How to Value Your Brand and Your Business
Welcome to the tenth episode of #peekintoprocess. Erin met with Jen Hernandez of JH Realtor to discuss what it means to value your brand and your business.
or simply read the highlights below.
Erin
I'm really excited to talk to you today about a subject that is very difficult for people to wrap their heads around, which is, what is the value of a brand? Very often people want to assign an ROI to a brand awareness campaign or the brand work you're doing. But today, we're actually going to talk about your brand's business and valuing it. Jen, can you just tell us who you are and what you do and then we'll get into it?
Jen
My name is Jen Hernandez, I own J H realtor, and I am a business broker so I assist business professionals in growing their wealth by helping them achieve their business or personal goals.
We can all agree that when you have a goal, it's not just one day you wake up and you're there. You have to make a conscious effort to put things in place to get there. Having a relationship with a business broker really can help you get there, putting things in place like exit strategies into your business, your overall business goals or plan, things like buying businesses, selling businesses, mergers and acquisitions. I also help people with real estate needs on a smaller scale.
Erin
How did you get into this?
Jen
I used to own a brick and mortar business. And I've always kind of consulted with people. I've helped a lot of ground-up businesses, and when I finally grew my own business from the ground-up, through the sales process about two years ago, it really just brought a lot of awareness about the gaps that are there for us business owners and entrepreneurs, and I wanted to help fill that gap.
Erin
Very interesting. So let's talk about some of those gaps and dig right into it because I'm going to be honest, when I learned about this, it was something that was quite fascinating to me, because as an entrepreneur, as somebody that owns a business, we all know how exhausting it can be. And sometimes there is this feeling of what if, what if I decide to do something else? But then I don't want to let this brand go, or I don't want this business to go and just cease to exist.
I think of an example of estate planning, right? You have a will and you know where these things are gonna go. And you said, I didn't know that existed for a business.
Jen
It's funny that you say estate planning, because actually your business should be in your estate plan. A lot of people might have it in there, but don't have it in there properly, because there needs to be $ accounted to it because your business is an asset.
Now, how much do you think that asset is worth? It's going to vary. A lot of times, as business owners, we think that it has way more value because the word value can be interpreted in different ways. But we're talking about what people on the market would actually pay for your business. That's the type of value that I'm speaking to directly.
You just want to be prepared. Having a relationship with a business broker isn’t because you're going to sell your business right now, but your plan is to retire, to have big dreams, to have your kids take over your business, or part of your retirement plan might be having somebody come into your business to run it for you, or to giveaway shares in your business. So it's just opening your eyes to really start thinking about all of those things. And with the world being as crazy as it is. There's just things that pop up and life changes.
And as entrepreneurs, many of us just have so many ideas and so many things that we want to do and then opportunities come up that might make us not as available for our current business. So it's just good to have the options, because I think entrepreneurs can agree that when we're making a decision for our business, we want to have the most information possible so that we can plan. Most of us are planners, right?
Erin
That's really good. Does the brand come into play? Because obviously that's why we're here to talk about some of the processes. Can you separate the business and the brand or the brand and the business?
Jen
When we're talking about brand and business brokering the majority of what would be considered the brand is what's in goodwill. Now goodwill does have a huge play in purchasing a business or marketing of selling a business. The brokerage that I'm with just sold a business that was basically an online website that sold a certain type of apparel. It hadn't really gotten started, but the way that he had set up the brand, the logo, he set up a great community with a really great following on Facebook and Instagram and the photos that he had...it had quite a bit of value. Now he thought it was gonna be valued at way more, but when you don't have tangible assets, the value of your business is going to be a little bit less.
We are actually seeing a huge demand where people want to take on these types of businesses and really, at the end of the day, it comes to what people are willing to pay for it. There's a huge demand for just brand based businesses. I think that we're going to start to see a higher increase in the value of those brands.
Erin
We talked about valuing it as we just be prepared. It's part of the planning process. But if I'm looking to start working with someone like you, what do I do first? What do I need to bring to the table?
Jen
I would say always first just making a connection to see if you're a good fit with your business broker. You want it to be something that you're going to have a long term relationship with, so that they're helping you along your journey of building your business in the first place. But let's say that you didn't have that, and that you were at a place where you needed to look into possibly selling or that you were just curious of your valuation, and you had never met with a business broker before. Make sure that you really click with that person.
When you're valuing a business, the determining factor is what's called seller's discretionary earnings. So it's basically the owner's benefit. It's going to be any extra benefits that you pay through your business. So things like personal insurance, personal vehicles, personal cell phones, you know, there may be other things but that's just a common example of things that people put through their business that are personal expenses that the business can pay for. All of those get added back into the bottom line. And we take that and we use the multiple, so the multiple is going to be based on data research. Businesses that are very similar to yours, what have they sold for similar to yours in sales and net profit, things like that seller discretionary earnings.
We find what the multiple is in that helps us decide on the end value. Things that help us get there are going to be three years worth of p&l. Three years worth of tax returns, your balance sheets. It's also going to be accounts that play a big role in valuing your business as well, because if you have a concentration of clients where you only have three main clients that gives you all of your revenue, you're going to be a higher risk averse company. So your multiples are going to be down a little bit. We look at all the contracts that you have. Those are the types of things that you would prepare.
You can see why it's so important to understand your numbers and have your books in place.
Erin
You hear that a lot like I need to diversify my client base. I need to make sure that it's different types of businesses or not all of the eggs are in one basket.
Like when you go to the accountant every year. It's a little bit like letting somebody you know, open up something that's very personal. Any recommendations for that or how to prepare for that?
Jen
Absolutely. I do like to say that mentally preparing yourself is a huge part of the process. And that's why it's important to build a relationship with your business broker. It should be your friend that you check in with once a month and you talk about your business and so that way when you do get to the more difficult aspects, you don't feel so vulnerable.
This is one of the most difficult parts and I feel like this is where I add a lot of value because I have gone through the process myself. Growing my baby and then selling it, and seeing the whole process.
In it, there are what I call them mental milestones because it's like first the mental milestone to think of actually selling and when we're talking business brokering that we're only talking about selling because it also can be an exciting experience where you're growing your business, right. Oftentimes if we want to grow our business or scale our business, instead of obtaining more market share by going out there and basically like creating a new brand, starting from the ground up, you could actually purchase a very similar business and streamline into your business. So that would be a reason that you would purchase a business to do a merger acquisition.
The buying to expand is definitely the exciting part. But even sometimes when you're meeting with me to sell your business, it is exciting because often it's to do something else that you have on your heart that you're really excited about…
Erin
That's good advice. Is there anything that you would recommend a tip or trick or the one thing that we should do? Think about as we live with and work with our brands and grow and scale up?
Jen
Definitely. I would say the number one tip is to put an exit strategy into account, build it into your business. Many of us don't create our business with already thinking of an exit strategy. But within the first three years you want to have it, a lot of businesses actually want to sell within their first three years. They just decide it's not for them or this or that. It's kind of like a cycle. It's like the honeymoon phase is your one through three. Then you have your three through five is the next milestone then you have what's called the golden years after that. So it just depends what cycle you're in.
But definitely always having an exit strategy and getting evaluation every three to five years. I would say it is my number one tip to entrepreneurs, especially if you have a brick and mortar.
Erin
This has been highly interesting to me, Thank you so much.
Jen
Well, thank you again for having me. Congratulations on your 10th episode.