The Exit Engine Podcast Episode 30: Getting Down and Dirty with Due Diligence

Hey, it's Ryan Reynolds here for Mint Mobile. Now, I was looking for fun ways to tell you that Mint's offer of unlimited premium wireless for $15 a month is back. So I thought it would be fun if we made $15 bills, but it turns out that's very illegal. Uh, so there goes my big idea for the commercial. Give it a try at mintmobile.com/switch. Upfront payment of $45 for 3 months, $90 for 6 months, or $180 for a 12-month plan required. $15 per month equivalent to taxes and fees extra. Initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome to the ExitEngine Podcast, episode 30. Good morning, John.

Good morning, Joe.

I've got a bug up my bum today about due diligence.

We were just talking about it.

I just can't, I can't let it go. I, I— this has like become a very, very hot topic all of a sudden. Um, a bunch of things that have happened out in the world this week, um, you know, in terms of the why this is becoming an issue. Look, it's always an issue, um, but I thought that what we could do today would be to talk about why it's such an issue, why it's such a big deal, and how we go about, um, getting people through the paces of due diligence. Way, way, way early.

Yeah. So, right. So, so, so that the process of due diligence, which is painful and can be painful if you, if you're doing due diligence when someone asks you to do it for the first time and someone else asks you to do it, I should say, it's, it's painful when you do it after you've done it the way we preach. Then we talk, we talk about it with our sellers is the, the process of due diligence from the buyer will be far easier When you've done it yourself internally for your own edification and your own benefit.

That's exactly right. And the reality is that if we— our process is to put you through the rigors of, of a due diligence process that you— that would make your head spin, right? Like, not to overstate it, but the reality is that we are looking for reasons why this company can't sell. Right. So, our first, one of the first things that we're doing when we do it, and actually, that's what the buyers are doing. So, when we talk about due diligence, let's think about it as this. As a buyer, when I perform due diligence, I am looking for reasons to not pay what you want me to pay.

Yeah. And let's back up for one second. So, I agree with you 100%. Just the process of due diligence, right?

Yeah.

Like, when I was working at a big company and we were working with a due diligence firm, you never talk to the person performing the due diligence before the due diligence happens. And what I mean by that is the salespeople that you're dealing with and the higher-level people are never the person that's conducting due diligence. Usually it's either someone that's external to the company And this is all they do. All this person does is they look at customer lists, income statements, balance sheets. They get into the nitty-gritty, and this is all they do. They move from company to company to company, and they have their process of doing the 7 or 8 or 9 or sometimes 37 things that go along with their due diligence process. And it is Again, it can be painful and it's almost never done, right? It's only done when it's really done, and it's, it's really never completed, to, to be honest.

And, and, and obviously what the big result of, of that is that when you— if you can't pass muster during due diligence, then you are at, at best eroding your value and eroding the money you're going to get, right? They're trying— they are looking for ways in which they can say Here's what most— we've talked to— sorry, we've worked with a lot of buyers over the years, especially as intermediaries, okay, where our job was to basically put buyers and sellers together, okay. We weren't there doing the actual work of getting the company ready or doing anything on the buyer side. We were just there to basically introduce the two and to see if we could get a deal going, okay. And that's what an intermediary does. So when you come across these terms out in the wild, understand that what an an intermediary is doing in the business brokerage world is that they are simply positioning themselves as, I have a lot of buyers and I have a lot of sellers and I'll be the ones to introduce you, and then you'll pay me a giant fee for doing that when you sell the company. Business brokers are then maybe a level up at that. And what they're gonna start doing is they're gonna do a little bit of handholding and they're gonna kind of help you prepare yourself and they're gonna market you on the open market and make sure you get on the listing sites and do all the things that, you know, a broker would do, the way that a real estate agent would do it.

Okay, exactly.

Um, what, what, what, what we do at Exio and, you know, through Exit Engine, the Exit Engine program, is slightly more than that. What we are trying to do is to prepare sellers for selling, right? That's the simplest way of saying it. Okay, and what we believe needs to happen for every seller is that they need to put themselves, or have an advisor or whatever, put yourself through an initial due diligence process where there is no— where there are no stakes on the table.

Okay, right. And this is, if you've ever done any theater or you've ever done any, you know, this is, this is the dress— this is even before the dress rehearsal. This is, this is preparing This is knowing your lines, knowing where to stand, uh, knowing the, the run of show, if you will, how things are going to go and how things are going to proceed. Because we know that no company is bought without due diligence. Now, some companies do a very bad job of performing due diligence. Some people do a very comprehensive and, and, uh, job of doing due diligence. And it's exactly— and that comprehensive job is comprehensive from the buy side, but can be exhausting from the sell side.

That's exactly right. Yeah, absolutely. And I think that, again, one of the things that we're trying to help people avoid here is getting into a position where they are unprepared, where they don't know answers to things, where they've asked for documents that they can't produce or can't produce quickly. All these things are right. All these things that go wrong in the due diligence process, even these little things start to add up in the buyer's mind. Right, as this is not a good deal. Okay, and something about the company here, their organization, their ability. So our goal, okay, is always going to be to present the best, absolute best, but the actual— sorry, to present the absolute best face you possibly can, present the best side of the business, as always, to every buyer, potential buyer. Okay?

Yeah.

What that means is understanding that if someone— you are lucky enough, and there is luck involved to some degree, to have someone come at you and say, I would like to present to you a, you know, an LOI, right, a letter of intent or a letter of interest in purchasing your company. They are going to put that letter together, and in that letter is going to be a, you know, is mostly— most of the time is going to be an initial kind of an initial offer, okay? Because the reason that they do that is because they want you to look at— take seriously, you know, anybody who's doing a real LOI is serious about potentially buying your company, right? In other words, when they're— when you're doing an LOI, what you're doing is you are actually saying, I would like to investigate and take this through the due diligence level, okay? And in order to do that, Okay, that you need— not only do you need to be prepared for stuff or whatever, you know, you need to be prepared for everything that, that's— they're going to want to look at and have ready everything they're going to ask for. But you also want to be able to, ahead of time, be able to present the best side of the story, to be able to, to, to discuss the things that you have done or not done yet. In other words, to be completely and 100% prepared for what is about to befall you in the due diligence process, right?

Yeah. And due diligence, right? We talk about due diligence as if it's a, you know, it is a process. It does have a start in the beginning, but really due diligence starts when they, when the buyer inquires about the first set of information that you need to provide them. So, so yes, there's a process, but sometimes it starts very early in the call and it's like, hey, We'll sign an NDA and send us over your financial statements from the last couple of years. Now, if that takes a week to happen, um, that's a red— that's the first red flag from the buyer standpoint. You should have, if you're serious and you've been prepared, like, it should take you no longer than a day at the very most to prepare and to send over, as long as you have an NDA in place, to send over that information. And it should be prepared and easily— an easy download from your system or from your accountant that can be sent over very quickly.

Right. An email, a link to a deal, a link to a deal room, you know, to— again, this is something that we provide, you know, all of our clients. And the whole thing is a place where all the documentation and everything else lives and access to all documents that will be needed and all that stuff. There will be questions. There will be, you know, what we're— what, what you try to do in the practice of due diligence is to make sure that we are trying to— what we're trying to do is to come up with the questions, right? The, the, the answers to the questions we can figure out. We gotta know the questions first.

It's like the attorney— it's like a good attorney, right? When— and what Joe's talking about, he's exactly right, is when we look at financial statements, We have questions when we get up, when we sign on a new client. Wow, there's only a number of clients and this much revenue. Or wow, one client is responsible. Oh yeah, we have 18 accounts paid for by one company. Well, in one way to look at it, it's like 18 different people. But if there's one payer for those 18 accounts, that's a big concentration of revenue if you only have 45 customers, as an example.

Absolutely. And so being able to know that stuff obviously ahead of time and then be able to, and then have the option at least, to make adjustments there if necessary, or explain why this is.

Yeah.

There might be a very good reason why, you know, a very good business reason why you haven't done a certain thing. Right. But, but that won't be, that won't be, that won't necessarily be, you know, completely, you know, knowable by looking at financial documents. Right.

Correct.

And so the, the, the story that we're telling about the, about this company and this company for sale and, and the way that we're positioning this, this company as a product for sale. All kind of ties into, again, the way that we position it for due diligence. And so at, at, at Exio, our process, the first thing that we do with, uh, when we onboard clients is we go through a generally a 2-month process of discovery and due diligence ourselves. And what we're doing with the client doing that is that we're not in an adversarial position, right? We've reframed what due diligence is. Okay. So the first thing we're doing is saying, look, we're going to come in and we're going to pretend, okay, that we're buyers. All right? And what we're going to do is we're going to come in and we're going to uncover and read and read and look at every single thing we can possibly look at. We're going to leave no stone unturned. We're going to look at every single financial thing. We're going to look at every report. We're going to look at every, every single piece of your business in any possible way, every way that we can. Okay. And what we're gonna do is we're gonna come up with then a report that's going to say, this is what your company is from a buyer standpoint. Okay. And the way that we talk about that stuff is we talk about in terms of value, valuation, meaning what is the company worth financially? Okay. And then we're also looking at another thing, metric called, we, we talk about this all the time, John, salability.

Yes.

All right, so what we've done at ExitEngine and through— at Exio through ExitEngine is that we have come up with a system called the Total Exit Value System, and we have a scoring system. And the scoring system is based on a combination of your— of the valuation and the saleability based on certain metrics, the 10 areas of your business that we— that every due diligence person is going to examine. Okay, so keep in mind, guys, that if it's not us doing this now, it will be someone doing exactly this when you are hoping that you're going to get a deal in place. Okay, so what you don't want to have happen is you don't want to have the bad news happen at that point. You want the bad news to happen at the beginning, right? You want us to be able to go through and find the thing, because here's the other thing we're going to find when we do this due diligence process at the beginning. We're gonna find hidden value. 99% of the time, we're gonna go into a business and we're gonna find ways in which we can immediately increase your value and saleability. Like, immediately. Like, because you're reporting something wrong, or because you haven't done a financial, you know, thing right, or because you haven't stepped back from the business enough. There are gonna be ways for us to come in here and tell you right away how to increase the value and sellability, right? Which is going to— which is part of the due diligence process. So due diligence isn't for to scare you. Due diligence isn't to make you feel uncomfortable or whatever. The practice of this discovery process at the beginning of an engagement with us, or any— it should be with any advisor, should be the same thing, you know, is to basically look at this, look at the entire business and uncover every single thing you can, the good, the bad, the ugly. Okay, what it takes from the, from the founder, from the owner, okay, is the intestinal fortitude, right, to be able to allow that to happen.

And to continually realize— and sorry, to continue to realize that due diligence is never really over until really you've gotten your, all your earnout checks, right? Because, because it's— let's just say you get money from from a company up front, or, you know, after the deal closes, and you are paid some, some, um, amount in an earnout. It— before, you know, before you get that earnout check, there's always the ability for that, for the buyer to say, oh, to cancel these because they found something in due diligence, or a client that you brought on to them was declared bankruptcy. And, and not that they're going to try to do these things, but, but they have to— the buyer has to make sure that what they're buying and what they think they're buying are the same thing, right? So there's a very little divergence between those 2 things, what they're buying and what they think they're buying. That's really what due diligence does. It narrows the gap and narrows the risk and lowers the risk, I should say, by the— from the buyer's perspective of saying, yeah, what Joe's telling me the business is, is actually what the business is.

That's exactly right. And so what we need to be able to And part of showing what the business is, is showing that it's a sale-ready business where the buyer— where the seller is serious about selling, where there aren't going to be this hemming and hawing, and where the transaction— when— remember what's happening on the buyer side. You think you're spending money? The buyer is spending just as much money doing this. Okay?

Yeah.

The buyer is spending money doing due diligence. The buyer is spending a lot of money on their own consultants and the people that they have work for them to do this stuff and everything else. This is not situation where the buyers are walking around scot-free. Okay? The buyers, especially decent ones and real ones, strategic buyers that are large companies that want to buy, you know, that potentially want to buy mid-market comp— smaller mid-market companies, and, you know, big fish that want to buy little fish, they've got people full-time on staff who they are paying to do this stuff.

Yes.

Okay? And their job is to reduce risk and get the best deal that you can get. Now, the best deal for the buyer is obviously not always the best deal for the seller. So the other thing that's happening when we do due diligence in this discovery way at the beginning is we are figuring out what is un— what, where are your blind spots? Where has value been untapped? Where are things, where are easy changes that you can make that would, that would raise the value and salability and also, and maybe even answer some of the objections that might be arisen through a due diligence process from a buyer?

Yep. Right.

So things like revenue concentration and customer dependency and operational bottlenecks and, you know, what's your intellectual property and, you know, and do you have any lawsuits, things like that that are—

Key man risk, right? Key person risk. Yep.

Key person risk, things like that that are really easy, relatively easy things to fix if you know they exist. But most people, most business owners are walking around doing the job of A daily running the business guy, and a daily running the business guy can't possibly see the giant iceberg that's that's about to befall them, correct? Because their head is down. And so our job as advisors and any advisor worth their salt, whoever you are talking to out there, and I hope you're talking to someone because you will need help to do this, but you need the right help, and you need someone who is going to immediately put you through a a a a a mock. If you will, due diligence process right from the very beginning, unfettered, without any stuff, without any, you know, no, no, no ifs, ands, or buts, or, you know, or reasons or whatever. Just allow it. Okay? Because if we can do this due diligence process and we can do it well at the beginning, we can, we can do all, we can, we can do major things to the value and salability of your company.

Major things.

Yeah, it might take a little bit of time, but major things that can make sure that more money goes into your pocket.

It's like a pro— it's, it's like when you're managing a project and you put the effort in at the beginning. Like, you're gonna have to put the effort in and doing the project one way or the other. Either it's at the beginning, the middle, or the end, right? And if you do it at the end, you have to— you might have to do a lot of rework and do it. If you put it in at the beginning, and you put in a lot of effort at the beginning, it makes the middle and the end of due diligence that much easier.

That's right. And if you— we gotta, we gotta think about this, that again, that, that what we are going— what we're trying to do at the beginning is that there's gonna— there's going to be a natural, odd kind of adversarial relationship, at least to some degree. This doesn't happen in every single case. Sometimes the fit is just right. Sometimes the people get along the right, right way. I can go back to, you know, what one of the big, uh, you know, the digital market, selling the digital marketing company that I owned, and we went through this, you know, big process. We actually liked the people. Like, we were, you know, we felt like, um, we really liked these, the people that were buying us at the beginning, you know. And again, it's not that— I think what happened in our situation wasn't even their fault. It was really just the fault of, again, the process, or really the lack of a process in terms of integration. That's a whole other story for another podcast. But the notion here at the beginning is to know that it's great when you get along, and it's great when there isn't an adversarial relationship and you're looking at like a partnership that you're trying to form, and so that you're working together through the transaction.

Yes.

And that's what— the way we want it to be, obviously. And so what— but we know that from experience that the best way to get there is to make sure that we're buttoned up from the beginning. Okay, right. Every— it's very easy to have relationships with buyers, or, you know, or people who are going to acquire us, and have them be good relationships when they think that what we are doing is good and what they think they're getting is going to make them more money, right?

Yes.

That's the whole point. And so if we can convince them from the, from the jump, okay, that we are buttoned up, we've got our stuff together, the whole thing, and by the way, we are so We are so oriented around you making money with this company moving forward that we have done everything to make sure that that's prepared for you, and all you have to do is pull the trigger.

Yep.

That's the perfect situation. Now, it's hard to get to the perfect situation, okay? It rarely— you rarely get to an ideal situation, okay? There are so many variables and so many things that can go wrong. However, what we do know, okay, is that You want to get to, you know, again, we can, we can keep our 90% close rate. And the only way we can keep our, we can keep our 90% close rate is if we're dealing with people who close 90% of the time.

There you go.

That we have to, we, we have to do our own right checking. So what we're doing when we do this process is we are vetting you and you are vetting us. Right? Because we got to know we're going to work together for, you know, if this— right, the beginning thing is figuring out what's wrong and what needs to be fixed, right? That's what the discovery, the due diligence discovery process is at the beginning.

Yes.

Now we're going to say to you, hey, look, these are the— these are 5 levers we think we can pull, and these 2 are going to be kind of immediate and it's going to raise your value and your salability, you know, immediately. And then these other 3 things are going to take, you know, a year and a half to complete. And if you, when you do them, your value and your saleability will be here instead of here.

Yeah. And just an example, like a year and a half may sound like a long time to people, but a year and a half is a completely realistic timeframe for changing the makeup of your customers, right? That's not something that you can snap your finger and from even from June to, or even from February to April, Like February to April, you're, you're, the composition of your customers is not going to change drastically. Sure, you might add 25% more customers, but you still have the existing customers you have. And it's going to take a lot of these things take time. And it's not something that you can snap your fingers. Sometimes it's, oh, we have to change this thing, this thing in the financial statements and, and make this an operational expense or part of cost of goods sold. And it was part of expenses before. But customer concentration and customer changing that customer concentration requires time, effort, real work that needs to be put in over the course of, you know, 13, 14, 15 months in order to change that composition.

That's exactly right. And again, and that's just one example, right? But the idea is that it might be, oftentimes it's a sales, it's a raise the revenue situation. It might be a new product situation. It might be, again, what we're looking for when we do this is, We don't, we don't really know what we're looking for. I mean, we know, we know what we have to examine. What we're looking for, again, and I'll go back to this, we use this example all the time, is that we're not looking for the answers yet. We're looking for the questions.

Yeah, right. Because, because the real due diligence process is, is a series of requests for data. And, and, and it's a standard thing. It's, you know, it's insurance policies. It's, do you have lawsuits? It's financial statements. It's all those things that that you can find on any checklist out there on the web, frankly.

Right.

But as Joe mentioned, the questions as a result of those, of those things, right? Like the lawsuit that you have in Norwalk, or— What's that about? Yeah, right. Wait a second, you have a slip and fall at one of the, one of the places? Oh gosh. Or, oh, okay, like your biggest customer just started, you know, reduced their spend by 30%. Okay, that's something I want to know about. Why did they do that? Having the answer and forming the questions, really first forming the questions of what a buyer would answer based on my information. You know your business better than the buyer, so you can come up with probably better questions that might not even be asked. It's better to have the question answered and know it and not have to use it than not have it and need it.

That's it. And when we were doing this process, and again, Just like John said before, it's the same process that they're gonna that that the buyer is gonna use to go through this stuff. Only that they are looking to they again they are looking for they are looking for reasons to not buy you. Yeah, right. So at the end of the day, that's what it is. They are looking for reasons to not do the deal, right? Because why? Because well, they wouldn't be talking to you if if they weren't intrigued, right? So they're obviously in a place where. just by getting an LOI, right, you have gotten to a point at which the buyer has said, yes, I think this— I believe right now that this is the kind of company or whatever, that this could be a potential acquisition, and I'm into it, and I want to, you know, drive it to its natural conclusion, right? And hope— hopefully, because again, the buyer has a mission, right? The buyer— most, most times there are definitely buyers who are lazy and sitting around and don't care and whatever, and they can have all kinds of time and they don't have to make decisions, that's fine. But the reality is most of them actually are, are doing this as a job, right? Like the, like at a private equity company, stuff like that, they're getting paid already, right? To like make these investments. And I, if I'm an analyst and I'm the guy who's like deciding whether or not you're, I'm gonna recommend to our board of directors that we purchase you, then my neck's on the line, right?

Yeah.

And so what I'm doing is I'm doing everything to make myself feel as if I can, I feel now comfortable going to the board of directors of the private equity firm and saying at their, you know, whatever monthly meeting where they go over these deals and say, here's a deal, this is why I think it's good, here's all the backup information, here's the due diligence we've done, and this is why I think this is a good deal. That's what you're trying to do. At that point, when you've done that, now the guy's on your side.

Yeah.

Right now you've gotten the analyst to be the guy recommending you To say, this is who we should— that's what you want, right? And so, starting at a place where you can basically do that work for them, the more work you can do for the buyer and the whole thing to get that, get over the hump on that stuff, the better off you are. So, by doing the process early and often up, you know, again, ahead of time and going through these things and looking at this, right? Again, due diligence isn't sitting there at a table. in front of— live in front of people answering questions. Okay, there will be meetings for that, but that's not what really due diligence is. Due diligence is a request for documentation that could be going on and on and get deeper and deeper, and you'll know it. You will know they're on to something when they, when they, when they request deeper and deeper information, right? So it's so true, right? So one of the things that you're going to get is you're going to, you're going to initially put out into your deal room, you're going to put out You know, the appropriate financial documentation, the brand story, right? The re— all the, the pitch deck, everything in there that's going to basically say this is why this makes a good company, okay? And, and you're going to— and that's going to be— that should be enough, okay? Sometimes, however, it's not. And what happens is the reason it's not is because they have let— they've seen something, okay?

And what— so one story that I, you know, one thing that we would do is Again, we'd start with the financial statements up here. And what the financial statements will tell you is, okay, great. Like it's a seasonal business or October's their biggest month or whatever it happens to be. And then you drill down into that and say, okay, let me look at transaction-level data. And when you get down to the transaction-level data at any company, you are gonna find, I mean, the 80— there's a reason that the Pareto principle is everyone talks about it. It's the 80/20 rule, right? So 80% of your business is driven by 20% of your salespeople. Or 80% of your business is driven by 20% of your products. And like when someone sees a pattern that that doesn't fit into, that's not a red flag, but it's like, oh, I want to ask more questions about that. Or they— it's oftentimes even more concentrated than that, right? It's more concentrated than 80/20. It can be 90/10 or even higher than that. And what they're looking for is they're digging further down so that when they're When they're asked the questions by the buyer, by their bosses at the private equity firm, the strategic buyer, and they're presenting their findings, they have the answers about the business because they're expected to be the experts on the buy side about the business that they're buying. So that's why there's so many questions. And it's truly taking an onion and peeling it and peeling it and peeling it and peeling it.

That's it. You're pulling back those layers and looking at every single thing as they go. And again, When we are buttoned up at the beginning and they try to do that stuff, right, what they're going to get is— they're— what we're trying to— what we're trying to do is make sure that you have the leverage and that you're not giving leverage, negotiating leverage, away to the buyer. Okay?

Yep.

Again, we're not here to recommend or to say in any way, shape, or form that there should be kind of— that there should be an adversarial relationship between you, the seller, and a buyer. Okay, we, we— but we do want to make sure that we understand that the buyer has an agenda, and the agenda is not to help you. Okay?

Yeah.

That's just the truth. It's just— it is a, it is a, is it a positioning? It is a negotiation. And is— there are 2 different interests at, at that are at work, right? The, the key, and one of the values of hiring an advisor like us and you know, like Exio or anybody else like us, is that we can help in that negotiation thing. Okay, we've seen things, we have ideas, we know about stuff that we can try to suggest that helps smooth things over, right? Or gets people on the same page. Because what we want to have happen at the end of the day is we want the 2 parties to come together. When you sell your company, 90% of the time it is not a one-time transaction. Okay, it is not going to be I write a check for your business, you walk out the door and never look back. That's generally not how it works, right? You're gonna stay. You're gonna stay for six months or two years or three years. You're going to help them transition. You're going to make you're going to ensure certain major accounts don't leave. You're going to be. contractually obligated in order to get your earnout to make sure those things don't happen. Okay, so an earnout, you know, remember the process is just never— as John said earlier, it's never really done. And even when you are in this transition time where you have gotten one piece of the money and you're earning out other pieces of the big payout, um, there is still— there are still things that have to be managed and made sure are, are, are are fulfilled.

And sometimes, right, it's, it's, um, it's important to understand that if you have revenue concentration, and there's, there's, there might be nothing you can do about that, right? There might be, like we talked about earlier, after 15 months you've lowered the revenue concentration from one customer being 60% of your revenue to 47% of your revenue. Or whatever the number happens to be, it's going in the right direction, right? Going down because, you know, you don't have too much concentration, but it still can be a fact that can be sort of used against you and used to lower your valuation. And that's fine. But, but taking the effort and lowering the risk of the transaction will be viewed very positively from the buyer.

Yep.

And it should allow you to have a higher multiple because again, Things are going in the right direction. There's a process you've been going through to, hey, it's like Joe's talked about previously in the sense of there's these marketable inefficiencies, right? Hey, I've started this process. The only thing that I need more of is time. This is working. I've lowered it from 57 or 60 to 47. And we believe that once you buy the company, you continue this process. What we've been doing is you will continue to lower it by getting more customers or doing whatever it happens to be. It's a lot of times what due diligence is doing is, is A, they're trying to understand the risk that they're getting into, and B, they're thinking, what am I going to do to lower that risk in the future? I've identified something. It's a problem. It's a challenge. It's not something that they're not going to deal with. They're going to, they're going to deal with it head on. It's just, are they dealing with a problem the size of Mount, you know, Mount Vesuvius or the Himalayas? Or is it, you know, a mountain in Western Massachusetts they can easily hike in an afternoon?

Right. Or is it a— or is it a molehill in the whole thing that they can step over, right, at the end of the day? And so, yeah, that's exactly right. And so the— and in addition to that, right, there are other benefits of doing this. So let's just say that every company, okay, I recommend, and again, and we have started this practice even within Exio, okay, is that we're auditing ourselves once a year, right? Because, and why are we doing it? Why in this way? Because, and again, the audit is a third party. Can't, right? It's very hard to audit yourself. Very hard, right? Because you've got institutional knowledge, you've got reasons for things, you've got, yeah, yeah, yeah, we did that, but I know why we did that and it's fine and whatever, right? There's a certain amount of subjectivity that needs to be removed, and this needs to be an objective situation because again, the buyer is going to be as objective as possible, right?

Right.

And so what you want to do is replicate that. So we have a third party do it, and what they're— what we're doing is checking everything on an annual basis.

Why?

Because exit planning isn't just about selling the business 2 years from now. It's about having a plan to deal with whatever adverse exit event might befall me in the meantime.

Yeah.

So what doing due diligence and doing this process will do for you, whether you do it once now or once every year or once every 5 years or whatever, even before you sell, Is that it's not just about selling the business, it's about running a better, more valuable, more sustainable, right, in general business that can be sold at just about any moment.

Yes.

Right, protecting yourself and hedging yourself against the adverse events. So, you know, one of the things about what we're doing here, guys, is that it's— as a reminder, is that it isn't just about exit planning, isn't just about the sale. It's not about just selling the business. Exit planning is a strategic plan that helps you figure out and know at any given moment, what are my options with this business, right? Right. If I had to sell today because my wife got sick, okay, and I needed cash to do this or whatever, or I needed to sell equity, right, in order to be able to get cash to do something or whatever, could I do it? Right? If my partner bails on me and suddenly and and turns out to be, you know, whatever, you know, I don't know, a mass murderer. Okay? Am I am I hedged against the losing the partner in the business and whatever the the fallout of that stuff? Because a healthier business is doing really well, right? And is profitable and all that stuff will survive much better. Uh, you know, uh, uh, you know, some kind of shitstorm, right, than a business that isn't. And so this whole process, guys, is about, uh, about exit planning. Isn't just about selling at the end. It's also about, about building a sustainable and, and an adverse exit-proof business.

Yeah, yeah. We talk about the 5 Ds, right? There's all sorts of things, just like in business, where you can't determine whether, um, your customer will stay with you. It's much better to have your business buttoned up and have— and again, to have a plan and not need it than to have to need one and not have it, right?

Absolutely.

And we preach that all the time, and I think I say it more than Jo just because I've seen the problems of businesses. I've looked at businesses that were ready to be sold and that everyone's on the same page, and I've also looked at businesses where It's a great business, but it's just— it's, it's great for that person, right? It's a— it's what they call a lifestyle business. It doesn't really have value to other people because they don't— you know, it's not a profit-making entity. It's a lifestyle business that these 2 people enjoy running, do a good job, make a living. But when you try to sell that business or, or market that business to somebody else, it's, it's simply not desirable from an entity that's looking to grow and not live the lifestyle that the current owners are. Other people who are buying your business are looking to incorporate it into their own process, grow it, build it, run it for, for more and additional profits. So that's where sometimes we see the, the, the, the disconnect between what a buyer wants and what a seller thinks that they're selling.

That's exactly right. And, and here's what— here's the best part, John. The best part is we have actually at, at Exio and through ExitEngine, and, uh, you can go to, um, assessment.myexitengine.com. You can do that this right now, okay? You can go to assessment.myexitengine.com. You're gonna see a landing page there. You can see a video there. It's me talking about what we do and how we do this. And you're gonna be able to actually take this initial assessment. All right, and what's going to happen is when you take this assessment, we're going to get a very kind of a, a relatively— believe it or not, a relatively clear picture, okay, kind of right away of whether or not you've got the ability to be able to start to examine these things. And, and, and we can help you immediately figure out what your exit plan should be, okay? So, yeah, the, the— all this starts by, again, self-assessment. Okay, so what we've done is we've come up with a— what is it, 15 questions? Relatively short assessment, all right, that anybody can take and go now. You can take it as many times as you want, go back and forth, whatever. There's no— there's no nothing attached to this. This is simply a matter of you— what's going to happen is you take this assessment, you're going to get a score, all right? And the score is what we call the Total Exit Value Score.

Yeah.

It's not a financial metric. Right. It's not a number. It's not a dollar amount. It's not a valuation. Okay. What it is, okay, is a, is a score of your saleability. All right.

Yes.

And that's the most important metric that we can offer you, right? The valuation, the, the price that someone is willing to pay comes after someone is willing to pay it. Right? So sellability is the most important thing. The due diligence process and going through an initial assessment, right, will basically start to— by doing this, 2 things will happen. One is you will automatically start to see areas in which you could actually examine things and start to do your own work by yourself with your own teams or whatever of examining the areas in which your business that probably need to be improved. improved if you hope to sell it one day. Okay? And that process can start anytime right now. All right? By taking this assessment at assessment.myexitengine.com. Really simple. Okay?

Yep.

The second thing that this thing does, okay, is you're gonna be able to get a— get, uh, it's— you're gonna be able to actually do a report that we're gonna give you a big report. Okay? Just based on these 15 questions. All right? And, uh, and we're gonna tell you the score and we're gonna tell you The, the, the very quick things that you can do to raise this score. Why do we want to raise the score, John? The reason we want to raise the score is that we've determined, okay, is that— and again, our scoring system, we get into the nuts and bolts of it, but in general, it's a weighted scoring system. And what it does is it takes you through the 10 areas of your business that will matter when it comes to selling it. Okay, 10 core areas. And, and essentially what it's asking you are— is to give us some information about those 10 core areas. And what we're going to give you back is an initial total exit value score. And that total exit value score is a number, and most of the time it comes back around between 30 and 40. All right, what does that mean? Well, we think it means that basically you have about a 30 to 40% chance of being able to sell.

Successfully.

Successfully, as it is right now. Okay, are there factors that can affect that? Absolutely. Are there things that in your business and multiples and things and idiosyncrasies about things that could affect it either way? Absolutely, yes. It is not to be meant to be taken as gospel, but what it is, is it does give you a pretty good idea of where you stand right now. Okay, when you go— if you come and you talk to us, we'll give you a report, we'll go through it with you and tell you exactly the levers that should be pulled in order for you to get from here where you are right now to there where you want to be in terms of value and valuation And and sellability, and we'll tell you exactly the things that you should do to do it. And we're going to do that for free, for nothing.

Yeah.

Okay. We'll just do that for you because why? Because our mission is to make get more people like you guys to be able to sell their businesses, and if they could, if they knew these things, right? And so, if you go right now to assessment.myexitengine.com and try this assessment. Get the stuff, get the results, set up a meeting with us. Okay, if you can do that, it'll take 30 minutes. We'll just drive you through a report and we'll let you know this very initial thing. The other thing this will do for you is open up to you the ideas that maybe I should go and do some significant real due diligence right now and see what my real issues are and maybe come up with a plan. And that's something else that we can help you do. All right. And so the next— that would be the next step is that you would come and say, okay, look, I see that I've got these things. How can you help me fix it? And then we're going to go and we're going to do a larger discovery and really get to the nuts and bolts of things and tell you exactly what we think needs to be changed and in what timeframe in order to be able to get you to a place, get you to the place you want to be. And again, it starts with your goals. You got to talk about what you want and what your expectations are. All that stuff comes into it.

Yeah. And just to be clear, right? Like, We like clients as much as the next, as much as the next company. But however, there's a big but there. It's there are there are companies. There are a lot of companies, I should say, where they don't want to go through our process and they don't want to listen to us. And the last thing that Joe or I want to do is tell people or or guide people to to to do something to give them guidance. and them to completely ignore it while they're paying us, because that's not helpful for anybody, right? You're— the company's paying us for guidance and then not taking it. So if they're not successful, then that's a bad engagement for everyone involved. So we are— we have built this process, we've created this TEV system and provide the TEV score because it works and it helps companies and it helps people achieve their goals. The last thing we want to do is us to provide guidance and there just not to be that connection between what we're providing and what the clients, what you clients are doing. So just to be clear, we want to work together with you. We don't want to be adversarial in that relationship.

Absolutely. And in fact, the reality is that, again, if we can look at us the way that we think about it is like you know, we're, we're, you know, we're, we're a coach on this, right?

Yes.

We, we're gonna be able to bring certain level of things. We're gonna bring people to bear. We could help you all kinds of ways, right? But physically help you. But the majority of things that what we're gonna do here is we're gonna, we're gonna be able to give you advice and we're gonna be able to see things. We know what to look for, right? Because we've done this before. You, you as the business owner have never done this before. And, and just like we couldn't, we, we wouldn't even dream of coming in and trying to like, you know, know the things you know about the subject matter about your business and things like that. What we do know is the subject matter of due diligence, right? And we do know, we do speak the language of private equity buyers, for example. And we do understand what it is they're looking for and how they're doing it. And we understand the thing, we also understand the gaps in the knowledge of people like you, the business owner, right?

Yep.

And so the idea here is to figure out is that we've We've we've put together a process that we think works really well to help move you down the path, right? At Exit Engine, right? If you don't, if you don't, you're not looking right now to to sell right now, and you might be two or three or four years out away in your mind or whatever. That's fine because we have a place for you too, and that's called My Exit Engine.

There you go.

And Exit Engine is a do-it-yourself. Platform for exit planning, right? So a membership with Exit Engine, and John, we should say that every single one of our Exio clients is a member of Exit Engine, right? Everyone has that because there are things to do on yourself. There are things that you can go and help yourself doing even when you're engaged with the Exio to have certain things done. Okay, the timeline, the information that this this platform has every single piece of information that you would need to know about exit. planning, everything, right? It will give you templates, it will give you calculators, it gives you a timeline-based approach based on your specific needs. So when you do this assessment, one of the things this assessment is going to do is it's going to put you on a path to exit success. There you go. And you're gonna, through Exit Engine, be able to do that and walk down that path over the course of time. And as you do these things and as you check back in and go, I did this, You're going to say, great, reassess. And now you're— now you're— now you see your TV score, your TEV score has raised 20 points because you did these 4 things, right? And that's real. It's not just a number made up. It's a real thing. Because what you can say is, I now realize my value is this, and my value isn't based on what I want it to be. It's based on real metrics that we're giving you and real— a real way to be able to do this. And a lot of it is actually kind of automated. So the fact of the matter is, is that it's a matter of when you do this, we know that it raises your saleability 15 points. We just know it because we've seen it a million times.

And we've— right, we've seen it. We've seen the questions get asked in due diligence and the result of those questions and the result of those answers in due diligence. So, you know, it— we— you know, what we're doing is really taking a lot— you know, a lot of the TV score, frankly, is, is taking the due diligence And realizing what makes— what lever can be pulled before due diligence happens to increase the value of your company so that the question never gets asked. Or when it's asked, the answer to the question is, well, of course we realized that problem and we're doing X, Y, and Z to fix it. And oh, we're only 3 months into it. Or that's a project that we're kicking off in the 4th quarter, right?

Right.

The buyers understand. People, people are people. They understand that there's only 24 hours in a day. You're not, you know, you're not working— maybe you're working 20 hours a day, but you can't get everything done, right? You can only do the things that are in front of you, and there is a schedule to do things. Yes, they, they really do appreciate when projects are, oh, you've thought about it, you've planned it for the 4th quarter, or you're going to tackle that next. That's something that's— that the buyers really like to hear as well.

So especially if it can just— that project and that kind of thing can just roll over as part of the— right, when the trend— when the— when the transition happens. Like, you get the same people working on the thing. Yeah, we got a team that's working on, on this particular system. We're upgrading this thing to get this to a point that's really going to mean it. And we're— by the way, it's going to raise our profitability by 13%, right? It's not done yet. It won't be done for 4 months, but, you know, whatever. And then the— then the buyer says, yeah, that's great, we're just going to continue to do that. We just roll that over. We just keep The people aren't going to change, right? Like, I have a new owner, but the rest of the company is intact. So the same people that are working on this project right now would continue to be working on that project, ostensibly, right? And so it's just that it's not— this isn't like a— it's not a— you know, we have to think of the business as a product, whatever, but the changing of hands of the business is unique to a business as opposed to another kind of product out in the marketplace, any other product. Because it is not— it's a tangible thing, but what you're really doing is you're buying a group of people doing a certain task.

Yep, exactly.

And so at the end of the day, it becomes about the people, doesn't it? And it becomes about the people doing the right things and the leader of those people, ostensibly you, the founder, whatever, having set people up for success in this transition, not just in the business and moving the business forward and growing the business to a point But now, by bringing in people like Exio or other advisors to help you with this piece of getting— of meta-management to get the business to a point at which it is absolutely buttoned up and ready to sell, and then taking it through the sales process, right? A completely unique situation that most business owners are not equipped for. How could they be?

Yeah.

The bottom line here, guys, is 3 things. Okay, one, as a founder, I know you think the business is worth more than it actually is. I'm here to tell you that that's okay, because we're gonna be able to show you what the business is actually worth, and we're gonna take into account what you want to be worth, and we're gonna be able to show you a way, 9 times out of 10, of getting there. Okay, timeline matters, how long it takes, the cost of doing that, all those things are factors. Okay, but being able to tell the story of I was going to do this but ran out of time, and here's how I would approach it. And by the way, we're set up to accomplish this the second you get you know second there's money to do this by your buying of our equity, right? That's that's a great story to be able to tell. Second thing is taking the buyer's perspective up front right now. Okay, is going to help you is going to do nothing but help you. Okay, it's going to allow you to spot things that you didn't know were there. It's going to allow you to fix issues. It's going to allow you potentially to spot hidden value that you didn't know was there. Okay, and get and and and find those drivers of things that are going to help you raise your value and sellability over time. And the best part of this whole thing is it isn't just about for selling, right? You do an engagement with us, right, for $30,000. That's going to basically do an entire, you know, look at your entire business and take, pull it apart, look under every single nook and cranny, whatever, and come up with a plan for how to, what to do in terms of increasing the value and sellability, and how to go to market with this company for sale, who to market it to, all that stuff, right? And when you do that You just have a better business now, whether you sell it or not, whether you exit now or not. You just have a better business.

Yeah, right. Agreed.

Can't lose.

And again, the way to do this, the way— the best way to get in touch with us: one, assessment@myexitengine.com to take our assessment, or go right to the discovery process and email us at info@myexitengine.com. And we will get in touch. Like, we have calls scheduled. My call— my, my calendar the rest of the day is crazy, um, with, with discovery, with discovery calls and inquiries, all these things. So please keep sending us notes to info@myexitengine.com, and we can go over these with you, um, and discover and figure out, A, can we work together, and B, how we can work together. Exactly right.

Yep. And how, and how we can help you move from, from A to B, right? And the idea is here, it's about exit success. It's about you at the end of the day controlling your own business destiny, right? Don't let— we're not gonna allow the private equity firms and the strategic buyers to dictate terms, right? Just because they're bigger, right? You are the desirable asset. Your company is what people want. And all we gotta do is make sure that it's positioned exactly the right way so that they will do it. And part of that whole thing is understanding that if you go through the process of tearing yourself apart to see what's there and cleaning out every single little piece that you can find of the business that you can find and making sure it's optimized to the best of your ability with a time frame that you have, right, to get it to the point at which you can get it and then be able to tell the story about how the next buyer can take it to the next level.

There you go. Exactly, Joe.

info@myexitengine.com. Check us out at myexitengine.com, assessment.myexitengine.com, community.myexitengine.com. Check us out on LinkedIn, Exit Engine Community on LinkedIn. You're gonna find all kinds of information. We're giving this information away all the time. That's why we do a podcast. We want— John and I, mission is to get 1,000 business owners to be able to successfully transition by the year 2030. All right, we are in year 1. All right, we're gonna do this, um, and I think that the more people that we can have, um, uh, you know, that we can help, we were happy to help in any way we can help. Okay, so again, info@myexitengine.com. Check us out on LinkedIn. You can talk to John and I directly on LinkedIn if you like. Um, go do that. Um, that's the best way to reach us. But again, go today. If you do one thing today, right, let's go to assessment.myexitengine.com, take the assessment, check out your TEV score. Let's get— let's just talk about what your situation is. All right, that's the best way to start. I'm Joe Stapleton. This is Jon Kniff. We are ExitEngine. We are the co-founders of Exio Advisors, and we are here to help your, your M&A, uh, your mid-market M&A dreams come true. Um, thank you again for listening. John, thanks, man. Another great conversation today.

Thank you. Thanks, Joe. We'll see you.

All right, have a great one.