The Exit Engine Podcast Episode 22: Finding Hidden Value!

Welcome to the Exit Engine Podcast, episode 22. Good morning, John.

Good morning, Joe. How are you?

Doing great, man. How are you doing?

I'm doing all right. Doing great.

It's, uh, it's a rainy day. It's actually one of the first big rains we've had in a really, really long time. We went a long time without rain. It's important to get rain.

Yeah, but it is when it's coming and it's going to rain like 2 inches today, it's sort of frustrating. Yeah, but we definitely do need it.

We need all the rain at once? No, we don't need it all at once. Just get a little bit of time. But anyway, um, hey, I'm excited about today because, um, we're gonna talk about one of my personally kind of like favorite, uh, topics.

Yeah, I'm excited too, um, because it's, it's how to unlock that hidden value at your company, right? Make your business irresistible to buyers.

Make it irresistible. Exactly right. How do we do that? What are the things that we need to understand about your business right now, about how it's— and you say this all the time— you've gotten the business here. Right. But the way that the business is and the way that you need to look at it right now is not the same to get it to the next level, to get it to exit, right?

Yeah. Like all the things you've done to make your business what it is today is incredible, right? Like I'm in awe of entrepreneurs who've built huge businesses and profitable businesses and they're working a ton. They've created something from nothing. They've created jobs. It's, it's, uh, you know, it's amazing. It's an amazing process. But there's a big but there in the sense of what you're doing is you're creating your business, whether it's making widgets or donuts or whatever you happen to be, to be selling. What you probably haven't done is optimize your business for sale.

Right.

Unless you're sort of extraordinary, and some people do. Most businesses focus on making the donuts, not how am I going to make myself attractive to buyers?

That's right. It's a completely different place. Take it. Take your business now becomes not not the product that your business is selling, but the business itself now becomes the product.

Right? Exactly. Yeah, exactly. And I was just going to say that exact thing is you should no longer be going on sales calls for individual customers to sell whatever. donuts you're selling or whatever product you're selling. Your product is the company that you're selling to one, some buyer.

That's exactly right. And the time as the founder-owner, right, you know, and you may have a partner, you may have a couple of different, different equity partners or things like that, but somebody has to be in charge of basically making sure shepherding this thing all the way through, right? Because there are things that have to happen internally. There are decisions that have to be made. There are changes that have to be made. There are, there are, there are, you know, most businesses are not prepared to sell the moment we— they're introduced to us, right? Certainly. The reality is, is that most, you know, are not, again, because they, they don't know, they haven't looked, they don't, they don't, they haven't taken the time to learn how this happens. They are not prepared. And there are many things that you're doing as a business owner for your business that are good for your business in the, you know, in the now. That actually will work against you when you start to basically, you know, when you start to put this, your business as a whole, and start to get it in front of potential buyers.

Yeah, like, right. If you're doing all the sales or you're doing all the operations or the customer service, we get it. Like, you have to do that now, and that's gonna build your business and get it bigger, make more revenue, make more profits. But that exact thing that's gotten you to this point, the strength that's gotten you to this point, Is now a weakness when you go to sell the company.

No question. And I think that basically is that, so the, the first thing, there's a couple of things that have become really important, right? The first thing is that what, what is it the buyer understanding what it is, whatever potential buyer might be looking for, right? What are the things that the buyers wanna, wanna see? And, and they're almost always the same things, right?

Yep.

There are idiosyncrasies. Industries have certain things. There's compliance issues. There's regulatory stuff. There's all kinds of things that make businesses operate slightly differently. But the, but the reality is most business is business. Okay? It's why you can go and you can get an MBA across the board and you don't get an MBA in, you know, a specific vertical industry, right? Because the basics of business and accounting and the financial aspect And general marketing and sales and operations are all essentially the same. So correct. What you can do, however, is kind of start by understanding what it is that buyers look for. What are the priorities that buyers have when they're starting to look at, look for companies?

Yep.

So what, what are some of those things? The, the, uh, the right, number one, right? Cash flow. Always number one. Because anybody who's gonna buy a business wants the cash flow, is the number one mark of the financial health of a company, right?

Yeah. And in addition, right, to just to build on that, is the ability to pull your cash flow statement and your income statement and your balance sheet. And they're gonna look at, investors are gonna look at all 3 of those statements because all 3 of those statements interact in a way that will tell the financial health of your business, right? They're looking on the balance sheet for assets, liabilities, and equity. They're looking at the income statement for revenue and expenses and profit. And then to your point, Joe, they're really looking at the cash flow statement because there's all sorts of ways to generate revenue that are not repeatable, right? You sell an asset, you sell a machine, You sell something that will maybe, you know, maybe generates income. But when that, when it flows to the cash flow statement and you see that, oh, it was a, it was a real estate property that was sold to generate that income. Well, the cash flow statement is, is the, is the true mark of the business. Where's the cash going? Where is it coming from? And what's the end result year on year? Right.

And is it, is it, it's obvious, right, about why this is so important? That the idea that the cash flow is the most important document that you have in terms of what you're able to show buyers, right? Because every buyer, whether it's a strategic buyer, whether it's a financial buyer, you know, that cash flow statement is the hallmark, right, of whether the business— of how healthy the business is.

Yeah, totally.

How healthy and sustainable the business is, which is Which is the number one thing that's a priority for a buyer.

Yeah, it's the holy grail, right?

It's—

everyone wants to see the income statement, everyone wants to see the balance sheet. But when you get— when you, when you provide the cash flow statement, that really is giving your business— not giving your business away, but it's giving away the sort of intricate ways in which you've decided to build the business, right? You've, you've taken out debt, you've sold equity, you've bought up— you've bought property, you've bought a plant, you've brought it— bought equipment. You funded it this way, you funded it from operations. They really see the business sort of as it exists from a cash starting standpoint and a cash ending standpoint. That's all on the cash flow statement. And income statements can lie. They can. I can make them lie. Not that I can make them lie, but you can sort of get away with a lot on an income statement. You cannot get away with a lot on the cash flow statement.

No question about it. So that's the most important thing. If you guys take away one thing, okay, from everything that we talk about on this podcast, it's that, right? That the first thing people are going to want to look at is that cash flow statement. It's the first thing. It just is. And the reality is that they don't— the other things become less problems, right? You could have a business that's got— let's just say your business has got 5 major issues. Okay? If the cash flow statement is not one of them, right? You jumped up in terms of your total exit value score, probably jumps you 30 or 40 points because the cash flow alone is what most people think, buyers think they're buying. What do I mean by that? That what they actually want out of the business is to see that cash flow. Right. If they took the business over and did nothing to it, right, their expectation is that it continues to do exactly what it's doing right now. Right. Yeah. So the, the reality is, is that that's always the most important thing, and other things pale, you know, become less important if the cash flow is really good. The other thing that comes about the cash flow is what is the cash flow and how often is it? How is it recurring?

Right.

Right. And so now you want to look at, it's one thing to have great annual recurring revenue. It's even better to have monthly recurring revenue, right?

Exactly. And how that translates into cash. Your cash is gonna be growing if you have monthly recurring revenue and you have a product that you're getting paid for on a monthly basis. Wow. I mean, that's wonderful.

And that's where a lot of the software companies are right now. This is the SaaS model. That's why so many of these AI companies are doing so well. And you're seeing a lot of, you know, if you're out there and you're watching anything that's going on in the market, you know, one of the places that's been strong from an M&A standpoint in the middle market, really all the way through, even since the pandemic and all that stuff that hadn't really, you know, been hit, has been the, you know, has been the technology, particularly in the SaaS area.

Yeah, because it's a subscription model, right? It's like all the things you have on your credit card, right? You have All— just look at your credit card bill. I do it every month and I say, do I really need this? Do I need Netflix? Do I need Amazon Prime? Yes, I do need Amazon Prime. All right, all these other things that are, that are just whacking my credit card every month, are those necessary? And those are the types of businesses on, on a business side, like from a business-to-business services. There are products that, that, that people subscribe to at their business that do the same thing. We have a lot of them in our, on our books.

Right. Exactly. And so, those things are obviously good things to have, and the more that you have in them and the stronger you can show how that cash flow is and all things. So, profitability is important, obviously, but cash flow, cash flow is king, is the number one thing by far.

Exactly.

Now, that said, the cash flow, let's talk about multiple for a moment, because as we all know, or we should know by now, the value of your business, okay, and what it sells for is often sold at a multiple of EBITDA. Okay. In which, in, in, in what that essentially what that means is there are, uh, the, the, the, the premium that you put on the product, okay, is measured in a multiple. Let's put it that way. And so the higher the multiple you get, it means the more premium your product is from a, from a sellability standpoint.

Right.

In other, in other words, A healthy cash flow business is going to be highly sellable and is therefore likely going to command a higher multiple.

Right. And when we're talking multi— obviously you're talking multiples of EBITDA that you're calculating, right? It's basically a P&L statement that has been modified to get to EBITDA. So you're adding back The interest that you're paying, the depreciation on your assets, and the amortization of your assets, and what you're paying yourself as an example. And and and we have obviously templates about this that we can we can share that help you get from your P and L income statement to an EBITDA an EBITDA number which will be higher than your income than your net income, and then you're applying a multiple to that. that income and, and, or to that EBITDA. And as Joe mentioned, it, it, it varies, right? Premium businesses in certain industries and in SaaS models like we were talking earlier, you can get a multiple up to 10x that, that EBITDA because it's, it's recurring revenue. If you're in artificial intelligence or, or financial data has a very high multiple too because those users are— that cash flow is predictable. Users tend to stay with the same product, and they— and companies sign up many, many users when they're doing that. If you think of like a company like Bloomberg, is an incredible business model because everyone on Wall Street has a Bloomberg. I used to have a Bloomberg terminal that I would share, and they are expensive, man. Like when we bought them back in the day, they were $9,000 a month. I remember, I remember the quote from the salesperson was $9,000 a month for And we had one in the office in Chicago where I worked. And it's a wonderful business.

So any kind of good cash flow business like that is going to command a higher multiple, but it's not the only thing. Okay? So yes, cash flow, very, very, very important. A lot of other stuff can slide if the cash flow is really good in a lot of cases. However, there are 2 other major, major key areas. The second one is scalable operations with minimal owner dependency.

Right.

Right. So, yeah.

And you, you know, by definition, you can't scale if you're involved, if the owner's involved a lot in the operations, full stop. You just can't do it. You can't be in multiple places at once. You can't, you know, have run, if you're running all the demos for your product, Or you're doing all the sales calls, that is not scalable. You could— you're only one person and you can be on one phone call at the same time, unless I'm aware— unless you're aware of other ways to do this. You need to have scalable operations where you're not involved and you're working on the business, not in the business.

Exactly right. I think the other thing that goes over— you just gave me a great business idea, by the way. So here's an AI concept for you. You got someone take this and just ping me if you with the check when you're— when you— when you make $1 million. That is actually replicating the owner from an AI standpoint so that you can actually have— be in more than one place at one time. That would actually be one potential way, another way to solve this issue.

So a friend of mine that I— I shouldn't say a friend of mine. An acquaintance of mine has a A demo, a demonstration tool for their product. And it's just that. You just described it, is she is on— she, when you, when you download this webinar, she is on every webinar. So the way that they do demos is not live anymore. It's just whatever you want to demo, they send you to this AI demo that you can run on demand.

You can run it at 11 o'clock at night or 4 o'clock in the morning.

So they no longer have people doing demos.

Yeah.

It's AI. It's a canned webinar that can be done on demand. And the cool thing is you can, you can ask questions of it. So what they do do is they monitor when people download so you can ask real-time questions. It's really cool. It's awesome. Yeah.

So anyways, yeah, that's the kind of stuff. Sorry for the tangent, but that is, you know, this is the kind of stuff. Hey, look, there's a 10x business right there, FYI. Okay. So as long as it, again, it's scalable and it has minimal, minimal owner dependency, which it should by nature, right? So, that's the second thing that's most important. This will affect your sellability. Okay? So, how scalable your operations are, the owner dependency minimized, all that stuff, okay, is gonna be another way in which potentially your multiple raises. Okay? So, again, buyer priorities, stability and predictability of cash flow, scalable operations, and minimal owner dependency. And the third thing, Strong brand and market presence, right? Are you the market leader? Are you known? What is your marketing like? What's your new business generation system like? Do you have a marketing engine or a sales engine that you set and forget that runs on its own? Do you have a good process behind that stuff, right?

What's your reputation in the market, right, with customers? Sorry, you might have missed— I think you mentioned reputation, but, but what, what do your customers think of you? Do you have Positive reviews and, and, and things you can point to that you have 90, you know, 677 customers that are recurring monthly revenue is like, wow, that's, I mean, for some businesses, that's incredible, right?

That's right. No question about it. And so these things are, again, these are, there's more, there's more, you know, there's 10 things, okay, in general, but these 3, again, are the probably the biggest priorities when it comes to buyers and them reviewing information about your business in terms of making a decision. And so if you want to maximize your company's value around, you know, in a sellable, to make it more sellable, and these 3 things require your attention, and you want to make sure that these 3 things are maximized as much as they possibly can, right? And the reason you want to do that, and then there comes another thing. Okay. And this is, I believe, the part that most businesses are leaving, where they're leaving money on the table. And I believe it's probably from an Exeo standpoint, probably maybe our biggest value in terms of what we bring to the table, which is uncovering hidden value.

Yes.

One of the things that I think that we see a lot is people making mistakes, uh, not, not, not doing a good job in the general accounting. Um, and when I say not doing a good job, I mean, you know, not making every entry right, miscategorizing information right. There's all kinds of things. The books— I mean, John, John, John could write a book on the books that he's seen, um, in terms of the mistakes and the things that— the, the garbage that people have.

And these are big companies.

Yeah.

And these— this is, again, this isn't—

just to be clear, this isn't fraud, right?

This isn't people trying to deceive. This isn't WorldCom, right? WorldCom did all sorts of things where they're booking assets as expenses, right? Crazy things like that where they were the other way around, booking expenses as assets and putting them on the books as an asset. Well, no, not that. Just people that are doing things that are trying to be diligent that you're doing 60,000 things as an owner and you're not an accountant. And I am not an accountant. But when you're, when you're putting in journal entries and you're doing things with books, you know, you'd rather frankly be doing other things. And, um, and it's just, it's, it's a, it's a, it's just a blocking and tackling mistake that you don't need to make.

But so many people make it. That the reality is that just by having somebody, somebody like us review the books gives, potentially uncovers areas of untapped potential.

Yeah. And I look at these books all the time and I look at financial statements too much, frankly, but I can tell within about 4 seconds when I download a balance sheet whether this is Whether the person knew what they were doing or not, or that we need to bring in our people, bring in me to look at things and ask questions. And that's all we're doing, right? We're asking questions to say, is this accurate? Is this number accurate? And I know that it's not in most cases. And they say, oh yeah, I was doing that. Or we had an accountant that didn't know what they were doing before. And that happens, right? You get busy, you want to do other things. You want to focus on your business, not on accounting. So, right.

So the reality is that, you know, again, hidden value, right? What is hidden value? Areas of untapped potential that aren't immediately obvious, okay, but can significantly increase a business's attractiveness. So understand that mistakes— again, I'm not going to say mistakes. Let's, let's, let's take that out of it. Nobody here is blaming anybody, okay, for the way that you're running your business. You are doing the best job that you can. Okay, and if you have a business that is successful, meaning that you are making money, okay, and that you have been able to support your family, um, you know, and do the things that you want to do in life or whatever, to a degree, or, you know, whatever that is, okay, that you have done a good job. So enough, that's it. The other stuff is the— the is called being a human, okay? And there are— you have, as a human, you have strengths and you have weaknesses and you have things you like and things you don't and whatever. And most business owners are not accountants, right? Most business owners are not, you know, do not know the mistakes they're making, whatever, especially when they have positive cash flow. The more money that people make as business owners, the less attention they pay to how they make money.

Yeah, exactly right. And if it's like Joe mentioned earlier in the, in the episode, is If, if cash flow is not in one of your top 5 issues, then you're going to get a lot of investors interested in your business, right? If you have 5 issues that are— and none of them are cash flow problems, man, those are problems that people like to solve and can solve, no question.

But, and again, being able to ask yourself the questions about that stuff is the first step in figuring out what is untapped potential, right? So the first thing That we're telling you to do, we're telling everybody to do this, is you look at the— you look at some of the basic stuff and make sure the fundamentals, right? Block. We thought you saw about blocking and tackling. Let's make another football reference. What would you like to do, right? The idea here is that if you're not good at literally blocking and tackling, okay, then you're not going to be a very good football team. Okay, but if you are able to be able to ask yourself the questions about, about some hard questions about what, what is going on here, and then ask for some help. Okay, you can make a significant difference, okay, in a very short period of time in terms of the value and saleability of your company.

Yep, agreed 100%.

So that shows hidden value. So the first things are things are mistakes, miscategorizations, things that were done in error, things that were left out. And again, a bunch of questions we would ask, you know, would uncover these things, okay? But that's the basic, that's the really low-hanging fruit. The next layer up of hidden concept comes from things like operational efficiencies.

Yep.

Right? So what, how are you actually going about the, the, the, the delivery of service? Right? What, what is the, what, what is your, what is your client concentration like? How much of your, of your revenue comes from how many clients? Right? Things like that. Are you, are you actually profitable in everything that you do? Do you know if you are?

Yeah, yeah. And, and standard operating procedures and SOPs, standard operating procedures, sounds boring. Um, but I, I had a case, and I'll allow me to do a quick tangent, is at one of my old companies, we had a state-mandated standard operating procedure. Um, we had to reference it on our website, we had to train on it, and we had to make sure that all of, um, the people that were providing services to the public were adhering to that SOP, that standard operating procedure. And what it did was it uncovered all sorts of things we didn't know about at the corporate level, right? When we were implementing these SOPs, we got all sorts of pushback of like, well, that's not how I did things. That's not how I did things in the past. Your understanding of how things exist now is very different based on changing and requiring people to do something else. So we found out more about our business when implementing this SOP, talk about things we didn't know. And, and we, we modified our standard operating procedures based on the feedback we got when we were implementing it. So this, these types of things are, again, it's blocking and tackling, but you will uncover incredible things about your business when you implement an SOP and you reduce, you know, owner, owner dependency. And so it's a fascinating exercise when you do something like this.

Yeah, and there's so many different ways to look at operational efficiency. And again, your business and your industry and the whole thing, you're going to have some idiosyncrasies in there that might be different from other people. But the most important things for looking at are basically, what is the simplest way I can put it is, what is your process for delivering your product or service to your customers? Right, and where are the places in which you can make it, you can either speed it, reduce the cost, right, and you know, it's basically time and money, right, those 2 things. How can you reduce time, how can you reduce costs, and how can you potentially use that and then increase sales? So it's things like, you know, not only are you concerned about the share of your market, but what is your status inside each customer in terms of their share of budget? Okay, so basically things like that. So, and then of course the other, other big, you know, uh, the other big thing to look at here is, is going to be things like, do you have intellectual property, right? What is the value of that intellectual property? Are you— are there markets and stuff that you have not gotten to yet? Do you have what we call marketable inefficiencies? Do you have things about your business that actually, if you if you called them out and showed them as opportunities to a new buyer, that would actually help potentially your case in terms of having a sellable business, right? Yeah.

And an example of that, right, is leverage, right? Oftentimes when you're a small business, you can only get a certain amount of debt financing or money from the bank, and you only get a certain amount of credit. Well, a bigger company with more revenue just by definition can get, oftentimes I should say, can get more leverage. And if you're able to buy more product at a lower price, right, the old price and volume game, that's why bigger companies oftentimes get bigger and it's tough to compete with them because they have that built-in advantage of being able to lower the interest rates that they pay when they're borrowing money. So that's an example of like a marketing inefficiency that you can go to a buyer and say, well, if I had more money or if I was bigger, I'd be able to get, you know, better financing from, from financial institutions.

So you've got these, you've got these kind of 3 big kind of key factors that we're looking at, right? And as I said before, you are, as a, as a business owner, you're not going to be strong in, in all these things, right? You're also not probably not going to be weak in all these things. You have your own personal strengths and weaknesses. Hopefully you're in a situation where you have built a company that's got a layer of management in it. And if you haven't, do that, okay? Because that's going to be another kind of key thing in terms of your organization. And that goes along with owner independence and things like that. But basically what we can give you right now, okay, is gonna be like a, like, say, a 5 or 6 step framework. for making sure that you have— basically for hidden value. Okay. So what are the ways in which I can actually discover what hidden value might be inside my company? Right. And so we've given you some of the kind of big picture things. Let's talk specifically about, first of all, the first thing is you're going to optimize your financial situation. Okay.

Yeah.

So whatever's happening inside your You're gonna, you're going to ask somebody. If you can't do it, you're going to ask if you have a financial person internally, if you have an outside accountant, you could hire an advisor like us, whatever. But no matter what you do, the first step, John, right, is optimize your financial, your financial picture.

Yeah, get your finances in order. Make sure that you can pull an accurate income statement, balance sheet, excuse me. and cash flow statement for, uh, the last couple of years, the last couple of quarters, and look at those things so that you're not just pulling them. And when a buyer comes, it's going to take you, you know, a long time to pull that information. Um, have your finances in order, have your financial statements in order that reflect an accurate picture of your business.

So once— and then once you do that, you clean up those records, you have all that stuff, and it feels like as if it is all kind of together and accurate. Now you can start to analyze it. And what you're going to— the questions you're going to start asking yourself about this are, what are my revenue streams? And are they— and tell me about your revenue streams. That's, that's a question that you're going to get asked.

Yeah.

What do you mean? What do you mean about my rev— what my revenue streams are? We sell a product to these people and this is the whatever.

No, no, no.

It's about diversification. Are there recurring revenue opportunities? Are there things that you haven't thought of Or haven't gotten to yet, or maybe you have done that you want to point out, right? So the idea is that if you've got a diversified revenue stream where you say, I've got revenue coming in from 5 or 6 different ways and they're all good, and when one's up, one— another one's down and whatever, and when the economy's going gangbusters, this— these 5 are up, and when the economy's lower, these are good. And so my, my annual or my monthly recurring revenue all stay, or You know, no matter what, these are all good things, right? These contribute to a healthy— not only to a healthy business, but they contribute directly to your value and your saleability, right?

Yeah, and questions about, like Joe mentioned, revenue stability, you know, revenue diversification, share of wallet is always something that comes up is, okay, your 5 top 5 customers are spending, let's call it, a million bucks a year with you. What are they spending with your competitors? That's always a good question to know the answer to, is, is if your customers are spending a million dollars with you but they're spending 6 with your competitors, well, you know, you want to get that larger share of wallet. And, and then buyers, smart buyers, will ask you those questions. Not only, oh, you have 100 clients and they're generating a lot of, you You know, it's a lot of— it's very diverse. What is the share of wallet? Those types of questions will definitely come up.

And of course, things like margins, right? The reality is, what is your— what are your— are there ways to improve your margins, right? Can you— are there ways— what are your costs? Where are places in which you can reduce your costs? Can you do that without compromising quality? Is it okay if you compromise quality a little bit? Like, those are the things you should kind of be probably If you have, especially if you're a product business, you are probably already asking yourself and have a lot. But remember, this is a reminder about take another look, stand back, right? Yeah, because this context, ask yourself these questions.

Yeah, because as everyone knows, getting more revenue is hard, right? Everyone, it's a tough thing to get more customers. You often have to convince them to leave. One of the things you can control more so than revenue is, is your cost, right? If you're making a physical product and you have a cost of goods sold, you should— someone should be tasked with, and it shouldn't be you, is tasked with consistently trying to find cheaper alternatives. Again, you want to have— you want to maintain the quality, but if you can, um, divert— if you can get more customers and reduce your costs, that's a double whammy to profit, right? Sorry, not double whammy. But a good thing for profit. Revenue is going up and expenses are going down. That means profit is going up. So that's a great thing to have.

No question. So the next thing on the list in terms of being able to— a framework for uncovering hidden value is your operational efficiencies, right? This includes, again, you're reducing your owner dependency, right? Your standard operating procedures, all that stuff that John talked about before, and your technology stack.

Yep.

Right? Tech stack. What are the things that— how are you using technology to actually create those efficiencies? Right? Is it stuff that you built? Do you have IP around it? Right? Are you using these tools? Are these outsourced tools that you can streamline? Can you look at what are the costs of doing those things? Is there an alternative way of being able to get those things cheaper? You know, as well. So the idea that looking at overall your operations, again, something that a good— if you're in a manufacturing business, right, right, you are looking, you're constantly looking at your operations. Okay. Manufacturing people have that in their mindset, right?

All the time.

But service businesses do not. And the reality is, is that, but it's just as important.

Yeah.

Right.

And tech and technology is one of those things. Again, brief story time. I was in the, I was in the process of doing budgets for, I think this was back in 2014, and we had already switched. We were using a technology and we're building an integration between that technology and a CRM system. And what I thought was going to happen in the future was, well, should we invest a lot of money in this CRM system knowing that this is the second time we've already done this? I'd only been in the company for 2 years. Or should we invest in an API where it doesn't really matter which CRM system people use, and, and, and not invest in one CRM, invest in the tech stack to build the API out so it can, it can integrate with multiple, any number of CRMs. Well, that was a sort of revelation to me, and we did that, and we saved the company so much money, and we created an asset that was something that, that was marketable to Companies when they were trying to integrate with us, like, oh, of course we have an API.

Now you've got a piece of intellectual property now that basically goes along and increases the value of the company overall.

And it enabled all sorts of projects that were just invaluable to the company to say, of course you want to integrate with our API, absolutely. Get approval from the brand president, no problem. We can. And so it was It also scaled. It was dependent upon me at the beginning to make all those individual integrations working with the technology provider. Now, no, here's the API, you guys go learn it. And we integrated with 14 CRMs in about 3 months.

Amazing, right? It's what a huge efficiency that is and stuff like that. So again, when sometimes in John's case, the business, right, directed him to do that already in terms of meaning that the business was saying to you, hey, Here's a here's an efficiency. We're just operating on a regular basis. They're not they weren't trying to sell. They were just like this is what we need to do. What happens is again, that's great when that happens in life, and that normally as you're going along owning a business and managing a business on a day-to-day basis, those are the things hopefully that are coming up. You're you're having these realizations. You're going through that. The exit planning process it allows you enables you gives you the framework as we're discussing here to be able to ask those questions if you haven't been asking them. Even if you have been asking them, right? It's another opportunity for you to really examine the business. And I'll tell you, it's happened more than once where people who have thought they wanted to get out of their business and wanted to sell their business as soon as possible, after undergoing this exercise, realized, wait, I now— I, I've reinvigorated myself in this business.

Yeah.

I have seen the business. I have fallen— refallen in love with it again. I've seen opportunities, places, and ways that I can increase it and whatever. It's no longer, you know, it, it's not rote anymore. It didn't— it's not— it got boring. Now it's not, right? I no longer need to sell it. Maybe now what I'm going to do is I'm actually going to grow it instead of sell it right now. Those are the kinds of things that actually happen. And I think that that's why exit planning in general, comprehensive exit planning the way that we teach it at, uh, at Exit Engine, is, uh, most valuable As a business planning tool and as an examination of yourself and of your business in general. Forget about whether you're actually ready to sell or not. The reality is, is that the exit planning process will determine, and the examination that you'll go through in this framework will determine whether you're ready to sell or not.

Yes.

So the, the, the, the going through this exercise early and often, okay, is going to be— is only going to benefit your business overall. Right? Whether you're ready to sell now or not, but using this framework, examine the business, right? Let's talk about customer base strength, right? Let's talk about your market positioning, right? Let's look at are your are your customers diversified? Do you have right? You may already know this. You may you you may already live in fear. We did, right? Back in the Kinesis days, we had we had two big clients. We had a bunch of other little ones, right? But we knew, and we were a digital marketing agency, we knew that that was a problem, all right? And we talked about it constantly, and there was— it was not an easy problem to fix because the reality was is that we had Coldwell Banker and we had, and we had, uh, or Realogy, and, you know, really Coldwell Banker and Comcast were the 2 biggest clients that we had, all right? And they're, look, they're sizable clients, all right? They took up a lot of staff, a lot of resources, a lot of stuff, but they paid a lot of money. And the reality is, at the end of it, right, we thought for sure it was going to be the thing that was going to stop us from being able to sell the business, right? Turned out that in this time, in this place, in this streak of luck or whatever it was, that these 2 clients were 2 clients that the art— the— that the— that the that the strategic buyer who we were talking with, uh, wanted to have. And so the reality is, is that it's those 2 clients were one of the biggest reasons why we were purchased to begin with, because of the relationships, because of what we had in terms of, you know, whatever. And all we had to do was stay 3 years and make sure that Coldwell Banker didn't leave, right? So like, that's the— that, that's a lucky situation, right? Most of the time it's going to be a problem. So diversify, right? Avoid reliance on just those 2 major things, right? You want to increase— increasing your customer's lifetime value, okay? Increasing the— you said their share of wallet, right?

Yeah.

Those are projects. You can do those things if you have— make a concerted and concentrated effort. You can change that. If we had decided to say, look, we are going to— we're not going to do anything else this year except get one another big client that's going to— that's going to be equal in, in, you know, in terms of revenue from these other 2. If we had made a concerted effort, we probably could have done it, right? But the reality was is that we were so busy doing the stuff that we already had, and, you know, that it became— it didn't become a priority to us, and we lucked out. But most people, just so you know, will not get that lucky. The more that you can do to diversify your customer base and add more products, whatever you can do to basically increase that lifetime value, that's all gonna be good for your— Yes.

Additional products and services sometimes can be difficult, but incentivize— but if you can do that then and stay true to your company and not run up all sorts of costs, that's definitely a way to do it. One of the things that, you know, incenting new clients is you can create incentives for salespeople where you get new— if you get a large account, you get a larger paycheck. That incentivizes people. When, you know, think of what incentivizes you and what motivates you. Money motivates people. If you give people more money for new customers, that will lead to new customers, you know.

So affiliate programs, referral things, there's all kinds of things that can go on out there. Look, again, if your business, okay, is selling, you know, newspaper subscriptions, okay, then— and you have incentivized people and you're going to use an affiliate program and you're going to get every single thing you can because you're in a high, you know, volume thing where you've got to get a lot out and you're going to have a— but you've got a lot of recurring revenue or things like that, okay, then, then you're in a situation where the— you're probably not going to be worry about diversification, right? Because only one client can only buy one product at one time, and that's all it is. And so I'm not worried about that, right?

Right.

But I, I might be worried about how do I retain those people. I might be worried about attrition. I might be worried about what we call churn, right? Which is that people coming in and coming out and whatever, because I want to stable— make sure I'm showing stable monthly recurring revenue or whatever that is, right? And so Again, additional products and services may not be the right thing. It may take too long based on what your timeline is.

Right. But, but, but it may be exactly the right thing to do.

So examining it is most, most important.

Yeah. Okay.

Brand and market positioning, right? Build a strong online, right? You want to make sure that what are you doing to, to strengthen your brand and market position? Again, from a sales standpoint, if you're a marketing-oriented founder, right? This is going to come naturally to you. You probably already have this kind of maximized, right? You've highlighted value propositions, you've different— you're differentiating from your competitors, you've got a unique value position, you've got a, you know, you've got a, you've got a strong, you know, SWOT analysis, and you know who you are, what you're providing, and the whole thing. There may not be any room there to change. That's okay, move on to the next one, right?

Yep.

So the idea is that all these things are the areas that you want to kind of examine matter what business you're in, ask yourself the questions. Take the time, sit down, ask the questions about stuff, and, and, and, and make this a project, okay? Don't just have it be a thing where you're gonna do it by yourself at night or whatever. Ask for some help. Get some people in to help you do this stuff. Take it off your plate, whatever. Give you the advice. Come back. We can do this for you. A lot— there are lots of people out there that can do this, but you need some actionable things you can do. Okay, so the first thing we're going to ask you to do is you're going to sit down, you're going to conduct your own SWOT analysis. So many people have skipped over this part. This SWOT analysis is probably the most— one of the most effective tools of business that there is. Yeah, and the reason is because we— John, explain what a SWOT analysis is.

Yeah, so SWOT analysis is strengths, weaknesses, opportunities, and threats. And Joe's right, is I've seen it done, and I've done them. And it is amazing when you get a group of people in a room and you— this is the way you want to do it. You want to get a whiteboard, a flip chart, and you want to write down. And it's very important to write all these down so that everyone understands and everyone has a perspective. And you want a diverse group of people in the room. And by diverse group of people, I mean Everyone that's possibly available. This is going to be a critical exercise, and you're writing down the strengths of your business, the weaknesses of your business, the opportunities, and the threats. And so the strengths of your business— great, everyone comes up with strengths. Strengths is usually way too— there's way too many strengths. Weaknesses— people, sometimes you have to make sure that people are empowered in the room. To come up with weaknesses. And because people come up with tons of strengths, they often come up with too few weaknesses. They come up with a lot of opportunities that are— that some are good, some are bad. And the threats are also something that you have to open up people's minds and think of adjacent businesses and adjacent markets that could be— that could come into your market, right? Restaurant businesses are threatened not only by restaurants but by takeout places, just as an example. And so there's all sorts of restaurants that are popping up in my neighborhood that aren't really restaurants. They're kitchens that, that's, that, that do takeout orders now. So that's just an example. But you conduct this, you write all these things down, and you see like how to address it, how to turn a weakness into a strength, how to turn an opportunity into a strength, and how to turn a threat, um, into a strength is basically what you're trying to do. You must be honest with yourself, and your team has to be honest with you when you're coming up with this SWOT analysis.

No question about it. It's one of the most effective business tools there is. And by the way, you should be doing this on a regular basis, okay? Because it changes, right? Um, the other thing we recommend, again, right now, things you can do right now, engage with advisors now, okay? Don't wait anymore, guys. You know, I know if you've got a plan, if you've got an inkling, if you're feeling the burnout Okay, you're feeling like, ah, I'm starting to lose my passion for this. Okay, call us. Call, call somebody. Okay, get somebody.

And just so you know about burnout, that is one of the number— is it the number one thing? If it's not number one, it's number two. And you'd be amazed at people who get burnout. You don't need to be in a job for 20 years to get burnout. You don't even need to be in a job for 5 years. You can get burnout in a year. In 2 years. And you can get burnout when you're having fun. You can get burnout when you're— when the company's thriving. You know, it's always interesting to me, and I frankly, I learned a lot about burnout since we started this company. And but the wild one, and the one that was crazy to me, is company's growing, person's having fun, and yes, they have burnout.

Yeah, I'm just— because you're exhausted. What happens is, especially the first few years of owning a business and starting a business, can be You know, stressful, to say the least. But, you know, but again, it's generally not a ton of sleep, and you were trying to put everything you can into this and to make something grow. And then you get to a level at which you're operating it, you're doing it every day, and, you know, and then there are other stressors in life. There's family stuff, there's things, there's other things go on sometimes, you know, whatever, somebody gets sick. There's a— there's all kinds of things that go on that can contribute to this. But the idea is that If you are in a place before you get burned out, okay, before, and certainly before you get sick, okay, you need to, to, you need to basically start talking with people early on.

Why?

Because people like us, okay, because we are not, mostly because we are not you, we do not have the institutional bias. We don't have, right, a lot of the, we can look objectively at your business, right? We can point things out, right? We can figure out, we can find blind spots. We can find this hidden value and stuff because you can't or don't want to or have some kind of mental block around doing it. Yeah.

And we'll ask questions, right? Because a lot of what we're doing is we're looking at statements, we're looking at websites, we're looking at the assets you've given to us, whether it's financial statement or website or, or a product document. And we're asking questions. And what the questions are designed to do is to make you think about, well, why did we do it this way? Or why is this happening this way? Or how did our customers get this narrow? And that just happens, right? Like, it happens over time. It could be through no fault of your own. You could have a diverse customer base and your customers grow and they buy more stuff from you. And that's a good, that's a good thing when they're buying more product from you. But all of a sudden, in, in 2, 3, 4, 5 years, that customer can go from 10% of your revenue to 37% of your revenue. Now, it's not really a— is it a problem? Yeah, it can be a problem if you're selling your business. So Joe's right, engage with advisors, reach out to us, talk to an accountant, talk to a legal, a legal person. These people are talking to entrepreneurs all the time. People like us are talking to entrepreneurs. That's what we do. That's all that we do is when we get off this phone call, we're gonna have a call with an entrepreneur later today. And we do it every single day. So we hear similar stories. That's why we hear all these burnout stories. So begin— what you can do is, again, begin your exit planning now. And don't think of it as exit planning. Think of it as business improvement, as Jo mentioned earlier. When you go through an exit planning process, you are going to improve your business, make it, and make it more resilient.

Absolutely. And, and again, and make it sellable. Understand that this is not like, it's not like you're just throwing your house on the market, right? It isn't. It's about if you want to sell a business, the buying of a business is an incredibly high-risk situation. Okay, for a buyer, incredibly high risk, right? The risk for the seller, much lower. There's still risk, much lower. Okay, the reality is, is that the, the buyers control the market. Okay, they control it. You don't. You may get lucky. You may be a SaaS company and you've got 17 people coming out of the woodwork who want to buy what you— your IP because you've got the latest thing in, you know, in whatever, you know, artificial intelligence bread slicing, right? Okay.

Yeah.

The idea is that, and if you have, if you're one of those companies, then God bless you and congratulations. And gosh, that's awesome because you're gonna probably do pretty well. But if you're just about any other business, okay, you're really gonna need to be buttoned up in order to maximize the value and to maximize the sale of And these are the ways, you know, what we've talked about today are the ways to do it, right? That very, very simply, you want to be able to make sure that you are, A, first examining the business, making sure that what you know to be true is true, looking at the financial statements, looking at your cash flow, looking at your operational procedures and things like that, and making sure they're as sound and as good as they can be. Right? Then you're going to want to make sure you're focusing on hidden value. Is there a hidden value? Is there untapped stuff that I'm not doing? Are there, are there, are there things that I'm forgetting about? Are there, are there, is there other ways in which I can potentially change my cash flow or increase my cash flow? Can I, can I optimize my financials, right? Besides just having clean financial records, can I improve my margins? Can I, can I, are there other revenue streams I haven't thought about, right? Then I'm going to look at my operational efficiency, right? Am I going to— am I too— am I an owner that's too involved in day-to-day stuff? Do I need— do I have that layer of management that I trust that's there that's going to— that can run this company if I step away, right? Have I invested in technology, right? Am I implementing standard operating procedures and then backing those procedures up efficiently with tech stack, you know, and that kind of thing? Am I— is my customer base in line? Have I diversified? Do I have increased You know, customer lifetime value.

Can I—

have I done and maximized all that? My brand and my market positioning. Am I at— where am I in the market, right? What are my strengths and weaknesses? What's my USP? Are there other buyers? Do I have the reputation in the marketplace that a buyer is going to want to see? And then, you know, am I, am I, am I, am I hiring the right people to help me do this? Because—

Right.

This is not what you do. This is what people like us do. We can't make your widgets, right? And you probably can't sell your own business. It's just the way the world works. It's okay. We can help you. We can do it together. There's lots of people out there that can help you. It's not just us. But, uh, we wanna thank you for joining us today cuz this was, uh, incredibly— John, this is, this is the kind of, I, I think real life help that I wish I had had back when I was, when I, when I had, you know, a business I was trying to sell.

Yeah, I agree. And we didn't— I didn't know that it existed. I didn't know it was necessary. And I didn't realize the importance of it, right? Because you go through a situation and you go through a sales process and you— it's like, you know, you get— you're getting hit with all these things. Oh, I wish I'd known that I was going to be asked about this because I could have prepared for it. And you feel like you're just— it's like going into a test in high school or in college when you're unprepared. You're like, oh my gosh, it's a nightmare. You don't want to be that way. You don't have— it doesn't have to be that way now.

So no, it doesn't have to be that way. And again, and the earlier you start, before you're even worried about an exit, let's, let's make sure— let's get in there. Let's talk about where you are, what you can do, how you can set yourself up for future success, and how you can avoid the 5 Ds, which are the, you know, the, the bad exits. Okay, there's all kinds of stuff here. Start early, do it, do it often. Okay, subscribe to Exit Engine. That's one way to help you right now. Okay, you can go to myexitengine.com and subscribe and get lots of information and, and help kind of do this yourself. You can get some coaching from us. Um, obviously, you can also go to Exio Advisors and you can hire, uh, us to be your advisors and help you through this process. And there's, by the way, there are literally thousands and thousands of other people like us out there that do, that do, that do a fine job as well. But please just get somebody, get somebody in to ask you the hard questions that you have to answer and put you to the test so that you can actually maximize your business, that you can optimize things to make sure that you get to an exit you want to get to.

Yeah. And just to build on that is obviously we'd love you to reach out to us, but we have all a stable of people that we work with that are specialists in the legal field, in the wealth management field. in tax, in all sorts of other specific areas of the business that I'm forgetting at this point. But we have, again, all those people in our stable of people that are in our group at ExitEngine. And reach out to us. We'd be happy to give you a referral if you let us know what your specific need is.

Absolutely. If you want to send an email to info@myexitengine.com, we will answer everything that we get. If you, again, you can follow us on YouTube and LinkedIn. Our podcast is available here anywhere you get podcasts. If you're seeing this somewhere else, please download this, follow, like, share. Share this with a business owner you love this Christmas. All right? This is the kind of thing that can change people's lives. And I'm not saying that lightly. I'm actually not joking. It is the kind of thing that can literally save people's lives.

Yeah, it's a, it's a great economically— economic gift too. It's a, it's a, it's a, it's, it's a free— if you send them an episode, it's free, but they will get a ton of value from just listening to this, you know, hopefully while they're taking a break around the holidays.

Exactly right. All right, John, have a great week. We will talk to you next week. Thanks so much and have an awesome day.

Thanks, Joe. You too.