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A client told me that his business was worth $10 million and he wanted to know how much he would net if he sold it and how it could be invested to provide him with sufficient cash flow in his retirement.

I disagreed and gave him a “ballpark” number off the top of my head and got an angry retort telling me I did not know what I was talking about. Then the problems came.

My client started the business in his garage 27 years ago and now employs 35 people with annual sales of $10 million. He told me that his business is worth the amount of sales he has: “Don’t you know anything about how businesses are valued? Besides, it is growing and in a few years the business will be worth $12 million so it is a bargain at that price.”

There are many ways to value a business and many factors that go into determining the value. My job suddenly became trying to explain this to my client, and to do it in a way that did not upset him more than he already was, without lessening my credibility.

I tried to explain there are many different ways of valuing a private business but to simplify the discussion I would explain two basic ways. I told him that after we go over these, we can get further into values and then apply what we know to his specific company.

The first basic way is based on the earnings with a rate of return applied to the earnings to determine the value. An example is a business with earnings of $300,000 where the investor would want a 20% return. This would value the business at $1.5 million calculated like this: $300,000 ÷ 20%. If the investor wanted a 10% return, the business would be worth $3 million, and if he wanted a 25% return, it would be worth $1.2 million. Explaining this was not easy. Regardless of his or any owner’s attachment, the business is a business whose purpose is to provide an income either to an investor or someone who wants to work in the business and earn their living from it. An investor would want a greater investment return than someone who wants to create a job for themself. However, in either situation the basis for the value is its earnings. In most situations the value is not based on what it would cost to recreate the business, although that is usually the situation when someone starts a business from scratch.

I told the client to set this aside and to let me tell him the other way. And then we’ll get back to what we were talking about. 

The other method is when the buyer has their own motive for wanting to own the company, i.e., what it could do for their present business. That is called a strategic or synergistic buyer. An example is when Amazon.com acquired Pillpack for $1 billion. This instantly gave Amazon.com the ability to ship prescriptions to all 50 states. That $1 billion value was only the value to Amazon.com and likely not to anyone else since Pillpack’s sales were about $100 million with far less profits. Further Amazon.com’s market value increased $20 billion when the announcement was made. No one could consider what Amazon.com paid as a true measure of Pillpack’s value to anyone other than that single buyer. 

Getting back to my client, we discussed whether there might be any strategic value to a potential buyer and whether he could identify a potential situation that would make his company attractive to such a buyer. I also identified some of his business’s value drivers so he could see what might be done to increase its value. I told him to think about our conversation and we would discuss it at a later time.

I then explained that since income was a major factor, we needed to examine what that means. I explained the process of normalizing the earnings to what they would be if someone else owned and ran the business. One example I gave him was that if he had his brother-in-law working for him at a 50% higher salary than that position warranted, we would add that 50% amount back to the profits and get a higher earnings amount that we would work off of. We would do that with every expense item. 

I then suggested a starting capitalization rate, and we came up with a ballpark value for a future starting point for any discussions about the value. To further add salt to his wound, I then told him to expect to net about 60% of any selling price after paying selling costs and taxes. With these types of discussions, I find it much better to get all the negative things out of the way early on so the client knows what to expect.

At that point I was not sure he believed what I said, but it dampened his dream of untold wealth and cooled his thinking of an early retirement. He also became somewhat assured that I understood these situations. 

A takeaway for my colleagues is this is a typical situation and eventually occurs with most of our business clients. A better way of dealing with this is to work this type of discussion into a few regular meetings with your clients to 1) provide a feel or range of what the business might be worth, 2) what the net from a sale would be and the potential cash flow from those proceeds, 3) to identify value drivers, 4) to discuss the possibility of a strategic buyer, and 5) to have your client start thinking about operating the business in a way that could increase its value rather than only increase its earnings.

I co-authored a pretty thorough article on providing a client with a method of valuing their business. If you want a copy of it, email me at [email protected] and just put Valuation Article as the subject. No messages are necessary.

Do not hesitate to contact me at [email protected] with your practice management questions or about engagements you might not be able to perform. 

Dismissal notices went out Saturday to about 85 employees of 18F, a federal agency that works on improving government technology — effectively shutting down an office hailed a decade ago as Uncle Sam’s new tech startup.

The news came in an email early Saturday morning from Thomas Shedd, a former Tesla engineer who’s now the deputy commissioner of the Federal Acquisition Service, which sets purchasing policy for the government.

“The 18F Office has been identified as part of this phase of GSA’s Reduction in Force (RIF) as non-critical,” Shedd said in an email sent at 1:01 a.m. Washington time on Saturday and obtained by Bloomberg. “This decision was made with explicit direction from the top levels of leadership within both the Administration and GSA.”

The small but influential office was once seen as the future of government technology, created out of President Barack Obama’s Presidential Innovation Fellows. It was often seen as a sister agency to the U.S. Digital Service, a technology group that President Donald Trump renamed the U.S. DOGE Service on his first day in office. 

DOGE is the government efficiency initiative associated with Tesla CEO Elon Musk, who has been critical of 18F online.

“That group has been deleted,” Musk said on X last month, presaging Saturday’s action.   

General Services Administration spokesman Jeff White said affected employees would receive transition assistance.  

“GSA will continue to support the Administration’s drive to embrace best in class technologies to accelerate digital transformation and modernize IT infrastructure,” he said in a written statement. “This includes understanding what solutions are the most effective and necessary to meet the needs of our customer agencies and the American taxpayer.”

Among 18F’s many projects over the years was IRS Direct File, a free service that helps some taxpayers file tax returns online, and websites like Login.gov and Weather.gov. It even built the system used for managing .gov domains.  

But 18F fell out of favor under Trump, who put it under the Federal Acquisition Service in his first term. Trump allies saw the group as promoting diversity, equity and inclusion in federal software.

The group also came under criticism over the years in audits that found lapses in cybersecurity, unapproved software, and management failures that “routinely disregarded and circumvented fundamental GSA information security policies.”

Professional services solutions provider Intapp, during its Intapp Amplify event in New York City on Feb. 26, announced improvements and upgrades to its solutions for time and billing, cybersecurity and AI assistant. 

Intapp Time

Intapp Time, the company’s time tracking and billing solution, now sports an improved interface in a new, modern web experience, said Beth Cuzzone, vice president of growth marketing during her presentation. 

It also now sports an AI-driven activity log that automatically captures and lists all the user’s daily work activities, allowing them to easily and quickly complete timesheets without things like forgetting about weekends or teleconferences between meetings, as the software captures it all for them. Cuzzone also pointed out a new feature called Quick Add, which allows people to voice dictate what they are doing, and Intapp’s AI can turn that voice into text, and that text into a draft timesheet that is checked for compliance with client billing requirements. 

“Here, you can see the draft time entry includes the word ‘reviewed’ in the narrative. The client does not allow this language in the narrative and will likely reject the invoice. The AI highlights the word or phrase with a warning message, indicating an issue, and even suggests alternatives that comply with the client’s billing requirements,” she said. 

The AI offers a list of acceptable suggestions in cases like this, and if the partner wants more information they can review the guideline that triggered the warning in the first place. Cuzzone noted that timing errors may not seem significant at first, but even the smallest amount of bill and time leakage can have cascading effects on a firm’s revenue. Intapp time, she said, is intended to mitigate this challenge.  

“Intapp’s applied AI, firms can realize millions of dollars they otherwise would have lost. This also supports strategic growth and impacts profits for partners—all by leveraging the data you already have and without requiring professionals to do anything differently,” she said. 

The new Time experience will be released this summer. People can either keep using the existing desktop app or use the new web experience. They also plan to make it available on their mobile app eventually as well. 

Intapp Walls

Meanwhile, Intapp Walls, the company’s data privacy solution, was also enhanced with AI in cooperation with Microsoft, according to Richard Bowes, senior compliance growth director with Intapp who, previously, spent eight years at Microsoft. He said that Walls is designed for CIOs who want to bring the capabilities of AI to end users, but also need to protect against threats and inappropriate internal access, noting that it can be easy to unintentionally overshare. Walls is meant to put up, well, walls that ensure Copilot and AI only reveal the right information to the right people.

“Walls operates at an engagement level for project based industries. It knows the deals and engagement that content belongs to. That understanding of the engagement metadata and what content is associated with. It is what we call engagement context, it protects your most important confidential business data. Engagement context enables wars to manage and enforce access permissions to ensure that neither humans nor digital actors such as CO pilots or large language models can inappropriately access or share confidential information in your deals, matters or engagements,” he said during his presentation. 

One of the biggest changes to the solution has been the addition of numerous new connectors, particularly for Microsoft products, particularly OneDrive, which he said makes things especially easy for a user to unintentionally move sensitive content from a secure server to an insecure laptop. So now they are using connectors to help firms deploy a single centralized system to identify and protect sensitive engagement information across the whole Microsoft 365 ecosystem. Beyond dozens of connectors, he also touted an API to extent Walls to any system that contains sensitive information at all. 

“If it contains sensitive information and It’s plugged in, Walls can secure it,” he said. 

Walls has also been enhanced with new monitoring instruments to assess and track oversharing risks by repository, client engagement or geographic location. This means that professionals can identify and proactively address the highest risk areas of their data, as well as receive “a little nudge” to secure areas that are less protected. 

“You don’t have to go to sleep wondering if your clients’ secrets are safe. Walls will show you,” he said. 

Intapp Assist

Finally, Melanie Fisher, Intapp’s senior product manager, went over improvements to Intapp Assist, the company’s generative AI assistant. She said that the Smart Tags feature has been significantly improved since it was first previewed last year. Smart Tags, she said, scan the cloud and automatically identify companies and contacts mentioned, and link the information to the relevant records—making it accessible across the firm. “It’s like having an assistant who reads all your notes in real-time and adds an @ mention to every relevant company or contact. It’s seamless and simple. Assist can instantly bring critical intelligence to every member of the firm who should have access to it,” she said. 

Intapp Assist now also features a new Prompt Studio. While Assist is very powerful, she conceded that every company is unique and has needs that cannot be addressed by a one size fits all approach. This is why they released the Prompt Studio, which allows people to bolster Assist’s capabilities with custom prompts specific to the user. 

She brought up a hypothetical example of someone named Kate, a partner at a multi-strategy investment firm. Kate is focused on making investments for the firm’s private credit strategy. She asks if Intapp Assist can find credit-related information on a company. Her supervisor, Mark, goes into Prompt Studio, where he sees that there are built-in tips for writing effective prompts. He can use the copy from an existing prompt or create a new one. He fills in basic information and selects the type of task he wants to tailor (in this case, summary.) He assigns the AI a role familiar with a private credit partner, then chooses the data his instructions will apply to. Next, Mark describes the AI’s task, giving it specific instructions on the types of information he is interested in, such as EBITDA, free cash flow, or debt service ratios. Once configured, he is ready to test. He filters the dataset through a realistic example and clicks Generate to see the results.

“Just like that, the experience has been tailored exactly to what Kate needs to run her private credit business. That was so easy!” she said. 

Fisher also noted the solution’s new language capacities. She raised an example of a hypothetical worker named Caleb who works in the UK and whose team is pursuing a deal with a Japanese conglomerate. While reviewing deal information, he discovers that his colleagues took notes in Japanese, and no one there understands them. Given time zone differences, she said, it will be difficult to get everyone on a call to resolve this quickly. However, in this case the firm already configured a prompt to translate automatically.

“Firms aspire to grow along many dimensions, including geographic expansion—whether organically or inorganically. While English is the most commonly used language, as businesses cross borders, the need for multilingual collaboration naturally increases,” said Fisher. 

Prompt Studio, Assist can translate over 100 languages into English.