March 27, 2025 • 37 mins
In this episode of Monkey Business Radio, Chris and Dennis dig into one of the most overlooked assets in small business—intellectual property (IP). From brand reputation and trade secrets to goodwill and systems, your IP might just be the most valuable line on your balance sheet.
They share real stories—like how AGM built its IP from scratch, why owning vs. leasing real estate changes everything, and how iconic brands like Jordan’s Furniture and Ken’s Steakhouse show the power of strong branding.
Whether you’re a home service operator or aspiring franchisee, this episode will change how you look at your business value.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Chris (00:03):
Hello everyone, welcome to Monkey Business Radio,
episode 8, valuing your SmallBusiness IP.
I'm Chris Collins and todaywe're diving into a topic that
most business owners don't thinkenough about intellectual
property or IP.
Running a home service business, a retail shop or a franchise
like American Gutter Monkeys,your intellectual property, your
branding, trade secrets andyour business systems can add
(00:24):
serious value to your company.
So let's dive in.
As always, I'm here with DennisSiggins.
Hello Dennis, chris, how youdoing?
Buddy, I'm doing pretty wellGood good good.
Yep, all's good, all's good.
Yeah, I'm excited for this one.
Most business owners focus somuch on revenue and assets you
know things that they can touchbut they don't really realize
(00:46):
that the real gold in theirbusiness is stuff you can't see
like your brand, your reputation.
Dennis (00:51):
Last week we talked about the balance sheet and half
the balance sheet is the assets, and we talked about three
types of assets last weekCurrent assets, which is cash,
accounts, receivables, prepaidexpenses.
Then there's fixed assets,which is your hard assets, your
building, your trucks, yourinventory tools and equipment.
And then the intellectualproperty.
(01:14):
That's the big variable.
We're talking about trademarks,patents, service marks,
goodwill Goodwill being yourname and reputation in the local
and regional community.
The intellectual property, orwhat we call IP, is the big
variable in the balance sheetequation and today we're going
to focus in on intellectualproperty.
(01:35):
Sounds good.
That's where we want to start Astartup.
You're starting up your newbusiness.
You got a pickup truck, twolawnmowers and a string trimmer,
but you're a startup, so youdon't have any intellectual
property.
There's no goodwill yet.
You haven't cut a lawn, youhaven't done any amount of
business yet.
So when you're a startup, astartup has no intellectual
(01:57):
property.
There's no brand, there's nogoodwill in the community.
On the balance sheet, thestartup has no IP value, just
current and fixed assets, onlyyour truck, your lawnmowers,
your string trimmer and the bankaccount.
Those are your assets.
The intellectual property is ata zero.
But down the road.
The intellectual property isvery likely to outgrow the value
(02:20):
of the current and fixed assets, and we're going to talk more
about that in just a little bitof time.
Chris (02:25):
Yeah, when I first came to this, started getting
involved with American GutterMonkeys, started looking at
balance sheets.
I don't have a businessbackground and this really blew
me away.
Dennis (02:33):
Today, somebody in my office asked for the balance
sheet.
He needed it because of legalpurposes for some of the work
that we do, and I tend to keepall that stuff on my desk.
I build the balance sheetsevery year.
I update them that's one of myjobs here in the office, so I
just emailed it over to him andwe moved on.
(02:54):
I keep a lot of that data in myoffice on my desktop because
it's very important.
A lot of people might ask why dowe need to value our business?
Why do I need to know what it'sworth?
Why do I really care what thebalance sheet says?
I'm making plenty of money andthe number one reason is for
internal purposes.
So we use the balance sheet,which gives us the balance, the
(03:18):
value of our company, on aspecific date.
Annually, I use January 4th.
So I, just a couple of weeksago, updated my balance sheet
For internal purposes.
We use it for year-to-yearcomparisons for the owner or the
manager how to assess businessvalue, growth, risk forecasting
and other strategic processes.
It also helps if you'reapplying for financing, a bank
(03:43):
loan or anything like that.
A current business valuation, acurrently updated asset-based
balance sheet, is a great toolto have.
If you're determining the valueof the company so you can sell
stock or take on a partner whowants to buy in, or if you're
planning an exit strategy you'replanning on retiring or selling
(04:05):
your company in the next two tothree years.
You want to have a good idea asto what it's worth.
Chris (04:09):
All right.
So my experience was withAmerican gutter monkeys coming
in trying to figure out what thevalue was when we were
discussing it, and this is whereI kind of got exposed to it.
This IP, especially forAmerican gutter monkeys and
especially your company, CapeCod gutter monkeys, has a very,
very strong IP component to it.
Of course.
Your Bobby Downspout, all yourmarketing, your radio ads, your
Goodwill and things like that inthe Cape Cod Islands community,
(04:30):
so he had a very strong IPcomponent.
Dennis (04:34):
And the reason we have that is as all the reasons that
we talked about.
But here's something thatoccurs two or three times a year
in my world when you own acompany and you start to hit
certain strike points, you breaka million dollars up over two
or three million dollars, youstart to gain market share.
You also, whether you like itor not, are gaining the
(04:56):
attention of investment groups,venture capitalists and other
people in the business world,and we probably have two or
three of these people whocontact us every year.
Now, currently we're really notthat interested in selling, but
we always have a discussion Ifsomebody wants to talk about
business valuation and maybetalk to us, maybe make an offer.
(05:20):
Something like that.
That occurs, that does happenin our world.
Because I have a balance sheetwith a perpetually updated value
, I can weed through thepretenders, and most of them are
pretenders.
I can weed through them in fiveminutes because I know what my
company's worth and I know howto break out the intellectual
property versus the fixed assets, versus the current assets.
(05:42):
Because I have that at myfingertips, I don't have to
waste a whole lot of time withventure capitalists.
The first one or two times thatI got these calls, I'm kind of
flattered.
Wow, this person that manages aportfolio of $100 million is
considering making an offer onmy company.
The beautiful thing is, if youhave a current valuation, an
(06:05):
asset-based balance sheet, youcan cut right to the chase and
you know if they're a pretenderor not.
Let's speculate, chris.
We're in the food serviceindustry, the home service
industry, contractor-based modelautomotive technology companies
, health exercise companies.
There's a whole lot ofdifferent models out there and
(06:26):
they're all valued usingdifferent methods.
Chris (06:29):
Yeah, so I come from the high-tech world, so the number
one thing, of course, is patents.
That's the big thing, huge Inthe tech world, but it's very
different.
As we started preparing forthis podcast and you start going
through all this.
It's a very, very differentanimal.
Dennis (06:50):
In the home service business, which is a little bit
of my world right now, we don'thave patents.
I'm a commodity.
When I was in, I used to own arestaurant.
When I was in the restaurantworld, all I had was the name of
the company and my reputation,and there's nothing patentable
much at all.
In the food service world.
It's hard to patent recipes.
You can keep them a secret,make them somewhat proprietary,
but it's hard to patent them.
So what are the factors thatare going to impact the value of
(07:14):
your IP?
Number one is revenue.
Revenue is produced by thebusiness and the revenue that
the company produces isindicative as to how well a
local or regional communityrespects this business.
If you're a $5 million a yearcompany and all your other
(07:35):
competitors are in the $300,000to $600,000 range, you're the
big dog in that neighborhood andyour intellectual property will
reflect that on the balancesheet.
Let's take the food servicecompany.
We're a restaurant.
It's likely that we don't haveany patents.
So our trademark name, ourservice mark name, that's our IP
(07:55):
, our local and regionalgoodwill.
That's going to be ourintellectual property, our
domain name, our websiteproperty, our domain name, our
website phone numbers,reputation.
Basically, that's all we have.
If I'm the burger place and weproduce burgers, that's a
commodity.
Mcdonald's, burger King,wendy's, they're all selling the
(08:15):
same thing.
It's just they each have theirown secret sauce, so to speak.
What is the secret sauce atyour restaurant or our
restaurant that we own?
That's a hard one to say righthere and now because we're only
speculating.
But we're a restaurant, we'reserving food.
Maybe I'm a Mexican restaurant,maybe I'm a burger restaurant,
but that's my take on the food.
Basically, food is a commodity.
(08:37):
So what we use is multiples ofgross sales or pre-tax profit.
That's how we determine theintellectual property.
That's one of the biggestcomponents of determining the
value of the intellectualproperty a multiple of gross
sales or a multiple of EBITDA,e-b-i-t-d-a earnings before
(08:57):
interest, taxes, depreciation,amortization let's just call it
pre-tax profit.
So if we take a multiple ofgross sales in a commodity
business home service,restaurants you're likely going
to fall into the one half X tofive X, based upon X being
annual sales.
(09:18):
So if you are a restaurant andyou're doing $2 million a year
in sales, you know your value isgoing to be somewhere between
half that and five times that.
So your value is going to besomewhere between a million and
10 million.
That's a big window.
Yeah, it's huge.
So what are the factors we use?
That's a big range, that's abig window 1 million to 10
(09:38):
million.
What are the factors that aregoing to determine where your
value is.
Chris (09:44):
McDonald's is a good example here.
I mean, they've trademarkedtheir logos, their colors, that
they use Everything imaginable.
Dennis (09:52):
You don't see a.
Chris (09:52):
McDonald's going under?
No, you never do.
And they all look the samebecause they all have that same
trademarked look.
So for a company like that,they're way up on that 5X, I'm
sure even more, but that wouldbe the far end.
Dennis (10:05):
But let's look at the small local restaurant.
One of the first questions Iask is do you the owner of the
restaurant, do you own your ownreal estate or do you lease it?
Let's talk about leasing.
How much time is left on thelease?
That's interesting, because ifyou're running a restaurant and
you're doing $2.2 million a yearbut you only have one year left
(10:26):
on the lease, who's going tobuy that?
Right?
That's interesting, that's abig one, right there.
Or if there's only a year lefton the lease, the purchaser of
that restaurant is going to wantto sign an extension, maybe a
10-year extension to that lease.
That would rebuild the IP value.
But if there's only one yearleft on that lease, there's not
(10:48):
a whole lot of intellectualproperty there, because the
value could all come to an endin one year.
Interesting example Sure, whatabout if we own the real estate?
So if we lease the real estateand there's a good, stable,
solid lease in place, yourrestaurant's going to probably
land in the 1X to 2 to 3X, xbeing gross annual sales.
(11:10):
But what if you own the realestate and that comes with it?
So X all of a sudden takes on adifferent number because you're
not only purchasing thebusiness but you're purchasing
the real estate.
You now control the lease, youare the owner of the property.
That intellectual property justtook a big jump.
That's going to move into the2X to 5X range.
Chris (11:33):
So besides just owning the property once you say,
purchase the restaurant, it alsoallows you to go into business
much faster because you have thebuilding.
That's a huge value If it's analready going concern.
Yeah.
Dennis (11:46):
If the business is operating.
You're doing $2 million a yearselling burgers and you're
buying the real estate.
It's a double whammy.
But what about owning the realestate?
What are the limitations?
You have two restaurants.
Let's say they're in the sametown and you're both selling
burgers and you're both grossing$2.2 million a year.
One restaurant leases the spaceat the mall and one restaurant
(12:10):
is located on a property that isowned by the restaurant owner.
You know you're leasing at themall Again, depending on the
conditions of the lease.
How much time is left?
What are the limitations andbenefits of the lease?
How much time is left?
What are the limitations andbenefits of the lease?
What is the likelihood ofextending the lease?
What if the lease is almostover and you got to pull the
restaurant out of there and moveit somewhere else?
Forget it.
There is no more IP, the costof moving it and you lose all
(12:34):
your foot traffic.
But what about the real estatebased restaurant, where the
owner of the restaurant alsoowns the real estate and he's
selling the same $2.2 million ayear in burgers?
What room for growth does hehave?
Is he maxed out on his numberof seats?
Is he maxed out on his parking,or does he have room with the
(12:54):
current real estate as it is togrow to $3 million, $5 million?
Is there room to grow that'sgoing to impact the IP value?
Are there any limitations?
Is there zoning through thetown or the city?
Are there physical limitations?
These are the questions thatneed to be answered that will
give you a true value of your IP.
Chris (13:14):
Yeah well, it's getting ready for this podcast.
And just the other day I wastalking to my mom.
You'll remember this placewe're Framingham boys, so
Framingham Mass boys, so LaCantina.
Dennis (13:22):
Know it well.
Chris (13:23):
We just had my mother's 90th birthday.
Dennis (13:25):
11 months ago, I had my mom's 90th birthday at La
Cantina.
Chris (13:29):
So this is a classic example.
What made me just think of thisnow is that parking area.
I don't know if you remember.
Across the street, rememberthere's a bunch of dilapidated
buildings they bought that landknocked that down.
They have an enormous parkinglot.
Dennis (13:39):
When did they do?
Chris (13:39):
that, oh, it was years and years ago.
Okay, all right, there's anenormous parking lot there, yeah
, and we were just in there theother night and it made me think
of that, but La Quintina andFramingham, yep, but talk about
a location, even if you pick upthat building like they were to
sell it and the family never,probably will ever, 50 years
probably.
At least Everybody in townknows.
Dennis (14:00):
Everybody knows it.
Chris (14:00):
Talk about goodwill.
Standing in your neighborhoodparking the whole nine yards.
They've got it all.
Amazing business.
Not only that, but they have aretail spaghetti sauce as well
that they sell.
Do?
Dennis (14:11):
they really yeah, talk about a trademark yeah.
How about Ken's, ken's Ken'sSteakhouse down on Route 9.
Yeah, Still there.
Yeah, that's been thereprobably since the 40s, yeah,
and their salad dressing isworth way more than the rest.
Everybody knows.
Chris (14:24):
Ken's salad dressing.
Oh yeah, sure, sure, it's inevery supermarket.
Yeah, and that salad dressingstarted in the restaurant and
again they marketed it.
Dennis (14:32):
Yeah, ken's salad dressing is a brand.
That's all about the IP.
That's all about the IP.
Yeah, probably the mostrecognizable salad dressing line
in the country.
Chris (14:42):
Yeah, probably Wouldn't you say yeah, easily, easily.
Dennis (14:45):
Yeah, so kind of wrapping it up on the restaurant
thing.
There's a lot of variables andthere's no one correct answer to
valuing your IP.
But don't fool yourself.
For internal purposes, when youdo your balance sheet, be
honest about the intellectualproperty.
Talk to a specialist in thefield, talk to a consultant,
(15:06):
Find out what a good, honestvaluation method is and stick
with that every year so you havea consistent format that you're
using year after year and thatwill allow you a good view of
your business where you are inrelationship to where you were
yesterday, relationship to whereyou were yesterday and the year
before and the year before, andit also gives you an idea as to
where you're headed.
Chris (15:26):
Yeah, or where you should be heading if you haven't done
anything in that space.
You know, if you haven't beenconcerned about these different
IP issues, you haven't beenaware of them.
Maybe it's time to startthinking about them.
Dennis (15:35):
A lot of home service companies the landscaper,
cleaning services, the handyman,home repair type business, the
painters, a lot of these.
They can start out of theowner's home.
I mean, how many people I'vedone that myself on a number of
occasions.
I've had multi-million dollar ayear companies I started out of
(15:55):
my garage.
Now they didn't stay in thegarage.
Pretty soon you outgrow thatphysical space that you're in.
But home service companies arean interesting group because
home service companies could bea one or two-person operation or
they could be a 30 or 40 or50-person operation and you've
got everything in between.
(16:16):
And how do we value that?
And there's methods to valuingthat.
If you're a home-based servicecompany and you're operating out
of your garage think about thatYou're going to have a little
bit of on the lower side.
You're going to be at one halfX, simply because the value of
your company is attached to thefact that it's operating out of
your garage and if a buyer isgoing to come along and buy your
(16:38):
company, he can't buy yourgarage too.
He's going to have to extractthe company out of your garage
and move it to the localindustrial park or maybe even
move it to his own home, his owngarage.
But there's a process to that,there's a journey to that.
So the home-based operation isgoing to have a lower end
intellectual property, maybe onehalf X.
(16:59):
So if you're doing a half amillion dollars in sales, maybe
your IP is going to be a quartermillion.
But the other question too,chris, is are you, the owner of
that company, required to bethere or the company will fail?
Chris (17:13):
Yeah, that's right.
Yeah, there's Michael Gerber.
He's a small business writer.
Came up with this quote If yourbusiness can't run without you,
you don't own a business, youown a job, and there's a certain
amount of truth to that andthere's nothing wrong with that.
Nope, no, a lot of people.
Dennis (17:25):
My brother-in-law ran a handyman service and he designed
it to be a one-person companyand he surrounded himself with
an electrician, a plumber, anextra carpenter, a laborer every
now and again and whenever heneeded an extra pair of hands to
hang a door or build a deck.
I actually built a couple ofdecks with him.
My brother-in-law, mandy,designed a one-man company
(17:47):
because that's what he wanted.
Other home-based operators landthere by default.
They started growing theircompany when they were younger.
They hit their mid to late 30s.
Things weren't developing theway they wanted, so they reel it
back in a little bit and theyend up running a one or
two-person operation, still as ahome-based, out of their own
garage.
(18:08):
Like I say nothing wrong orright about any one of them,
it's just a fact.
That's what it is a home-basedcompany, but you're going to
have a lower-end intellectualproperty value.
A potential buyer doesn't knowif he purchases that company.
Do the employees come with itbecause we're moving to another
town or another location?
There's a lot of variables.
(18:28):
But if you take that samecompany and he leases a space
down at the local industrialpark, first of all he's probably
going to have a little moreelbow room, a little more room
for growth.
That company is going to grow alittle bit.
Thus it's going to have ahigher IP value, not only
because maybe it has highersales, but it's also going to
probably move up into the 1X youknow, one times annual sales,
(18:51):
because a new owner can purchasethat and take over the lease.
But again, chris, now we getback into what are the
conditions of the lease, right,right, then of course there's
the business home servicecompany.
Maybe you're a landscaper andyou own a 4,000 square foot
building down at the localindustrial park and you got 20
(19:13):
parking spaces.
You're a good sized company.
So you're going to trade oryou're going to sell, maybe in
the 2 to 4 or 5x range, plus thevalue of the real estate.
The intellectual propertyincreases and to that you add
the value of the real estate andall of your trucks and tools
and equipment.
But the IP is a whole lothigher because owning the real
(19:35):
estate takes the biggestvariable out of the equation.
It removes the lease.
It's a much cleaner operation.
Chris (19:43):
A couple of other ideas behind that as well is that if
you own a building, like I'mhere at the Cape Cod Gutter
Monkeys headquarters it's abeautiful building.
Your employees must love thisbuilding.
It's got break rooms, bathrooms, huge area to work out.
You've got a workout room.
I mean that adds a lot of value.
Again, it's sort of a goodwillin terms of your employees.
Your employees love it here.
Plus, you're in a community, soyou've got some goodwill.
(20:05):
You've got signs out front.
You have all those things thata home-based business wouldn't
have because they're tucked awayin a neighborhood.
Your employees are parking onyour lawn or whatever that sort
of thing, so it doesn't havethat same sort of community
reputation, goodwill amongstyour employees, even A really
piece of the puzzle that Andyand I developed way back in the
beginning was just me and Andy.
Dennis (20:27):
We just said we want our company to be the coolest
company to work for.
I've had these kind ofcompanies before where you build
a culture.
We always have a pool table.
I've always had a pool table.
We have a beautiful pool tableover in the main room and the
guys come in after work.
They shoot pool.
Some of the guys come in in themorning and they'll hit the
weight room.
We have a really nice gym here.
(20:48):
But yeah, that's one of thethings that we always wanted was
we wanted a good culture.
We wanted this to be like afamily and that helps to draw
good employees in and it helpsto retain employees.
I guess in a way that probablyhelps build our IP too.
Chris (21:04):
I got to think it does.
I mean, if I'm walking in hereand I'm looking around, I've
pretty much got a pretty goodidea of how your employees feel
about working here, you know.
So they take a huge load off mymind if I'm coming in and
wondering am I going to be ableto retain the people that you're
leaving behind?
Dennis (21:16):
Well, retention of employees is huge.
Yeah, it really is a big partof the overall picture sale, I
got to imagine.
So taking an overall view ofvaluation of your business, in
particular today, theintellectual property.
To kind of wrap this all up, isthat again, you're going to
hear me say it week after week,I say it all the time.
(21:37):
Some people go to where thepuck is.
I want to go to where the puckis going to be when I get there.
What does that mean?
That means look far out overthe horizon, see where you want
to be, see the future and bethere when it arrives.
Don't wait till you need a bankloan for a new facility, let's
say, before putting your balancesheet together.
(21:58):
Don't wait till you're burntout and you want to sell your
property or you want to sellyour company.
Chris (22:04):
Have your balance sheet completed long before that
happens and kind of review thisas you go down the pike, because
your situation is going tochange.
You're either going to becomemore interested in growing the
business or maybe you're goingto step aside, maybe you want to
bring in your kids or somethinglike that.
So it's this thing you've gotto kind of review every single
year, like you talk about withyour assets and your balance
sheet every single year goingthrough it.
There's a great story aboutJordan's Furniture.
(22:26):
I don't know if againFramingham Elliot and Barry
Actually Waltham.
Yeah, Waltham, yeah.
Dennis (22:32):
Yeah, they were on Moody Street in Waltham.
Chris (22:34):
Yeah, yeah.
But interesting story about oneof the brothers decided about
halfway through he was going toretire.
Barry, barry, actually now he'son Broadway, he's a Broadway
producer.
Dennis (22:45):
Elliot lives over here in Marsden's Mills.
Oh does he?
He does.
He lives on the Cape.
We'll have to have him on theshow, and he sees him in the
supermarket once in a while.
Let's get him on the show.
Chris (22:55):
Yeah boy, so they sold.
They actually ended up sellingto Berkshire Hathaway.
Right yeah, they did.
So you can imagine theirgoodwill.
Dennis (23:05):
I don't know if you're familiar with Jordan's Furniture
.
Chris (23:06):
I mean, Jordan's is everything.
Just amazing amount of goodwill.
Not only is it a furniturecompany, it's also they put an
IMAX theater in a couple oftheir buildings and things like
that.
So they have all that going on.
What was their multiplier fortheir IP for that company?
It's just incredible.
Dennis (23:19):
They defined sleep comfort.
Right A comfort, yeah, right,yeah.
A mattress was just a flat,soft thing we used to sleep on
back in the sixties andseventies and when Elliot and
Barry took over their mom anddad's operation, they started
branding themselves asprofessional sleep consultants
and it changed the game.
(23:40):
Yeah, yeah, those guys are.
They got a screw loose.
I actually studied theirbusiness model heavily before we
started the gutter monkeys.
Chris (23:47):
Oh really.
Dennis (23:48):
Yeah, yeah, because I went to Bentley College, which
is a mile down the road fromJordan's Furniture, and I was a
cross-country runner.
I ran past that building athousand times over my four
years at Bentley and we passedthem all the time and they
always had fun.
Yeah, yeah, they used to ridedonkeys to work once in a while
and we pass them all the timeand they always had fun.
(24:09):
They used to ride donkeys towork once in a while and tie
them up out front to a hitchingpost.
They did crazy stuff like that.
I knew an office manager or oneof the department managers
there one time and she used totell me some of the craziest
stuff they do.
They just had a good time.
Chris (24:21):
They had a great culture at work and we loved it when the
kids were growing up becausethey'd always go in there.
I don't know if you're familiarwith them, but they'd always
have food.
They had their Mardi Gras thing.
Dennis (24:30):
At the.
Chris (24:30):
IMAX yeah, the one in Framingham.
Dennis (24:31):
The one in Framingham Holy cow.
Chris (24:33):
They had a food mall.
It was attached to a nice.
There was Riley's Roast Beefthere, but it made it so
kid-friendly loved it.
There was all sorts of things.
They got beads as they came inthe door.
They're huge in the community.
They give away free bicycles,they do all this other sort of
stuff.
Yeah, I mean it's like theperfect example of the IP.
You could do a whole show, Iguess, on Jordan Marsh and their
(24:54):
IP.
I guess.
Dennis (24:56):
A quick little thought on intellectual property.
So my partner Andy and I westarted the Gutter Monkeys 10
years, 11 years ago, and it wasjust an idea.
We were two old guys in our 50sand we were going to do
something different in oursemi-retirement years and when
we started out we owned onetruck.
It was a 10-year-old truck andwe owned about a half a dozen
(25:17):
ladders and we had a bankaccount.
I think we each put eight grandin there or something.
We had no intellectual property.
We had no IP value zero.
The value of our company was a10-year-old truck and a bank
account with about 15 grand.
That's it.
As the company grew and westarted to gain traction and
(25:38):
build our name and ourphilosophy here in Cape Cod, the
intellectual property grew.
But in the beginning there wasreally only one piece of value
and it was the fixed assets,basically a truck and some
equipment.
By year two we had a secondlittle piece of value and that
was the bank account.
(25:59):
The intellectual propertyreally wasn't worth anything yet
.
We were only a year or two old,we were doing well, we had good
revenue.
But one or two years in themarketplace does not build a
brand.
But over the years, the brandcaught fire.
It began to grow.
In fact, even before we startedI said to Andy I want to be
(26:20):
like Elliot and Barry, I want tobe iconic.
That was one of my goals to belike Elliot and Barry Jordan.
And I'd say about year four orfive I felt like we were
reaching that status.
Everyone knew who we were.
Business was booming and goingback to the very beginning day
one, our assets included a truck, some ladders and a $15,000
(26:44):
bank account.
That's it.
Our IP was worth zero.
As we grow, the intellectualproperty component of our
balance sheet is much biggerthan anything else.
We have good cash, goodreceivables, prepaid expenses.
We got a good, solid group ofcurrent assets.
Our fixed assets are solid.
(27:05):
We have about 15 trucks, tonsof ladders, tools, equipment,
office computers, cubicles, allkinds of stuff.
Our fixed assets is very, verystrong.
But the real value is theintellectual property.
In fact, my piece of realestate here is very valuable.
It's a brand new building.
We just built it a couple ofyears ago Very, very beautiful
(27:27):
building.
We're real proud of it.
But the intellectual propertyof our name, of our company name
, dwarfs all those other threeand that's the real value.
This is why venture capitalistsjust call us out of the blue and
they want to come over.
They want to take us out tolunch and they want to see what
we're doing and how we're doingit.
And they want to come over.
They want to take us out tolunch and they want to see what
we're doing and how we're doingit and they want to discuss
(27:48):
potentially buying us.
We're not really interested inselling right now, but we always
entertain the thought and wetake the free lunch when they
take us out to lunch.
But they're not calling mebecause of my building.
They're not calling me becauseof my fleet of trucks and we own
about about 100 or I don't knowhow many ladders we own out
there.
They're not calling me becauseI have $250,000 worth of
(28:12):
inventory.
That's not why they're callingme.
They're calling me because ofour intellectual property.
They're calling us because thename that we've branded over
these last 10 and a half yearsis now hitting their radar.
That is what a good IP valuewill do, and when they start
(28:32):
calling you, you know you'regetting in the neighborhood.
Chris (28:35):
Yeah, and it takes a while to build up, like your
assets and things like that.
Like if there was a flood heretomorrow and you lost your
trucks, you could replace thetrucks within weeks or months.
Dennis (28:42):
Yeah, take a month.
Chris (28:45):
But your IP that's taking you 10, 15 years to build up.
It takes a while to build up,but it's hugely valuable.
Of course, the flip side ofthat too is your protection of
your IP as well, Because ofcourse flip side of that is if
you damage your reputation oryou damage your IP of some sort,
it's very harmful to yourbusiness as well.
But yeah, it's an interestingaspect to it.
Dennis (29:04):
So way back in the beginning I mentioned very
quickly that the IP, theintellectual property of your
business, has a very highlikelihood of being the most
valuable asset on your balancesheet.
And if you treat it right, ifyou respect the value, if you
respect the intellectualproperty, your company can and
(29:27):
will grow to where theintellectual property that
nothing but air.
You can't grab it, you can'thold it, but you know it's there
.
That may very well be thebiggest line item on your
balance sheet and it is for me.
Yeah, it's amazing.
Chris (29:41):
That's our biggest line item by far, for as big as this
operation is, the buildings, thetrucks, the personnel, the
people you have here.
It's amazing.
Do you remember the?
Dennis (29:50):
Natick Mall, sure, the old one, sure, my parents in
1959, which was the year I wasborn, moved to Framingham and
the reason they moved there wasbecause the Mass Pike was
building the first exit and itwas the Framingham Natick exit
was building the first exit andit was the Framingham Natick
exit.
So my dad, who was a sales repfor a company out of Milwaukee,
(30:11):
my dad, could hop right on theMass Pike, get into Boston and
take advantage of the airportand all the other things that
the city had to offer.
Yet we lived out in the booniesFramingham was the boonies back
then and they built the NatickMall in about 1962 or three I
was very, very little and yearslater, maybe in around the year
(30:33):
2000, they tore the mall downand built the new one, which is
two stories and it's much biggerand has more bells and whistles
.
But when I was growing up, joethe barber, joe Buscemi, he
owned Joe's Barbershop and theyprobably had six or eight chairs
and there was always at leastfive or six or seven barbers in
there cutting hair and there wasnever a break in the action.
(30:55):
That place was a revenuegenerating machine.
Probably on average they hadsix barbers in there.
I used to know them all.
Mr Buscemi was a teammate ofmine, my college teammate, joe
Buscemi Jr.
He was a fellow Bentley Collegerunner.
That's how I got to know MrBuscemi.
We really became good buddiesover the years.
He was an Italian immigrant andJoe also owned a small one or
(31:18):
two seat barbershop over inCachituet, which is in the town
of Wayland, not too far from theNatick Mall.
So Mr Buscemi originally ownedthree, but eventually he owned
two barbershops, a little one ortwo seater over in Cotituit and
he owned the building.
And then he had this moneygenerating machine called Joe's
(31:40):
Barbershop over at the NatickMall and they were going to tear
the mall down in the late 90sover at the Natick Mall.
And they were going to tear themall down in the late 90s and
they didn't want Joe to be inthe mall, this old school,
crusty, old, rugged Italianimmigrant, and he didn't fit the
(32:04):
new model.
Chris (32:04):
They wanted a younger guy , maybe with a couple of ladies
cutting hair and it wasn't thefit.
Dennis (32:07):
Yeah, the franchise haircut place, right, exactly
the pro cuts or whatever.
They were looking more likethat and I remember I was an
adult with three kids and threekids that were growing at the
time and I knew a little bitabout business by then and the
mall was going to get torn downin about a year and a half or
two and they didn't want Joe tocome back.
What do you think is the valueof his intellectual property at
this point?
(32:28):
Zero, this money-generatingmachine, this machine that made
him a wealthy man.
It was a ticking time bomb thatwas going to explode a year and
a half from now when they torethem all down and they didn't
want him back in.
So upon his exit, he walkedaway with little to nothing
(32:49):
other than probably 25 or 30great years of revenue.
Mm-hmm, and I don't know forsure, but I strongly suspect Mr
Buscemi made some pretty goodmoney when he sold that building
over in Cotituit with the oneor two seat barbershop in it.
Yeah, because he owned the realestate.
He'd owned it for a long time,got it cheap, yep, and he had a
(33:09):
good reputation in the community.
I remember that barbershop.
I know exactly where it was.
It's probably still there today.
So there's an interestingperspective.
It's not necessarily therevenue generating capacity,
although that's a reallyimportant part of intellectual
property, but leased versusowned and the conditions of each
(33:31):
Interesting story.
I'm sure Mr Buscemi is lookingdown on us.
Boy, he was a good egg.
He really liked my wife and I.
He was a good egg.
But profitability versusbusiness valuation Interesting
perspective there.
I want to just throw out twoother little things.
Chris, one time I bought afailed business.
(33:51):
I was a young kid I was about22 at the time and I was in the
roofing business but I boughtthis other failed business
carpet and upholstery cleaning.
The business had gone under.
The owner heard his back.
He was just selling the assetsand the biggest asset, I believe
, looking back, was the customerlist.
I purchased everything twoportable rug cleaning machines,
(34:14):
a bunch of apparatus and acustomer list for $3,000.
And the two machines at thetime were probably worth $5,000
combined.
He just wanted them out.
It was a home base.
He wanted his garage cleanedout and what did I know?
I purchased them.
I set it up and it became oneof two businesses that I owned
and operated at the time, andnot for nothing.
(34:37):
About four or five years laterwe were flipping a lot of houses
and we had a couple ofbusinesses that we had bought,
resurrected and sold and thatbusiness sold for about $50,000.
It was home base and Ipurchased it for three grand.
He just wanted to get rid of it.
I sold it when we were growing.
I was in my fourth or fifthyear.
(34:59):
It was growing every year.
It was time to move on becauseI had purchased another larger
operation that I really neededto shed these two smaller
businesses that I owned.
And I got nothing for myroofing business because roofing
is just a commodity, I reallydidn't have too much to offer,
but Northeast Carpet.
(35:20):
I put it out to a businessbroker and he got me about 49 or
50 grand.
He took his cut of the actionand I walked away with like 42
or $45,000 because of thecustomer list.
Chris (35:32):
Yeah, Cause you probably didn't grow the business that
much in terms of trucks oremployees and things like that.
It doesn't sound like it.
So it was all the.
Dennis (35:39):
it was still a one truck and the original equipment,
plus another one or two piecesthat I bought along the way.
But when I sold it it was quick, it was clean.
The reason we got 49 or 50grand back then is because we
had a set of books, we hadrecurring annual business, we
had repeat customers.
It says a lot, that littlestory from holy cow 45, 40 plus
(36:05):
years ago.
It says a lot aboutintellectual property.
I didn't even know the termintellectual property at the
time.
Chris (36:11):
Yeah, yeah, but it was in effect, it was working, even
though you didn't know, it wasthere, yeah absolutely yeah,
there you have it, okay.
Dennis (36:18):
Intellectual property 101.
Chris (36:20):
Yeah, a lot to it.
It's an interesting subject.
If you don't know much about it, learn more because, as we said
, it has a big effect on yourbottom line.
Dennis (36:29):
A lot of information out there on that.
Yeah, so take a look at that.
All right, we wrap it up.
I think we're done for today.
No monkeys were harmed in themaking of this podcast.
All right, we'll see you nexttime.
Chris (36:43):
Thank you for tuning in to Monkey Business Radio.
Thank you for tuning in toMonkey Business Radio.
If you enjoyed today's episode,please make sure to subscribe,
like and follow us wherever youget your podcasts.
It really helps us reach moreaspiring entrepreneurs like you,
and if you've got a question ortopic you'd like us to cover,
leave a comment or reach out tous on social media.
We'd love to hear your thoughtsand keep the conversation going
.
Don't forget to leave us afive-star review if you found
(37:11):
the episode valuable, and makesure to share it with anyone who
might benefit from our tips andstories.
We'll see you next time.
This podcast is produced byAmerican Gutter Monkeys LLC.
Build real wealth throughbusiness ownership.
For details, visit us atAmericanGutterMonkeyscom.
Hello everyone, welcome to Monkey Business Radio,
episode 8, valuing your SmallBusiness IP.
I'm Chris Collins and todaywe're diving into a topic that
most business owners don't thinkenough about intellectual
property or IP.
Running a home service business, a retail shop or a franchise
like American Gutter Monkeys,your intellectual property, your
branding, trade secrets andyour business systems can add
(00:24):
serious value to your company.
So let's dive in.
As always, I'm here with DennisSiggins.
Hello Dennis, chris, how youdoing?
Buddy, I'm doing pretty wellGood good good.
Yep, all's good, all's good.
Yeah, I'm excited for this one.
Most business owners focus somuch on revenue and assets you
know things that they can touchbut they don't really realize
(00:46):
that the real gold in theirbusiness is stuff you can't see
like your brand, your reputation.
Dennis (00:51):
Last week we talked about the balance sheet and half
the balance sheet is the assets, and we talked about three
types of assets last weekCurrent assets, which is cash,
accounts, receivables, prepaidexpenses.
Then there's fixed assets,which is your hard assets, your
building, your trucks, yourinventory tools and equipment.
And then the intellectualproperty.
(01:14):
That's the big variable.
We're talking about trademarks,patents, service marks,
goodwill Goodwill being yourname and reputation in the local
and regional community.
The intellectual property, orwhat we call IP, is the big
variable in the balance sheetequation and today we're going
to focus in on intellectualproperty.
(01:35):
Sounds good.
That's where we want to start Astartup.
You're starting up your newbusiness.
You got a pickup truck, twolawnmowers and a string trimmer,
but you're a startup, so youdon't have any intellectual
property.
There's no goodwill yet.
You haven't cut a lawn, youhaven't done any amount of
business yet.
So when you're a startup, astartup has no intellectual
(01:57):
property.
There's no brand, there's nogoodwill in the community.
On the balance sheet, thestartup has no IP value, just
current and fixed assets, onlyyour truck, your lawnmowers,
your string trimmer and the bankaccount.
Those are your assets.
The intellectual property is ata zero.
But down the road.
The intellectual property isvery likely to outgrow the value
(02:20):
of the current and fixed assets, and we're going to talk more
about that in just a little bitof time.
Chris (02:25):
Yeah, when I first came to this, started getting
involved with American GutterMonkeys, started looking at
balance sheets.
I don't have a businessbackground and this really blew
me away.
Dennis (02:33):
Today, somebody in my office asked for the balance
sheet.
He needed it because of legalpurposes for some of the work
that we do, and I tend to keepall that stuff on my desk.
I build the balance sheetsevery year.
I update them that's one of myjobs here in the office, so I
just emailed it over to him andwe moved on.
(02:54):
I keep a lot of that data in myoffice on my desktop because
it's very important.
A lot of people might ask why dowe need to value our business?
Why do I need to know what it'sworth?
Why do I really care what thebalance sheet says?
I'm making plenty of money andthe number one reason is for
internal purposes.
So we use the balance sheet,which gives us the balance, the
(03:18):
value of our company, on aspecific date.
Annually, I use January 4th.
So I, just a couple of weeksago, updated my balance sheet
For internal purposes.
We use it for year-to-yearcomparisons for the owner or the
manager how to assess businessvalue, growth, risk forecasting
and other strategic processes.
It also helps if you'reapplying for financing, a bank
(03:43):
loan or anything like that.
A current business valuation, acurrently updated asset-based
balance sheet, is a great toolto have.
If you're determining the valueof the company so you can sell
stock or take on a partner whowants to buy in, or if you're
planning an exit strategy you'replanning on retiring or selling
(04:05):
your company in the next two tothree years.
You want to have a good idea asto what it's worth.
Chris (04:09):
All right.
So my experience was withAmerican gutter monkeys coming
in trying to figure out what thevalue was when we were
discussing it, and this is whereI kind of got exposed to it.
This IP, especially forAmerican gutter monkeys and
especially your company, CapeCod gutter monkeys, has a very,
very strong IP component to it.
Of course.
Your Bobby Downspout, all yourmarketing, your radio ads, your
Goodwill and things like that inthe Cape Cod Islands community,
(04:30):
so he had a very strong IPcomponent.
Dennis (04:34):
And the reason we have that is as all the reasons that
we talked about.
But here's something thatoccurs two or three times a year
in my world when you own acompany and you start to hit
certain strike points, you breaka million dollars up over two
or three million dollars, youstart to gain market share.
You also, whether you like itor not, are gaining the
(04:56):
attention of investment groups,venture capitalists and other
people in the business world,and we probably have two or
three of these people whocontact us every year.
Now, currently we're really notthat interested in selling, but
we always have a discussion Ifsomebody wants to talk about
business valuation and maybetalk to us, maybe make an offer.
(05:20):
Something like that.
That occurs, that does happenin our world.
Because I have a balance sheetwith a perpetually updated value
, I can weed through thepretenders, and most of them are
pretenders.
I can weed through them in fiveminutes because I know what my
company's worth and I know howto break out the intellectual
property versus the fixed assets, versus the current assets.
(05:42):
Because I have that at myfingertips, I don't have to
waste a whole lot of time withventure capitalists.
The first one or two times thatI got these calls, I'm kind of
flattered.
Wow, this person that manages aportfolio of $100 million is
considering making an offer onmy company.
The beautiful thing is, if youhave a current valuation, an
(06:05):
asset-based balance sheet, youcan cut right to the chase and
you know if they're a pretenderor not.
Let's speculate, chris.
We're in the food serviceindustry, the home service
industry, contractor-based modelautomotive technology companies
, health exercise companies.
There's a whole lot ofdifferent models out there and
(06:26):
they're all valued usingdifferent methods.
Chris (06:29):
Yeah, so I come from the high-tech world, so the number
one thing, of course, is patents.
That's the big thing, huge Inthe tech world, but it's very
different.
As we started preparing forthis podcast and you start going
through all this.
It's a very, very differentanimal.
Dennis (06:50):
In the home service business, which is a little bit
of my world right now, we don'thave patents.
I'm a commodity.
When I was in, I used to own arestaurant.
When I was in the restaurantworld, all I had was the name of
the company and my reputation,and there's nothing patentable
much at all.
In the food service world.
It's hard to patent recipes.
You can keep them a secret,make them somewhat proprietary,
but it's hard to patent them.
So what are the factors thatare going to impact the value of
(07:14):
your IP?
Number one is revenue.
Revenue is produced by thebusiness and the revenue that
the company produces isindicative as to how well a
local or regional communityrespects this business.
If you're a $5 million a yearcompany and all your other
(07:35):
competitors are in the $300,000to $600,000 range, you're the
big dog in that neighborhood andyour intellectual property will
reflect that on the balancesheet.
Let's take the food servicecompany.
We're a restaurant.
It's likely that we don't haveany patents.
So our trademark name, ourservice mark name, that's our IP
(07:55):
, our local and regionalgoodwill.
That's going to be ourintellectual property, our
domain name, our websiteproperty, our domain name, our
website phone numbers,reputation.
Basically, that's all we have.
If I'm the burger place and weproduce burgers, that's a
commodity.
Mcdonald's, burger King,wendy's, they're all selling the
(08:15):
same thing.
It's just they each have theirown secret sauce, so to speak.
What is the secret sauce atyour restaurant or our
restaurant that we own?
That's a hard one to say righthere and now because we're only
speculating.
But we're a restaurant, we'reserving food.
Maybe I'm a Mexican restaurant,maybe I'm a burger restaurant,
but that's my take on the food.
Basically, food is a commodity.
(08:37):
So what we use is multiples ofgross sales or pre-tax profit.
That's how we determine theintellectual property.
That's one of the biggestcomponents of determining the
value of the intellectualproperty a multiple of gross
sales or a multiple of EBITDA,e-b-i-t-d-a earnings before
(08:57):
interest, taxes, depreciation,amortization let's just call it
pre-tax profit.
So if we take a multiple ofgross sales in a commodity
business home service,restaurants you're likely going
to fall into the one half X tofive X, based upon X being
annual sales.
(09:18):
So if you are a restaurant andyou're doing $2 million a year
in sales, you know your value isgoing to be somewhere between
half that and five times that.
So your value is going to besomewhere between a million and
10 million.
That's a big window.
Yeah, it's huge.
So what are the factors we use?
That's a big range, that's abig window 1 million to 10
(09:38):
million.
What are the factors that aregoing to determine where your
value is.
Chris (09:44):
McDonald's is a good example here.
I mean, they've trademarkedtheir logos, their colors, that
they use Everything imaginable.
Dennis (09:52):
You don't see a.
Chris (09:52):
McDonald's going under?
No, you never do.
And they all look the samebecause they all have that same
trademarked look.
So for a company like that,they're way up on that 5X, I'm
sure even more, but that wouldbe the far end.
Dennis (10:05):
But let's look at the small local restaurant.
One of the first questions Iask is do you the owner of the
restaurant, do you own your ownreal estate or do you lease it?
Let's talk about leasing.
How much time is left on thelease?
That's interesting, because ifyou're running a restaurant and
you're doing $2.2 million a yearbut you only have one year left
(10:26):
on the lease, who's going tobuy that?
Right?
That's interesting, that's abig one, right there.
Or if there's only a year lefton the lease, the purchaser of
that restaurant is going to wantto sign an extension, maybe a
10-year extension to that lease.
That would rebuild the IP value.
But if there's only one yearleft on that lease, there's not
(10:48):
a whole lot of intellectualproperty there, because the
value could all come to an endin one year.
Interesting example Sure, whatabout if we own the real estate?
So if we lease the real estateand there's a good, stable,
solid lease in place, yourrestaurant's going to probably
land in the 1X to 2 to 3X, xbeing gross annual sales.
(11:10):
But what if you own the realestate and that comes with it?
So X all of a sudden takes on adifferent number because you're
not only purchasing thebusiness but you're purchasing
the real estate.
You now control the lease, youare the owner of the property.
That intellectual property justtook a big jump.
That's going to move into the2X to 5X range.
Chris (11:33):
So besides just owning the property once you say,
purchase the restaurant, it alsoallows you to go into business
much faster because you have thebuilding.
That's a huge value If it's analready going concern.
Yeah.
Dennis (11:46):
If the business is operating.
You're doing $2 million a yearselling burgers and you're
buying the real estate.
It's a double whammy.
But what about owning the realestate?
What are the limitations?
You have two restaurants.
Let's say they're in the sametown and you're both selling
burgers and you're both grossing$2.2 million a year.
One restaurant leases the spaceat the mall and one restaurant
(12:10):
is located on a property that isowned by the restaurant owner.
You know you're leasing at themall Again, depending on the
conditions of the lease.
How much time is left?
What are the limitations andbenefits of the lease?
How much time is left?
What are the limitations andbenefits of the lease?
What is the likelihood ofextending the lease?
What if the lease is almostover and you got to pull the
restaurant out of there and moveit somewhere else?
Forget it.
There is no more IP, the costof moving it and you lose all
(12:34):
your foot traffic.
But what about the real estatebased restaurant, where the
owner of the restaurant alsoowns the real estate and he's
selling the same $2.2 million ayear in burgers?
What room for growth does hehave?
Is he maxed out on his numberof seats?
Is he maxed out on his parking,or does he have room with the
(12:54):
current real estate as it is togrow to $3 million, $5 million?
Is there room to grow that'sgoing to impact the IP value?
Are there any limitations?
Is there zoning through thetown or the city?
Are there physical limitations?
These are the questions thatneed to be answered that will
give you a true value of your IP.
Chris (13:14):
Yeah well, it's getting ready for this podcast.
And just the other day I wastalking to my mom.
You'll remember this placewe're Framingham boys, so
Framingham Mass boys, so LaCantina.
Dennis (13:22):
Know it well.
Chris (13:23):
We just had my mother's 90th birthday.
Dennis (13:25):
11 months ago, I had my mom's 90th birthday at La
Cantina.
Chris (13:29):
So this is a classic example.
What made me just think of thisnow is that parking area.
I don't know if you remember.
Across the street, rememberthere's a bunch of dilapidated
buildings they bought that landknocked that down.
They have an enormous parkinglot.
Dennis (13:39):
When did they do?
Chris (13:39):
that, oh, it was years and years ago.
Okay, all right, there's anenormous parking lot there, yeah
, and we were just in there theother night and it made me think
of that, but La Quintina andFramingham, yep, but talk about
a location, even if you pick upthat building like they were to
sell it and the family never,probably will ever, 50 years
probably.
At least Everybody in townknows.
Dennis (14:00):
Everybody knows it.
Chris (14:00):
Talk about goodwill.
Standing in your neighborhoodparking the whole nine yards.
They've got it all.
Amazing business.
Not only that, but they have aretail spaghetti sauce as well
that they sell.
Do?
Dennis (14:11):
they really yeah, talk about a trademark yeah.
How about Ken's, ken's Ken'sSteakhouse down on Route 9.
Yeah, Still there.
Yeah, that's been thereprobably since the 40s, yeah,
and their salad dressing isworth way more than the rest.
Everybody knows.
Chris (14:24):
Ken's salad dressing.
Oh yeah, sure, sure, it's inevery supermarket.
Yeah, and that salad dressingstarted in the restaurant and
again they marketed it.
Dennis (14:32):
Yeah, ken's salad dressing is a brand.
That's all about the IP.
That's all about the IP.
Yeah, probably the mostrecognizable salad dressing line
in the country.
Chris (14:42):
Yeah, probably Wouldn't you say yeah, easily, easily.
Dennis (14:45):
Yeah, so kind of wrapping it up on the restaurant
thing.
There's a lot of variables andthere's no one correct answer to
valuing your IP.
But don't fool yourself.
For internal purposes, when youdo your balance sheet, be
honest about the intellectualproperty.
Talk to a specialist in thefield, talk to a consultant,
(15:06):
Find out what a good, honestvaluation method is and stick
with that every year so you havea consistent format that you're
using year after year and thatwill allow you a good view of
your business where you are inrelationship to where you were
yesterday, relationship to whereyou were yesterday and the year
before and the year before, andit also gives you an idea as to
where you're headed.
Chris (15:26):
Yeah, or where you should be heading if you haven't done
anything in that space.
You know, if you haven't beenconcerned about these different
IP issues, you haven't beenaware of them.
Maybe it's time to startthinking about them.
Dennis (15:35):
A lot of home service companies the landscaper,
cleaning services, the handyman,home repair type business, the
painters, a lot of these.
They can start out of theowner's home.
I mean, how many people I'vedone that myself on a number of
occasions.
I've had multi-million dollar ayear companies I started out of
(15:55):
my garage.
Now they didn't stay in thegarage.
Pretty soon you outgrow thatphysical space that you're in.
But home service companies arean interesting group because
home service companies could bea one or two-person operation or
they could be a 30 or 40 or50-person operation and you've
got everything in between.
(16:16):
And how do we value that?
And there's methods to valuingthat.
If you're a home-based servicecompany and you're operating out
of your garage think about thatYou're going to have a little
bit of on the lower side.
You're going to be at one halfX, simply because the value of
your company is attached to thefact that it's operating out of
your garage and if a buyer isgoing to come along and buy your
(16:38):
company, he can't buy yourgarage too.
He's going to have to extractthe company out of your garage
and move it to the localindustrial park or maybe even
move it to his own home, his owngarage.
But there's a process to that,there's a journey to that.
So the home-based operation isgoing to have a lower end
intellectual property, maybe onehalf X.
(16:59):
So if you're doing a half amillion dollars in sales, maybe
your IP is going to be a quartermillion.
But the other question too,chris, is are you, the owner of
that company, required to bethere or the company will fail?
Chris (17:13):
Yeah, that's right.
Yeah, there's Michael Gerber.
He's a small business writer.
Came up with this quote If yourbusiness can't run without you,
you don't own a business, youown a job, and there's a certain
amount of truth to that andthere's nothing wrong with that.
Nope, no, a lot of people.
Dennis (17:25):
My brother-in-law ran a handyman service and he designed
it to be a one-person companyand he surrounded himself with
an electrician, a plumber, anextra carpenter, a laborer every
now and again and whenever heneeded an extra pair of hands to
hang a door or build a deck.
I actually built a couple ofdecks with him.
My brother-in-law, mandy,designed a one-man company
(17:47):
because that's what he wanted.
Other home-based operators landthere by default.
They started growing theircompany when they were younger.
They hit their mid to late 30s.
Things weren't developing theway they wanted, so they reel it
back in a little bit and theyend up running a one or
two-person operation, still as ahome-based, out of their own
garage.
(18:08):
Like I say nothing wrong orright about any one of them,
it's just a fact.
That's what it is a home-basedcompany, but you're going to
have a lower-end intellectualproperty value.
A potential buyer doesn't knowif he purchases that company.
Do the employees come with itbecause we're moving to another
town or another location?
There's a lot of variables.
(18:28):
But if you take that samecompany and he leases a space
down at the local industrialpark, first of all he's probably
going to have a little moreelbow room, a little more room
for growth.
That company is going to grow alittle bit.
Thus it's going to have ahigher IP value, not only
because maybe it has highersales, but it's also going to
probably move up into the 1X youknow, one times annual sales,
(18:51):
because a new owner can purchasethat and take over the lease.
But again, chris, now we getback into what are the
conditions of the lease, right,right, then of course there's
the business home servicecompany.
Maybe you're a landscaper andyou own a 4,000 square foot
building down at the localindustrial park and you got 20
(19:13):
parking spaces.
You're a good sized company.
So you're going to trade oryou're going to sell, maybe in
the 2 to 4 or 5x range, plus thevalue of the real estate.
The intellectual propertyincreases and to that you add
the value of the real estate andall of your trucks and tools
and equipment.
But the IP is a whole lothigher because owning the real
(19:35):
estate takes the biggestvariable out of the equation.
It removes the lease.
It's a much cleaner operation.
Chris (19:43):
A couple of other ideas behind that as well is that if
you own a building, like I'mhere at the Cape Cod Gutter
Monkeys headquarters it's abeautiful building.
Your employees must love thisbuilding.
It's got break rooms, bathrooms, huge area to work out.
You've got a workout room.
I mean that adds a lot of value.
Again, it's sort of a goodwillin terms of your employees.
Your employees love it here.
Plus, you're in a community, soyou've got some goodwill.
(20:05):
You've got signs out front.
You have all those things thata home-based business wouldn't
have because they're tucked awayin a neighborhood.
Your employees are parking onyour lawn or whatever that sort
of thing, so it doesn't havethat same sort of community
reputation, goodwill amongstyour employees, even A really
piece of the puzzle that Andyand I developed way back in the
beginning was just me and Andy.
Dennis (20:27):
We just said we want our company to be the coolest
company to work for.
I've had these kind ofcompanies before where you build
a culture.
We always have a pool table.
I've always had a pool table.
We have a beautiful pool tableover in the main room and the
guys come in after work.
They shoot pool.
Some of the guys come in in themorning and they'll hit the
weight room.
We have a really nice gym here.
(20:48):
But yeah, that's one of thethings that we always wanted was
we wanted a good culture.
We wanted this to be like afamily and that helps to draw
good employees in and it helpsto retain employees.
I guess in a way that probablyhelps build our IP too.
Chris (21:04):
I got to think it does.
I mean, if I'm walking in hereand I'm looking around, I've
pretty much got a pretty goodidea of how your employees feel
about working here, you know.
So they take a huge load off mymind if I'm coming in and
wondering am I going to be ableto retain the people that you're
leaving behind?
Dennis (21:16):
Well, retention of employees is huge.
Yeah, it really is a big partof the overall picture sale, I
got to imagine.
So taking an overall view ofvaluation of your business, in
particular today, theintellectual property.
To kind of wrap this all up, isthat again, you're going to
hear me say it week after week,I say it all the time.
(21:37):
Some people go to where thepuck is.
I want to go to where the puckis going to be when I get there.
What does that mean?
That means look far out overthe horizon, see where you want
to be, see the future and bethere when it arrives.
Don't wait till you need a bankloan for a new facility, let's
say, before putting your balancesheet together.
(21:58):
Don't wait till you're burntout and you want to sell your
property or you want to sellyour company.
Chris (22:04):
Have your balance sheet completed long before that
happens and kind of review thisas you go down the pike, because
your situation is going tochange.
You're either going to becomemore interested in growing the
business or maybe you're goingto step aside, maybe you want to
bring in your kids or somethinglike that.
So it's this thing you've gotto kind of review every single
year, like you talk about withyour assets and your balance
sheet every single year goingthrough it.
There's a great story aboutJordan's Furniture.
(22:26):
I don't know if againFramingham Elliot and Barry
Actually Waltham.
Yeah, Waltham, yeah.
Dennis (22:32):
Yeah, they were on Moody Street in Waltham.
Chris (22:34):
Yeah, yeah.
But interesting story about oneof the brothers decided about
halfway through he was going toretire.
Barry, barry, actually now he'son Broadway, he's a Broadway
producer.
Dennis (22:45):
Elliot lives over here in Marsden's Mills.
Oh does he?
He does.
He lives on the Cape.
We'll have to have him on theshow, and he sees him in the
supermarket once in a while.
Let's get him on the show.
Chris (22:55):
Yeah boy, so they sold.
They actually ended up sellingto Berkshire Hathaway.
Right yeah, they did.
So you can imagine theirgoodwill.
Dennis (23:05):
I don't know if you're familiar with Jordan's Furniture
.
Chris (23:06):
I mean, Jordan's is everything.
Just amazing amount of goodwill.
Not only is it a furniturecompany, it's also they put an
IMAX theater in a couple oftheir buildings and things like
that.
So they have all that going on.
What was their multiplier fortheir IP for that company?
It's just incredible.
Dennis (23:19):
They defined sleep comfort.
Right A comfort, yeah, right,yeah.
A mattress was just a flat,soft thing we used to sleep on
back in the sixties andseventies and when Elliot and
Barry took over their mom anddad's operation, they started
branding themselves asprofessional sleep consultants
and it changed the game.
(23:40):
Yeah, yeah, those guys are.
They got a screw loose.
I actually studied theirbusiness model heavily before we
started the gutter monkeys.
Chris (23:47):
Oh really.
Dennis (23:48):
Yeah, yeah, because I went to Bentley College, which
is a mile down the road fromJordan's Furniture, and I was a
cross-country runner.
I ran past that building athousand times over my four
years at Bentley and we passedthem all the time and they
always had fun.
Yeah, yeah, they used to ridedonkeys to work once in a while
and we pass them all the timeand they always had fun.
(24:09):
They used to ride donkeys towork once in a while and tie
them up out front to a hitchingpost.
They did crazy stuff like that.
I knew an office manager or oneof the department managers
there one time and she used totell me some of the craziest
stuff they do.
They just had a good time.
Chris (24:21):
They had a great culture at work and we loved it when the
kids were growing up becausethey'd always go in there.
I don't know if you're familiarwith them, but they'd always
have food.
They had their Mardi Gras thing.
Dennis (24:30):
At the.
Chris (24:30):
IMAX yeah, the one in Framingham.
Dennis (24:31):
The one in Framingham Holy cow.
Chris (24:33):
They had a food mall.
It was attached to a nice.
There was Riley's Roast Beefthere, but it made it so
kid-friendly loved it.
There was all sorts of things.
They got beads as they came inthe door.
They're huge in the community.
They give away free bicycles,they do all this other sort of
stuff.
Yeah, I mean it's like theperfect example of the IP.
You could do a whole show, Iguess, on Jordan Marsh and their
(24:54):
IP.
I guess.
Dennis (24:56):
A quick little thought on intellectual property.
So my partner Andy and I westarted the Gutter Monkeys 10
years, 11 years ago, and it wasjust an idea.
We were two old guys in our 50sand we were going to do
something different in oursemi-retirement years and when
we started out we owned onetruck.
It was a 10-year-old truck andwe owned about a half a dozen
(25:17):
ladders and we had a bankaccount.
I think we each put eight grandin there or something.
We had no intellectual property.
We had no IP value zero.
The value of our company was a10-year-old truck and a bank
account with about 15 grand.
That's it.
As the company grew and westarted to gain traction and
(25:38):
build our name and ourphilosophy here in Cape Cod, the
intellectual property grew.
But in the beginning there wasreally only one piece of value
and it was the fixed assets,basically a truck and some
equipment.
By year two we had a secondlittle piece of value and that
was the bank account.
(25:59):
The intellectual propertyreally wasn't worth anything yet
.
We were only a year or two old,we were doing well, we had good
revenue.
But one or two years in themarketplace does not build a
brand.
But over the years, the brandcaught fire.
It began to grow.
In fact, even before we startedI said to Andy I want to be
(26:20):
like Elliot and Barry, I want tobe iconic.
That was one of my goals to belike Elliot and Barry Jordan.
And I'd say about year four orfive I felt like we were
reaching that status.
Everyone knew who we were.
Business was booming and goingback to the very beginning day
one, our assets included a truck, some ladders and a $15,000
(26:44):
bank account.
That's it.
Our IP was worth zero.
As we grow, the intellectualproperty component of our
balance sheet is much biggerthan anything else.
We have good cash, goodreceivables, prepaid expenses.
We got a good, solid group ofcurrent assets.
Our fixed assets are solid.
(27:05):
We have about 15 trucks, tonsof ladders, tools, equipment,
office computers, cubicles, allkinds of stuff.
Our fixed assets is very, verystrong.
But the real value is theintellectual property.
In fact, my piece of realestate here is very valuable.
It's a brand new building.
We just built it a couple ofyears ago Very, very beautiful
(27:27):
building.
We're real proud of it.
But the intellectual propertyof our name, of our company name
, dwarfs all those other threeand that's the real value.
This is why venture capitalistsjust call us out of the blue and
they want to come over.
They want to take us out tolunch and they want to see what
we're doing and how we're doingit.
And they want to come over.
They want to take us out tolunch and they want to see what
we're doing and how we're doingit and they want to discuss
(27:48):
potentially buying us.
We're not really interested inselling right now, but we always
entertain the thought and wetake the free lunch when they
take us out to lunch.
But they're not calling mebecause of my building.
They're not calling me becauseof my fleet of trucks and we own
about about 100 or I don't knowhow many ladders we own out
there.
They're not calling me becauseI have $250,000 worth of
(28:12):
inventory.
That's not why they're callingme.
They're calling me because ofour intellectual property.
They're calling us because thename that we've branded over
these last 10 and a half yearsis now hitting their radar.
That is what a good IP valuewill do, and when they start
(28:32):
calling you, you know you'regetting in the neighborhood.
Chris (28:35):
Yeah, and it takes a while to build up, like your
assets and things like that.
Like if there was a flood heretomorrow and you lost your
trucks, you could replace thetrucks within weeks or months.
Dennis (28:42):
Yeah, take a month.
Chris (28:45):
But your IP that's taking you 10, 15 years to build up.
It takes a while to build up,but it's hugely valuable.
Of course, the flip side ofthat too is your protection of
your IP as well, Because ofcourse flip side of that is if
you damage your reputation oryou damage your IP of some sort,
it's very harmful to yourbusiness as well.
But yeah, it's an interestingaspect to it.
Dennis (29:04):
So way back in the beginning I mentioned very
quickly that the IP, theintellectual property of your
business, has a very highlikelihood of being the most
valuable asset on your balancesheet.
And if you treat it right, ifyou respect the value, if you
respect the intellectualproperty, your company can and
(29:27):
will grow to where theintellectual property that
nothing but air.
You can't grab it, you can'thold it, but you know it's there
.
That may very well be thebiggest line item on your
balance sheet and it is for me.
Yeah, it's amazing.
Chris (29:41):
That's our biggest line item by far, for as big as this
operation is, the buildings, thetrucks, the personnel, the
people you have here.
It's amazing.
Do you remember the?
Dennis (29:50):
Natick Mall, sure, the old one, sure, my parents in
1959, which was the year I wasborn, moved to Framingham and
the reason they moved there wasbecause the Mass Pike was
building the first exit and itwas the Framingham Natick exit
was building the first exit andit was the Framingham Natick
exit.
So my dad, who was a sales repfor a company out of Milwaukee,
(30:11):
my dad, could hop right on theMass Pike, get into Boston and
take advantage of the airportand all the other things that
the city had to offer.
Yet we lived out in the booniesFramingham was the boonies back
then and they built the NatickMall in about 1962 or three I
was very, very little and yearslater, maybe in around the year
(30:33):
2000, they tore the mall downand built the new one, which is
two stories and it's much biggerand has more bells and whistles
.
But when I was growing up, joethe barber, joe Buscemi, he
owned Joe's Barbershop and theyprobably had six or eight chairs
and there was always at leastfive or six or seven barbers in
there cutting hair and there wasnever a break in the action.
(30:55):
That place was a revenuegenerating machine.
Probably on average they hadsix barbers in there.
I used to know them all.
Mr Buscemi was a teammate ofmine, my college teammate, joe
Buscemi Jr.
He was a fellow Bentley Collegerunner.
That's how I got to know MrBuscemi.
We really became good buddiesover the years.
He was an Italian immigrant andJoe also owned a small one or
(31:18):
two seat barbershop over inCachituet, which is in the town
of Wayland, not too far from theNatick Mall.
So Mr Buscemi originally ownedthree, but eventually he owned
two barbershops, a little one ortwo seater over in Cotituit and
he owned the building.
And then he had this moneygenerating machine called Joe's
(31:40):
Barbershop over at the NatickMall and they were going to tear
the mall down in the late 90sover at the Natick Mall.
And they were going to tear themall down in the late 90s and
they didn't want Joe to be inthe mall, this old school,
crusty, old, rugged Italianimmigrant, and he didn't fit the
(32:04):
new model.
Chris (32:04):
They wanted a younger guy , maybe with a couple of ladies
cutting hair and it wasn't thefit.
Dennis (32:07):
Yeah, the franchise haircut place, right, exactly
the pro cuts or whatever.
They were looking more likethat and I remember I was an
adult with three kids and threekids that were growing at the
time and I knew a little bitabout business by then and the
mall was going to get torn downin about a year and a half or
two and they didn't want Joe tocome back.
What do you think is the valueof his intellectual property at
this point?
(32:28):
Zero, this money-generatingmachine, this machine that made
him a wealthy man.
It was a ticking time bomb thatwas going to explode a year and
a half from now when they torethem all down and they didn't
want him back in.
So upon his exit, he walkedaway with little to nothing
(32:49):
other than probably 25 or 30great years of revenue.
Mm-hmm, and I don't know forsure, but I strongly suspect Mr
Buscemi made some pretty goodmoney when he sold that building
over in Cotituit with the oneor two seat barbershop in it.
Yeah, because he owned the realestate.
He'd owned it for a long time,got it cheap, yep, and he had a
(33:09):
good reputation in the community.
I remember that barbershop.
I know exactly where it was.
It's probably still there today.
So there's an interestingperspective.
It's not necessarily therevenue generating capacity,
although that's a reallyimportant part of intellectual
property, but leased versusowned and the conditions of each
(33:31):
Interesting story.
I'm sure Mr Buscemi is lookingdown on us.
Boy, he was a good egg.
He really liked my wife and I.
He was a good egg.
But profitability versusbusiness valuation Interesting
perspective there.
I want to just throw out twoother little things.
Chris, one time I bought afailed business.
(33:51):
I was a young kid I was about22 at the time and I was in the
roofing business but I boughtthis other failed business
carpet and upholstery cleaning.
The business had gone under.
The owner heard his back.
He was just selling the assetsand the biggest asset, I believe
, looking back, was the customerlist.
I purchased everything twoportable rug cleaning machines,
(34:14):
a bunch of apparatus and acustomer list for $3,000.
And the two machines at thetime were probably worth $5,000
combined.
He just wanted them out.
It was a home base.
He wanted his garage cleanedout and what did I know?
I purchased them.
I set it up and it became oneof two businesses that I owned
and operated at the time, andnot for nothing.
(34:37):
About four or five years laterwe were flipping a lot of houses
and we had a couple ofbusinesses that we had bought,
resurrected and sold and thatbusiness sold for about $50,000.
It was home base and Ipurchased it for three grand.
He just wanted to get rid of it.
I sold it when we were growing.
I was in my fourth or fifthyear.
(34:59):
It was growing every year.
It was time to move on becauseI had purchased another larger
operation that I really neededto shed these two smaller
businesses that I owned.
And I got nothing for myroofing business because roofing
is just a commodity, I reallydidn't have too much to offer,
but Northeast Carpet.
(35:20):
I put it out to a businessbroker and he got me about 49 or
50 grand.
He took his cut of the actionand I walked away with like 42
or $45,000 because of thecustomer list.
Chris (35:32):
Yeah, Cause you probably didn't grow the business that
much in terms of trucks oremployees and things like that.
It doesn't sound like it.
So it was all the.
Dennis (35:39):
it was still a one truck and the original equipment,
plus another one or two piecesthat I bought along the way.
But when I sold it it was quick, it was clean.
The reason we got 49 or 50grand back then is because we
had a set of books, we hadrecurring annual business, we
had repeat customers.
It says a lot, that littlestory from holy cow 45, 40 plus
(36:05):
years ago.
It says a lot aboutintellectual property.
I didn't even know the termintellectual property at the
time.
Chris (36:11):
Yeah, yeah, but it was in effect, it was working, even
though you didn't know, it wasthere, yeah absolutely yeah,
there you have it, okay.
Dennis (36:18):
Intellectual property 101.
Chris (36:20):
Yeah, a lot to it.
It's an interesting subject.
If you don't know much about it, learn more because, as we said
, it has a big effect on yourbottom line.
Dennis (36:29):
A lot of information out there on that.
Yeah, so take a look at that.
All right, we wrap it up.
I think we're done for today.
No monkeys were harmed in themaking of this podcast.
All right, we'll see you nexttime.
Chris (36:43):
Thank you for tuning in to Monkey Business Radio.
Thank you for tuning in toMonkey Business Radio.
If you enjoyed today's episode,please make sure to subscribe,
like and follow us wherever youget your podcasts.
It really helps us reach moreaspiring entrepreneurs like you,
and if you've got a question ortopic you'd like us to cover,
leave a comment or reach out tous on social media.
We'd love to hear your thoughtsand keep the conversation going
.
Don't forget to leave us afive-star review if you found
(37:11):
the episode valuable, and makesure to share it with anyone who
might benefit from our tips andstories.
We'll see you next time.
This podcast is produced byAmerican Gutter Monkeys LLC.
Build real wealth throughbusiness ownership.
For details, visit us atAmericanGutterMonkeyscom.
Popular Podcasts
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.