The Exit Engine Podcast Episode 57: Moving to the Exit

Welcome to the Exit Engine Podcast, episode 57. The thing, John, about, uh, about exit planning is that people don't know what it is. And, and I think a lot of it is the fact that it also doesn't feel like it's imminent, right?

Yeah, it's like eating. It's like, you know, and we've talked about this before on other venues, but like, it's like eating well and exercising, right? So like, everyone knows that you need to eat well and you need to exercise. But like, you know what, like, I'm on vacation this week and I'm going to eat onion rings and I don't want to like exercise. I don't want to do crunches. So I'm going to put it off. And that's the sort of same thing with exit planning is like, I feel comfortable Doing what I've done for the last, I don't know, 15 years, and I've built my business and look where I've gotten. I've gotten to this point and it's— my business is going great. It's a lifestyle business. I'm doing fine. No problem. But like, but exit planning requires you to think differently, right? It requires you to think from the perspective of a buyer and someone who's not you, right? You're not thinking— when you're doing exit planning properly, You're thinking from the perspective of, of above the business and you're floating above the, of your entity saying, right, what's this? What is this like? Like, where are my deficiencies? And that's gonna be tough for people.

It requires, it requires people also examine themselves, which, as we know, is a hard thing for human beings to do, right? I mean, it's, it does take a little bit of yourself and figuring out what is it that you want and what are you getting clear on some goals and things like that. But even so, I think that the reality is is that what most people are just unaware of is that what exit planning will do for them even in the short term. And so today, what we wanted to talk about on the Exit Engine podcast is how what can we teach you today that will actually help you increase your company's value and saleability in the next year, right? So let's just let's let's what we want to do today is set the stage and say, "Hey, look." Here are the things that if you do these things right now and start today, that within the next year, you can raise your value and salability somewhere between 50% and 150%.

Yep.

Now, that sounds like a lot, okay? To double the value of my business, right? Because here's what people think that their value of their business is. People think the value of their business is their top-line revenue.

Yeah, or they have some sort of outsized number about, oh, you know, it's, you know, 4 times revenue, or there's some metric that they've heard that like the guy down the street or the guy that they were playing golf with said that their business was 2 times revenue, whatever, or, you know, whatever that business happened to be.

Right. So, but the reality is, again, when I think about the value of my business, Especially if I'm not in an exit mindset, right? What I'm thinking of is I'm not thinking about my business as an asset. I'm thinking of my business as the money it creates.

Yeah. And oftentimes, not only that, but you're thinking of it as like a lottery. Some people think of it as like a lottery ticket, right? So in other words, they're not thinking from a metric, or it's like, oh, I would sell my business. If someone won the lottery for $10 million, right? And your revenue is $2 million, it's like, well, yeah, I think anyone in the world in their right mind would do that. But that's not realistic. Just like, again, lottery is a tax on people who can't do math. So it's like you can't think in that way.

And the reality is you need to think a little bit bigger than that, right? And by the way, there is short-term value that's created by doing this as well. Right. There are— there's a byproduct of exit planning that is the here and now. It is the notion of being able to go through this exercise and examine your own business, understand what a buyer will see when they look at your business, and being able to adjust those things in the positive.

Right.

To be able to make that something that is something that is going to be— that's how you get salability. Right? You get salability not because one person wants to buy you and luck out in the lottery example you just gave, but because potentially multiple people would be interested in you. And if you can get multiple people interested in you, that is going to increase your value in the eyes of all those people, right? But at the same time, when you, when you start to put into place the things that we preach about, about you, about your business, Understanding your financial picture for real, being able to create, you know, reliable projections, right? Being able to look at your— about calculating your profitability the right way, right? There are, there are a bunch of things that you could be doing right now that would be optimizing your business and raising its value right away, right?

Yeah.

Without having going out and getting another client, right? Which can take months. Right? Without going out and making some giant acquisition of another company that could take months, you know, to come and a lot of cash, right? Without making a brand new segment of your business that's going to require capital to be able to get going and things like that. Right.

Without magic tricks, right? These things we're going to talk about are tried and true things you can do right now, start doing right now.

That's it. And the reality is, is that when we add— when we teach these things inside our new Exit Engine platform, which we'll talk about a little bit later, um, you are going— these are the things that you're going to get, right? And again, as John said, this isn't magic, right? There's nothing here that's magic. It is simply a matter of— sometimes it's a matter of getting rid of the noise, right? And being able to actually see what's actually there. Right, without the distractions. And so the first thing that we teach people when we're going through this, whether it's with Exio or on our Exit Engine platform, is creating an exit mindset, right? And that whole thing, again, call it an exit mindset, call it a— I used to call it a meta mindset, right? The management of being able to— the idea of being able to manage your business at this level above where you can really see everything. I don't know how many fishing people are out there, but, you know, like, you know, these boats that have these things called tuna towers, okay, which is the ability that— the reason that they do that is because it gives the captain, right, the person who's controlling the boat, a view of everything around the boat that's going on, right? I can see a distance. I can see the lines in the water. I can see the people on the deck. I get a better view of everything that's going on, and it helps me make better decisions. If I am driving the boat inside the boat all the time and never walk out on deck and never look around at what's going on and never listen, right? And all I do is just listen for stuff or not listen to the feedback that I got on the deck. I don't have a good view of what's happening. Right. And so the first thing is being able to set yourself up with the right view of the company.

Yeah, no, you're exactly right. And I love that analogy because, you know, again, most times the captain isn't the one that's got, you know, rods in the water, right, on the tuna boats that I, I've been on, is the captain is the one that's, that's making sure that everyone else is sort of doing their own things and, and removing, you know, and getting to the right spot so that he, if he can see the fish running and he can see things on the horizon, boats catching fish, that he, he heads to that area. And, and that's the exit mindset, is you, you're again, you're at the top of the boat, you're at the top of your business, You're not selling your product. The product that you're selling is your business. And that's the mindset and the perspective you have to have in order to properly, again, acknowledge the flaws, acknowledge the things that need to be improved, look at the business from a— I don't want to say rational because you're thinking about it rationally, but sort of a detached view of what can be improved. Where can I go? Where the fish are.

That's it. That's it. That's it. And then, and then also, what if I'm— what if lines are tangled, right? Like, there's efficiency. There are things about that. Maybe I, I need more lines in the water, right? What— whatever those things are, the idea is that it's not just about catching more. It's, it's all about catching more fish, but it's also about creating the ways in the smoother ways to be able to catch more fish, right? Opening the doorways, clearing the path of junk that's in the way, right? And the same thing is true when you consider your business, right? That, that one day you want to sell your business. So let's just say for the sake of argument, okay, that one day you're going to want to sell your business, okay? And maybe that day is 5 years away or 10 years away or whatever. It doesn't really matter, okay? But what it will take for you to sell that business, okay, is to be able to examine the business as soon as you possibly can and set that business up for the— set that trajectory for exit success, which is different, okay, than just setting it up for revenue success or just for profitability success or just so that I have enough money to be able to, uh, you know, to be able to send my kids to good colleges or whatever, right? So there, it's larger than that. And I think that What most people miss, too, is that the good news is, while that seems like a long way away, or it might seem like it's down the line and I've got bigger fish to fry, no pun intended, the reality is that it's the frying of those fish right now directly relates to what will happen to you down the line. And the understanding of that, the linking of it together, and the decisions you make around those things are what sets you up for exit success. Even if you're 15 years away today. So on this show today, we're going to dedicate this entire hour today, okay, to walking you through growing your company's value somewhere between 50 to 150% in the next 12 to 24 months. All right, you pick the timeline, you pick how long you have, that's up to you, right? What we're going to do is tell you the things you need to examine, the things you need to look at, right? And, and, and, and give you a, a, a general kind of roadmap into how to do this. Okay? And I think that what we want and we hope to get out of here, and today in particular, is we really want your feedback today.

Okay?

And I know we ask for this all the time at the end of the thing, but I'm going to make a kind of a case for it right now. We want to hear your stories. Okay? We want to know what you've done. We want to know what you agree with, what you disagree with. We want to hear from you, right? We know you're out there. We know you listen, right? We know you're there, but we want you to— we want you to feed back to us. Okay, so at the top of the show today, instead of at the bottom, we're going to say this: you can reach out to us directly anytime you like. Okay, you can email me at my main email address, which is jo@myexitengine.com. You can email John, joh@myexitengine.com. You can subscribe to this podcast. You can leave a comment on LinkedIn. You can talk to us. There's so many ways to get in touch with us. We want you to do it. We implore you. Okay, we're asking you to come and say, what you said on the podcast really made me mad, or what you said on the podcast really helped me. Either way, we really want your feedback, right, John?

Exactly. Yeah, because, because again, what we're going to go through here are tangible things. And, you know, some of them, to people listening, were like, oh, I can't do that. And there's all sorts of blockers you're going to put up to why you can't do this, why you can't delegate, why you can't, you know, switch your accounting, or why you can't do all the, you know, your timeline, you can't figure out your timeline. The thing about all those things is, yes, you can, and they can all change, right? The point of doing these things timeline is by definition the timeline is going to change. If you think you're going to— my mother wanted to sell her business and she— one of the conversations I had with her was, I want to make it through one more season. And she'd usually say that about September when it starts to get crazy because the busy season in the candy business was around Christmas. She's like, I can make one more season. And so that gave us like 16 months. In order to sell the business, or I'm sorry, 12 months in order to sell the business. Like, okay, great. Let's get started on doing things now that you can prepare so that next August you can be ready to sell the business.

That's it. And again, that's a context where you are a year away, right? But the other thing to know is that you should be, right, a good business has an eye towards this the entire time. Again, it may not be your full-time job.

It shouldn't be.

Okay? You've got lots of things going on as the founder and owner of a business. We know, believe me. Okay? The fact of the matter is that we carve out twice a week the ability to, right now, an hour and a half to record this podcast. Right? And the reality is it's not for a lack of things to do. Right? But because we, again, same thing, we are running, we're running businesses or working with clients. We're doing a lot. Right? So what we're— the first thing we're going to ask you to do, okay, is to step back for a second, okay? Take a deep breath, okay? And realize and just admit to yourself, okay, that there is more you could do to make your business sellable and more valuable.

Okay?

So that's, that's the first thing. And by the way, that's true for everybody. Okay? But I want to give it some context, and that is that it's okay also that your business isn't ready. Because most businesses aren't. Okay? And in fact, we also know, and we've said this statistic 100 times over the course of the last 53 episodes of this thing, 80% of businesses will just die on the vine. They will just go away and disappear and never amount to anything. And that's after the 5-year mark. Okay? So generally speaking, you make it 5 years through a business, and chances are you are now going to survive. You've made it through the hardest times. You've figured it out. You've had enough time to figure out what works and what doesn't. And generally speaking, you are, you are now surviving if you get past the 5-year mark. It is a generality. Okay, but we see it works itself out to be mostly true. So I get that past that 5-year mark. Now I'm in a situation where I think I can continue, and that's great. Okay, figured out the process. I figured out some stuff. I've got some clients or some customers or whatever. I've got some people I'm firing. You know, kind of on all cylinders, and that's where the magic starts to happen. Okay, now there are going to be some other rough periods that pop up. Okay, getting over a— getting over that first million-dollar hump is hard. Getting over the $5 million hump is hard. Getting over the $10 million hump is hard, right? There are things that happen, and, and, and the nature of the business changes over time as it grows. It gets larger, right? It gets more people. Ostensibly, it gets Right. It gets— there's more revenue, there's more parts and pieces and right processes and things like that. Right, John? So as the business grows, it only gets more difficult, not less. Right.

Yeah.

Guide this ship in the right direction.

Yeah. And then, yeah. And one of the most important things is, again, set— get clear on your exit goals, what you want from your business. So as Joe mentioned, all those things that are going on in the business. You need to set your goals because, again, you will never get to where you want to go if you don't have something written down, right? So like your desired timeline, what you need from the business. Again, think of the business as an asset that can be sold for you to achieve your personal goals and your legacy, right? Maybe you want to keep the name on your business. So what are those goals and write them down on a piece of paper, including your timeline, what you want from the business, and any sort of other either legacy or different goals. That will help you know, you know, what you need to do. And you'd be like, okay, I have 2.5 years, or I have 4 years, right? I have 5 years left in this business. That's the first thing. Get clear on the goals, because then again, you can arrange everything else to work to get there.

It's exactly right. And I think that the failure of people that we see on the sales side, of people who are not mentally prepared for 2 things. One is the fact that their business goes away from them. Okay? So many of us have our identity very much wrapped up, okay, in what we do for a living. Okay? Especially men. It's a modeling thing. Be great if it didn't happen, but that's the truth. Okay. And so, and as we, no matter what kind of founder we are, no matter what our gender or anything else, the idea is that the more time we spend in this, like anything else, the more it gets wrapped up in who we are. Okay. And so to suddenly one day wake up and have that or face the possibility of that going away, I cannot underscore enough. Okay. is an incredibly unsettling moment for everyone, okay? It doesn't matter. Now, some people are burned out, man. They're like, I am done with this thing, I am over this, I just want out of here and the whole thing. And that happens, okay? But by and large, most people are not prepared for the feeling of lose— of having the business go away. It's like losing an appendage, okay? It, it'll feel like your arm's gone. Right? So the first thing is to prepare. How do I prepare? How do I hedge against that feeling? This is what would by what with what John said, right? Which is understanding what it is that I'm going to do next, right? Am I going to retire, right? Am I gonna am I gonna take this money and go travel or and do something else? Am I going to take this money and go start another business, right? Am I going to make an invest? Am I going to go and be a uh, you know, a VC, right? Do I want to have a— I want to be an angel investor? Do I want to go out and, and, and, and become, uh, an exit engine advisor and help people with their own, you know, get through their exit strategies and stuff like that, right? That's just a few possibilities, right? But the idea is, first of all, is understanding where it is you want to head. Before you can build any kind of roadmap to anything, you need 2 pieces of information. This is where I am. And this is where I want to head. And where I want to head in the context of exit planning is specific. What am I going to do after I sell this business? How much money do I hope to get from this business so that I can do that stuff? And how do I want it to be arranged? What are the terms I want? Do I want to pay myself and get a big giant lump sum of cash, which is going to have tax implications and And plan— you wouldn't need more planning and things like that too. Do I want to sell it to my employees? Do I want— am I going to pass it on to my son or daughter or my niece or my nephew or something like that, right? Am I gonna— do I want to have my— we saw— we've seen cases where, where, um, it's, it's— I get a lump sum of cash, but then my wife gets paid in perpetuity, um, you know, as long as she's alive, right? I mean, there's There are all kinds of terms out there, right? And the reality is the terms that you want can be gotten, right? And the way that you're going to get them is first by identifying what they are. And then the next thing you're going to do is you're going to drive the business towards those things. You're going to make the business as sellable and as valuable as you possibly can, because the more saleable and valuable your business is, the more likely you are to get the things you want.

Yeah. And so let's assume you have that, right? You've done your your work, you've put them onto paper. And now, so you have where you are now and where you want to be.

Right.

And so what you really need to do next is you need to assess where you are and not just assess where you are from your perspective, but you need to assess from a, you know, and we have an assessment. So we call it the total exit value, right? What you need from your business, right? You've said, I need $8 million and your company is worth $3 million. Well, there's a gap there and you need to like sort of reverse engineer your plan to get there. There's, there's projects, there's things you need to do to get to, to close that gap between $3 and $8. And the best way we've found is to take our— take an assessment. There's all sorts of assessments out there. There's valuations, everything. We find that our assessment is quite good and puts people in the mindset of, oh, it asks questions, provides answers, and gives you a plan, provides a skeleton plan to help you close that gap between the current valuation of what you are, the current assessment of where you are versus where you want to go.

Exactly right. And so again, clear on your exit goals, understanding where you are right now, by assessing the business in this facet, right? This isn't— again, you may have specific problems or issues in your business that you know. And when you go to try to solve those things, you are taking those things and separating them out and examining those things, obviously in context, but also then on their own. And you're coming up with a plan for that specific thing, right? And hopefully over time, you solve that challenge or you improve that something that's been lacking or whatever it is. Because you've taken, right, a bespoke, specific action toward changing it, right? The same exact thing is true when it comes to what we call exit planning, right? It's, which is really at the end of the day, just really good, right? Strategic business planning.

Yep.

Okay. You have 2 things that you can control. Okay. The value of the company, meaning that it's financial performance, it's profitability, it's right. It's, it's the way it grows. Okay, where the direction it's growing in, you can control those things to some degree, right? Then there's your sellability, right? And your ability to be able to— can this— is this entity, right, transferable to somebody else who can then take it on and run it and grow it themselves and whatever? And the more that you're able to do that, the more packaged up, the more de-risked, the more attractive it is, the more it's got repeatable processes, The less it has you involved in it, right? The more, the better your management team, the better, right? These are the things that create value and salability, right? And so your plan is gonna, again, as John said, you're gonna start here. You're gonna, you're gonna know where you wanna go. You're gonna examine the business. Okay? And our Total Exit Value System allows you to do that. It's gonna show you 10 different areas of the business that you need that, that are gonna help. And it's gonna start asking you questions about those areas of your business. Okay. And the questions in exit planning are far more important than the answers. All right. Because if you don't know what question to ask, if you don't know what to examine, if you don't know the things that you can look at and try to lift up the, lift up the carpet, the rug, or whatever, and look underneath, right? Well, you're gonna miss out on intrinsic value. And that's the fastest way to actually grow your business right now.

Yeah. And we know this because We've talked to buyers and we deal with buyers all the time. And I don't want to say it's rinse and repeat because a lot of times, you know, each firm that we deal with has its sort of nuances. But in general terms, right, the buyer of business, the buyer of a business wants to ensure that the business is independent of the owner, right? It can be purchased, right? It goes back to what Jo was just saying before.

Yeah.

was about salability. Is salability— the flip side of salability is buyability, right? Right.

Is you—

a buyer doesn't want to buy an entity that's dependent. We've said this, I've said this a million times, but dependent on the owner who's gonna be going on to his next thing, right? That could be— he could be a VC, she could be going into a different business. You don't wanna be calling that the old buyer, the old owner of the business when you own this business and saying, Hey, how do I reorder, um, you know, the, the mats for the, for the, for the machine? Oh no, no, that's not the way it works. It's— you, you want to buy a business that can be— that's turnkey, that can be turned on. The buyer's there as an advisor, the seller's there as an advisor, but you are operating the business as a new buyer, either detached or involved to the extent that you want to be involved. But That's a key thing, is buyability is the flip side of, of saleability.

It's an excellent point. And so everything that we're doing here at ExitEngine, okay, is about looking at your business through the eyes of a potential buyer. There are different kinds of buyers, they have different agendas, and they've got different ways and different plans for what they're going to do with the business and how we're going to operate it and all that stuff in the future. And again, Finding the right buyer for you as the seller is also a key piece of this. Okay. But the idea is the more value and salability I create in my business, the more options I create around who will buy it, what I can get for it from a term standpoint and things like that. It's very simple.

Yeah.

The more value I have, the more options and the more terms I get and the more potential, the more bidders I have. And that increases the value of the business even further in terms of the final final sales price.

Yeah. And yeah, and the way, one way, again, we're getting into the, we're getting into the actual strategies. You know, we talked about clear exit goals. The next, the next one on our list is, we alluded to it earlier, but building up your team, right? Building up your, reduce the dependency of the business on the founder, on you, right? You've, again, you've built your business, you've gotten it to this place. But again, what we just talked about is it's not gonna do you any— it's not gonna do any favors if you continue to be the one that people go to for all the answers. First of all, that gets exhausting. And second of all, it's not gonna be appealing to any buyer out there. So again, reduce dependency on the founder and start delegating things now and building people up. Because when you meet with buyers and when you talk to buyers in the future, And again, this isn't something that can be done on a Tuesday, right? It's not something that you go back in after Labor Day and you say, meet with somebody. It's like, no, no, no. You certainly should meet with someone sooner rather than later, but you have to actually give them power and either elevate them through a promotion or through responsibilities. Test people out. Work with your financial officer, work with your operations person, and give them more authority. And when people come to you for questions, As an example, even if you can answer the question, even if you know the answer and the answer is blue or, you know, Ascend Systems or 5, whatever the answer should be, say, you know what? Sarah is the one to talk to about this because she is the expert and she knows all of this. And Sarah is going to make mistakes and you're going to coach her. And that's what you need to move towards. You need to delegate and coach people. Because that needs to be your role when you're preparing your business for sale, is build up the people around you so that, A, no one's— people aren't coming to you for the answers to questions, and you're building up the capabilities of your team who will be here presumably after the sale of your business.

And here's a great test for that, okay? It's a very simple test. You need to be able to leave the office and go on vacation for 5 days For 5 days, okay, without, without someone from the office contacting you.

And, and without— sorry, I'm gonna step all over your toes, but— and for you to not go and ask about how things are going, right? If there's a fire, okay, fine, they can. But there's, you know, very rarely fires— knock on wood, hopefully that doesn't happen. But like, if there's some sort of catastrophic event, you can expect them to contact you. But if it's business as usual, Don't contact them and be very clear with, don't contact me. I'm at the beach. I'm— don't contact me. Don't— do your own thing. Figure it out. If there's a fire, contact me.

And so if, if, and so if you, if you, if you can pass that test, then you're going to move to the next test, which is, can you go 30 days, right? But the idea here, okay, is that, is that what we're trying to point out is you have to, in order to sell your business to somebody else It has to stand alone without you. Okay? Now, there's a transition period. There's an earnout. There's lots of things, lots of idiosyncrasies and ways that people want, you know, the buyer wants you involved for the first couple of months or years. Okay? They want that transition. They want to get all your learning. They want to make sure, they want to pay you, uh, and because they want to make sure that they haven't made a mistake, right? There's, there's all these reasons for their earnout period. And for, and for things, and for you sticking around a little bit as an advisor or consultant. Okay. But in general, okay, the buyer does not want you. The buyer wants the company that you built, right? And that runs on its own without you, period, the end. And that is, if you cannot get to that point, you will never sell your business. I'm telling you right now.

Or, or you'll never— You'll never sell your business for what— for A, what it's worth, and B, what you want.

Right. And I would say, like I said, I will stand on the fact that again, you will, you will not be able to sell it. Okay. And again, look, you may, you might give up and might give in on something or whatever, other things, or you might be able to sell it at a fire sale. All right. That's not what I'm talking about. I'm talking about your terms. Okay. If you want to get what you want on your terms and the way that you want it, Which is what we're all about. Okay? What we're about is getting the sellers what they want, what they deserve, what they have earned over time. Right? And, and the, but we know, we're telling you that if you can't get out of the way as the owner of the business, it is going to be almost impossible for you to move forward in the way you want. All right? So that's just it. It's just that simple. And again, you can talk, ask anyone.

Okay?

It's not just us saying.

Right.

So yeah, that's that— build that strong, that leadership, and, and then the succession plan that goes along with it. I will also add to that, John, because what people need to know is, like anything else, is what happens if, right? So we talk all the time about the 5 Ds. We talk about the, the ways that most people exit their businesses: death, divorce, disability, disagreement, or dissolution. Those five things are the way that most people will leave their businesses. Okay, and so what you want is to be able to hedge against those things, right? It's about also about the succession plan because we want to hedge against the five Ds as well. Part of your exit plan should be saying what happens if what happens if I die? What happens to the company if I get if if my wife and I get divorced? Right? What happens if our partners disagree, right? And, and there's a falling out in the part— on the— in the partnership suite, right? What happens if there is— if, if we, we suddenly lose 3 clients and we're starting to go out of business? Okay, these are the things, these are the real-life things that happen and get in the way of most people's— the best exit plans. So being able to be able to say, this is the plan of what happens, and communicating that plan Having a succession plan and a leadership team in place will raise your value by 30% to 50% right from the jump.

Exactly, exactly. I couldn't agree more. And it's true. And trust me when we tell you that when a buyer is looking at this and they're looking and, you know, look at VCs, look at what all investors look for, they're looking for a business that's been around for a while. is what— who's the team around you? Yeah, okay, Joe's here, but who's the team around Joe, Mary, Paul that, that is going to be here, A, when, when this is gone? And if it's just the Joe show, how strong can the business be? So, yes, that's super important. Leadership succession planning.

And again, and so what are we doing when we say these things and you have a good leader, you start to build a leadership team and you have a succession plan in place, you have just added to the— majorly to the value and salability of your business.

Yes.

Get it? All right. So now you're in a place, right? So that, that is you. And what have you done? Have you raised the revenue? Not necessarily. Have you changed the profitability? No. But yet you have— yet you have added to the value and salability of your business.

Right. And, and, and you do— you're de-risking the business, right? So you're, you're, you're, you're promoting more people. You're spreading out the knowledge in the business. So that's good.

So next one. The other thing that is relatively simple to do that will raise your value and salability significantly right off the bat is improving your financial visibility and cleanliness.

Yeah. And that, what that can mean is any number of things, right? We've had clients where we've gone in and we've completely cleaned up their books and it was a complete mess beforehand and you couldn't really look at the business before this has happened. So that's one end of the spectrum, fixing mistakes and fixing things that were wrong, to the other side of the, of the, of the, of the coin, if you will, or the other side of the spectrum is, is true cost accounting, right? Where you have a situation where you have, what was it, 5 products or 4 products, I think it was, and one of them looked highly profitable when in fact It wasn't, and the costs were not allocated properly throughout the product. So again, in that situation, one product looked highly profitable and 3 products looked marginally profitable, when in fact, when you went back and did the accounting and when you attributed the cost, right, the inputs to that product, the way, how much it costs to deliver the product, the support, all those things, it was like 4 marginally profitable products. And so that, that the buyers looked at that product, looked at that company and said, like, what I'm going to do is I'm going to buy the company, sell the 3 products and focus on the core product. Well, that wasn't possible anymore because it wasn't that highly profitable product that was driving the business. It was poor cost accounting that was making that company, making that product look profitable. Then they couldn't shed the other 3 products because there were people actually supporting the core product that were not on the books as supporting that core product. So it's a long way of me saying upgrade your accounting, go from cash to accrual, make sure that your product lines are truly profitable and reflect the actual profitability of each product line or service.

And by the way, you can then take a deep— after that, you can start to take a deep dive into things like customer concentration, right? You can start to look at the profitability across product line. You can look at profitability across salespeople. You can look at profitability 9 ways from Sunday to get a better picture, a more accurate picture of what your actual profitability is. And when you do that, now you've got a real benchmark to be able to figure out ways in which you can improve your profitability, right, as an example. But the most important thing is what we're saying here is that most people are not— are incorrectly accounting. If you can change the way that you're accounting and make your accounting more accurate, you have just upgraded your business's value and saleability because it is transparent, it is visible. I can share these, the, these, these financial, this financial data, these documents with a potential buyer, and that buyer will easily and correctly be able to look and examine the business and say, yes, this is a good, healthy, stable business that I want to buy. If they have any question about what's real or what's not, or anything ever gets put in their head about, about things being off or not right, or 2 things not matching up, okay, they will either walk away, okay, right away, right? They will. Or, or, or at the very least, they will start— this is where they start to basically start to drop the asking price, right? They, they are purposely looking for things they can use to be able to change the, the, the, the, the price that, that is being discussed to make it lower for them. They are looking for deals. They want every single dollar they can possibly get, right, out of this company so that they can, so that they can take it and, and make it as profitable as they possibly can. And I'm, by the way, I'm not saying that everybody who buys a business from, from everybody is, is going to be able to do that stuff, right? Uh, just to be clear, we're making the buyers look like heroes here, okay? But I want to be clear that it's a matter of what it looks like through the buyer's eyes when they are, when they are taking their capital, however they're getting it, and they are investing it in a business that has been around for 30 years. And again, a business has been around for 30 years is a good thing, right?

Yes. And yeah, and, and, and just to get back to— I want to make another point about accounting is like You know, rest assured that the people buying your business and the people that are in charge of that money that's going to eventually hopefully go to you when they're buying your business, they understand accounting. They understand finance. So you have to have either a financial officer or an accountant or someone on your side that accurately understands accounting. And it's, I mean, again, it's the language of business. So—

Yeah.

If you don't understand it, you need to have someone that does understand it. And also don't completely outsource everything, right? You always wanna ask questions. If your finance person is outsourced, you need to have, you need to know enough to ask them the right questions. Just like exit planning. You need to add, sometimes the questions are more important than the answers when you're talking to a CFO or a fractional CFO or an accountant. Because when it gets— when it comes time to sell the business, it's much easier to sell the business and adjust the figures from something that's accurate to something that is, you know, takes into account EBITDA, which is sort of not a financial metric that a lot of people understand. But when you're changing how you're accounting and how your business looks from the outside and you're using a concept like EBITDA, you must have the core business function and core business accounting operations set so that you can look at it from an EBITDA perspective.

That's exactly right. And again, what we're talking about here is the financial visibility, right? What you're trying to do is to create an accurate, repeatably accurate measurement of the business and the ability to be able to have other people be able to read the business by looking at the financials.

Yeah, and sorry, and as Jo mentioned about something else earlier about the success— succession planning, this isn't increasing— maybe it increases revenue a little bit, but this isn't getting new customers, right? This is just— this is blocking and tackling, to use a football analogy, to get down to the core business is making sure that your business is viewed appropriately and accurately from not only the inside, but from the outside.

That's That's exactly right. And again, we haven't yet— how much money have we spent? Okay, we haven't put a lot of money— we haven't, we haven't made a major investment. We haven't yet had to go and get capital to do any of this, right? So the reality is, is that this is relatively simple kind of back office things, okay, that you're able to do without, without making major capital commitments, right? This is not, as John said, this is not about going and establishing a brand new market or going into a new territory or building a new plant or anything like that. This is just simply the matter of saying, look, this is what I have. This is the examination of where you are right now. And this is the— a large part of your gains will be found here before you even worry about, you know, then about real, like what we think about as growth. Yeah.

Right. Yeah. The next one, right? This, this can be growth and, and, and growth can be A good thing and it can be a bad thing, right? So this is talking about diversifying your customer and your revenue streams. So just as an example, right? So if you have a concentration of customers, either the concentration is in one particular customer and they represent 40% of your revenue, or 60% of your revenue comes from one segment of the business. Let's say it's industrial sector or something along those lines. So there are possibilities where you can increase your revenue and actually increase your customer concentration, right? So if you, in the case of industrials, you get another industrial client and something happens with industrials or manufacturing or whatever it happens to be, or like tariffs come into play, and you can actually decrease the value of your business by getting more revenue. And the way you could do that is getting another industrial customer. And someone comes out, someone comes to you that's buying your company and say, hey, look, with all these tariffs or whatever happens to be on the horizon, I don't want to be this leveraged in 65% of your business now. And it's got— it was 60% last year. 65% is now in industrials. What do you say? That is a legitimate concern for a buyer. And the way that you need to do this is, again, this isn't something that can be done on a Tuesday like the succession planning. This is something that needs to be strategized, needs to be thought about, and to say, look, salespeople, people respond to incentives. This is one example of the way to do this, and Joe has other ideas as well. But like, one way to do this is incent— is to get new customers, incent them to get customers outside of your industrial base with money. So reduce— you can reduce your reliance on one or two customers, you can increase the The incentives you have for salespeople to get something out of your core industry or a geographic region or whatever the concentration of your customers happens to be. It's really important for a buyer because they're going to discount the value of your company if the revenue from your business is too concentrated in any one thing.

Especially, and again, that's going to, as John pointed out, look, the tariff thing, right, is a right now thing, right? Is that always the issue across time? No, there are other things that enter into it. But the idea is that based on your business and what you know about your business and your industry, trying to make sure that you're diversifying your customer base as much as possible across clients, across industries, across vertical markets, whatever that is, is always going to be better than if you have a higher concentration in any one category. Now, the other thing is to basically increase— how do I increase revenue streams, right? And how can I do things like Shift to recurring or reoccurring whenever possible, because that's where— that's where— that's, that's the being able to see recurring revenue, especially on a monthly basis. An annual basis is really great, but on a monthly basis where there is, where there is constant, uh, uh, uh, revenue coming in that can be counted upon, right? That is, that is security. Okay. An example, okay? People who have people who deal in government contracts, okay? Businesses that deal in government contracts are thought to be more valuable businesses, okay? And the reason is is because those government contracts, by and large, are relatively safe. They're guaranteed, right? If you have a contract with the federal government United States, chances are that you're going to that that that whatever the term of that that is going to be lived up to that the government's going to retain its you know the way that it works in America at least for. right now is, you know, that those deals are held up and the government pays and they pay on time and they do all kinds of things. And so that's a very valuable way to go. But if you're not, what happens though if you're not in that, in a business that sells something to the government? Trying to recreate, create subscription models, trying to create service compared with product, trying to create new product lines that are basically, that potentially could be monetized on a regular monthly basis.

Moving from projects, moving from projects to products or services, right? A lot of businesses out there operate on projects and they can, if you can introduce a product to deliver your service, you know, we did this back in the day and I've told this story before, but doing projects all the time is tough because you're constantly relying on the salespeople to get more projects and more clients on a monthly basis when you finish those projects. If you can Stretch it out to make it an annual contract that can be— again, that's a valuable thing when coming to— when a buyer's looking at you to say, what part of this business is recurring? Even if you shift it from 80% projects, project-based revenue, to 60%, 50%, when you lower that, you will increase the multiple at which people are willing to buy your business.

And again, these things aren't necessarily easy or Okay, but they are again directional. And the idea here is that whatever you can do in this thing is going to increase it. Okay, and if you, if you added one customer, a new thing, or if you reduced your dependence on one customer, just one, right, you would be raising your value and salability significantly. All right, can I put a number on that? I can. If you give me your specific business and your things, I can put a specific number on how much that raises it. Okay, but in general, understand that again, this isn't major heavy lifting. This is not going out and buy— and borrowing money or, or raising capital or getting a new investor and make— or some kind of long-term infrastructure project. This is relatively easy stuff to do if you are just focused on doing it, right? Number 5, de-risk the business and increase its transferability. Okay. Again, a general steam. What does that mean? It means things like, have you documented all your key processes? Right? What are your con— what's the state of your contract situation? Are your con— are your contracts in good shape from a legal standpoint? Do they actually hold up? Are they actually good? Are they— Right?

Are they uniform?

Right?

Things like, you know, we, at one of my old companies, we, and it sounds really boring, but when you have leases, and you have multiple leases for like similar things and they're in the same format and they're— you're paying the same things, just like your contracts from your clients, right? Leases, you're paying a landlord. But if that's similar and people understand that those things are on a— you're on an annual basis, or, or your— and your contractor customers are on an annual basis, yeah, those can be rolling. But every month it's going to be X and only, you know, Not having everyone on the annual contract, so not having everyone up on December 31st is key because that turns a nightmare at the end of the year into an absolute nightmare when every bit of revenue for the company is coming up the 31st of December. You want to have those rolling contracts over the course of the year.

I'll throw another thing out there from a contract standpoint that I think makes a huge difference too, and that is that our What do your contracts, from a legal standpoint, okay, are there risks involved in those contracts that you are unaware of? Okay, you may not have gotten called on the carpet on something. Maybe you didn't have a customer who got unhappy and tried to pull out or do things or whatever that were going to be adverse to the business, right? But the reality is that having a legal expert look at your contracts and find the things that potentially are are putting you at risk is another— again, this is what a buyer's team will do. A buyer's team will come in and they will bring lawyers in and they will bring accountants in and they will bring in operational experts and all kinds of things, okay, for people to look at specific parts of your business. And the legal part is a huge part of it, okay? So being able to understand that what you're— what's happening with your contracts, right, where your Being able to have processes that are documented, John, right? You talk about this all the time.

Yep. Yeah. Being able to, again, whatever you're doing, whether you're, whether it's enhancing your product on a monthly basis, what is the monthly schedule? We had a monthly schedule of, you know, releases of, we had a monthly release at one of my businesses, at one of my old jobs. So Everything would plan for that last Wednesday in the month that the process would be okay. Code closes on the Friday, you know, the the Wednesday before testing occurs Thursday and Friday, and over the weekend because we use people overseas. Like that's the process that people want when they're buying like a digital product. But every business has that process. How your how your product goes from raw materials, if it's a physical product, or ideas from businesses, if it's a digital product, into either upgrade of the code or a new widget that you're building. Every, every business has that process from start to finish. Document it. Task somebody with consistent improvement and documentation so that when someone comes and says, hey, what is your schedule? How long does it take you to make a widget from start to finish? Oh, 37 days, 19 days, 6 hours, whatever it happens to be. That's what people want to know. And if they're documented and consistently, and you empower people to consistently approve them and incentivize them to do things, magic happens. They will improve it.

No question about it. And when the buyer sees that and the buyer sees that your processes are documented and they can look it up and understand it by just by looking or reading a document before they buy the company. This is the kind of stuff that, again, this is incredible. This kind of transparency and transferability, right, make it a good deal for the buyer, right? And it also makes it harder for them to discount the value. And so again, what have you done? Maybe you spent a couple thousand dollars hiring a lawyer to look through your contracts. I mean, the guys, this is just, this is a no-brainer.

And again, and you can negotiate, you can renegotiate these, right? You can change, everyone understands sort of when you go back to a client and say, hey, we're gonna change the contract when you, when it comes up for renewal. And that can occur over the course of a year, right? You decide on it for 2026, we're gonna, we're gonna standardize and templatize all of our client agreements.

Great.

The first one, Yeah, it's a little bit of a pain, but you get that sort of consistency from the payment terms, as an example. Those types of things just come in. So every month you get, on the 10th of the month, you get checks, or the 15th of the month you get checks and you get paid by all your clients. It just creates repeatability and it creates process, is sort of underrated in the buyer, in companies' minds when they Exactly.

And again, these are things that are going to immediately raise the value and saleability immediately. Okay. And you haven't spent any major— you know, we're not talking about spending major dollars here. You don't have to go— you don't need to go, you know, raise capital to be able to document your processes. You don't need to be able to— you know, you don't have to go and spend thousands of dollars, you know, on a new website or a new website. You know, even on the legal stuff, even when you need to examine contracts and the whole thing, if you don't have a lawyer on staff or a business attorney that you already use, even if— or whether you do or not, you're talking about a few thousand dollars worth of time to be able to de-risk your company. You know, we haven't even talked about insurance, right? The ability to look at your insurance to see if you're compliant with insurance requirements and things like that, again, costs you very little. but raises— significantly raises the value and salability of your company. Guys, this isn't about going out and make— doing major heavy lifting all the time, okay? This is about learning the, the, the, the— and understanding yourself, understanding your business and where it is, and what are the things— and understanding what a buyer wants. That's the tri— that's the triangle, okay? Get those things, get clear on that stuff, understand where you really exist and where you really are playing and where you're really starting from. Right. And what you'll see is immediate ways to be able to actually change that, that will actually change your value and salability. You ask, well, how will I know how much it changes my value and salability? And the way is that you will, you will come to ExitEngine and you will use our total exit value, our value acceleration calculator, and our total exit value assessment to measure it. Very simple. So let's talk very quickly about what ExitEngine, the ExitEngine ecosystem we're building, John. What it is and why people need to come and check this thing out. Yeah.

And one of the reasons, right, that we— Joe mentioned the total exit value score. You're going to do that right when you join ExitEngine. You're going to take the score and then you're going to go through what we just talked about, right? You're going to go through the process of assessing your business. You're floating above your business, if you will, and assessing it from a non-emotional standpoint. You're going to do those things, right? You're going to do those things we just talked about. You're gonna create a succession plan. You're gonna, um, you're gonna make sure you have enough insurance. You're gonna clean up your books. You're going to diversify your customer streams. Again, that doesn't happen on a Tuesday. It happens over the course of—

Several Tuesdays.

Several Tuesdays, right? Months, quarters. I— again, everyone knows how long your sales cycle— you know how long your sales cycle is. How long is it going to take you to get a new client who's outside of your your concentrated area. I don't know, could be 3 months, could be 6 months. However, you're going to work on that. And then once you come back and you do those things and you take your assessment again, you're going to honestly answer those questions differently because you've consciously worked on your business. The first time you take the TEV score assessment, you're going to get a score based on what you've done so far. But when you consciously work on your business and you do the things we talked about earlier, And throughout all the other episodes we've had and with all the other guests, you are going to honestly answer your questions differently because you've worked on your business. And your score is— guess what? It's going to improve. It's going to get better because you can take a vacation. You can not get contacted for 5 days. Your revenue concentration is going to be less than it was in, in the— when you first took the assessment. And you're gonna answer the questions differently. So your score is gonna go up, and that will increase the value of your business and the marketability— sorry, the saleability of your business to a buyer. And it can go up 50%, it can go up 100% based on the things that we just talked about earlier in this podcast.

And the best part is, is that we've built— we are building a platform right now that you're going to be able to access, and you're gonna get all this information from You're going to put in your information and you're going to get back your total exit value score assessment. You can discover how valuable and sellable your business is. We're going to show you that score always as you make improvements, and you're going to watch that score rise, and you're going to get confident about it. You're going to start to feel as if you have a transferable, sellable business. And again, you may not want to sell your business right now. It's okay, right? But the best businesses are built to sell. Exits are engineered. They are not— you don't luck into them, okay? The best exits are the ones that you— that are intentional and that you engineer. And we're going to— this platform will teach you how, all the ways in which you need to do that, right? You're going to get an exit roadmap when you get in here. You're going to take the T— the Total Exit Value Assessment. We're going to provide you with a timeline and a roadmap, and then we're going to start dripping, drip irrigating you with with the things that you need to do on a manageable— in a manageable way. Okay, this is not, uh, this is not, uh, getting in here and spending, uh, an intensive, you know, 6-week course. No, this is over time. This might be over years. Okay, but the, the ability for you to be able to track your score over time as you make these changes— there are 2 major other benefits that you're going to get out of this. Okay, being a member of this, of the Exit Engine ecosystem. You're going to get access, direct access when you need it. Okay. With, to, for, to get to, to get the advisory partners that can help you do specific things that you need to do when you need to do them. Okay.

So example, right? So example, you, you know, of the things we talked about earlier that maybe you don't need help with the succession plan, right? You've got that set. You've, you've, you've consciously done that just through the course of your business. You don't need that, but you do need a person to help you with your goals. You need a person to help you with diversifying your revenue streams, and you need to clean up your books. Those people are in our advisory partner network and are part of the ExitEngine community. So they are there as a resource to you, and there's a profile page on them so you can differentiate between the people who can help you with your accounting and finance Versus the people who can help you with your sales. Because let me tell you, folks, we're not gonna— it's not a one-size-fits-all here. We have a diverse group of experts in the ExitEngine community that work on the discrete projects with you. So it's again not a jack of all trades. It's a finance person, an accounting person to help your finance and accounting. It's a salesperson or a sales pod that can help you with sales. And it's a leadership development or a, um, or a, a goal expert, someone who can help you with goals, who really understands how people to set goals and achieve those goals.

And, and, and, and any of the people that, that are right, we have, we cover basically every, every single, you know, area of business. Okay, so if you need legal help, we've got that. We've got, we've got help with marketing, with sales, with HR. with, right, with, with basically every stripe and facet of kind of functional business area there is, okay? And you got multiple choices, okay? Not everybody's right for everybody. There's geography, there's vertical market specialties, personality, personality, all that stuff. But what you will find is that these people are there, they are actively participating, okay? They are creating content, right, that you— that is usable in the whole thing because you're in there. And a lot of that stuff is going to be stuff that you're going to find very valuable. Okay, in addition to that, okay, so you've got this content, you've got this learning, you've got these tools, you've got the advisory partners that you have access to. And the other thing that's really huge is that you get it— you have access to each other. What does that mean? Well, everybody here is a founder of a business. Everybody inside Exit Engine is a founder, a business owner of some kind, even the advisory partners. Everybody can identify with what you're going through as an owner, okay? Your ability to be able to surround yourself with peers, okay, who are also going through this, who can help you with— based on their experience, can come to you and help you do things, right? This is a major piece of being able to have a community around you. It is lonely at the top. We know this, okay? And being the guy sitting in the tuna tower Okay, to, to continue the analogy from before, right, is, is, is lonely. All right, but when you start getting on the radio and start talking to other captains about what they're seeing and what they're doing and how they're approaching this particular situation, right, suddenly, suddenly things become much easier, right? You feel better, you feel surrounded by help. Okay, and that's one of the things that we want to make sure happens at ExitEngine. Okay, is that when you come into this this community, right, and you join Exit Engine, you are surrounded by the, by the, by the peers, you're surrounded by specialists, and you're surrounded by the content and the learning that can help you basically move your needle in the direction you want to move it, right?

Exactly.

Right. So the, uh, the idea of this, what we believe will happen, okay, is that if you join Exit Engine, okay, and we are willing to put our money and our guarantee where our mouth is, Okay, if in the first 6 months, okay, of being a member in Exit Engine, a full-paying member of Exit Engine, okay, that you can't raise your value and salability by 30 points, we will, we will, we will refund every single dollar that you've ever paid to us. Okay, that is, that is our guarantee. All right, we are so confident that you're going to be able to do some of these simple things that are going to raise your value and salability that we're willing to stake our entire business on. Okay, that's what we're willing to do. How do I— John, how do I join Exit Engine? What is going on there and what is the status right now in terms of being able to get in this community?

Yes, so what you can do right now is go to www.myexitengine.com and sign up for our waitlist. And again, we're not going to spam you. We're only going to send you messages related to the community that we're currently building. And so we are collecting people. We have many people on our waiting list waiting for our community to launch. We expect our launch soon. We're creating the advisory partners, the signing up people left and right. But if you go to www.myexitengine.com, throw in your email address, we will let you know, um, when our community launches. And it's going to be You know, in the next 30 days, by the end of the month of September. So get on the waiting list, let us know, put your email address in, and we will send you only notifications about— that are relevant to launching of the My Extension Community.

That's right, couldn't be easier. Again, again, all we're going to do right now is we're collecting people, and here's why, okay? Because we want a vibrant, right, viable, right, thriving community, okay? And we want lots of people to kind of be there at once, okay? And that's why it's going to be— that's why we're doing it like this. So getting on the waitlist is going to basically help, help you be one amongst the first people to get into ExitEngine and experience the entire thing. We're going to have a special around it and all that stuff as well. So we'll talk a little bit about that in upcoming, uh, episodes. And look for our posts on LinkedIn in particular. But listen, if you— the bottom line is this, John. If you are a business owner or a founder who is serious about growing the value of your business, about growing its salability, about having options for what your business can do down the line, about you're concerned about your legacy, right? You want to get exit ready, right? You don't want to wait. You want to do this right now. So we're imploring you, To, to, to join Exit Engine. Get on the waitlist right now. We're gonna, we're gonna get you into this community in the next month or so, right? And you're gonna start being able to do all the things that we're gonna teach you exactly what you need to do. One thing we should point out is that the other thing that you're gonna get as part of this community is that you're gonna get coaching from us.

Okay.

Uh, us and our staff. Okay. All of whom are certified exit planners, all of whom understand exactly what you're going through, most of whom have been through this themselves as owners. Okay, you're going to be able to get expert advice. Okay, and you're gonna be able to get it on a regular basis. Okay, there has never been a community that has done this before. Okay, this is the very first community of its kind. I know there are communities out there and there's all kinds of ways that people are collaborating and all that stuff, and it's all good. Okay, this doesn't mean you shouldn't be part of those things too, but what this is is specifically around your ability to be able to grow your value and salability, right? So that you can exit on your own terms. Okay? There's much more that will be coming down the line on this. So many things that are going to happen in here. We're going to be able to bring you buyers. There's all kinds of things that are going to happen. But for right now, go to myexitengine.com right now. Put in your— give us your email address and we're going to tell you, we're going to invite you to a place that you can actually get in and join Exit Engine and see what it's all about For all, you know, for yourself. Okay, um, guys, very important episode today. John, again, thank you so much, uh, you know, for, for being here. Guys, we gave you 5 things that you can go right now and do right now, and they're not going to cost you a lot of money. They're not going to make you join anything right now, but there are 5 things that you can do right now that, that you can act that will actually majorly contribute to your value and salability, right?

And while, while you do that, you can reach out to us directly. Joe mentioned earlier, I'm going to say it one more time, joe@myexitengine.com, or me, johhn@myexitengine.com. Reach out if you're implementing those 5 things, you have questions, drop us an email. We're more than happy to send you a note to help you guide along the way. But do those things. Think about them. What's the biggest one? If you only take one, Just take one in the next 15 days before Labor Day. You've got time. Do it now.

And watch what happens. Exactly right, guys. Thank you so much, John. Absolutely. Thanks for listening to the Exit Engine Podcast. My name is Joe Stapleton. As always, my partner John Kniff. Um, guys, go to myexitengine.com right now. Sign up. We'll send you an email. We'll get you involved in here, and we'll start getting your— raising your value and salability right away. Sound like a plan?

Excellent.

Thank you so much for joining us. We'll see you guys next time. John, thanks a lot. Have a great day.

Thanks, John.