The Exit Engine Podcast Episode 7: Ten Actionable Items you need to address right now

Welcome to my ExitEngine Podcast, episode 7. Hey, John.

Joe, good morning to you.

How are you, man?

I'm doing well.

Good, good, good. So, you know, I'm getting a lot of notes from people talking about exit planning and kind of like, you know, especially our social media going, I didn't know exit planning did all this. And I think one of the things that we should talk about today is to give people a better sense of overall really what we think exit planning is, as opposed to, you know, what the rest of the world may see it as or whatever. There's a lot of different— You know, variations on the theme. I'm sure different people have different attitudes towards it. But one of the things I thought we could talk about today was, you know, what exit planning is, what we see it as, what it can do for you. And let's give people something real today, okay? This isn't just talking. I want to give them 10 actionable things that they can do right now, okay, that would basically immediately raise the value of their business.

Excellent. I love it.

So I think it's important to understand that, first of all, that again, the way that we see exit planning is not about necessarily just about some end state someday. Okay. It's really about preparation for any potential situation that could arise. Right. So we want it to— we see exit planning as an essential business planning function. That basically integrates all the other areas all kind of together, right? And when you go through the steps of planning, of exit planning, which we'll talk about in a minute, you should emerge with a plan that you are managing through a longer-term situation or a couple of different situations out there, as opposed to what happens to most people, which is that they get myopic. They are managing their business on what is in front of them today without much long-range, where am I heading and where do I want to end up? You know, what do I want to end up?

Yeah. And these 10 items will improve your business. Yes, they will prepare your business and better prepare your business for sale, but also they'll improve your business. Right? They'll improve your business once you finish them. Items, discrete items 1 through 10 will make your business better immediately.

That's right. And so the thing is to understand about exit planning is that it's not just about this future state. It's about making your business healthier, better, more nimble, better able to react, right? And to give yourself basically a much better kind of like platform to be working from as you move forward. So And it's not something that happens overnight either.

Yeah, because, because, you know, you mentioned earlier that people can have a plan, right? Uh, and what's the boxer say? Like, everyone has a plan until they get hit in the face, right? So you can have a plan to sell your business in 2 to 3 years, but you never know what will happen in that interim period. Someone could get sick, you could get sick, the market changes, a new competitor comes in. Name a million things that could happen between now in 2 years from now. And after going through this exercise, your business will be far more ready for sale than it was before the exercise, before you did this. So you will, after you finish these things and you do these things, your business will be ready for sale no matter what happens in the next 1 to 2 years. So it's a good part of business planning, as you mentioned.

And not only are you making your business, will your business be ready for sale, your business will be a better business overall. So the notion that That if you choose not to sell, you still have a healthier company that is growing. You have— the idea is what we're trying to do is to give people options, right?

Correct.

We talk about controlling your business destiny, right? The idea that you should be deciding how this ends as much as you possibly can. But in the meantime, the good news is, is that going through this planning makes the business better today as well. And we're gonna prove that to you by giving you a bunch of things today that are actually gonna be doing that stuff. Let's just jump right into it. Okay. So the first thing is that we've got on the list is this clarifying your vision and goals. And I think that this cannot be understated. Like, there are so many actionable things that people can do in terms of, you know, numbers and revenue and sales and things like that, that a lot of people are, you know, kind of tangible things. The vision and goal of your company and of you as a person is so important. And you being able to communicate that to the rest of the organization Right? And, and elicit feedback from it.

And it drives everything else, right? It drives all of the other things that are going to come, that we're going to speak about later in this, in this discussion is, if your, if your goals are clear, and they're SMART, and, you know, all those things that, you know, specific, measurable, actionable, time-bound, all those things, everything else flows from this one. That's why we started with it.

Right, exactly right. So what we recommend is that you could do this, you could do this today, you could do this next week, whatever, is gather your stakeholders, okay? The people in your company that you rely on, that you trust, whether they're— whether you've got a C-level situation or whether you just have a personal assistant or you've got a couple of salespeople, whatever, whatever your situation is, gather who you trust, okay? And sit down, Okay, and using the SMART, and everybody knows what the— what we can, we can put a link to this, uh, to this. It's an acronym called SMART that basically says when you're doing any kind of business planning, you should be, you should be setting specific, S, M, measurable, A, achievable, R, relevant, and T, time-bound goals. So SMART, right, that basically are for your personal and your business future. And I want to stress this, John, this isn't just about the business.

Okay, it's right, it's personal too.

It's— you need to be able to set your own personal goals about what it is that you specifically want out of your life, right? So it's one thing to say, hey, look, we all want to have a successful company and I want to make millions of dollars a year. That's great, but it's not— you're missing the S, okay? It's not specific enough. Yes, right. You want to sit down by yourself and together with you, whoever you trust on your strategic team, All right, whether you have a committee, right, which is what something like that strategic planning committee, or whether you just have a couple of individuals to help you out, or you've got some outside, uh, consultant, is to sit down and to really clarify what it is that you want. What do you want out of the business? What do you hope will happen to the business? Where— what do you hope— who, who will take the business over when you stop working for whatever reason that is?

Um, Right.

And where do you want the business to be in 1 year and in 5 years and in 10 years? And yeah, from a revenue and EBITDA standpoint, right?

Yeah. And each of the letters in SMART is very important because you can fudge it if you avoid one of them, right? If you, as Jo mentioned, you can make it specific. You don't have to do measurable. If you don't do measurable, then how do you know you attained a goal, right? If you don't make it reasonable, oh, I'm gonna, I'm gonna be bigger than Microsoft in 2 years, or time-bound, you can just say, oh, it'll happen. Well, when, right? These goals need to be all of the things encompassed in SMART in order to sort of hold you accountable for what you're putting down and hold your team accountable for the goals you've come up with.

Yeah, and you can use, rely on us to help you do that as well, obviously. So if you want some one-on-one coaching and you want someone to hold you accountable, the whole thing, we are your guys. Uh, for sure. Um, or someone else within the Exit Engine community. It doesn't have to be us. So, the idea is that that's a, that's a huge benefit right there of another, of a reason to join Exit Engine is, uh, and join this community is because there will be people there that will help you be able to plan like this. There are people here that will help you be able to identify what your goals is. John, you know, one of the big problems that we come across is that people just don't know exactly what it is that they want. They don't even know what's possible. Right. So as we, we talked about all the time, people dream about having the business, but they don't dream past having the business, right? The business dream. So now you're here, now what? Um, and where do I go from here? And being able to get help in clarifying what it is that you want, whether that's your wife or your shrink or your, you know, your best friend, you know, whatever it is, your chief of staff, whatever those things are, right? Being able to get help and clarifying those things, but then sticking to it. So you make the plan, you say, this is what we want to achieve, this is the timeline on which we think we can achieve it, it's a realistic situation. And we have— you could have one of them, you could have 5 of them.

Yeah, and they don't go into your computer and not to be, you know, brought up again. As everyone says, this is a living document. This needs to be revisited. Sure, you finish it, You gather your team together, as Jo mentioned, and you get these goals down. It doesn't have to be 10 of them. It shouldn't be 10 of them. It's got, it's got to be a realistic number too. And, um, and you revisit them on a quarterly basis, on an annual basis, whatever the case may be.

Exactly. So you can go sit down right now and you could do that. And if you clarified your vision and goals right now, you would see, I bet that you would see an automatic difference within the next few months. In your business as a whole. Might be a little— you might see a little bit more revenue. You might see, you know, maybe a customer increases something. But it's amazing what happens when we get our brain aligned with something that we want to have happen.

Yeah. And one of the things, when we did this at one of my companies a long time ago, it wasn't before SMART was invented, but it was— let's put it this way— it was before I knew SMART was around. And one of the things that we realized we were a real company when we said no to a customer, right? We said, we finally said no to a customer, because up until that point, and the reason we said no is because it was outside our goals. It was, they were asking for something, and could we do it? Yeah, we certainly could do it. But should we do it? And where, what was the activity? And was the business aligned with our SMART goals? No, it wasn't. So we said, Yeah. thank you, but we're not going to do this. And And that was sort of how we realized we were a real company when we actually said no to revenue that we could have taken. So.

Yeah, that's, that's exactly right. And what you don't want to do is be, you know, is when you do make decisions like that, you're thinning yourself out, you're making it, making it harder to achieve things. You're sending people in different directions. Sticking to the core of what you are is important, but you've got to know what that core is. And you may have done some goals and objectives when you first started the company, but are you keeping up with those SMART goals and are you actually able to to continue to make new ones and to make contingency goals. Because that's another thing that we think we should probably talk about here is that, you know, you're looking at— when you look at your goals, you might have— you might say, well, I want to sell the company. I figure like in like 10 years, I might be able to build enough revenue here that I'll get X, Y, and Z from a— you know, you can do a back-of-the-napkin calculation on EBITDA and stuff like that and get to a place where you think, hey, look, This is where a place that would make me set, and I could get there. When you do that and you have someone holding you accountable to those things and you're checking it on a regular basis, it's also about having the other contingencies. What, what happens if I don't do that? What happens if in the meantime something else happens that I don't want to have happen? You know, what am I doing there? And what, what's my plan of attack should this happen? And so that can go from everything from someone gets sick to, like you said, a competitor enters the market. What are you going to do when something— when the economy changes or shifts or whatever? Having those plans are important. And again, this is not a one-time thing. This is an ongoing thing that should happen at least on an annual basis, if not even a little bit more often, depending on the kind of your industry and how fast your industry moves. Yeah.

And good, good. I think we can move along to number 2, near and dear to my heart, streamline operations.

Right. So, yeah, go ahead. Yeah, I was gonna say, so this is, again, operations is a very large kind of overarching subject, right? But your operations in general are basically the way that you conduct business, okay? It's the tools you use to conduct business. It's the way— it's your approach that you take. It's the partners that you— it's the people that you involve, right? And it's having— and many times it's basically being able to operate as efficiently as possible because generally speaking, you know, time, money, and the more time I spend on something or touch something or whatever, more people I touch or whatever, the more expensive it is technically, etc., etc. So what are some actionable things, John, that people can do in terms of operations?

Yeah, I mean, one of the things I've found that, that are really helpful when I came into a new company was, I came into a new company, and everyone expected all the answers to come from me. Right? I was the new guy. And, and, oh, I was taking over 3 different groups: a training group, an operations group, and a technology group. And I said to the technology group when I went there, look, like, you guys are the experts in the technology. So what I did was drive down the decision-making as far as it could go. To make the person who is doing the work, challenge them to make it more efficient, right? They were complaining about various things that they had to do and all the, the boxes they had to check and all these things and the, the, the tickets we were getting from the help desk. Well, I said, OK, well, let's go meet with the help desk. So we, we can do that, be like, absolutely, I'm the new guy, you know, I, I can set up a meeting with the help desk, but you have to be the subject matter expert to Describe the problem. So driving, driving those decisions down, A, it empowers people that are, that are doing the work, and it helps them solve the problems. And B, it removes you as being the expert in everything. You've got enough to do as the business owner. Like, I had enough to do as the leader of 3 groups figuring out where the bathrooms were, for goodness' sake, this new company. I didn't need to become the expert Nor did I want to become the expert or even have the capacity to be the expert in 3 different, very distinct groups at the company. So one recommendation is don't become the expert in everything. There are people that work for you and that know, know whatever operations are at your company better than you, no matter how long you've been there. The person doing the work on the day, on a daily basis, knows more than you.

Probably has a better insight than you do, right? And so if you were to conduct an audit, okay, which would basically be like you're saying, let me gather around the people that are involved in the operations. Let me ask them what their opinions are on what we can improve. What, what, what, first of all, what are the issues right now? You might be able to look at your books and say, hey, look, I'm spending too much money on X. Okay.

Yep.

That might be a clue, okay, to start an audit, right? But that's not going to give you a lot of information about how to fix it, what the problem is, or any of that. So identifying that there's an issue. But before there's even an issue, the idea is that you could sit down again. This is an actionable thing today. You can sit down today with your operations team, whoever they are, however big it is, or whatever, and you can do a— conduct an audit of every single process that you have. And you may decide— you may discover that you have no processes, right? Many people don't. You may decide, oh my gosh, we have to have a process around this because we don't have one. There might be, you might find inefficiencies in, you might find that there's a tool that you can buy that's a, you know, some kind of online tool or something like that that's gonna help save you time. AI.

Yeah. I mean, one of the things that we did, one of the people that worked for me was a brilliant process person. And she documented the process, how it existed, and it was a mess. And she used, we brought in a tool. I'm not gonna say the name of the tool, but we brought in an automation tool. This is, This is 10 years, this is 10 years ago now, 2014. And she brought in an automation tool that was incredible, that, that basically grabbed data from 3 different databases, pulled it all together into a report, and emailed it to a group within, within the company that needed it. And it was amazing. It saved her, I think it was 45, no, I think it was an hour every day, because that was a big part of her day. Like, OK, Jessica, we got to figure out more stuff for you to do, because you have an hour back every day. So, you know, you want to make sure that technology can be helpful, but you really need, as Joe mentioned, you want to document processes because processes are important and technology can help that. But you don't want to swap, just start swapping out technology for technology because then you become so reliant on it. So you want to document the process and then use technology to get the process done. Hopefully that makes sense.

Right. So yeah, so exactly. So identify where, what processes can be improved.

Exactly.

Figure out what, what is the correct solution to make that improvement, one of which, i.e., might be obviously some kind of technology tool or something like that, but it also might be cutting out steps. It might be making sure that another person gets involved or doesn't get involved or, or whatever that is. So the idea is that you will know what your, you know, processes are. You will understand, uh, better than anybody else where improvements can be made once you gather that information. And it starts just by asking people.

Right.

It's just— and maybe, by the way, you've probably had complaints. I mean, you know, you're gonna get— I think as the owner, I'm sure that you spend most of your day like we all have in that position, you know, putting out fires, answering people's questions, right, getting that stuff done. And I think what John's recommendation here is that especially in the operations thing is to try to turn that a little bit on its head, right? I want— we want you as the owner to go to your staff and say to them, Tell me what we need to improve. Right.

I'm empowering you to, frankly, I'm empowering you to make decisions and make this place more efficient because we're all doing the work. And if we can, if we can stop a problem before it happens, we're all better off.

Right. And of course, what we also know from you listening here, you know, and we've said it 100 times before, one of the keys to a successful exit is being able to, is be able to separate yourself as the owner from the rest of the business, right? Yeah. And so one of the ways, and we're gonna talk about management team in a minute, but one of the ways in which you can do that is by empowering your own staff to be able to make decisions, bring up problems, solve problems without you, right?

Yes.

And if you've got, if you've got people that you trust, and obviously it starts there, but if you have people that you trust, Working for you, this shouldn't be a difficult thing to do. And in fact, you know, once again, not just one time, okay? This should have been— this should be a generally kind of a general, an annual at least thing where you're taking a look at these processes.

Continuous improvement.

And there's plenty of people, and again, and, and in the same thing, in the SMART way, right? Specific, measurable, achievable, relevant, Time-bound things that you can do to solve these inefficiencies. Yep. One more thing on this subject before we move on is that, is that the inefficiency is going to be a— or efficiency is going to be key to your success as a seller.

Correct.

As we've decided— described before, as a seller, one of the things that you're going to want to actually make note of is what you, what you are, what your knowable If that's a term. What are the inefficiencies in your business that you know about?

Yeah, right. And the inefficiencies that you know about could be any number of things. Could be access to financial capital, you know, being able to grow your company, access to the right people. Maybe the people that work for you are highly specialized and it's very difficult to find them.

Know those efficiencies. Yeah, go ahead. Just to tie it back to this, it could be that in your operations, okay, that you've got some, you know, significant holdup or some, something that is making the process of what you're doing inefficient. And if that's spotted by potentially by somebody else outside, i.e., a buyer of some sort and the whole thing, that's obviously gonna affect how they play this. And so you understanding as the owner, yeah, yeah, yeah, I know about this. First of all, hey, I, I see an inefficiency. And I fixed it. Okay, that's, that's great. But then there are going to be some things that you're not going to be able to fix, or, or for whatever reason don't become a priority, or whatever those things are. Still want to know about those things because someone else might see them, and you want to be able to make sure that you're aware of those things and maybe even communicate those things as a positive when you're actually actively trying to sell the company.

Yeah. Um, good. And I think we can move along to number 3. Is strengthen your financial performance. And a lot of times what this defaults to in my experience was, oh, we just need more revenue. We need more revenue, right? And I would think of, oh, can't we get more revenue, more clients? But obviously the other side of the coin is your expenses and your expense management and how you can reduce your expenses. You know, obviously you don't wanna reduce your expenses at the cost of revenue. But there's all sorts of ways to look at automating things, look at other tools, swapping out vendors. Longtime vendors, in my experience, tend to jack up the prices. And we would always look at a review of our vendors, whatever it happens to be, make sure we're getting the best possible prices for the inputs to our whatever we're selling.

No question about it. I mean, look, there's— you've got There's ways to improve cash flow, right? There's ways to improve, obviously, your expenses. It goes back to some of your operational policies and stuff too, about how often do you do a vendor review, right? Or a supplier review. How often are you doing— are you looking at your clients? You know, one of the most gratifying things that I've ever been able to do as a— because I own, you know, some agencies and things like that where we had, you know, obviously a very service-oriented business. But the, the, the, the best thing that you can possibly— situation you can be in as a business owner and whole thing is firing a client. Um, it's one of the most wonderful, satisfying things that you could possibly do.

Yes.

Um, because it is like, it is saying to them, hey, look, we're not a good fit. This isn't right. We're not making money on you. Um, this is something that is not going to work out. And your ability to be able to say that and do that takes a lot of guts, A, because we are obviously all kind of tend to be very revenue-driven, and stopping whatever revenue is coming in or whatever because you want to take something, you've got opportunity costs, right, on top of that revenue that you're missing out on because you are not putting your energy or time somewhere else that could be more virtuous or more potentially more, you know, can generate more revenue. So again, remember that what we're doing here in terms of your financial performance, and by the way, You know, would you all guys all do me a favor, please, and please make sure that you've got an outside set of eyes on your books?

Yes, that's so critical. And I'm going to emphasize it because, again, in many of the deals that we've worked on collectively, and Joe, and we all have the scars of books that were created by people— by— this isn't fraud, right? You can't— you know, fraud is fraud, and we're not talking about that.

That's another problem. No intent. Intent is a whole other thing.

Exactly. This is— This is frankly not knowing, right? They think their best intentions are to set up the prop— set up the books right. And an example would be like cost allocation of products. If you have a couple of different products, make sure you're allocating the costs properly to each product or else it's going to look like a product has 100% margin. And we know that no business other than software, you know, other than software after it's been developed has a very high margin. But that's not even 100% because you have sales costs. So you need to make sure that your books make sense and that when you pull them out and you're looking at them and you're looking at the revenue and you're looking at all the expenses that, oh wait, when you're down to a product level P&L, does this make sense? And does, do I have a cost attributed with delivering this product to the market in the P&L? That's very important. We've seen that as a problem very recently.

So. No question. And I think that again, it depends, you know, take a look at yourself. Okay, as the owner, right? And understand what your strengths and weaknesses are. You may be a numbers person, you may be in the books, you may have, you may have all those things memorized, you may be doing it yourself, right? With QuickBooks or whatever. Even if you're not doing it yourself, when you've got a chief financial officer, or at least an, you know, accounts payable and receivable probably, which are often things like that, you may have an on-staff accountant or something like that. But regardless, please make sure that you're getting once a year at least, and not just during tax time, but once a year at least, get someone else to take a look and do an audit of your books.

Yeah. And take an audit of your books and also your contracts, right? So some of the times, you know, vendors often want evergreen contracts. They love it because it automatically renews every year. I would always be either against an evergreen contract or to have a contract that has a defined Timeout. So that it timeouts. Exactly, Jo. So that it ends and that you have to go through that review. You're forced to go through that review process. And you can, A, review the contract with X vendor, and you can also know that and look for other options. Look for, you know, better service quality, lower price, whatever it happens to be, whatever you're sort of measuring for. That's critical. And then one last, one other thing I just want to mention about revenue is one of the ways to look at it from a revenue standpoint is, If you have a high concentration of your revenue in one customer, start incenting your salespeople for new sales, right? Like give a really big boost for new sales during a particular quarter. Guess what happens when you incent people? People respond to incentives, and especially salespeople, they will respond to the higher commission rate on those deals, and that can be a way to spread out and broaden your base of revenue. So if you're very dependent on one customer, believe me, that's something that a buyer is going to look at and say, wow, 70% or 65% of your revenue is one customer. That's risky from my standpoint. So that's one tip to, to, uh, to broaden out your revenue.

I think so. You know, when we, when we actually are working with, with clients, uh, you know, in, in the process of doing due diligence and the whole thing, we always recommend getting a third-party, uh, third-party sign-off of the— on the books.

Yes.

Um, independent, uh, an independent third party that basically is just, is just, you know, audits the books and says, yes, these books are, are correct, or helps make adjustments or whatever to make sure that they are correct, um, in terms of telling the actual, the truth and the story in terms of what's going on financially. Um, but we would also recommend that, again, that you do that at least once a year, um, if not a little bit more often. If you just, just to get, even if you, again, even if you have someone on, it's not that you don't trust the person that you've got handling your books now. We're not, we're not, we're not, you know, don't know what your relationship was with them and whatever, but the notion is that even make it a policy to just have a third party to look at that stuff from the outside because they're going to see things that you don't see.

Yeah, and, and we have these, we have these experts in our, in the ExitEngine community, uh, as advisors, and, um, and they, they pop into our message boards, they pop into our discussion forums to, to act as an ex— to, sorry, act as an expert, to be an expert on Taxes, audit, financial statements.

So exactly right. So make sure you take advantage of that stuff however you possibly can. But again, you're never gonna know— you're not gonna know what you don't know. And sometimes having that third party look at stuff will uncover things. They might bring up things about your pricing, right? Or about, you know, areas and things that you might be able to reduce expenses or things like that that you guys just aren't thinking of because sometimes you're just too close to it. So getting that advisory is really important. All right. Number 4, strong management team.

And again, sorry, I want to jump in one.

Yeah, go.

You want to be doing everything, right? If you're really the chief financial officer, chief operations officer, chief sales officer, man, you might be Superman or Superwoman, but you don't— do you really want to be in the position of being responsible for all those things when you can focus on one of those things or none of those things and run the business? Right? You really want to have a management team that can— so you can take a vacation, you can take a day off. It's so critically important to have good people around you because investors are going to look at that too. The people who are buying your company, they don't want to buy a one-man show. They want to buy a company, and that means multiple people.

No question about it. And I think that the— again, the— it's a scary thing as you grow. To, to have to bring in new people that don't know your way of doing things or, or might be new. And obviously you've got, uh, you know, there's obviously costs associated with that stuff. There's, and then there's the, the benefits of things like the, you know, healthcare and all kinds of things that come on. Having employees is hard, you know, it really is. It's not, it's not easy. Nobody is saying it is. But the, the objective is, I think, for everyone involved in exit planning should be to get to that place, right? So you may not be there today, but one of your— let's go back to clarifying your vision and goals. One of your goals should be to get to that level, right? So that you can say that 3 years from now or 5 years from now, I want to be raised up to the CEO where I'm making— where all I'm— where all I'm doing is talking about this strategic vision of the company, and I'm the mouthpiece out in the world talking about what we do here and getting, you know, and getting new clients while I have a operations person who's handling all my procedures and policies. I've got a financial person who's handling all the financial aspect of everything and keeping me accountable and keeping the business kind of on track in terms of where we are. And I've got someone maybe in charge of sales or whatever, so, or marketing, depending on the kind of thing you have. So at least that kind of level of stuff. And again, the titles are irrelevant. We're not talking about— you don't have to be paying a chief financial officer the way that, you know, the way that You know, that you've been a chief financial officer. You know, larger companies have those kinds of titles. The titles are irrelevant. We just want to make sure that you've got people in place who have those jobs, who understand and are running the business. And your goal should be whatever timeframe you think is possible, getting to a place where you are not doing any of that.

Yes, you're right. You're working, you're working on the business, you're running the business, not doing a specific role.

That's exactly right. So building that— so again, actionable action item for right now. Right now, you can go into your— look into your organization and identify who you think the potential leaders are right now. Right? And it doesn't matter who it is. It doesn't matter where they are. Forget about what their role is right now or whatever. Do you see the qualities of leadership? And can you then mentor or be able to actually start to train people into a position that's going to help you? Do you need to go— do you say, hey, look, I got nobody, you know, maybe I got to take a really examine who's working for me here and I got to go bring in some people from outside, right, to be able to, to build it? But the idea is that you're going to have to do that, and then that's going to give you the ability to create a succession plan, uh, as well, which will be part of your overarching, uh, you know, exit strategy. Okay, so being able to say, oh, now I've got somebody I can trust who's going to take this over because they're 20 years younger than me And I'm going to give them an equity position in the company, whatever, to incentivize them or whatever. And then they're eventually going to become the CEO. And that's, by the way, how we're going to do it. There's this thing called a leveraged buyout that doesn't— it does not happen as much as it used to, but it seems to be— I've been reading lately that it might be making a comeback, which is when the management team of your existing company actually turns around and buys the company from you.

Yeah.

And that could be a very, very viable exit strategy when it's done right and you've got people that you really know. But regardless of that, right now today, you can go and identify— I want you to go out right now and identify the people who are the future leaders of the company. Who are the— who are the company— who could you trust if after 3 years of training— we're not talking about tomorrow, but after 3 years of training— could they take over the place and, and could they run the company for you? Yeah. Customer relationships.

It's so important to understand, frankly, what your customers use your product for. Why do they continue to buy your product? What is it about? And the only way that you can figure that out is if you can call them, you can talk to them, you know them, they know you. And I don't know, you know, you can accomplish it in many ways. I found helpful was to do surveys, to do a survey of your customers and ask them specific questions. Ask them about the problems. Don't just— you're not doing it to get accolades. You're doing it to figure out why, what they're using your product for and how you can improve it. Because you never know when a new product comes in the market, someone comes into your— a new competitor, you really want to have a solid relationship with your customers so you can call them up and be like, hey, Even if they're, hey, Joe, why did you not reelect to go with us this year? Oh, better to know that beforehand than get that phone call or have to make that phone call after the fact.

No question. And another way to do that, obviously, if you've got a sales team in place, is to be able to actually charge your sales team with bringing that feedback. Lots of times your sales guys are the ones out on the road, they're out on the ground and the whole thing, and they hear the— they have their ear to the ground. They know what's going on, they know who's doing it, They know who's coming into play. They're coming up against people, you know, competitively in terms of bidding, you know, and stuff like that. So they got a good hand. They have a very good handle on what's going on. Salespeople aren't always great at providing feedback and, you know, in terms of, you know, in the way that you need it. So one thing that I would say, and just as a former salesperson, I feel like I'm entitled to say this, sometimes we suck at being constructive about it. So keep in mind that one of the things you want to do if you have a sales team or anybody who's out there dealing with customers is that they're going to have a little bit of a jaded kind of approach to it because they've, they've kind of have to deal with this on a daily basis. Being able to kind of get underneath what's going on might take a little bit of work, right? But whether it's a survey, whether you've got a customer relationship management system, Or you put one in place, whatever, to make sure that you— so that stuff can be automated, you can capture feedback on a regular. Look, John and I can't tell you enough about how important feedback is. This entire, you know, we've had to subject ourselves to incredible amounts of feedback we weren't asking for just because we do what we do for a living right now. And so getting used to that is hard. It is, right? I mean, it's not fun when you get your first comment that tells you that you're, you know, you're a bald a-hole that nobody wants to listen to. That's like, you know, and that was just me talking to John. So you can imagine what it'd be like if I was getting actual feedback from customers. Yeah, yeah.

Well, I mentioned before, we used to— I was getting feedback from internal customers at my old job, and it's a little different than external customers, but we got feedback in the form of tickets. And it did, like, we got feedback in tickets that said this product sucks. And I got— I mean, I counted them. We had them up on the wall. I can't remember how many there were, but it was up on the wall with people that were in our company that told us—

Inside the company.

That they had to use sucked. And it's like, I don't want to get those anymore. So, but you have to take feedback as a gift because it is truly a gift because it's from someone who's paying you or someone that you're delivering a service to. And they have to— you have to listen to it.

Instead of, instead of calling it feedback, we like to call it intelligence.

Yes.

So instead of having to worry about, well, it's someone's opinion or whatever, all you're trying to do is gather as much information as you possibly can. You want to have a method, a methodology, and a mechanism for capturing it. And again, the more that you can automate it, the less you have to touch it, you know, whatever you can do to get that information in, but you got to act on it. And so what I'll say is that it's one thing to be collecting this information. It's another thing. Entirely to be actually using it to better yourself. And if you talk to any pro athlete, anybody who does, has to do a, you know, has to, has to stay in training on something or whatever, and, and that, and sometimes it's, you know, could be a doctor or a lawyer that has practices or whatever, being able to actually put into, use this information as not Get your ego out of it.

Yes.

Allow yourself to hear the stuff and whatever and take it, take it into consideration. You know, not every customer is wrong. Not every customer is right, right? Everybody's come from a different place. Everybody, every human being is fighting their own battle with whatever they're fighting, and their feedback is going to color that, you know, or they're going to color their feedback, you know, with that. So You need to be able to be discerning, but having that information and constantly being able to enhance those customer relationships by making them better. What do you need? What am I not providing? What can I do? And that's just not just for new customers, but this is for existing stuff too. And on that customer relationship thing, we will say one more time, please do not put all your eggs in one customer basket. One of the worst things that you can do to the health of your company is to— what we used to say was that when When, when Caldwell Banker sneezed, we got a cold, right? When you have one big client and that one big client starts to get weird or starts to have financial problems themselves or whatever issues or public relations things or whatever those things are going through, man, and that could— that stuff goes downhill real fast. So you are like standing there.

Yeah, it's like the old adage of when you owe the bank $1 million, they own you. But when you owe the bank $1 billion, you own the bank, right? I mean, that's the real issue. So when you're concentrated like that, it can be— it's great, but it can be really dangerous because if they ever leave, if they ever, you know, if you don't have a good beat on whether they're going to re-sign, man, a lot of your revenue can walk out the door.

And it will definitely affect your valuation moving forward, no question about it. So Just keep in mind that's the thing.

And this sort of blends in with the next one is mitigate risks, right? One of the ways you can mitigate risk is to broaden your revenue base. But mitigating risks can be simple, not simple, but you can get insurance for certain things. You can get disaster insurance. You can get all sorts of types of business continuity insurance. If you're, if an example, your area is hit by a hurricane, you know, New Jersey is never hit by hurricanes. Well, it was in 2012 and my office was closed for 2 weeks. weeks. I had to go get gas at my office, if you believe that or not. So did we ever anticipate that? No, but we had risk mitigation things in place in case it did happen. And once in 2012, October 25th, I'll never forget it, it happened.

No question. And that's, look, that's, that's an easy, that's kind of an easy one, right? It's like, it's almost like Yeah, the hurricane prep would be something that would be way down probably on your list. But one of the things that you can do right away is to perform a risk assessment, right? Doing another, again, another chance to do an audit of what are our risks? Do you even know what they are? Right?

Right.

So bring your management team in, bring the people that you trust to a table and say, hey guys, what are we missing here? What is the thing that potentially that could, that could really hurt us? That we— where's our blind spot, right? Where is it that we're seeing that we're not looking that right now could sneak up and really, and really hurt us? Because we want to have contingency plans in place for when those things, if those things arise. Not everything is a, is a, you know, is a, is the risk that will sink you, right? But there will be risks that will cost you money. There might be risks and things like that that might cost you employees or a client or whatever. And being able to know what those things are is really important. And again, you can do that today, right now. You can go call a meeting, sit down and say, guys, I don't know what our blind spots are. What do we not see? And I guarantee that if you've got anybody decent with you, they're probably going to have 3 or 4 things that you might be missing.

Yeah, and that's a further benefit of driving those decision-making down and driving the accountability down, right? You need to make people accountable, and you frankly, Your business, your business has to have people that have their ears to the ground. Salespeople, account managers, customer relationship people, client service people who are dealing on a day-to-day basis with customers. Yes, you have a good relationship with the customer, but they're dealing day to day with the problems the customer's encountering in dealing with your product, service, or whatever you deliver to them.

No question about it. You know, again, we're talking about documenting, we're talking about mitigating risks and strong management teams and operations and visions and goals. These are all like written down things, right? These are things that we're uncovering, we're writing down, we're putting processes, and that becomes a process or a system. So if you don't have processes and systems, or you do, again, this is another chance for you to audit. Just to right now, you can sit down today and say, what are my processes and systems? Are they documented? Could I hand this the way we do this thing to somebody who didn't know anything about it and could they do it?

Right.

Being able to, to have that stuff. And if you don't have those things written down right now, here's an opportunity for you to— this, this one thing will improve your business substantially if you can put this, if you can document these systems and processes and put 'em in place and have standard operating procedures and checklists and stuff like that. Right.

Yeah, and these aren't— again, these, sometimes it's a flowchart, sometimes it's a long document if you have a sort of very complex process. But oftentimes what I've found is it's a 1-page document that goes, here's how to handle a return, or here's how to handle something very specific. But it's got 4 steps and you need to follow those 4 steps. And if there's multiple people doing the role, And they're all working from that one sheet, then, and it's been optimized and it's been looked at, then the customers have the same experience and they understand when they, you know, inevitably you get a call, someone's out on vacation or someone leaves the company and they've been dealing with their client service person forever. Well, if you have that process documented, you know exactly what was delivered to that consumer and how they were handled. By having all this documentation.

So this is how— this is what franchises are, right? Like, a good franchise is a— is— has 2 components to it. It has a strong brand and a repeatable process. Okay, that's it. So understand that that's so important that you can actually— you— not that you're necessarily— every, every, every, uh, company is a candidate for franchising, but understand that what makes a franchise work is the fact that you can just say, hey, look, we are— I have an identifiable, strong brand that stands for something that people will recognize, and the process behind that is the same no matter where you go. It's why no matter what McDonald's you walk into throughout the entire world, it all tastes and looks and feels exactly the same. Why was the process— is the process—

Why was I just thinking of french fries when you said that? Right, right before you said McDonald's, I was thinking The fries are the same temperature whether you're in Sheboygan, Chicago, right, or, you know, uh, Salem, New Hampshire. It's— they're all the same because in that documentation that McDonald's provides, it's, Joe, you got to cook the fries to this temperature, this much salt, this much time under the lights, everywhere. And that's what people are— that's what customers are paying for, whether they go to a McDonald's in all these places. They want that. Repeatable product.

That's exactly right. And you have to have that consistency across in order to basically maintain your brand, right? To maintain your brand reputation, you have to have that. You can't have people complaining about something in one place and not in the other. Well, you don't want anybody complaining about it at all, obviously, but being able to actually have, you know, keep that consistency. And look, we're talking about— that's an easy thing, right? McDonald's supplies the food. That helps a lot. So McDonald's supplies the way to cook the food. McDonald's supplies the chart. McDonald's teaches you how to wash your hands. I mean, they have thought of— they literally have thought of everything.

Yeah.

So there is nothing that you can't— as long as you have the people in place to do the work, there is nothing, right, at McDonald's that is very, very complicated or takes too long. You should have the same mentality when it comes to your internal processes and systems, trying to make them as idiot-proof as possible. And again, you can start today. Today, you could basically just go out right now and ask your team, right? Do we have documents on all this stuff? That's the first step. Because maybe they go, oh, shit, I meant to get around to that or whatever, you know, that might be the first thing you gotta do.

Or we all do it differently depending on the customer. Like, well, you know, it's the way I used to describe it was, you know, every baseball game has 9 innings. They're all— there's all sorts of differences between each of the baseball games. But baseball games all have 9 innings. Yeah, there's Some that go into extra innings, but the vast majority— what's different is what happens in the middle of those innings is certainly different. A home run, a hit. But the process can be described as the process of a baseball game is one inning, next inning, next inning, next inning.

It's repeatable. Yeah, exactly right. No, it's a great way. So again, it could be as simple as a checklist, whatever it is. But you can go, guys, you can go and do that right now and you're going to raise the value of your company.

There's doctors, surgeons use checklists. There's a great book by Atul Gawande about checklists and how people are reluctant to, to use checklists. But it's take— make sure the sutures are out of the person after I operate on them. Like those things that someone can look at and say, oh yeah, I just operated on somebody, I got to take the sutures out because we don't want to leave them in the, in the, in the person. So those are any process that doctors follow. It works.

How about, how about anybody out there a pilot? All right, you know that you go through a checklist a mile long before you do anything, right? And not only that, you've gotta— when you're taking off, you gotta, you gotta tell, you know, you gotta listen to the tower tell you something or whatever, and then you gotta repeat it back to them, like, to make sure that they like that you heard them. I mean, there's, there's like the whole thing is a checklist. Everything is a checklist. Check, check, check, check, check.

Um, um, next one. The, uh, tax planning is critical. Um, this is something that you need to rely on an expert for because this is like surgery. We just were talking about is you don't want to perform surgery on yourself and you don't want to do your taxes on a business unless you're a tax expert. I should say that if you're not a tax expert, get an expert opinion, especially because most people that we're dealing with, most of the entrepreneurs that are listening to this, won't sell their company in a total— like, won't sell the liabilities, the total the company, they will sell the assets of your company. And that, that we can get to that, we'll, we'll talk about that more in detail. But as an example, you'll want to have— you'll want to talk to your tax person and they'll— they can give you advice on this. But you want to resolve all your liabilities. You want to, uh, because you're just going to be selling your assets to the buyer. So it's something that, that they will ask about when they're looking at your financials. If you have a huge, huge amount of debt, you're gonna have to resolve that before Before you sell the company. But, but you need to talk to a tax expert. We have them in our community. We have them popping into our business, into our discussion groups and forums. It's a critical piece because if you screw this up, you can— your business, you won't recognize what you think you're going to get once you sell your business.

Exactly. There's the tax planning that goes along with the business, and there's the tax planning that goes along with selling the business.

Okay.

So, your own personal, what happens capital gains-wise, right? How am I going to be taxed? How can— what are the ways, the creative ways I can do to reduce, obviously, my taxable overhead, all that stuff? So, there's no question that's an area of expertise. As Jon correctly pointed out, we have a number of those tax advisors in our community. So, find one of those guys and definitely get some help. And we're talking about not just getting your taxes done, we're talking about tax planning.

Yes.

Which is ahead of time, right? So this is something that you could do and probably you've already done, but you should be doing this once a year at the very least. Sit down with your— see, with your actual accountant, whether you're doing it or whether your financial person is doing it, whatever, and figure out strategy, the strategy around tax planning. How am I gonna— what are we gonna do from a company standpoint to reduce our overhead Or taxable income, whatever that is. And then personally, what am I gonna do when I'm ready to exit as part of my overall strategy? I wanna know, well, if I sell the company for this month, now we're getting into like wealth management. Okay. So there's the taxes that I have with the business. There's the taxes that I gotta take care of when I sell the business, but then there's the, what am I doing with all this money and where's it going? Um, that's something else yet again, right? So wealth planning, we've got that, that you can come and help. Uh, we've got people to help with that here too.

And it, and it sounds like one of those problems that you love to have, but again, it's still something you need to, you need to plan for, you need to think about, you need to talk to somebody. And it's, it's just, it's one more thing you can, you can start planning that today, as Joe started.

Exactly right. Call up your CPA and say, I want a tax plan, and they'll love you for it, by the way. They'll love that because that's what they want. They live for that stuff. So that's another good actionable thing. Market position. This is, this is interesting. Market position. Yep. So Have you done a competitive analysis at all about where you are in the market? Who is your competition? If you've been in business for a long time, you probably know your competition. You may even know them by name. You may hang out with them. You may have a friendly rivalry. You may hate each other, whatever. All those kind of different situations exist. But again, as an instant business lift, right, today, You could go do a competitive audit analysis of your competition and figure out, is your unique value proposition, the thing you started the company around, does that still hold true?

Yeah, because if you started your business 15 years ago, it probably was, right? Your unique value proposition made sense then, and maybe it makes sense now, but if you haven't looked at it in 1, 2, 5, 15 years, you better make sure because you can rest assured that the people buying your business are looking at the competitors to make sure that your business is the one they want to buy. And they're probably talking to competitors, your competitors, about buying them if they're interested in buying you. So better to have that information done so that you can, A, change the trajectory of your, of your company. Broaden your products, improve your brand, do whatever, you know, whatever the competitive analysis tells you to do. But you better have that intelligence, you know, at your fingertips or have an expert on your management team that you can go to reliably for that information.

No question about it. I think that when we talk about, again, at the end point of the actual exit, The, the, the people that are looking at your company aren't just looking at your company, right? They're potentially looking at a lot of your competitors, maybe specifically in your geographic area, maybe they're outside of your geographic area, whatever. But remember, so you're in competition to sell the company, right? So what you want is the, the best market position you can have with the supporting information about why that position is either good for the buyer Right? Or good for the company overall. So remember, it's not being number one in terms of in your market is cool, and it might make you feel good, and maybe it's the right place to be. Maybe that's the thing that everybody wants, but it isn't necessarily have to be that way.

Okay.

You can be a, you can be a, you, you can be a market leader in a certain area where your competition, where you provide many different things. So you may not be a market leader in all of them, but maybe you're just in this like one niche or one product. Maybe you are a— maybe you're in a situation where being— you don't want to be the trailblazer, the number one, you know, the people out there with the highest top line. They're going after everything. They're going after everything. Your competitor goes after everything. You don't want to be that. You're bottom line focused. You want to be, I'm profitable. So my top line revenue isn't as great, but my profitability is probably better than the competition. That's a legitimate position to take that's going to give you the unique selling point for your business to be sold.

Look at Avis, right? We try harder. And they're a good example of they're comfortable where they are in the marketplace. They serve a customer base. They know exactly who they are. Know who you are, be comfortable with it, and lean into it, right? Being the top-line revenue producer and the largest in your county, your state, whatever it happens to be, make sure you're bottom-line focused. Because yeah, the top line is going to be something that they look at, but really what people are going to be looking at, what you should look at, and what you look at every quarter, every month, is your profitability. If you're not profitable, it's really not worth it.

Right. So when we say improve your market position, which is what this line item is really, Is what we're saying is you want to look at the competition, you want to make sure you understand where you are. So when you were— you can improve it if you, again, going back to your SMART goals, right? You want to know, understand, this is where I am, it's measurable. If I do X, Y, and Z, I can probably increase my market position to this, whatever that— where you think that is. And then you'll have that, and you'll have that measurable, measurable goal, and you'll be able to see that improvement. And potentially you'll see that improvement Right at your bottom line. Yeah, like this isn't just about, oh, I got a new TV commercial. This should be about, I've improved my position to the point at which I'm now getting more revenue in this product versus my competition. I mean, again, may not be— don't want to be the number one thing in my whatever, because that's too much, too hard to be, or there's plenty of— right? Let someone else do that. But I'm going to have a very good, positive, healthy situation, and I'm going to own this little niche. And that's going to make me attractive to a buyer down the road, probably more attractive than the larger company.

Yeah. And just like we talked about, we're moving along to number 10 is plan your post-exit life. And just like number 1 is critical. So number 1 and number 10 are inextricably linked, right? It's if your goals and your post-exit plan, that should be one of your goals when you're clarifying your vision, your goals in number 1. But it can really be worked on here is what you want to happen after you sell your business. From a personal standpoint, maybe you want to start another business, but you really want to make sure that you've talked to outside people. You're not just talking to, you know, you're not just coming up with this by yourself. You're talking to a financial planner, a life coach, a trusted friend, a business advisor. An attorney, a tax person, whoever it happens to be, whoever you trust. Again, trust—

Or all of the above.

Or all of the above to figure out. Maybe they've sold the business. Sometimes what I found is the best person to do this, to talk to, at least to get a perspective, is someone who sold the business recently. So that's why the community at ExitEngine is so great, because we have people that, again, have sold their business, come back, give advice to people. That's why it's so important to To check our, again, our discussion groups and forums. I feel like I've said that a lot, but this one's really critical for that because we have people that have sold their business, um, in our forums each and every day.

And, and again, I'll tell you the reason that the statistics bear out why this is so important, okay? That, that basically is that this is the, this is the what happens to me after this lifetime I've spent working this, you know, uh, working on this business and being here and being going to a place every day and having the people around me that I've had around me and the ups and the downs and the whole thing, you know, that go along with a long-term proposition like owning a business like this. It will change drastically and, and sometimes kind of overnight. So, your preparation, the thing that kills more deals is not the financial end of things. It's the buyer— sorry, it's the seller getting cold feet.

Yes.

The seller going, I'm about to do this and I don't know if I'm doing the right thing. And a lot of that's because you're not aligned with where you really were, you know, with what your purpose is really supposed to be next. You, you need to understand what you're going to do next. For some people, it's very easy. I had a partner, you know, when we saw the company, whole thing, and he was like, he was just done and he just knew what he was going to be doing. And it was— that was it. It was over. I don't think I've ever spoken to him again. It was just over for him.

Yeah.

And that's okay because he knew what he wanted to do. And he goes and whatever he's doing, he owns some kind of, I don't know, some tour thing business doing some giving tours on some, you know, boat thing somewhere. And that's what he wants to do. God bless him. And it's a one— yeah, exactly. And it's great. And he never looked back. He never thought twice about it or whatever. And I always admired that, you know, because I think a lot of us have a tendency to like, you know, feel like we're getting lucky. We have an opportunity, we kind of take the opportunity, and then we're sitting here going, all right, well, now what am I going to do? And that could be a very derailing kind of upsetting thing. So—

And by taking these steps— sorry, Joe— taking these steps, these 10 actionable steps, it will improve your business operational efficiency. It will add so much value to your business, not only for you, again, for you, your business, Your business, your management team. But but again, for future buyers of your company, they will see this work when you present them with these questions and the way you present your business to them. They will appreciate all this work because it makes their job so much easier and it makes their offer to you so much better by having all these things wrapped up. And oh, here's our documented process. Here's my here's what I want from this. From this plan. Be open and transparent and honest, and, uh, and that's, that's all a buyer will— is going to ask from you.

And, and, and what I love about this, and this is what, again, this is what just— this is what gets me going about, about all of this, right, is that this is stuff that you can do right now. It's going to help you right now. Forget about the future.

Yes.

I say forget about it, I'm being facetious. I want you to think about the future in the way in which it makes sense And in terms of the way it can help you now. And it can help you now, it can help you next month, it can help you the month after that and next year and the next decade. All of this will improve things because you're learning how to be a better business. And at the end of the day, that's what we're all about because that's what the buyers are all about. The buyers want to buy healthy. I want just healthy enough business.

Yeah.

That's where I can see exactly what I can bring to it so that I can get it from this level to this level in 3 to 5 years. Uh, again, we, we're using— guys, we use the private equity terms a lot because the law of the market is private equity. We're just being honest with you.

Yeah.

It may not be the— it may not be the answer for you, but regardless, we're talking about the, the getting, getting your business healthy enough to be sold at the time you need to sell it, which might be 10 years and might be next year. You don't know.

And it might not be to a private equity firm. It could be a competitor. It could be someone adjacent to you. It could be someone like that. So these things will help any buyer, whether it's private equity or a competitor, to buy you.

So no question about it. And in the meantime, you're building a healthier business and all that stuff. So appreciate you guys being on. I think we nailed that, John. Um, uh, thanks again, again for, uh, for, for following along and listening. Obviously, we want you to like, we wanted you to smash that subscribe button. We want you to take— to listen to this stuff all the time. Um, keep in mind that if you're not yet a member of ExitEngine, the way that you become one is the first thing we're going to ask you to do is to take a little, a little assessment, right, John?

Take our assessment. Um, it's, uh, it's, it's 10 questions. Uh, it'll take you 7 minutes. And trust me, it will help you improve your valuation by 7%. And it'll just open your eyes as to what is possible for your business exit.

That's exactly right. And once you do that, we can talk, we can figure out what cohort you belong in, and we can get you some real learning and get you on a path to getting this, to building a thorough exit plan. That will have contingencies and have all kinds of things. And you're gonna have some fun along the way as well. Remember, we talked about all the people that you need, resources that you need. We've got all of them in spades. So come check it out at myexitengine.com. Take the survey up here— sorry, the assessment up here to take at your leisure as well. And hopefully we'll see you down the road. John, thanks a lot, man.

Joe, appreciate your time today.

I'll see you. All right, man. We'll talk to you next week. Have a great one.