#238 The 3-Year Exit Plan Every Founder Needs (Not 3 Months)

People tend to think that you can just run the company, list it for sale and sell it at a good multiple. And it is true, you can just run it and sell it. But the multiple part is where multi-year preparation starts to pay off. It's not bad intention, it's just not knowing that if you want to sell, it takes a couple of years to build the story and to really prepare for maximum value.

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Collateral need of that, the optimization, the requirement, the building, you know, from the beginning with the end in mind. But today I brought someone on who we're going to speak specifically to what does that process look like? What should you really be focused on? Not in maybe 3 months, but maybe 3 years prior to your exit so that you are really prepared to maximize that. So Rob, did I miss anything in that, brother, in the summary?

That's pretty clear. And 3 months is way too little.

Way too little. 3 months is not enough?

No, in 3 months you can clean up the room and that's it. You can't build a story. You can't actually tell a narrative just based on 3 months of preparation.

No, 3 months is like that, you know, you have guests coming over and you throw everything in the closet. And as you said, you just shuffle it around so nobody notices the dirt, the grime, the kids' shoes, a leftover peanut butter sandwich. It's all shoved in the closet.

Exactly. But if they're coming to visit because they want to buy the house, they're going to open the closets, they're going to look under the carpets, and they're going to see all the stuff, all the mess that you are hiding there.

And you're going to stage up the house and make it look pretty.

Exactly.

You want to obviously sell it for maximum value. Why do you think people don't take that same approach to their businesses?

I think a lot of it is just ignorance. It's not bad intention. It's just not knowing that if you want to sell, it takes a couple of years to build the story and to really prepare for maximum value. People tend to think that you can just run the company, list it for sale, and sell it at a good multiple. And it is true, you can just run it and sell it, but the good multiple part is where multi-year preparation starts to pay off.

Yeah, it's just, okay, break that down for me. You have the experience here. And in the process of that, I'm also going to ask a second question, which was, you know, who are you and what are you doing here? What are you doing here? How'd you get on my podcast? Who let you in the door?

Okay. So I run a fractional CFO and accounting firm. We work with 7 and 8-figure online businesses. And a lot of what we do is help companies prepare to exit. And everybody knows that you need to have clean books because of course, if a buyer looks in the books and it's a big mess, that's going to harm the trust. The other thing what we do is we try to help them build the story so they can actually sell for a higher multiple at the end of the program. That was the short version.

Yeah, that was the marketing version. Okay, so now let's get off the marketing version and tell me what you're really doing.

The biggest thing we do is we run FP&A, financial planning and analysis. So we help clients build a budget, build a plan, track the progress compared to the plan, and identify where they're off, how to make better forecasts, and how to actually hit the goals that they were planning to hit. That's the biggest thing we do. And we do that based on the accounting, on the management accounting, So that's, and we've learned over time that most accountants don't know what the hell they're doing. So that's why we also do the accounting ourselves just to make sure that we can actually rely on the data.

Yeah, that makes sense. And I've had similar struggles with that. We've spent years trying to find someone who understood the, you know, ramifications of a physical asset moving business model and understood the accounting of that. It's actually turned out that we found some of the best tax strategists who also offered accounting. And then my partner has spent years training them over time how to run the books for our company correctly. So they've been able to do it for others correctly because they simply didn't have the knowledge. They weren't asked about it. And I wonder how many of these other firms who were like, hey, we're e-commerce-focused firms, are really doing that, or if they're just outsourcing everything to the Philippines.

Oh, regardless of where the people are actually doing the work, the biggest issue is most of those firms are tax-oriented. So they run the books in a way that is good for you to file taxes, and maybe they can help you save taxes.

Yeah.

But that's the secondary purpose of the books. The first purpose of the books is management. You as the owner need to understand what's going on. You need to have a level of visibility on the numbers, on the data.

You know, you're—

and that is a different, different set of information and different way of looking at the books than a tax perspective. From the tax side, there's very clear rules. This is what you can do. This is what you have to do. And that's Set in stone. Well, set in law. From a management perspective, you can do anything you want as long as it helps you run the business. So the way you set up the books, the way you engage with the books is completely different because you, from a tax perspective, it doesn't matter which SKU was sold as long as the revenue number is accurate.

Yeah.

Management perspective, it makes a world of difference if it's SKU 1 or SKU 2 that is sold. Or if it's channel A or channel B where the revenue was made. That's a different layer. It's a very different layer of information.

Well, you know what we're talking about, I think in this world, um, it's in business. I think when people are listening to my podcast, you, many of you are still considered sellers, um, in your capabilities as an operator, you're growing into an operator. And this is one of the boring topics. And thank you for those of you who haven't clicked off yet and not stopped listening for the boring management financial topics. I'm sorry, but that's the way people think It has nothing to do with you, Rob. I find you to be very interesting as a person. And, and, but the end result is that this is not a fun topic and people usually want to talk about it too late. They want to deal with it later on and then it becomes overwhelming because they haven't thought about it. So guys, the challenge is if you're looking at being a seller, a business owner, or developing something, or if you are already operating something in a selling capacity, trying to become an operator, this boring topic is actually going to be the one that becomes the most interesting When it's time to sell the business, right? That's when it actually gets kind of fun. You want to break it down for me?

No, that's exactly the point why it shouldn't be boring. I understand that if you think the finances part is you have to go over spreadsheets or over walls of numbers for days in a row, yeah, I find that boring as well. But the finance, in the end, you're running the business because you want to make a living. You want to pay the rent, you want to pay your mortgage, you want to build assets, you want to build generational wealth. Money is the core part of the business. It's the only part of the business where everything comes together.

Yeah, that's true.

Your suppliers, your marketing, your products, your sales channels, your team, everything comes together in the finance part. It's the engine of, it's the language of the business. If you find that boring, well, it just works.

Well, it depends on personality type. Like, okay, I'm a, I'm a DI on the DiSC profile, just to align this with everybody's understanding. If you don't have, if you haven't ever taken a DiSC, a D-I-S-C profile, you should go take one. It's very fascinating. It gives you an idea kind of where you fit into this conversation. A typical seller is gonna be on the ISC side, more detail-oriented. They like the operational, they like planning daily, one, you know, weekly, monthly activities. They think those things are kind of cool and they geek out a little bit on components of that. Maybe not all of it, but, but components of it where they feel they're vertically challenged. I don't. So I have a Reid in my court and I've had one for 13 years. Um, he does get into that. He is the articulate, detail-oriented taskmaster. That's why he's our CFO. And he understands it. He knows it. It's been his life. I don't know if he enjoys all of it. I don't, like you said, you don't necessarily enjoy all of it either, but there are parts of it that do, you have fun with and you geek out on the numbers and you enjoy it. But I don't think everybody even has a Rob in their life because I think this is where a lot of the entrepreneurial startup struggling founders who get things going and manage to pull it together through luck or just hard work or whatever, get to a position where very quickly when that success starts to come forward, when that snowball starts to roll, they don't have a Rob in their court. They don't have a Reid in their backdoor. What are they typically going to do in that position? What do you normally see people do in that position? Is it the old panic thing, I'm drowning, or do they, you know, race around and try to do it all themselves, or what do you normally see?

Typically, so before they come to us, they do it themselves or they have somebody who they think is capable And people come to us when shit hits the fan. Nobody, if everything is coasting along, everything's fine. Nobody pays a lot of attention to this. Nobody wants to change their accounting supplier because come on, it's, let's be honest, it's a hassle. It's a high switching cost. If it worked, it works. It's all fine.

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Typically, especially in e-commerce, people think they can do it themselves because it's such a simple business. And to some extent that's true. And then at some point they hit the wall and it could be a good wall. They grow so fast and they realize they lost control and it could be a bad wall. Sales might be up, an empty bank account. They can't pay their supplier. Oh shit, what do I do now? There's this kind of polarized moment usually before people start taking this serious.

Yeah, it's typically the reactive, you know, it's the same way that most people end up selling their company. I'm afraid 80% of people who sell their company, probably more, I would speculate, just sell it in some manner of chaos, some divorce, some separation, death, get bored, can't figure it out, supply chain problems, a major problem needs to be solved. They don't want to solve it anymore, whatever the challenge is. And then they're like, okay, I'm just selling this. You know, kind of like the, it's the Facebook marketing of M&A. They're just, you know, let's just dump it on Facebook and see if we can get somebody to pick it up. And they'll go all the way down to it's free and they put a little sign on it, free business, you know, just come by and pick it up. It's on the side of the road. These things happen more often than not. And hopefully those listening to this really want to take some heart in this conversation because we've seen this. I know Rob's seen it. I've seen it. I've talked about it before. I'm sure Rob talks about it every day. The end result is people are not looking at their business, in my world, as an asset. Yeah.

That's— so thank God I haven't seen many of those put it on the side, on the curb, just for somebody to pick it up. Because that is really the situation you want to avoid.

Yeah, it ultimately is. So let's back up from there and let's go to you. I want to talk about you as a founder. This is your business, right?

This is my business, yes.

Yeah, well, take ownership of it, okay? This is my business, let me hear you say. Where are you, Rob, in the world, and where did you get started? This is your first rodeo? Second rodeo?

This is my second rodeo, and I have a bit of a weird backstory. I'm originally from the Netherlands. I left the Netherlands about 15 years ago. I thought you were from Texas.

With the accent, sorry.

The last time I was in Texas, I couldn't understand people with a Texan accent. So I don't think that's—

You couldn't understand Texans?

No, I had a lot of trouble there, but that's a whole different conversation. Okay. So I left the Netherlands 15 years ago. I spent almost 10 years in different places in Asia. And since COVID I'm back in Europe and I'm currently in Portugal. It's been here for 3 years now. And we'll stay here another couple of years and then I'll move on to some other place.

Really?

Why is that?

One of the reasons why I run the— I'll tell the business backstory a little bit and I'll get back to this one. I spent 8 years in China. I ran a technology investment firm there together with a partner. So basically we would raise money in China and Europe, buy IP, buy technology rights in Europe, and set companies up in China with that technology. Great idea, bad execution.

Yeah.

It took me 7 years to realize that we were, that that was the case. At that point I stepped out and started to build a new business, which is now Inside Matters. And I set that up 100% remote, clients remote, team remote, everything remote to make sure that I have the flexibility and the freedom to move around. For me, that's the ultimate freedom. I can live where I want to live, spend a couple years here, spend a couple years there, and really see and experience living in different places.

Love it.

I mean, that's the freedom of the job, right? You've made yourself a remote business person, family, and purpose. We love that.

That's the whole purpose, right?

Well, it's supposed to be, but I think if people still invert that concept, even though we talk about it a lot, and I know that there's a path to get there, you didn't just step into it. You've been working on it for years to get there. And I know there's people who are still fighting here listening to this podcast to get there. It's definitely a journey. I don't think you've reached your destination yet, have you?

I don't have a destination.

No, there's a way.

The journey is the destination.

The journey is the destination. Yes. I love it. We're going to write that down in the notes. The journey is the destination. Well, it is true though, isn't it? I don't, you know, people are asking me, what's the conclusion to your life and business? Why are you doing this? You know, what's the big picture? You know, and it's like, You could say the big picture is I'm going to sell it all out and retire and go hang out with my family more on the beach or whatever. But in actuality, most of us who are blindly optimistic entrepreneurs who create and build and do things probably never stop. I don't think we're ever going to stop. There's just too many ideas, too much fun. There's now AI incorporation. There's just playing and geeking and, you know, with knowledge and other things we're doing. And there's just too many fun things to do. I don't think I would be that retiring guy.

Neither would I, but I want the optionality. And the way I run my business and the way I would suggest everybody to run their business is have the optionality to sell, be ready for it, organize everything in such a way that you can. And if you don't want to, you don't, you keep running it, you keep growing it. And at some point you might have to, or you might want to.

Yeah.

Then it's relatively easy, but at least, at least at that point you're prepared.

Yeah. Prepare with the end in mind. That's what we talk about a lot here, right? We call it our Platinum Principle, building the asset, you know, with the end in mind, right? And those things don't have to take a lot of time. We got people in 5 and 6 years clearing out generational wealth in the e-com world. So it doesn't have to take a lot of time. I think there's just a lot of confusion as to what you can do and how you should do it and when you would structure it. And I think the best step, and you can correct me if I'm wrong, is once you figure out what you've got, once you start that process, even somewhat imperfectly, the next step is organize it. As hard as it is to just like slow down for a again and go talk to Rob and get a read or do whatever. It's like, that's that next hardest thing you gotta hold yourself back on is prepare, optimize, you know, create, and then redeploy back in there again. You got any clarification on that you wanna—

A very similar perspective. So first and foremost, product market fit is the most important. If you have the product, if you have the channels, if you have the acquisition strategy that works, that's priority number one. Um, once there is, once you are scaling, once there's growth, at that point, organizing on the finance side becomes more important. Uh, last year we onboarded a client, an e-commerce company. They were, they grew from 0 to 30 million run rate in 18 months, an absolute rocket ship. And they had completely lost control over it. They went up so fast, they didn't stop to organize. And by the time, if you're running a business at $2 million run rate and it's a chaos, you can manage, you can still clean that up.

Yeah.

If you grew to $30 million run rates, cleaning up becomes a hell of a lot more complex. They paid millions to suppliers without knowing which POs they were for. They paid millions to suppliers and sometimes not even knowing if shipments were sent or not. So it was an absolute black hole because they grew so fast. And they didn't have control. So by the time you have traction, make sure you grow at a pace that you can control. Sometimes it's better to slow down growth a little bit to solidify the foundations and then double down on the growth.

Yeah, that's very smart and very well said. Rob, you've been a fun guest, man. I appreciate you coming on and letting me joke around with you a little and sharing a good word and, you know, all this good stuff. It's an interesting topic. It really is at the end of the day when you become a operator, uh, not just a seller, which means you're a business owner. You might be the CEO, owner, uh, and operator, uh, to a certain degree. And even then, in today's world, you don't have to do every section of it now. And much of it's being used by AI or systems. But at the end, preparing for the exit is the reason why you should be building the business in the first place. And you should be doing it wisely. You should be doing it within 3 years. You should have someone like a Rob on your team to make sure that you've got it structured, uh, correctly. For legality, tax purposes, accounting, cash flow, very important. If you're in the physical product world, you know, making sure you understand your inventory turn, making sure you negotiate your PIs and stuff correctly, making sure you know when product is in warehouse and on the water and in manufacturing and how you're cash flowing it. These become the most critical points of scale in the business once you dial in your product or service, guys. It's extremely important. And that's why I wanted Rob to come talk with us about this today. Anything I missed in that, brother? Last words?

There's one thing I think that is very, very important here. If you're looking to sell the business, you're gonna tell the story. You can get a multiple based on your past performance, on your past profits. But what you want to tell, what you want to sell it on is the promise of the future potential of the business, because that's gonna give you a much better multiple. If I come to you and I say, oh, I think this business can do this and therefore it's worth so much, why would you believe me?

Right.

So if you start today with building a 5-year plan and it's complete fiction, but if you've delivered on that plan for 2 or 3 years and you actually hit the targets and you have documents to prove like, yes, this plan was made 2 years ago and for 2 years we've delivered on it, that future story for the next 3 years becomes a lot more credible. So you have a much better story and a much more trustworthy story to say, This is why the company is worth a higher multiple.

Yeah.

Because you have the credibility.

Yeah. Very well said. And a good last word. Thanks for coming on, Rob.

My pleasure. Thanks for having me.

Guys. Yes, sir. Go down, check out the notes, check out what Rob's doing. You might be in that stage or pre-thinking about that stage, uh, or maybe you went past that stage a moment ago and you're stepping back going, oh crap, I need to kind of get this thing figured out in your business. Check out the show notes, check out Rob, check out what's going on. Obviously like and subscribe and Comment, snide remarks, doesn't matter. We don't care. We love everybody to get the word out. Share this with somebody who should hear it. And as always, as we say at the ending of the podcast, remember your opportunity begins at the end of your excuses. So do something imperfectly and something perfect will happen along the way. See you guys on the next episode.

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