, or cashing in and selling to PE. That was a great, great segment. So that segment... Go ahead, please.

John Alfonsi:
And one thing I want to mention with that is the other piece that we talked about is a lot of times people will hear an 18X multiple, and then every advisor, business owner gloms onto that and says, "Oh, my business is now worth 18 times EBITDA." No, it's not. Not everybody is the same. And as advisors, we have to help them understand that that's an outlier. That's why when we talk about math now, averages or means versus medians. If you have a choice, use a median or what we call a trimmed mean that removes the outliers. But just because one company sold at 18 times doesn't mean that your company is worth 18 times.

Dave Lorenzo:
No, that's a huge exception, but having options allows you to pick and it allows you to potentially extract even more value from your company. Everybody's always going to run to the most beautiful girl at the dance, but in reality they were... I would be willing to bet, based on the case study that you shared with me, and I don't want to get into all the detail about it, they were probably betting as much on the owner of that business as they were on the platform and the business itself, because the owner of that business has a magnetic ability to attract other people in that industry.

John Alfonsi:
Absolutely. And you talk about one of the key drivers of enterprise value, the one that PE firms mention, I don't want to say most often, but come up very, very common, is key management turnover. That is huge. The higher your turnover is, the lower the value. So if you've got people that are key to the business, it's in everybody's best interest to keep them around. So that's either tying them up with compensation agreements, employment agreements, consulting arrangements, non-compete, whatever it is, that's huge in the PE world, is to make sure that the people that made that business successful are still going to be there after the acquisition.

Nicola Gelormino:
John, I'd like to get into valuation methods a little bit. So valuation methods can vary based upon the type of business, so public or private, small or mid-market. They can also vary depending upon the type of asset that we're looking at. So I want to walk through a handful of these with you and just have you very high level define what the valuation method is for us and when it's used. So let me start with market capitalization or market cap, and I'd like you to answer in defining what it is and where it's used, let us know, is it only used where we see it for public companies and real estate, or is it used in other areas as well?

John Alfonsi:
So a market capitalization is really typically used for publicly traded companies. The market cap of a company is just the trading price of the stock multiplied by the number of common shares outstanding. That share price, though, reflects everything that we've been talking about. Future cash flow, the risks, how the market perceives what those are otherwise going to be. In a private company, though, and there's been studies that have shown that prices paid by public companies are at a, I'll call it a premium, as compared to what private companies trade for. So it would be completely, I don't want to say completely, it's generally inappropriate for me to use a PE ratio for a publicly traded company on my privately held company.
For one thing, we're comparing apples and oranges. Public companies are earnings driven, privately held companies are cash flow driven. So typically market capitalization multiples, or even looking at what those companies have traded for, I know we've got a couple of them, we're going to talk about them next on your list here, but every market or every publicly traded company has a PE ratio, and then you can take that and turn that into an enterprise value. Equity value is different than enterprise value. And then we can look at that enterprise value, remove the effective debt to say, "Okay, what is this public company's multiple of trailing 12 months EBITDA, expected future EBITDA, or of revenues?" But they're all based off of what the public markets perceive as the value of the company.

Nicola Gelormino:
And I'm glad you referred to multiples again, because we've said that a number of times now, and we hear it so often when we're talking about value valuations, multiple and how many times we can look at a particular figure and project as to what that valuation may be. But I want to be very precise. When we talk about multiples, I want you to identify both a revenue multiple and an earnings multiple, and then the distinction between the two of them.

John Alfonsi:
So when we talk about a multiple, it's just taking the value of a business divided by some metric, a denominator. It could be revenues, it could be EBITDA, it could be EBIT, it could be seller's discretionary earnings. Whatever you feel, when I say you, the valuation person, sees as being the most definitive or applicable with respect to that business. That's the kind of multiple that you should be looking at, or the denominator, the metric that you should be looking at. In a perfect world, whether I looked at a multiple of revenue versus a multiple of EBITDA, I should probably come back to the same answer. In the valuation world, for us, there's still one more piece that we use, because a lot of times when we're looking at markets, I don't know the specifics of all of those transactions.
So typically I use those as a corroborating method with respect to my income approach. My income approach really drills down into what the company does. So in a valuation, I'm looking at the company, I'm analyzing its earnings and its cash flow, I'm analyzing management, I'm looking at the industry, I'm analyzing the general economic conditions, and I'm putting all of that together and I'm coming up with my opinion as to what I think the risks in the future cash flow are going to be, and I come up with a value. That value, then, divided by revenues or EBITDA, the most common, then I can come up with my income approach generates these multiples, is that consistent with what the market is doing? That's a difference between what an M&A or an IB guy does. They do it, I don't want to say the opposite. They just say, "I am going to look at what the exit multiples are and apply that." It may not necessarily drill down into that specific that says, "Does the cash flow from the business support that level of value?"
So when do I look at revenues versus when do I look at EBITDA versus when do I look at seller's discretionary earnings? So again, seller's discretionary earnings I would use in a smaller business with one owner. In a private company, a lot of it probably depends on what their value drivers are or what the... I wouldn't call it value drivers. If it's a subscription type business, revenues are key, because what everybody's going to be focusing on. If it's a more capital intensive type business, then I'm probably going to look at EBITDA, but they should both come up with a consistent value. So if I do an income approach and I look at these market multiples that either have driven off of publicly traded companies or comparable transactions, I should come up with a fairly tight bandwidth of values. And if I don't, then I'm missing something. If my income approach is way lower than what the market has been pricing these things out at, well then maybe I'm missing cash flow or I'm underestimating the growth of future cash flow, or maybe I'm perceiving this as being too risky.

Dave Lorenzo:
So John, real quick, you and I have talked about software businesses and we've talked about businesses that are really heavy, because I'm a freak about recurring revenue. Businesses that are really heavy in recurring revenue. You can use revenue in those businesses because it's predictable, because that's the nature of recurring. So like a SaaS, like software as a service type business or a subscription software business model, those businesses with recurring revenue lend themselves really well to using revenue as a valuation method.

John Alfonsi:
That's absolutely correct. So that's where I was getting at. What's that value? Where is it? If it's in the subscriptions, then yes, I'm going to say, "What's my multiple of annual recurring revenue, plus I may have another multiple of non-recurring revenue versus taking a multiple of total revenue." Netflix or any sort of a subscription type business, absolutely, that's the key, is the number of subscribers. So when we look at what things sell for, it's either the annual recurring revenues or sometimes it is more a numeric metric like the number of subscribers. That can always be key. You can always adjust the rate that you're charging on those subscriptions within market parameters in order to do that.

Dave Lorenzo:
But with that context is really important. So the number of subscribers, for example, for a service that was a gateway service, if I'm buying them and I have the natural follow-on service for that, number of subscribers is extremely important to me. So for example, in the agricultural industry, if I sell a fertilizer and I'm buying a seed company, the number of people who buy their seeds from this company is extremely important because that's my future number of customers. So in a business where you're buying a gateway and you have the follow-on service, or you're the gateway and you're buying the follow-on service, that's when you go with the number of subscribers, because that's what's really important to you. That's what you're really buying.

John Alfonsi:
That's absolutely correct. You have to know what's important to the marketplace.

Nicola Gelormino:
Just one more takeaway from this, and when you do have those recurring revenue streams, John, isn't that going to lend itself to a higher multiple where you can have that predictability of the revenue stream?

John Alfonsi:
Absolutely. I was going to give you an example, Nicola, that even in my business... So we have two lines of business, we have our tax family office, and we have our valuation, forensic accounting, dispute advisory practice. If I were to value each one of those separately, and you hit on it perfectly, on the tax side, I've got evergreen type work. My clients don't necessarily have to stay with me all the time, but they need a tax return prepared every single year, they may need tax consulting on a regular basis. On the business valuation side, I'm only as good as my next project, whatever I can bring in. So from a risk perspective, yeah, the recurring revenue is probably worth more as a multiple of revenue than my valuation practice. Again, that's not to say that my valuation practice is worthless, but if I've demonstrated an ability to replace, it's just what are the risks of not being able to replace that? Much higher on a project-based business than a recurring revenue stream type business, absolutely.

Dave Lorenzo:
So what we'll do is, Nicola, after you finish out this section, I think here's what we're going to do, we're going to open it up to questions. We'll stop our recording and we'll open it up to questions, and then as long as John's available, we'll invite them back for the rest of the 50 questions we have for [inaudible 01:12:12].

John Alfonsi:
I knew this was going to happen because I tend to be very verbose in my answers when somebody wants to know about these things.

Dave Lorenzo:
So counselor, finish your line of questioning, and we will open it up to the audience.

Nicola Gelormino:
Well in all fairness, John, we have a lot of questions for you and we would spend all day with you, so we will do our best too to minimize that.

John Alfonsi:
Not a problem.

Nicola Gelormino:
So John, let's get through the rest of the valuation methods. I've got just a few left that we can approach high level. Let's begin with comparable sales.

John Alfonsi:
So I kind of touched on this. Comparable sales depends on the fact or the premise that your company is comparable, or that the sale is a guideline with respect to your particular company. You got to be careful when you look at that. Again, typically we'll revert to medians when we're looking at comparable sales. But were all of the assets included in that sale versus what you're going to sell? There's a lot of times things are extracted or not included in a sale. Real estate being one of the big ones. So you got to be careful when you're looking at comparable sales of whether or not it included all of the same assets. Timeframe is important. Did those companies sell in the same market conditions that we're experiencing right now? If you looked at something that said, "Okay, exits in lockdown, March to June of 2020," there wasn't a heck of a lot going on, and there was a lot of companies that were negatively impacted by COVID?
So are those really good comparables? So you got to be careful who the buyers were and market conditions and how your company stacks up against that. So when we're looking at market comparables, I'm not only looking at the multiple that was paid, but it gets to all of these quality things, the quality of the earnings. What was sales? What were EBITDA margins, not just the dollar amount, but what was EBITDA divided by revenues? Are mine comparable to that? Again, this quality of earnings. If I'm more efficient, I should be worth more, so we got to be careful when we're looking at those.

Nicola Gelormino:
Okay. How about-

Dave Lorenzo:
So John... I'm sorry, go ahead. Go ahead, Nicola. My bad. Go ahead, please.

Nicola Gelormino:
Net asset value.

John Alfonsi:
So net asset value is best for a holding company, or a company that doesn't generate revenue, or not revenue, cashflow to support its earnings. I typically look at net asset value, if it's not a holding company, in almost like a liquidation scenario, that says there is no value beyond this company's ability to pay an owner or the owner's compensation. If you don't make any money off of this company, is there really any intangible value as an investment? No, there's probably... You're better off liquidating the company just selling everything off if you don't need that job. So that's critical in a lot of times when we're looking at somebody who the buyer is and the type of business, they could be buying a paycheck versus buying a viable business. So if they're not a viable business, I'm going to look at the net asset value as almost a floor, if you will, of the actual value of the business.

Nicola Gelormino:
I'm getting a number of questions about IP, so let me go ahead and turn it over to Dave, and let's go ahead and take the IP questions.

Dave Lorenzo:
So just so you guys know, I'm going to put in the chat, here's all the questions we have for John so that you can see. This is what we're working off of here. So you can see we're about halfway through. So the first question, John, and we've had several of these different questions. We have I think three or four IP attorneys who are on the call with us today. So John, and this is something that you and I talk about quite a bit because I'm fascinated by the value of intellectual property. So how do you value IP, how do you value it if you break it apart from the company, how do you value it if it's an integral part of the company? Give us the 30,000 foot overview on intellectual property valuations, patents, trademarks, copyrights, and licenses and all that stuff.

John Alfonsi:
So one thing to keep in mind is if you're selling a company that owns IP, the idea is that when we look at a income approach, this discounted cash flow, the idea is that all of the assets are working together to produce a single economic benefit cash flow. So I really don't care, it's probably a gross overstatement, of where those revenues are coming from or what's driving them. If you're asking me then to... Because I do this a lot for purchase price allocations, how do I take what a business sold for and allocate it to certain pieces, IP being one of those. Or if there's going to be a sale specifically of the IP, then I otherwise have to ascribe value to that as opposed to any other intangible asset like goodwill. So the value of IP is going to be valued the exact same way I would value a business, which is primarily the present value of the revenues that that IP is going to generate.
I need to take a look at, and I'll look at and determine with management, what kind of value or what kind of revenues does it generate. And if it's internal used IP, that makes it a little more difficult because then I otherwise have to look at it kind of a different way. But it's similar in that what I refer to as a relief of royalty method. In either scenario, if it's a revenue generator or it's internal use only, if I didn't own that IP, what would I pay somebody to license that in an arm's length transaction? So I go out to databases and I take a look that says, "How much does similar type technology or IP is it being licensed for?" And I got to be careful. Is it a global license or is it a limited license? But typically they'll tell me. It's 5% of your revenues. You have to pay that.
Well, okay, so if that is what the going rate is, then I can take my revenues, multiply it by 5% license fee for however long I think that IP is going to be viable or that license is going to be in place for, and then again, present value those to today and say that's what that IP is worth. I value computer software in a different way, and I think that was one of the things, your last one on your list, is the cost to duplicate, that says as a valuation method, it's called the Kokomo model, how many lines-

Dave Lorenzo:
You just made that up. You were listening to a song and you were like, "Let's call it that." No, I'm just kidding.

John Alfonsi:
There you go. How much would I have to spend with programmers in order to replicate or duplicate that? That's another way of looking at it.

Dave Lorenzo:
When would you use that, though, John? When would you use that methodology specifically?

John Alfonsi:
When there's no transactions in it. So this was for financial reporting purposes. So it was a hospital system. They bought another hospital. They had certain IP software, and they said, "I need this piece carved out for the purchase price allocation. What do you think it's worth?" Well, maybe I'd be able to go out and find out what some of that stuff sold for. The project you and I worked on, Nicola, there was something similar, but yeah, there was something I could go out because I knew there was a marketplace for that type of an asset. If it's internal use purposes, no, typically somebody's just not going to go out there and sell it. I might be able to find something that's licensed or, yeah, I'm going to say, "How much would it cost to replicate that software?" So if you can't find market transactions, then yeah, there's cost of replicating or duplicating the asset could be a viable way of valuing those assets.

Dave Lorenzo:
In the context of a holding company, there's a question in the chat about, and one of the things I have my clients to all the time is separate their IP into a holding company and license it back to the operating business, and then if they're going to sell the IP at a future date, see if they can license it to other people and see what the market will bear for the licensing fees. So if your IP is all in a holding company, because there's a question about if your IP is in a holding company, what's the value of the holding company? Well, the value of the holding company then is dependent upon what you're able to get from a licensing perspective, yes?

John Alfonsi:
As a value of those future royalties, absolutely.

Dave Lorenzo:
Okay, all right, great. Folks, if you have other questions and you want to put them in the chat, that's great. What we're going to do is I will thank John and then we'll take any specific questions. Those of you who don't want to be on the recording, you can ask him directly or get into a debate and a knockdown drag out with him. But for right now, let me do a quick closing so that we can have it for the recording. All right, John, it was a pleasure having you on today for part one of Business Valuation Basics. Thank you so much for joining us. Those of you who want to contact John, you can reach him at Cendrowski Corporate Advisors, John, give them the phone number and give me your email address so that they have a way to contact you.

John Alfonsi:
Sure. Toll-free number is 866-717-1607. My email address is JTA, as in John T. Alfonsi @cendsel, C-E-N-D-S-E-L dot com.

Dave Lorenzo:
Once again, that valuation hotline is.

John Alfonsi:
866-717-1607. Call now.

Dave Lorenzo:
Operators are standing by. Call now for your business valuation. Seriously, John, you're the best. Thank you so much for joining us for this edition of our show. This has been Business Valuation Basics part one. Stay tuned for part two.

John Alfonsi:
Absolutely loved it. Thank you.