The Exit Engine Podcast Episode 54: Insurance, Derisking, and Improving Valuation

Welcome to the Exit Engine Podcast, episode 54. Welcome to the Exit Engine Podcast, where founders, owners, and entrepreneurs come to unlock the secrets of building, growing, and ultimately exiting their business on their own terms. I'm Joe Stapleton, your host, along with my partner, John Kniff. Good morning, John.

Good morning, Joe.

Great to have you. Every week, John and I sit down with business leaders, advisors, and visionaries to talk about what it really takes to design an exit that aligns with your goals, your values, and your life after business. And today, we're gonna unpack one of the most overlooked but absolutely critical levers in preparing your business for successful exit, and that is The wonderful topic of insurance strategy. But don't panic, because the good news is, is that insurance doesn't have to be this boring, staid, old, right, gray flannel world, John, anymore, right?

No, it's exciting, you know. Um, and we have an expert here who's going to educate us, which is wonderful.

We—

I know a little bit about insurance, but I'm excited to learn more and about how Jason helps business owners, you know, not— I guess mitigate risk is the best way. He's going to put it in a better way than I just put it, but I'm excited to learn more about it today.

That's right. So our guest is Jason Eisman. He's a licensed commercial insurance advisor and strategist with deep expertise across real estate, financial services, construction, and the middle market. He holds both the CAIA and CBCA designations. I believe Jason's going to tell us about something else he actually just earned. Yesterday, when he talks to us about it, and brings a private equity mindset to the world of risk coverage and strategic planning. That's a key thing. Okay, a private equity mindset. Jason is not just your average broker. He's a strategic insurance partner who helps businesses business owners see beyond coverage and compliance. He works with clients to protect EBITDA, enhance enterprise value, and align insurance with long-term goals, including succession. acquisition or sale. In this conversation, we're going to explore how insurance can either kill or close your deal, why due diligence often surfaces avoidable red flags, and how to think about risk through the lens of value and not just cost. Jason Eisman, welcome, welcome to the Exit Engine Podcast.

Joe, John, thank you guys so much for having me. Pleasure to be here. And you guys, you guys did insurance really well in that intro, but I'm happy to be here and shed the light that you guys put on it. It doesn't have to be just one of those line items that just keeps going up, up, and up on your income statement. Rather, it can be looked at as a strategic lever to create value and help with the sale or continuation plan for a business.

That's an excellent, excellent point. And I think something that we talk about in our 12 pillars, you know, of our total exit value system, is insurance and risk mitigation is one of those, is one of the largest buckets. And the reason it is one of the largest buckets is because when you are examining and preparing yourself for sale or thinking about putting your business on the market, de-risking the business to the degree that you can is going to make you more sellable. It's simple. It's gonna raise your value or at least protect your value. And it's going to make you more sellable. That said, insurance is one of those things that people look at as a cost center, right? As opposed to an investment. How, Jason, do you deal in what you do every day when you're talking with owners and businesses about their insurance needs? How do you kind of, you know, how do you change this conversation from insurance is a cost that I got to do to, no, no, this is an investment that's going to protect you and bring you, pay you dividends in the future?

Yeah, absolutely. I'll start with why do people buy insurance? A lot of people are buying insurance because they have to. I'm buying a piece of real estate. I have a mortgage, and the bank is going to require that I buy insurance. I don't think that it's something that I'm going to use, but it's something that I have to spend money on, and I'm not going to see any return on investment. So you know what? That's why it becomes a cost center and that's why it becomes annoying. But that's the wrong way to look at it. Look at it as risk mitigation. I'm buying insurance. I might not see it this year. I might not see it next year, but you never know. Insurance is specifically there to protect against unpredictable risk. That's why you're buying it. You know, and in 5 years from now, God forbid something happens. And you can have a potential cease of cash flow, and you're going to have to have significant expense in order to fix, remediate whatever has happened. Or you can turn to this insurance policy that you've been buying for a few years, and the year in which the event occurred for an occurrence policy is the policy that you're going to tap on. And you're not going to be sitting there saying insurance is a cost center. I'm so annoyed that I keep spending all this money on insurance. Instead, you're going to say, wow, I spent X amount of money and I'm getting Y return. I will not have a cease in my business. I'm not going to have to go out of pocket. Thank God I had insurance. Everybody hates insurance until they've used their insurance policy and they say insurance is the best thing.

And the insurance here that we talk about insurance in general, Jason, It's not just the insurance policy on the building, right? There's so many different kinds of types of insurance out there. And obviously, I mean, there's insurance that protects the people inside the business, right? There's insurance that potentially, you know, potentially that you can get for specific actions that you're going to take as a business and things like that, right?

Yeah, there's business interruption insurance, which you alluded to in one of the— in your answer, which is like, you know, during the pandemic, right? As an example, it's like, my gosh, like, people who had those types of insurance and, you know, catastrophic insurance. You think of hurricanes in Florida, right? Those people would have been out of their houses and wouldn't have been able to rebuild without insurance. So it's a wonderful tool.

100%. So business interruption was a good one. I did, I mentioned cash flow, but you know what, if there was a storm, you can't be in your building, you can't operate. So, you know what, your business is going to cease to operate for a period of time, and that is lost cash flow. Hopefully, it's a few days and you're back in, so the impact is minimal. But if there's significant damage and you don't have a capability to work remote, which we did see over the pandemic that a lot of businesses are able to work remote, but many are not. There are very labor-intensive businesses that are not able to work remote. And these businesses would be dead in the water. But with the right insurance in place, you can collect business interruption. You can collect this cash flow. It will maintain a steady stream of cash flow while you're unable to operate. And while you do feel the business ceased to operate, from a cash flow perspective, you're more or less where you left off. You're not going to feel the impact as badly.

Yeah.

And you know what? We're on the Exit Engine Podcast. So from a selling perspective, That is really significant for the value of your business. I am a business that has continuity of operation. If it doesn't have continuity of operation, I have risk management in place. I have an insurance program that would provide for cash flow in an instance where I am unable to operate and actually generate that cash flow. That creates value to a buyer who sees that you're serious. You're smart, you're adequately prepared and mitigating risk. You're serious. And I am interested in buying your business because you're a serious business that is protected and you're a serious seller that I know I'm getting bang for my buck from.

Well, it's like, you know, you mentioned is like the way I think of it is like it's a signal, right? To your point about, you know, you're signaling to buyers that you are a serious business and you've thought of things, right? You know, if you have a restaurant, if you have something, you know, some type of labor-intensive business, as you mentioned, that could be interrupted by these, by these events that are sort of unpredictable, as you mentioned, the buyers are going to want to know that you've thought about possible interruptions to the business, be it a flood or whatever it happens to be. And the fact that you can, the fact you've gone out and you've consciously paid for this risk mitigation technique is, again, it's a signal to buyers that you're a serious business with, that you're willing to invest in your business to protect it, right?

100%. It's extremely, extremely important to show those signals. If you're a business that is looking to sell in the near or distant future, it is extremely important to show those signals. that you are a serious business and you take risk mitigation very seriously in addition to the operations itself, because you are going to have to differentiate yourself, number one, from other sellers. Number two, you're not just looking to sell. Nobody is just looking to sell. Everybody has an idea of what their business is worth. When it comes time to sell, when you're looking at the term sheet and there's a valuation gap, You have to understand why is there a valuation gap. I think my business is worth X, but the buyer is not willing to pay as much as I'm looking to sell for. This is one of those things that a buyer can come in and say, I'm exposing myself to risk. I'm taking away some value because of the fact that I am taking on this risk. But the seller that says, look, I am mitigating these risks, you are making a safer investment. So you don't have to discount that risk factor as much. There is always risk. Insurance is not perfect, but you can discount that risk factor that you're putting on this acquisition, and that will bridge that valuation gap.

So true. It's such a good point because everyone thinks, you know, there's all sorts of things we talk about, you know, revenue, we talk about profit, we talk about multiple. But the thing that we don't talk about enough, frankly, and I'll say this, is just what you said, Jason, is the the insurance as a risk mitigation tool, as a way to increase that valuation and get yourself a premium valuation to increase that multiple, that you've thought about it and you've de-risked the business.

That's the thing. The thing is that the multiple in this case, right? Because again, in order to basically— where the real money comes, okay, when you can increase that multiple. And the way that you increase that multiple, because it is based on both your profit and your revenue, numbers and the whole thing in part, but it's also in terms of what makes you a premium business. And as you just pointed out very astutely, that you are often in a competitive situation when you are selling your company. It is rare that a buyer comes along and only wants to buy you. Normally, the buyer is in the market for something, and they are going to look at many, many, many different companies before they choose one to buy, etc., etc. And the reality is, is that if you can show yourself up and stand apart, right, in terms of your risk mitigation in a way in which, right, that actually adds value, that potentially raises your multiple and makes you a premium offering.

Absolutely. And I apologize, I'm going to jump back. You asked me 2 questions. We spoke about insurance, and then you asked about how I change people's view of insurance.

Yeah, yeah.

All right, so now we kind of spoke about it, but I'm just going to go back so you can say that I answered both questions. I don't want to be held liable for only answering one question and not two.

I'm so glad you did, because that would have held you liable. So that's risk mitigation right there, folks.

Well, I'm gonna buy an insurance policy on this just in case. Um, so how do I get people to change their mind and view insurance in a different light? It's exactly what we mentioned. You're going to buy the insurance. And that one day that something does happen, you don't want to have to pay that money out of pocket. You don't want it to impact your bottom line. You don't want to impact your top line. So helping somebody understand that you're buying something for the future, you're buying something to protect yourself, to protect your assets, the business, the business's assets, to provide value to your top and bottom line. Those are the things that a business owner then looks and says, you're right. I understand that this is more than a cost center. This is a strategy that I'm putting in place to provide value for my business that I will either look to sell in the future, look to protect and grow, or it's going to be a family business. You know, it's been in the family for a few years, for a few generations, and will continue to pass. I don't want to do anything detrimental to that business. That would prevent it from flowing from generation to generation.

That's a really—

that's a mindset perspective.

That's an excellent point to bring up because we don't talk about that enough, and especially lately, because I think that we've all been, you know, we all get very focused on the selling of the company. But understand that from an exit planning standpoint, first of all, everybody will, and we've said this before, but everybody will exit their business, right? One day, somehow, some way, right?

Every single— Say the 5 Ds, Joe. You're waiting to say it. 5 Ds.

Right? We've got death, disability, divorce, disagreement, and dissolution. Those are the 5 Ds. That— those are the ways that most people will exit their companies. Okay? And I think it's like 80%.

All right?

Okay. So, understand that you— just because you might be gone, how can the business survive, right, longer without you? And to be able— whether that, again, is because you sell it or because you hand it to another generation, Or because your employees take over, or because, you know, because there's somebody, you know, somebody else, uh, whatever, uh, you know, a nephew who's been working in the business or whatever, you know, there's someone to succeed you, right? And, and being able to protect the business against those 5 things is really what we think the exit planning kind of insurance part is, right? Yeah, yeah, yeah.

No, that makes a lot of sense. And That actually brings up something that I want to mention is, again, that unpredictability. Death, disability, everybody dies. We all like to think that we're never going to die. It's extremely morbid to think I'm going to die, or— but you know what? I haven't seen anybody that's lived forever yet. Maybe you guys know somebody that is currently alive that's been around and will continue to be around, but I don't. So again, morbid, hard to think of, but you need to appreciate that at some point that will happen. And there are risk-mitigating activities that you can do in order to plan for that. There's a founder might want to sell his business at some point, but if he sells his business, he's not necessarily thinking, That if I'm not around, my business can't function. So what's the value of that business that you're going to sell and the operation is essentially going to cease? Or if the founder passed away prior to being able to sell or hand down to the next generation or whatever that exit strategy is going to be, that is an opportunity that's missed. the transition of that business is dead in the water.

Right.

So, key man insurance is what pops up in my head. It comes to mind. You can buy that life insurance policy or that disability policy, and God forbid something happens to that extremely important individual in the business, that business can continue on and there can be a transition of that business, whether it's to the next generation, or it can be sold. And there is money there to provide that next operator to operate that business and get the business back on its feet and able to fully operate to that same degree when that founder was present.

That's a great point.

People don't think about.

Yeah, and Jason, digging into that sort of point, right? Keyman Insurance is one example. When you're dealing with founders and CEOs of small businesses, What other types of insurance are you recommending? Are you talking about? Are they buying? Any other types of things that you can sort of platform for our audience to say, like, hey, you don't necessarily need this, but, like, look into it and make an educated decision about it?

Yeah, absolutely. The first thing that comes to mind, because it's been so hot in the past couple of years, is cyber insurance. So there is a lot of ransomware attacks. There's a lot of phishing, cybercrime is everywhere.

Yeah.

A lot of small business owners, when the idea of cyber comes up, they say, I'm small, I'm not going to be the target because they're not going to get much from me. But you know what, I don't remember this statistic, I looked it up recently. The, the percentage of small businesses that are falling prey to cyberattacks is dumbfounding. You know what, maybe it's because these smaller businesses don't have real adequate controls in place. They're not, they're not teaching their employees, or themselves rather, how to identify a phishing scam, what to do if something happens. So maybe it's because they're more susceptible and these, these, uh, cybercriminals are aware of it.

Sure.

Maybe because, you know, it's not in the quantity. It's not in the quality of the scam. It's in the quantity of the scam, and you can make a million bucks on one, or you make twenty-five grand on many. But if you get enough of them, then the dollar value is going to be greater than that one million dollar hack. I don't know what it is, but cyber is prevalent, especially in the small business ecosystem. So that is a lot. I'm getting some pushback on that because of size. But if you just look at the statistics of how many small businesses are falling prey to these attacks, and they all lean back and they say, I wish that I had a policy, and being able to point that out, a lot more small businesses are in fact buying cyber insurance. Directors and officers insurance.

Yep.

Protecting the executives, protecting a board. I'm small. I don't have many shareholders or any shareholders. Nothing is going to happen. But you know what? Things do happen. It happens all the time. And then when it comes time to a founder or an executive getting sued and they don't have directors and officers insurance for the business, now their personal assets are at stake. And that is not a scenario that you want to be in, nor should you be in, because insurance is there to protect you. D&O is balance sheet protection. Protect your balance sheet. Obviously, you don't think anything is going to happen. That's why it's protecting against the unpredictable risk. I said it in the beginning, and I'll say it again, unpredictable risk.

Yep.

This is what's happening. Employment practices liability, protecting against sexual harassment, um, work— any workplace-related, you know, you said racism against—

Misconduct.

Yeah, any kind of misconduct or negligence or—

Correct. And I'm small, I have few employees, nothing is going to happen. But you know what, down the line when that claim comes in, you could have been protected. It's risk mitigation against something you didn't think was going to happen. Unpredictable.

By the way, Jason, just to point out, those— the, the cybersecurity one, and I think, and also, and I think also the, you know, the behavioral stuff, right, that you're trying to hedge against, let's just call it that, are things that can sink a business. If, if, I mean, sink a business. You, you, one, one bad sexual harassment lawsuit, one slip and fall accident thing potentially, right, could, could literally be the end, the demise of the business.

And derail a drill— derail an acquisition, right? So in my experience, right, we've had, we have Talk about a cybercrime thing, right? So we constantly, to your point, Jason, we, one of my old companies, we had resources where we had training for all of our employees and subcontractors and contractors. And invariably someone would fail the phishing test, right? Someone would click on the link or download the attachment or give some piece of information. And that's one thing. And we constantly trained it. We had a, it was weekly. Weekly email went out and it was like Tuesday morning when it went out or whatever it was. And everyone knew that it went out that time period and people still failed it. And people still clicked on the link and whatever, gave their bank information. It was, it was sort of amazing. And then with regard to the slip and fall stuff, it's like we, every time we bought a company, the, one of the first things I would ask in due diligence is, do you have any pending lawsuits? Clean those up. Like, if you don't have insurance for slip and falls, especially in the Northeast where there's a lot of snow and people, people slip, it can be a nightmare. And just— and they'll prevent you from selling your business because no one wants to buy an unknown.

Correct. And something that you brought up, um, in a world where everything is so integrated, companies are so interconnected, you know, there's one company, but they're using 30 vendors for 30 different services, and they're all internet, cyber, cloud-based. You need to make damn sure that the vendors that you're using have adequate controls in place to protect themselves from cyber, because you know what?

Yes.

You are a business that is collecting client data, you're interfacing with clients, but then in the backend you have your vendors that are receiving this data, they're using this data, and they're providing a service for you. But if the data gets compromised by one of your vendors, you can be on the hook. You can be sued—

Oh yeah.

As a part of that from your clients for the data that has been exposed. And yes, your controls are in place, you did what's right, but if you didn't adequately vet the controls and risk management program of your vendors, you can be liable as well. It's extremely— risk management is everywhere. It's not revenue generating, so it's not top of mind, but it's a strategic lever for your bottom line and your top line. So while it's not actively generating revenue, it prevents you from losing—

Certainly protecting it.

Net income.

Yeah.

It's interesting is that too, is that the— there's, first of all, there's so many, you know, again, so many different kinds of insurance out there, right? And, and again, most people are familiar with the basic stuff, right? They have to— might have to have an insurance thing again, if they have— if they've got an office or something like that, they've got, you know, maybe they've got workman's comp or, right, or that, that they may. And again, these are things that, that are somehow required. So there's— I wanna, I wanna just kind of talk a little bit about the difference between risk and compliance. Because they're not the same thing, right? And I think that the reality is, is that when you're compliant, you are, you are keeping yourself, you know, in line with what the rules and regulations about are, about the kinds of, like, the laws. The law says you're this kind of business, you must have this kind of insurance. You gave the great example that everybody knows when they buy a house, right, is that the mortgage company The bank requires you to have insurance on the house. It's not an option. Nobody gets away without it, right? The reality is, and, but, but we also know that if people were given the choice, many of them would not actually make the purchase, right? They would, they wouldn't do it because of the cost or whatever. But I think that let's talk a little bit about the difference between compliance and risk. I'm sorry. Yeah, you know, and risk mitigation, because again, they're, they are 2 different Kind of like, they're almost like 2 different, like, concepts, right? I mean, they're 2 different, like, strategic visions.

Correct. Yeah. So compliance, I mentioned bank is going to require, um, property insurance, and that you are compliant with. You can be hired by somebody and they can require that you have property and Liability. So these are standard that everybody's familiar with and largely compliance. So in a very litigious environment that we're in, on top of liability, you can purchase what's called an umbrella. It's excess liability. So you— there's a lawsuit, you have $1 million of liability on your general liability policy. If you exhaust that $1 million of liability, Now what if you're sued for $3 million and you exhaust that one? There's still $2 million that is on the hook. An umbrella, which sits excess of that liability, could be what protects you and your business from having to pay and going under. So you have a $5 million umbrella. Now you exhaust that $1 million of $3 million, you'll tap into that umbrella policy. And that will provide an additional $2 million. Sometimes it's required, sometimes it's not required. So I won't call that generally compliance, right? Because that's not a standard—

You have to have, you have to have insurance to some degree, but you don't have to have, you know, a policy that, you know, also costs more and stuff too, right?

Yeah. When I, when I signed agreements at, at several companies, is your point, Jason, we would have We would have a general liability requirement. We would have an excess liability requirement, and we'd have an auto requirement if people were, you know, driving to our locations. And that would be the requirement for any vendor. And so a lot of times vendors would have to go out, and if they wanted to work with us, they would have to, you know, get more insurance so that we could, you know, again, to de-risk our liability and to make sure that we're compliant with our All of our corporate policies.

So, yep.

And something to think about is a company might have their own autos and they're going to have an auto policy. But what if a company doesn't have its own autos? They have employees, they themselves drive to and from work, but the business itself doesn't have any autos. So a business might think that we don't have any cars, you know, the employees have their own cars, the employees presumably have their own auto insurance. So we're off the hook, but that's not correct.

Yeah.

If an employee is driving their car to work or to a job site and something happens, that vehicle is being used for work. That is a business claim. Hired and non-owned auto insurance is specifically for a business or an individual that doesn't have their own car, but uses autos. It provides auto insurance.

Yeah, it's—

so that's a huge—

It's such a good— yeah, it's such a good point. It's such a good point because it came up in— funny, it came up in one of our— that, that exact scenario where someone was, you know, using their personal car for a business trip, and instead of flying, they drove. They got into an accident, and fortunately we had insurance, but my gosh, if they didn't, and it was a— it was a— the other car was totaled, and it became a total— it would have become a total nightmare. Because the person was injured and it just can turn into craziness.

I'm sorry to hear that, but absolutely. And we're talking about compliance and risk management for those that are looking to sell their businesses, or if you're looking to raise money from venture capital. A lot of these companies, private equity firms, venture capital firms, when they're looking at a business, They might require, they'll say, for us to invest in whatever round or for us to buy your business, you need to have property liability umbrella. As we mentioned, cyber is a huge one. They're requiring minimum cyber limits. They're requiring directors and officers limits. Again, if I'm going to be putting— you might not care about your board and your executives, but if I'm buying your business, I'm going to be putting some, or I'm investing in your business. I'm putting somebody on your board. I'm not putting one of my employees, I'm not putting their personal assets at risk. And yes, the private equity firm or venture capital firm, they're gonna have their own outside directors and officers insurance, outside directors liability policy that will provide coverage for their specific employee or employees that they have sitting on the board. But they don't want to rely on that policy alone. They're going to say, you need to show them—

Sure.

One, you're not serious if you're not taking risk management serious. Show me that you're serious and buy this insurance. Number 2, protect me, protect my employee. I want to see that you're giving that adequate protection. And then I have my insurance that is a failsafe, that if that insurance is exhausted, I'm protecting my employee, but I don't want to be the sole layer of risk mitigation because that just shows that you're not a good fit to be interested in because you don't take holistically, you don't take your business seriously. You don't see the business holistically and you're not acting to protect the entirety of the business.

And think about what you just said, Jason, is a good point, is the buyer is taking your business more seriously than you are. Do you want to be in that position?

Absolutely not. I don't want to say it's embarrassing, but it's not a good look for you to want to sell your business and not have somebody want to buy it. And reason being, they do not take you seriously. Everybody wants to be taken seriously. If you're going to sit at the table, you have to earn the right to take that seat.

And what you bring up about the holistic look at it, I think is really insightful because again, it is about It isn't just about your top-line revenue or your profitability or whatever you think, or how much cash flow you have, right? It's how do we protect this cash flow? The holistic look at, if you were really concerned about this business being the top-notch thing that it could be, a premium multiple business, then you would have all these things in place. It's not even a— right? And And the fact that the buyer has to ask you to do it, and if there's any pushback whatsoever, in our experience, deals fall apart very, very quickly. 100%.

And talking about deals falling apart, that brings up a really good insurance strategy— reps and warranties insurance.

Oh yeah, it's a good one.

I'm sure everybody's familiar with, um, making representations and warranties about my business. And you guys can talk more about this than I can, how many, how many sales can fall apart because of the reps and warranties and breach and potential breaches, fears, just things that come up. And it can delay, it can delay a transaction. And then there's a lot for a buyer to gain from reps and warranties, but there's also a lot for a seller to gain from reps and warranties. So there is real strategy in the use of insurance. The seller is selling a business, and traditionally there's escrow that's held. You know, the reps and warranties have their survival periods, and that money sits there in case there is a breach of representation. And you know what? The seller obviously wants to collect as much money as they possibly can. So reps and warranties insurance— there is an insurance policy that is purchased by either a buyer or a seller And in a scenario where representation or warranty is breached, that insurance policy is going to pay. So that is more money for the seller in their pocket because they can remove either altogether or in part the need for holding escrow. So the seller already just won out over here. The process, the speed for the transaction with due diligence is still required in any and all deals. I don't want to say due diligence is not needed. But having reps and warranties insurance in place, you do your due diligence, but if there is a breach, that insurance policy is still there. So, the speed of due diligence is great for the buyer and the seller.

Mm-hmm.

The buyer, if I buy a company and the employees and the founder stays in the business, after a year, There is a breach of representation. I, the buyer, now have to go sue an employee of mine. That is terrible.

Not a good look.

Terrible. It is uncomfortable. You name it, it's that. The one thing I wouldn't say it is, is good.

But you know what?

Having reps and warranties insurance, instead of suing the seller of this business, who may or may not be working. I'm suing an insurance company. There is an amicability between the buyer and the seller now where I don't have to go to the seller and say, hey, you lied here and now I'm going to sue you. We can remain on good terms. And that seller that took the money and run, that didn't stay, they're not worried about getting sued 1, 2, 3, 5, 6 years from now and having to pay. Because they know that insurance policy is in place. So, you know what, it's for a buyer to sweeten their deal. They can buy reps and warranties insurance. But a seller that wants to be really serious and show that they're really looking to sell, they're adequately insured. They have a comprehensive holistic insurance program, and they're buying reps and warranties— sellers' reps and warranties insurance. And they're saying, look, I want you to buy me. My value is in the business, and I'm showing you I'm serious about selling. I'm buying this insurance policy that if there's a breach, there's an insurance policy that can be sued and that will pay out. Yeah, I'm protecting myself and I'm showing you how serious I am about buying and speeding up this process and sweetening the deal to make it valuable for you and for me.

Well, and it's so true about the due diligence piece of it, right? It's, it's like, you know, you ask all these questions in due diligence and you get the financials and you get the compliance stuff and you get the violations and you get the lawsuits. But when you get the insurance policies, it's— again, I hate to use the word signal again, but it's a signal that they're— you know, you've used the word serious a couple times, but it's exactly right. These people are serious. And it also checks the box to say, not that I don't have to worry about suing them in the future, but I do have this reps and warranties insurance that will take care of potential problems and mitigate the risk of of a breach or a problem 1, 2, X years down the road.

Correct. And then if it's a business buying another business, reviewing insurance as part of that due diligence is extremely important. It's not just a check-the-box item. Do they, do they have insurance? Yes, no. Do they have this policy, this policy, that policy? You really need to go and look. They might have a policy, But there are endorsements and there are exclusions on these policies that might be detrimental to— I keep saying holistic and comprehensive program, but that's really what it's about because insurance can be looked at as a check the box. But if it's no more than just that exercise, when there is a claim, when it comes time to filing with the, the claim with the insurance company, an insurance business is a for-profit business. They're not looking to give you all the insurance that you need all the time. You need an agent or a broker that is working on your behalf, knows what they're doing, and making sure that you have coverage for what you need.

Yeah.

Because when you have that exclusion and your claim is denied, what did I buy insurance for? You're going to be upset because that can have a detrimental impact to your business. You're going to be mad at your broker. You're buying a business. You have to make sure that they don't have the exclusions that you and your broker worked so hard To remove. If they do have it, you're going to have to make sure that they get that removed, or you work to ensure that it's removed once that company is ingested into your—

Sure.

Overall business. Because again, you're not only worrying about your business now, you're worrying about an acquisition. You're worrying about how the insurance policies interact with one another and mitigating any gaps. And the world is always changing. So just because you have a comprehensive insurance program today, it doesn't mean that your program is going to be as comprehensive as it was tomorrow. It's the prevalence of cyber. We spoke about it earlier. Cyber wasn't a very prevalent policy that was purchased by many, but as time goes on and as cyber incidents are more frequent, more and more people are buying cyber insurance. And a lot of people are finding themselves without it, and they were totally fine without it however many years ago, or even weeks ago, but now that might not be the case. So that constant review of insurance and risk identification, risk mitigation, it's crucial. It's crucial always. And having—

I'd like to point one thing out while we think about this too, because again, every time And I know as a founder, because we go through this just like everybody else, is, okay, we're looking at our costs and we're, we're going to try to obviously have them, you know, spend the minimum amount we possibly can to get the most, you know, for our, our buck and everything else, which is how we all do it. But when it comes to insurance and things like that, it's no different. And the reality is, is that we're going to look at this, at this, all this money I'm spending, all this money I'm spending on insurance. And if I Follow Jason's advice, and I'm and I've got all the right insurance in the right places, and I'm spending you know hundred because I could be spending you know I don't know hundreds of thousands of dollars a year on insurance potentially right. The reality is too though is that looking at your business from an insurance standpoint right right the money that you're spending on the on on insurance is expense looks like expense. Right. In terms of your— right, right. But from a buyer's standpoint, that's not really looked at like expense. And what I mean is, is that again, it might be money going out and the expenses are there, but what you're saying is that the buyer side is looking at that like protection.

Correct. And we all know that everybody wants to buy the best thing for themselves and for their business. We also know everybody wants to buy the cheapest things for themselves and for their business. If you want to buy something good, there's the triangle. There's good, good, bad, cheap, expensive, quick, and slow. You can only have 2 of the 3. You can never have all 3. So if you want something fast, it'll be cheap, but it's not going to be good. If you want something good, it's not going to be fast. It's going to be not going to be cheap.

Yep.

So you have— that's something that most people have difficulty grasping. They can understand it in certain aspects of their business and their lives, but when it comes to insurance, for some reason they don't understand, why can't I have all 3? But because it's not— while it is commoditized, you can buy insurance from a lot of different insurance companies. You You can go to a lot of different insurance brokers, but there's, there's quality in the product that you're buying from the insurance company. There's quality that you are getting from the insurance broker. So while it is commoditized, you can't look at it as a pure commodity that I don't like one, I go to the next. I don't like this one, I go to the next. You can't just keep moving down the shelf and expect to get the same product every single time. You're gonna get different cost. You're gonna get different speed, the quality of advice, the quality of coverage.

Yep.

Everything is going to continuously differ. And thinking about that line item again, you, you don't want to get the cheapest thing because when it comes time to review, when you look at all the gaps that you have in your insurance program, did you do yourself a service by spending less money, maybe you got lucky by not filing any claims and you say, you know, maybe it was the right thing to do. But I don't want to say it because I don't want to be the one that projects and I don't want to be the one that says this is going to happen to you. But that following year, when you have that claim that is not covered and you're paying 50 times the amount of money that you saved by buying cheap insurance, It wasn't worth it. It is cheaper to do something right the first time around than to scramble to try and fix a mistake that you made.

Yeah, it's easier to do it. You know, there's, there's 2 ways to do things: correctly and again. And I don't like to do things again.

Let me ask—

yeah, let me ask you a question about— and, and if you don't, if you don't have this at your firm, you don't have experience, that's fine. But like specialty insurance, Jason, like, or specialty insurance or Other insurance that founders should be looking at and buying? You mentioned cyber. Is there anything else that in your experience that founders should be looking at that they're either neglecting or not paying enough attention to with regard to insurance that they would be best to actually just look into, if not purchase? But anything along those lines that we haven't talked about so far that you want to mention?

Well, I'm gonna have to sit and think about that one.

But it's fine.

This is insurance adjacent. A business can't run without its employees, and you want to make sure that you can keep your employees. If you're a business that has constant turnover, you're not going to be— there's no real business or investor is going to be excited about buying your business because they don't know how your business is going to operate. It's going to continue to operate. Because they can't keep the employees that keep the business running. One of the key activities that a founder can take or a business owner can take, or I shouldn't say activities, one of the things that they can purchase are employee benefits.

Ah.

And that's another, it's an expense. And I'm going to buy cheap benefits. I'm going to offer something. And you know what? It'll give the employees something that they can have And end of story. But if the benefits aren't good, when I'm looking for another job, if I can find something for even more, for more money, for the same money, even if it's a little bit less money, but my benefits are better, a lot of people nowadays are looking at jobs and they're looking at total compensation. They're looking at their paycheck, their salary.

That's right.

They're also looking at the value of the benefits that they're going to get. If I'm not getting good benefits here, but I can get good benefits there and I can get a decent salary, my overall compensation is greater someplace else, I'm going to go someplace else. So working with somebody who is knowledgeable in employee benefits, who can advise you on—

Great point.

This is what's going on in your industry. This is what's going on in the— with overall the workforce. These are the These are the benefits that people care most about. This is what they care least about. And, you know, companies— so like Hub, we have data that we can use. We can provide analytics that show this is what's going on in an industry, this is what's going on in the workforce, this is what's important. And we can highlight areas that can be focused on in benefits.

Yeah, that's a great point.

It's all about the employee Retention strategy. If you can show a buyer, we have an employee retention strategy, the buyer is looking at your business and they're saying, I understand your value. This is the amount of— this is the sales that you do. This is how your business operates. And I am confident that you will be able to continue to attract and maintain your workforce. So your numbers will continue as we project them to increase, because we're not worried about the employee churn and the money that you're going to have to spend to continuously go through the hiring process, the labor that you're going to lose by having your workforce diminished and increasing at a decreasing rate. You know, these are things that people—

Yeah.

Always think about, but they're equally important to the overall success and valuation of a business.

Well, when you have competitive situations, to your point, right? When a business, when someone's looking in an industry and looking across industries and one company offers a certain set of benefits and that's clearly better than another company, again, it can be a signal that you take things seriously, that you think about things, and that you don't want your employees to churn, right? The last thing that a buyer wants is They buy the business on, you know, on August, whatever it is, on August 1st, and then September 1st, everyone leaves and exits out the door because it was a cult of personality, as opposed to, oh no, these people aren't going to leave because they have these wonderful benefits at the company. So, yeah.

That's right. That's the story of you buy a business for $50 million, and then 3 days later, that business is worth $50.

Well—

It's something you can't— you want to say, oh, I can't control that. But you absolutely can control that. You can have a strategy in place. And this is something that is not supposed to be thought of as you say, I want to sell my business. This is the 5 years out. You know, you start, you get that little inkling of, I need to start thinking of the trajectory of this business. Am I going to stay here and grow it? Am I going to sell it? Well, if you're going to sell it, you can't just have your value. You need to build that value over time and make sure that value is sustainable. And a part of it is—

Yeah.

Getting that employee benefits program in place to make your company one that people want to work for because they feel that they're valuable. They're getting treated the way they deserve to be treated by getting a competitive salary and by getting a competitive or top-of-the-line benefits program. The way they feel they should be. Yeah.

And especially if they can leave and go to another company, right? If there's a lot of competitive businesses in the industry and they're in a specialty industry or something, or it's a very professional services environment and they can get better benefits and better compensation, they're going to leave. And that just decreases the value of your company.

So especially around a time where the business seems to be in transition too, right? Because you're more ready You're already facing those potential challenges. And to make it harder for people to say, you know, to make that decision to say, hey, look, you know, now look, the incoming company and the ownership there and their benefits package, you know, obviously will potentially affect that, you know, as well. We see clients all the time. We just did a deal where one of the biggest priorities of the owner was making sure that all the employees were transferred over and taken care of the right way and all that stuff. And, you know, one of the things they were getting was a better benefits package, you know, even if they weren't getting necessarily higher salaries. You know, it does make a huge difference in terms of that, you know, making the transition as smooth as possible and making the integration smooth. Jason, one of the things that it kind of— when we talked about here is that you are not selling insurance. And I want to kind of throw this out there, that what I noticed about you and what I when I was, you know, because of your content on LinkedIn and stuff like that, was that you are really a strategist. And I think that there's something to be said about that. Talk a little bit about your approach to this and what you will do for companies in this vein.

Absolutely. The one thing I hate is when people ask me what I do and they say, oh, you're an insurance salesman. Well, technically I'm selling the insurance product, so I guess if that makes me an insurance salesman, I'm an insurance salesman. But I think that there's a connotation that comes with, oh, you're an insurance salesman. It's the, you're going to try and sell the most expensive product to me, one that I don't necessarily need, or you think you have the knowledge, so you're going to convince me that it's something that I need when I don't necessarily need it. I don't think that there are a lot of people out there who are like that, but there might be people who are like that. I am the farthest thing from that. To your point, Joe, I consider myself a partner. I consider myself a consultant. I consider myself an advisor. What I'm going to do is I'm going to come in, I'm going to work with you. I'm going to understand what your business is, how your business works. I will help you to understand and identify the risk that your business is exposed to. Those that you know, you can tell me right away. And maybe from my experience working with similar businesses, or just through conversation, we identify additional risks that weren't present or readily known when we first started working together. But ultimately, the idea is that risk identification and then tailoring a program that is specifically geared Towards mitigating those risks that you have identified that are most important to you. There's a large concept in insurance called self-insuring. That's being essentially being the insurance company and being willing to pay a certain amount or for specific risks that you're willing to eat the cost. Every company has a different risk tolerance. Some companies are willing to insure or self-insure a small amount of risk for specific risks. Some are willing to self-insure for risks in their entirety, or some are willing to just gamble and say, I don't think that this is a real risk, so I'm not going to insure about it. But I'm here to help you identify and make the decision for what makes the most sense for you and your business.

Mm-hmm.

So I'm advising and acting as a consultant To help make sure that the insurance program at the end of the day is buttoned up, it's tight, and it's doing exactly what you want it to do. So there are no surprises come time for a claim. You're not going to think that there's coverage, file the claim, and get the, sorry, this claim is denied because you don't have the right coverage. Right.

And you're also, you're also, Jason, working with them towards that again, that kind of, that, that, that more strategic kind of of place, right? Guiding them in terms of the value, how this either protects or increases the value of the company too.

Correct. It's understanding that while this is a line item on your income statement, this is the value that you're getting. While it's not a direct measurable ROI, you're not buying insurance for $20 and receiving a payout for $50 and then $70 and doing a discounted cash flow. to identify the value. Rather, it's a strategic impact, and you're gonna look at it and say, I'm protecting my bottom line by ensuring and mitigating these specific risks. That's the value, not calculated the same way again that you're calculating a return on investment, but you're looking at it as a strategic investment. that is going to make you more valuable come time for a sale or any exit for that matter, and help you sleep at night. I think that's a big thing as well. You don't want to lose sleep. You're going to lose sleep because of the operation of your business. You don't want to lose sleep for unpredictable risks if you don't have to. Some things are uncontrollable, but some things are, and this is something that's controllable. Be serious. Do it for your business. Do it for the value and do it for yourself.

So true.

So that's good advice, Jason.

Really, really good advice. Jason, how can, uh, if people want to contact you, Jason, how can they, uh, what's the best way to reach you?

Yeah, of course. So I, as Joe mentioned, he, my content on LinkedIn, I'm very, very active on LinkedIn. Again, my name is Jason Eisman. You can search me on LinkedIn. Please connect with me. I'd be happy to connect with you. You can follow my content. Hopefully there's something valuable in it for everybody. Comment, engage. I love to engage back. You can message me privately. I believe my contact information is also on my LinkedIn page, my email, my cell phone. That's another thing that you get with me. I am always available. I do my very best to be very responsive as well, because I know that when it comes to insurance, when you're leaning on it and you need it, it means that something serious has happened or is going to happen, or you're aware of something that you want to protect. And I don't want you to lose sleep not knowing that you're being protected or you're in good hands. So I am readily available. I have a pretty good, very good response rate. I'm going to be as responsive as I can with you, just as I am with my current prospects and my current clients. So if you get my phone number, call, text, email, you can email me, engage with me, reach out to me on LinkedIn.

Excellent.

Very easy to connect with.

Excellent. Jason Eisman, thank you so much for being here on the ExitEngine Podcast today. Really, really great information. Guys, reach out to Jason if you're— just for an audit. I think, Jason, something that you provide, right, is that Jason can come in and just take a look at where you are right now and what you might need. It's definitely worth the conversation, especially if you are even thinking about an exit or passing the business on to somebody else, right, John?

Yeah, I was just gonna say is that I used an audit in the past and it was eye-opening, frankly, and it was a little scary that we, that again, we had been operating in a way that we didn't take care of this one specific risk, or I guess we had it, but we weren't insured to the extent that we should have been insured, right? And I think that's a lot of the challenges, like You might have insurance, you might think you're covered, but like an audit can uncover, wait a second, you are taking far too much risk in XYZ area, or you're, you're not, you're not mitigating your risk enough in this particular area. And that's, I think, something that, uh, that Jason can help with.

Correct. It's scary. It's scary the number of people that go through an audit and they realize That there are surprises.

Yes.

Everybody thinks that they're adequately insured because not everybody knows insurance. They're relying on somebody. And if you don't know any better, it's pure reliance on that person that is handling the insurance for you. And they tell you you're good, you're good. But a second set of eyes can sometimes be that game changer where they say, oh, did you know that you're not covered for this? Did you know You only have this amount of coverage, but statistically this type of claim is going for X. You only have Y. These things unfortunately are happening often, and I'm happy to be that second pair of eyes. I don't want to make this pressuring. There is no pressure if anything is identified in an audit that you need to use my services. If you feel that you want to use my services, if you feel that you can get what you need from me and you're comfortable, then I'm happy to work with you. Otherwise, I just want to help you do what's best for you and what's best for your business now and in the future.

And frankly, it's better for Jason to uncover it in an audit than you to have a claim and have a problem. You know, Jason can help you mitigate it. When you get a claim or another sort of problem, sometimes it's—

Jason can help you when you're actively being sued. Jason's not a lawyer. He's just an insurance guy. Jason, Jason Eisman, thank you so much for being on the ExitEngine Podcast today. Really appreciate it. Really great insight. And I think it's gonna be really, really valuable for everybody. So, thanks. Thank you so much.

Thank you guys so much. I love listening. It was amazing to finally be a guest on the show. And I'm looking forward to continuing to listen and to continuing to hear all the other amazing guests that you guys have on this podcast.

You're the best, man. Thanks. And we'll definitely have you back. John, this topic, right, is a huge piece of stuff that goes often under the radar, especially during exit deals.

Yeah, it's overlooked, and I wish it wasn't. And I wish that, you know, frankly, I learned a lot today from Jason, and it's helped me in the past. It's sort of one of those things that comes up after the fact, and it's like, oh, or my gosh, we— like, you didn't know that you were— like, I didn't know I was taking all this risk before I did this audit, or I didn't know I was taking all this risk before we tried to sign a company and they, and they made logical insurance demands of us. And I say demands, I mean, they made logical requirements of us. When we thought about it, like, this is totally reasonable. They're not being jerks. They're just being reasonable business people, and they think about their business in a way, in a way that is a little bit more risk-averse than us, and that's fine. But like, in order to do business with them, we must be compliant with that. So, so yes, it's very helpful.

I love the way that he talked about this kind of in a holistic way, right? Which is that it's a matter of you, you care, you know, if you care enough about this business, right, you, you will make sure that you insure it to the point at which you, you absolutely can, right? And when the buyer comes along and says, how come you haven't insure this business, uh, we're going to— we, we would, and we're going to make sure that we insure this whole thing. There is a discrepancy there. It does make it seem as if maybe one party cares more than the other, you know, when it comes to this. Really fascinating stuff. It's great to have them on anyway. Um, guys, you've been listening to the Exit Engine Podcast. My name is Joe Stapleton. This is my partner in crime, Jon Kniff. Um, we are, uh, we are bringing you this podcast every week, and I want to make a couple of announcements real fast before we close out, because Jon There's a couple of really cool, exciting things coming up. The first is that we are now— we are actually— this podcast is going to start being available in around right after Labor Day in 2025. This podcast is going to be available twice a week. We're stepping this up. We're stepping this up.

Not just on Fridays, we're adding a Tuesday podcast as well.

Gonna be a Tuesday release of this thing. So it'll be Tuesday and Friday moving forward. There's a special, uh, extra special other podcast that we'll start talking about, uh, soon coming out as well. We'll leave that off table for now, but to hear that. But the big thing I want to talk about real fast right now is that we are planning something really big right now. If you are interested in what we're talking about, if you have any desire to learn more or to be able to de-risk your business that we just talked about with Jason, or any, any of the things that could help you raise your value and saleability, we want you to go right now to myexitengine.com and And give us your email address. That's it. Why do we want to do this, John? Because we are planning a, a, a, a very large, uh, very large— I sound like the Big Beautiful Bill. We are, we are going to— we are planning a really cool, uh, community where you're going to get a lot of information about this stuff, um, in a way in which you can actually receive it as a busy founder. Um, and we're gonna hook you up with all the people like Jason that you hear on this podcast and give you access to all this stuff. And we want to— and we want to let you know about all this and when it's going to happen and all that stuff. So go right now, John, to myexitengine.com, give us your email address, and we will let you know over the next few weeks how this is unfolding and when, uh, this, this community is ready for, for people to start joining.

Yeah, and what we won't do is we will not spam you with you know, unnecessary information. We will not send you messages not related to ExitEngine. As Joe mentioned, we will let you know when the product launches, and that's pretty much it. So you're signing up for learning more about the ExitEngine community that Joe referenced. So again, myexitengine.com, sign up, give us your email, and we'll let you know.

Exactly right. So we hope you'll do that and look for some messages from us about this new community starting In September. Um, thank you again, everybody, for listening to the Exit Engine Podcast. Again, I'm Joe, that's John. Um, guys, have a great, a great week. And remember, please, to make sure that, that the, the value of your business, okay, is probably A, not what you think it is, but, but, but your sellability is probably even worse. What we're trying to do, guys, is help you examine these things and know that you've got options, right? And you've got the ability, you know, your own power. All you got to do is just pay attention. And you're gonna be able to raise your value to salability, probably double it if you listen to this podcast. So that's what we're trying to help you do. John, thanks again for everything. Have a great day. We'll talk to you soon.

Thanks, Joe.