I had the pleasure of interviewing Scott Roelofs, CEO of RCG Valuation.
Scott Roelofs is the owner of RCG Valuation & Monetization. Based in Scottsdale, Arizona, RCG Valuation & Monetization helps small to medium-sized businesses grow and monetize through advanced financial analysis and specialty tax planning, such as cost segregation, R&D tax credits and more. Learn more at RCGValuation.com.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
I have always found the workings of businesses fascinating. How they are started, how they grow, and how they are sold. That interest led me to the CFA designation, which led me to starting my own business. Affecting the valuation of businesses is what we do and it is really exciting.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘take aways’ you learned from that?
I’m not sure this was a mistake, but we had a nervous laugh. We had just opened and had sold our first cost segregation study. At the time it was just me and our office manager and a bit of panic set in. After months of planning, we now had a client who had given us money and we had to deliver a report. It can be a bit paralyzing to move from a great plan to a deliverable. What we learned was sometimes you have to just dive in. When you don’t have knowledge or experience, sometimes hours of work will do the thing.
Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?
I read constantly. My list of books is long and varied. I would note that if you were to look at the types of books I was reading it follows this pattern: mostly books on how to make a sale, then books on how to build a business, followed by books on how to manage people, and finally books on how to manage my mind. I guess I read what was most interesting to me at the time. I’m currently reading a 904 page book on George Washington, so take that for what it is.
Are you working on any exciting new projects now? How do you think that will help people?
We are working on moving into the precision agriculture industry. We think this could change the way farmers spend their day. Precision agriculture helps reduce the amount of chemicals and water used, while increasing the amount of yield. All of this is good for the farmers and the environment.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When you started your company what was your vision, your purpose?
Our purpose is to raise the value of the businesses.
Do you have a “number one principle” that guides you through the ups and downs of running a business?
Our most basic principle is the agreement to deliver our product with quality and on time. The days that you do not feel like working or you would rather be doing something else, what drives us is that we said we would deliver and that trust cannot be broken.
Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?
Consistency is key. The goal is to drill down as close as you can to your exact prospect and then connect with them six to eight times whether it be via email, social media, etc.
If a fellow CEO would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?
This is a great question. Your business sector can dictate a lot of that due the needs of the business. If you can not produce your product without significant capital, VC may be your only option. VC isn’t the only option for businesses though. There is private equity at many levels in the business life cycle. Some businesses may want to wait until they have a working product, revenue, or positive net income. The key is to understand the equations PE uses to calculate value and proceed with caution.
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
Lisa Ray, my friend and old office manager, would laugh at this question. I am a huge fan of free cash flow to firm. The joke relates to my utter disdain for EBITDA. That may be a bit nerdy, but it has value. FCFF does two specific things that are valuable to the firm. First, it takes into consideration increases of some fixed cost that EBITDA does not. The second is it doesn’t not take into consideration debt and equity ratios, which are mostly irrelevant in business valuation. When I say irrelevant, I mean this in the way that debt and equity can be manipulated to benefit the seller of the business. To dial down the technical speak, let’s look at an example. A business has an office that holds five people and is running full out. FCFF takes that into consideration and future growth will require the purchase or lease of a larger space, where EBITDA does not.
For a company to maximize their value they have to understand how value is calculated. In its simplest form value is the purchase of future earnings. A growing earnings number will yield more value than a shrinking one. The best place to be is to have a solid earnings number that consistently grows over time.
What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?
One of the best ways to help through a plateau is to look to the public stock market. The nice thing about the public stock market is they have to disclose their financials. I would find a company within my industry and pour over the numbers. If you just use the percentages in the statement, you may be able to identify where they are spending money that you are not. This can help you look at your business in a way that you have not.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?
The biggest mistake I see is when businesses try to set their financials in a way to pay no taxes. Although I am all for reducing your tax bill, it can be more costly than you think. The value of the business and the tax bill are both based on the net income. Taxes are a percentage of the current year income and value is a multiple of current year earnings. So, for every dollar you reduce your earnings, you save approximately $0.25, however you cost yourself approximately $7.00 of value. This is not the best trade off.
Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
- Offer a quality product/service at a competitive price — Consumers are savvy shoppers now and they likely know the prices of your competitors as well as you and your quality will get referrals. The combination allows you to have a competitive advantage without reinventing the wheel.
- Deliver the product/service you sold — We have won a lot of business because many of our competitors are so contract heavy that in the eye of the client they don’t get what they paid for.
- Stop impeding clients from purchasing from you — I am always surprised when I try to buy a product that a company sells, and they find a way to blocks people from buying it. It is crazy to me.
- Find ways to drive costs down — Expenses will kill you and break your heart. The profitability will allow a company a lot of flexibility. With investors, lenders, and within your own business.
- Reward your employees with money — When you have employees who do a good job, you need to reward them… with actual money. All of the awards and accolades mean very little to them if they are not getting paid.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
You have to listen to your body. While studying for the CFA exams and working a full day, I was consuming a lot of caffeine to stay awake for 12–18hr days. I started to get sick and had other issues with my vision. I now take a nap everyday in the middle of the day. I still work a lot of hours but I use a bit of rest to get me through the day instead of energy drinks.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
I am a person who loves efficiency. I would set up a contest where teams of brilliant minds would compete to solve some of the biggest issues facing the world. The caveat would be that they must do so at the lowest cost possible. They would have to use excess from one place to solve another, all while making sure all parties are incentivized to participate.
How can our readers follow you online?
You can find us on Instagram @rcg.valuation or Facebook at facebook.com/rcg.valuation. If you’re interested in a cost segregation study, our website is rcgvaluation.com or you can call (480) 404–7521.
