1 00:00:00,000 --> 00:00:02,730 Every business owner needs an exit strategy. 2 00:00:03,210 --> 00:00:08,190 Wanna find out why you gotta join us for this episode of the Inside 3 00:00:08,280 --> 00:00:11,610 BS Show? Hey, now I'm Dave Lorenzo, the godfather of Growth. 4 00:00:11,610 --> 00:00:16,050 Here with me today is Nikki G and we are talking about exit strategy. 5 00:00:16,170 --> 00:00:16,860 That's right. 6 00:00:16,860 --> 00:00:20,970 We're talking about why you as a business owner need an exit strategy, 7 00:00:20,970 --> 00:00:22,230 and if you're an advisor, 8 00:00:22,350 --> 00:00:27,150 why you need to share the exit strategy secrets we're 9 00:00:27,150 --> 00:00:31,380 going to give to you today with your clients. Thanks for joining us. 10 00:00:31,380 --> 00:00:34,590 It's great to have you here. Good morning, Nikki G, how are you? 11 00:00:34,590 --> 00:00:37,050 Good morning, Dave. I'm doing great. How are you? 12 00:00:37,950 --> 00:00:40,860 I'm doing fantastic, thank you. Alright, 13 00:00:40,860 --> 00:00:42,960 here's what we're going to do today. 14 00:00:43,230 --> 00:00:47,850 We are going to cover the seven questions that we get most 15 00:00:47,850 --> 00:00:50,550 often about exit planning. 16 00:00:50,910 --> 00:00:55,770 And we're going to do that so that you have a good foundational 17 00:00:55,770 --> 00:00:59,580 understanding of why we do what we do, why you do what you do, 18 00:00:59,580 --> 00:01:04,080 why we do what we do, and why business owners need us. 19 00:01:04,140 --> 00:01:07,260 So, Nikki G question number one. 20 00:01:07,650 --> 00:01:10,560 What is an exit strategy? 21 00:01:10,620 --> 00:01:12,000 Great question, Dave. 22 00:01:12,240 --> 00:01:16,590 An exit strategy is having a planned approach as a business owner to 23 00:01:16,590 --> 00:01:20,490 transition out of the company. There are a number of ways to do that. 24 00:01:20,610 --> 00:01:25,320 Oftentimes we see the sale of a company or we see a transition in the ownership 25 00:01:25,380 --> 00:01:26,700 shares of a company, 26 00:01:27,150 --> 00:01:30,570 or we may see a winding down depending upon what's going on with the business, 27 00:01:30,570 --> 00:01:35,400 but it's having a plan in advance and not allowing that to unfold as you are in 28 00:01:35,760 --> 00:01:38,280 an exit that's occurring at that time. 29 00:01:38,670 --> 00:01:42,780 So having a plan in place and making sure that there's a nice smooth transition. 30 00:01:42,780 --> 00:01:47,580 So what we don't want to see with an exit strategy is a bumpy road, right? 31 00:01:47,610 --> 00:01:51,870 You haven't planned for the exit and now everyone is adjusting as everything's 32 00:01:51,870 --> 00:01:52,950 unfolding. If, for example, 33 00:01:52,950 --> 00:01:56,490 you've announced your retirement abruptly or something has happened that has 34 00:01:56,490 --> 00:01:58,290 caused you to have to exit the business. 35 00:01:58,920 --> 00:02:02,370 Another important component of this for us, especially in exit success lab, 36 00:02:02,400 --> 00:02:05,640 is driving up that business value. So having a plan in place, 37 00:02:05,640 --> 00:02:07,170 having it in place early, 38 00:02:07,170 --> 00:02:11,280 allows us to drive enterprise value in that business years in advance of that 39 00:02:11,280 --> 00:02:14,820 exit and ensure that smooth transition. So Dave, let me ask you this. Well, 40 00:02:14,820 --> 00:02:16,350 we'll move to question number two, 41 00:02:16,350 --> 00:02:18,900 which is really related to what I just discussed. You know, 42 00:02:18,930 --> 00:02:22,290 why is it important for everyone to have an exit strategy? 43 00:02:23,460 --> 00:02:26,430 Uh, that's such a great question. So there are, 44 00:02:26,490 --> 00:02:30,780 there are a couple of reasons why it's important for everyone to have an exit 45 00:02:30,780 --> 00:02:35,340 strategy. The first is for contingency planning purposes. 46 00:02:35,340 --> 00:02:38,640 So what, what's gonna happen, you're the business owner. 47 00:02:38,640 --> 00:02:42,150 Let's say you're a sole practitioner, first and foremost, or you're, 48 00:02:42,180 --> 00:02:46,500 you're a solopreneur and you have, maybe you have a team, 49 00:02:46,500 --> 00:02:50,700 but it's just you leading the charge. If you get sick, 50 00:02:50,850 --> 00:02:52,230 who's gonna run the business? 51 00:02:52,260 --> 00:02:56,520 If you need to take time off to tend to a family member who's sick, 52 00:02:56,730 --> 00:02:57,990 who's gonna run the business? 53 00:02:57,990 --> 00:03:02,230 If you wanna go cruise around the world for 90 days, 54 00:03:02,530 --> 00:03:03,850 who's gonna run the business? 55 00:03:03,850 --> 00:03:08,650 So contingency planning purposes is the first reason you need to have an exit 56 00:03:08,650 --> 00:03:09,190 strategy. 57 00:03:09,190 --> 00:03:14,110 The second reason you need to have an exit strategy is to maximize the 58 00:03:14,110 --> 00:03:16,540 value of your business. 59 00:03:16,780 --> 00:03:21,550 A business that can't run without you is a job. It is 60 00:03:21,550 --> 00:03:22,540 not a business. 61 00:03:22,540 --> 00:03:27,430 We've all heard the Michael Gerber E-Myth strategy 62 00:03:27,490 --> 00:03:31,690 of working on the business, not working in the business, 63 00:03:31,720 --> 00:03:33,520 and that's great. 64 00:03:33,550 --> 00:03:38,530 But what Nicola and I focus on with our clients is working 65 00:03:38,590 --> 00:03:42,580 over the business, treating the business like an investment. 66 00:03:42,910 --> 00:03:46,540 So if you don't have an exit strategy, your business can't be an investment. 67 00:03:46,570 --> 00:03:50,470 'cause your business is dependent on you. 68 00:03:50,830 --> 00:03:53,770 What you need is a well thought out plan. 69 00:03:53,770 --> 00:03:57,640 That's a roadmap for the change that's gonna come, 70 00:03:57,640 --> 00:04:01,030 whether you like it or not, voluntary or involuntary. 71 00:04:01,480 --> 00:04:04,360 If you don't have an exit strategy, 72 00:04:04,510 --> 00:04:09,340 you're gonna be forced at the end of the day to take less 73 00:04:09,340 --> 00:04:14,200 money or maybe even no money when it's time for you to wind down the 74 00:04:14,200 --> 00:04:17,650 business. So contingency planning is one reason, 75 00:04:17,890 --> 00:04:22,690 and the second reason is so that you can have the most options when you're 76 00:04:22,690 --> 00:04:25,330 ready to ride off into the sunset. 77 00:04:25,660 --> 00:04:28,270 And even if you don't wanna ride off into the sunset, 78 00:04:28,270 --> 00:04:32,740 you need to have some sort of a plan in place so that that investment can keep 79 00:04:32,740 --> 00:04:37,360 paying dividends to you while you go do your thing cruising around the world. 80 00:04:37,750 --> 00:04:42,580 So let's get into this a little bit deeper. Nicola, talk a little bit about, 81 00:04:42,610 --> 00:04:43,390 if you will, 82 00:04:43,390 --> 00:04:47,740 contingency planning or planning for an unanticipated exit. 83 00:04:47,770 --> 00:04:48,220 Sure. 84 00:04:48,220 --> 00:04:52,570 Oftentimes we see that unanticipated events can occur in a business and it can 85 00:04:52,570 --> 00:04:56,500 immediately stop the business if the owner's responsible for the majority of the 86 00:04:56,500 --> 00:04:58,750 functions or other leadership is. 87 00:04:59,080 --> 00:05:03,100 So having that plan in place allows you to avoid those disruptions in the 88 00:05:03,100 --> 00:05:06,490 business and continues to build value for you. So, for example, 89 00:05:06,490 --> 00:05:09,580 maybe the owner has a sudden illness, gets in an accident, 90 00:05:09,730 --> 00:05:14,410 or unfortunately has a sudden death. Now, when that happens, that's it. 91 00:05:14,410 --> 00:05:18,880 Business comes to a halt without a plan. So having a plan that incorporates, 92 00:05:18,880 --> 00:05:22,780 for example, having interim management to step in that knows what to do. 93 00:05:22,780 --> 00:05:25,570 So it's, it's not only the people, but it's what do they do? 94 00:05:25,570 --> 00:05:29,620 So having a plan for operation so they know what they will be doing 95 00:05:29,950 --> 00:05:34,180 ensures that the business can continue to run as smoothly as possible given the 96 00:05:34,180 --> 00:05:38,860 disruption. Having that plan also helps you with your customers, 97 00:05:38,860 --> 00:05:42,790 with your employees, because when there is a disruption to the business, 98 00:05:42,820 --> 00:05:46,090 all of them are impacted. It's not just the leadership of the organization, 99 00:05:46,120 --> 00:05:47,350 it's everyone you're working with. 100 00:05:47,590 --> 00:05:51,280 So you don't want to have that business look like chaos is going on, 101 00:05:51,580 --> 00:05:54,670 and we can avoid that largely by having a plan in place. Of course, 102 00:05:54,670 --> 00:05:55,900 there'll be minimal disruptions, 103 00:05:55,900 --> 00:05:58,790 but you can largely avoid that by having that plan. 104 00:05:59,000 --> 00:06:02,090 Let's move from contingency to your, your actual exit plan. 105 00:06:02,090 --> 00:06:03,020 So let's talk about Dave, 106 00:06:03,020 --> 00:06:06,830 like what are the three exit plans that a business owner should have in place? 107 00:06:07,670 --> 00:06:12,320 The three mandatory exit plans that we make all our clients put in place really 108 00:06:12,320 --> 00:06:16,220 relate to what you were talking about, uh, when it came to contingency planning. 109 00:06:16,580 --> 00:06:21,320 So I like to look at an employee ownership option, 110 00:06:21,380 --> 00:06:25,280 a management buyout option, and a CEO replacement option. 111 00:06:25,850 --> 00:06:29,780 The employee buyout option for larger businesses. 112 00:06:29,780 --> 00:06:34,460 So businesses that probably have north of $5 million in 113 00:06:34,490 --> 00:06:38,870 EBITDA or north of $5 million in pre-tax earnings, 114 00:06:39,230 --> 00:06:43,340 probably north of $10 million in annual revenue. 115 00:06:43,700 --> 00:06:47,210 You can look at an esop, an employee stock ownership plan. 116 00:06:47,210 --> 00:06:49,520 That's a great thing to have in place, 117 00:06:49,520 --> 00:06:52,040 a great contingency plan to have in place. 118 00:06:52,040 --> 00:06:53,960 'cause you can trigger it anytime you want. 119 00:06:53,990 --> 00:06:58,790 It can be triggered at an event that occurs where you need to get 120 00:06:58,790 --> 00:07:03,530 out as an owner in short order. So ESOPs, 121 00:07:03,530 --> 00:07:07,460 the challenge with them is they can be a little pricey. 122 00:07:07,670 --> 00:07:12,020 H hiring really good advisors, attorneys, trustees, 123 00:07:12,320 --> 00:07:16,820 getting everything in place. It can be a little bit expensive to set up 124 00:07:16,880 --> 00:07:17,713 upfront. 125 00:07:17,810 --> 00:07:22,160 So you probably need to be a larger business in order to have that. 126 00:07:22,190 --> 00:07:26,570 Now there's another option called an employee ownership trust. 127 00:07:26,810 --> 00:07:30,380 And I've also done some really interesting things, 128 00:07:30,380 --> 00:07:35,090 particularly in the professional services space with creating a 129 00:07:35,090 --> 00:07:39,680 pool of shares for employees to draw 130 00:07:39,680 --> 00:07:40,760 from or for, 131 00:07:40,790 --> 00:07:45,590 from the partners to grant shares to employees so that there 132 00:07:45,590 --> 00:07:49,070 is an employee ownership opportunity. 133 00:07:49,340 --> 00:07:53,750 That's a great thing to have in place because the employees can then take over 134 00:07:53,750 --> 00:07:58,340 ownership. It's a great retention tool, and the employees are vested. 135 00:07:58,550 --> 00:08:03,230 The employee's behavior reflects their overall investment in the firm, 136 00:08:03,260 --> 00:08:07,070 and it is a really great opportunity for them, 137 00:08:07,220 --> 00:08:09,050 and it's a good tool for you as an owner. 138 00:08:09,320 --> 00:08:12,410 The second contingency plan that we want to have in place, 139 00:08:12,410 --> 00:08:17,060 mandatory exit plan is a management buyout. The reason that I 140 00:08:17,060 --> 00:08:22,010 talk to business owners as early as possible about a management buyout is 141 00:08:22,010 --> 00:08:26,930 because you will hire and select different people 142 00:08:27,140 --> 00:08:31,520 to bring into the ranks of your management based on the fact that these 143 00:08:31,520 --> 00:08:35,840 managers are someday going to be owners of the company. 144 00:08:36,560 --> 00:08:38,090 You're not gonna hire, 145 00:08:38,090 --> 00:08:42,860 or you're less likely to hire a manager who's just a temporary 146 00:08:43,100 --> 00:08:47,390 sort of stopgap. Just keep the lights on type manager. 147 00:08:47,420 --> 00:08:52,220 If you are counting on your management team, hopefully to someday buy you out, 148 00:08:52,580 --> 00:08:57,210 you'll be focused on bringing in people who you would consider more along the 149 00:08:57,210 --> 00:09:01,260 lines of partners or potential partners or future partners. 150 00:09:01,590 --> 00:09:04,770 So focusing on a management buyout, 151 00:09:04,800 --> 00:09:07,620 even if it's an unstated management buyout. 152 00:09:07,620 --> 00:09:12,090 So you don't have to tell them in advance, Hey, one day all this will be yours. 153 00:09:12,090 --> 00:09:15,630 You don't have to do that if you don't want to. But having that management 154 00:09:15,630 --> 00:09:19,950 buyout option in place for you with a 155 00:09:20,220 --> 00:09:25,080 focusing on having that mindset in place is a great way to 156 00:09:25,080 --> 00:09:29,520 prepare for the future. Now I know what you're thinking. Hey, Dave, 157 00:09:29,580 --> 00:09:33,600 if all my managers were capable of owning the company, 158 00:09:33,600 --> 00:09:37,290 if you know I'm gonna sell the company to my five key managers, 159 00:09:37,740 --> 00:09:41,280 I probably would have to pay that type of person a lot more. 160 00:09:41,730 --> 00:09:46,080 I'm not saying that every key manager in your company needs to be ownership 161 00:09:46,080 --> 00:09:47,400 material today. 162 00:09:47,550 --> 00:09:51,930 If you're not planning for your exit for 10 or 15 years down the road, 163 00:09:52,440 --> 00:09:55,770 start with your top one or two people. Say to yourself, 164 00:09:55,830 --> 00:09:59,250 could I envision myself as I bring this person on board, 165 00:09:59,250 --> 00:10:03,180 eventually giving the keys to the company to this person? If the answer's yes, 166 00:10:03,180 --> 00:10:07,560 you got a good foundation, you got a good start. So you top sales person, 167 00:10:07,560 --> 00:10:11,700 your top operations person, your top sales person, your top finance person, 168 00:10:11,940 --> 00:10:15,750 your top operations person, and your uh, 169 00:10:15,750 --> 00:10:17,820 your top business development person, 170 00:10:17,820 --> 00:10:22,290 those people are the people who could be the foundation for a management buyout 171 00:10:22,290 --> 00:10:24,630 in the future. That's a great way to think about it. 172 00:10:25,170 --> 00:10:30,000 The third and final management strategy that we wanna have in place for an 173 00:10:30,000 --> 00:10:30,720 exit plan. 174 00:10:30,720 --> 00:10:34,050 The third and final contingency strategy that we want to have in place for an 175 00:10:34,050 --> 00:10:39,000 exit plan is what I call A CEO replacement strategy. Now, 176 00:10:39,000 --> 00:10:43,890 this is an in case of emergency break glass strategy. What it is, 177 00:10:43,890 --> 00:10:48,540 is it's a relationship that you or your HR person or a 178 00:10:48,540 --> 00:10:53,040 combination of you and your team leaders have with a 179 00:10:53,040 --> 00:10:55,080 recruiter, a headhunter, 180 00:10:55,380 --> 00:11:00,330 and that person is a specialist in sourcing CEO 181 00:11:00,480 --> 00:11:05,460 candidates or outsourcing temporary CEO candidates in 182 00:11:05,460 --> 00:11:06,300 some industries, 183 00:11:06,300 --> 00:11:10,170 these these firms may be called seekers where they'll invest in the company and 184 00:11:10,170 --> 00:11:11,580 put a CEO in place. 185 00:11:12,120 --> 00:11:16,890 You need to have an option for someone in your company to go out 186 00:11:17,160 --> 00:11:21,900 and bring in a temporary or fractional CEO to 187 00:11:21,900 --> 00:11:26,520 run the company on a day-to-day basis. While the management 188 00:11:26,520 --> 00:11:31,290 team or your spouse or whoever is your, 189 00:11:31,380 --> 00:11:33,930 uh, your whoever are your heirs, 190 00:11:34,410 --> 00:11:39,240 will find someone to replace you to kind of shepherd the company along 191 00:11:39,300 --> 00:11:44,280 or to put in place a sale so that the company can be 192 00:11:44,280 --> 00:11:49,230 guided toward the exit if you suddenly happen to 193 00:11:49,230 --> 00:11:52,500 pass away or are incapacitated. So again, 194 00:11:52,500 --> 00:11:56,680 that CEO replacement strategy is finding a fractional 195 00:11:56,680 --> 00:12:01,570 CEOA temporary CEO or a headhunter to bring in a fractional 196 00:12:01,570 --> 00:12:05,950 CEO or a temporary CEO guided by the person who 197 00:12:06,310 --> 00:12:10,450 is going to inherit your shares should you become 198 00:12:10,450 --> 00:12:15,250 incapacitated or die. So, employee buyout, management buyout, 199 00:12:15,250 --> 00:12:17,410 CEO replacement strategy, 200 00:12:17,650 --> 00:12:22,540 those are the three exit plans we want all business owners to have in place. 201 00:12:22,870 --> 00:12:26,380 And it's, it could be as simple as having a, 202 00:12:26,440 --> 00:12:30,820 a book a notebook with these plans written down in it, 203 00:12:31,060 --> 00:12:35,740 or it could be as complex as a formal written plan document 204 00:12:35,890 --> 00:12:38,410 with a copy in the hands of your corporate attorney, 205 00:12:38,410 --> 00:12:42,580 another copy in the hands of your exit planning attorney and a third copy in the 206 00:12:42,580 --> 00:12:46,930 safe in your office. That's what you need to have in place right now. 207 00:12:46,930 --> 00:12:49,450 So if you can hear my voice right now, 208 00:12:49,450 --> 00:12:52,870 if you're watching this on video right now and you own a company, 209 00:12:53,200 --> 00:12:55,870 those three strategies should be in place today. 210 00:12:56,050 --> 00:12:59,740 If you don't have those three strategies in place, give me a call, 211 00:12:59,740 --> 00:13:03,580 give Nicole a call. 'cause you gotta get 'em in place right now. Nicole, 212 00:13:03,580 --> 00:13:06,190 you have any thoughts on that before we move on to the next question? 213 00:13:06,190 --> 00:13:09,490 I think you did a good job of explaining that. I think so just to highlight, 214 00:13:09,490 --> 00:13:12,970 these are really the internal exit strategies that we focus on in our business. 215 00:13:12,970 --> 00:13:13,780 So we have both, 216 00:13:13,780 --> 00:13:18,130 we have internal and external exit strategies that we want business owners to be 217 00:13:18,130 --> 00:13:18,963 thinking about. 218 00:13:20,890 --> 00:13:21,550 All right, 219 00:13:21,550 --> 00:13:26,140 so now let's touch on the three external sale 220 00:13:26,140 --> 00:13:27,280 options for our business, 221 00:13:27,280 --> 00:13:31,600 the three exit strategy options for our business that are external. 222 00:13:31,720 --> 00:13:35,710 And these are the three that we talk about the most. One of them, 223 00:13:35,770 --> 00:13:40,540 multiple of them or all of them may be appropriate for you. Nicola, 224 00:13:40,540 --> 00:13:45,340 why don't you go into what the three external options for an exit strategy 225 00:13:45,340 --> 00:13:46,720 are for business owners? 226 00:13:46,750 --> 00:13:48,490 So the first that we, uh, 227 00:13:48,550 --> 00:13:52,090 we talk about in this community is a sale to a strategic. 228 00:13:52,150 --> 00:13:55,030 And what that simply means is a sale to a competitor, 229 00:13:55,300 --> 00:13:58,630 or it could be a company that just is interested in the business and will have 230 00:13:58,630 --> 00:13:59,530 synergies with it. 231 00:13:59,860 --> 00:14:04,240 There is an entire market that your business may be sold to 232 00:14:04,270 --> 00:14:09,130 because it has value to those particular companies, especially competitors. 233 00:14:09,370 --> 00:14:12,430 Oftentimes we have these conversations, we see that, you know, 234 00:14:12,430 --> 00:14:14,140 o owners will just view the competitor as, 235 00:14:14,230 --> 00:14:18,490 as such that it's just someone who's trying to eat away market share and take it 236 00:14:18,490 --> 00:14:19,210 from them. 237 00:14:19,210 --> 00:14:22,570 But oftentimes we see those competitors come around and approach those owners 238 00:14:22,570 --> 00:14:25,180 because they want to purchase the business, 239 00:14:25,300 --> 00:14:29,140 given that it could help them generate more revenue in their own business. 240 00:14:29,440 --> 00:14:32,170 So think of it as just finding a, 241 00:14:32,170 --> 00:14:36,220 an entire market where you will receive a higher value for that business because 242 00:14:36,220 --> 00:14:40,930 your business is particularly valuable to them. There's a value there that is 243 00:14:40,930 --> 00:14:42,010 not market wide. 244 00:14:42,310 --> 00:14:46,240 It is because that business will have some overlap with yours and will see 245 00:14:46,240 --> 00:14:49,750 additional value in it that the rest of the markets will not see. 246 00:14:50,440 --> 00:14:51,740 So that's option one. 247 00:14:52,820 --> 00:14:57,350 Option two for us is a private equity sale. Now, I know what you're thinking. 248 00:14:57,350 --> 00:14:58,880 This is, this is the gold standard. 249 00:14:58,880 --> 00:15:01,430 Every business owner wants to sell to private equity. 250 00:15:01,430 --> 00:15:05,630 We have this discussion all the time. It's can you know, can we get there? 251 00:15:05,630 --> 00:15:09,590 And I think there's a lot of folks that think that there's a significant amount 252 00:15:09,590 --> 00:15:12,380 of private equity sales occurring in the market, and that's not the case. 253 00:15:12,380 --> 00:15:14,540 So this option is a great option, 254 00:15:14,540 --> 00:15:17,120 but it's going to be one that is not as common. 255 00:15:17,330 --> 00:15:21,170 And the reason for that is because those companies are looking for very specific 256 00:15:21,170 --> 00:15:22,220 businesses to buy. 257 00:15:22,430 --> 00:15:26,570 It has to make sense for that particular firm. It's gotta be in a space where 258 00:15:26,570 --> 00:15:28,550 they're building, for example, maybe you, 259 00:15:28,610 --> 00:15:32,900 you could be an add-on to another company and that they're putting together a a 260 00:15:32,900 --> 00:15:36,410 group of companies or you could be the platform to which the others are getting 261 00:15:36,410 --> 00:15:37,040 added on, 262 00:15:37,040 --> 00:15:41,060 in which case you would receive even higher value if you were the platform 263 00:15:41,060 --> 00:15:44,660 company. But private equity is very specific, what they're looking for. 264 00:15:44,690 --> 00:15:47,240 There's certain industries that they focus on in particular, 265 00:15:47,390 --> 00:15:50,900 and that also works with the market. So it could be, for example, 266 00:15:50,900 --> 00:15:54,230 home services businesses that private equity firms are after. 267 00:15:54,230 --> 00:15:58,250 So they're looking for a group of those in the market, gobbling them up, uh, 268 00:15:58,250 --> 00:16:00,920 depends again on market factors and, and what they're after. 269 00:16:00,920 --> 00:16:05,600 But that sale to private equity certainly is going to take a strong 270 00:16:05,600 --> 00:16:06,650 look at, you know, 271 00:16:06,650 --> 00:16:10,160 what your key drivers are and how well they're performing. We're going to get 272 00:16:10,160 --> 00:16:13,190 into that in a little bit more detail, so I won't dive too far into that. 273 00:16:13,190 --> 00:16:15,380 But that's going to matter for private equity. 274 00:16:15,380 --> 00:16:19,850 They are really going to scrutinize every aspect of your business to see, 275 00:16:19,910 --> 00:16:22,910 you know, are you operating in a way that is going to make sense for them? 276 00:16:23,480 --> 00:16:27,410 And if you are, then that your business may be considered for that sale. 277 00:16:27,410 --> 00:16:29,480 And if not, then maybe it still will be. 278 00:16:29,480 --> 00:16:33,650 But there's going to be significant discounts associated with it if it is not on 279 00:16:33,650 --> 00:16:36,740 par with what they are looking for and all of these different drivers. 280 00:16:36,980 --> 00:16:37,670 And then finally, 281 00:16:37,670 --> 00:16:42,290 the third sale option that we look at for an external sale is going to 282 00:16:42,290 --> 00:16:44,090 be in public offering. 283 00:16:44,090 --> 00:16:47,690 So an initial public offering or taking the co the company public, 284 00:16:48,110 --> 00:16:50,330 that is not for a lot of companies, that's, 285 00:16:50,330 --> 00:16:54,590 I would say that's the least common option because there are a lot of factors at 286 00:16:54,590 --> 00:16:55,220 play there, 287 00:16:55,220 --> 00:16:59,060 whether the company even wants to consider going public and also can the 288 00:16:59,060 --> 00:17:03,290 business allow for that to happen. Most of the times you're looking at a really 289 00:17:03,290 --> 00:17:07,550 high growth company that's going to be even considering going public. Um, 290 00:17:07,550 --> 00:17:12,110 if that is a consideration for your business, it is incredibly complex. 291 00:17:12,440 --> 00:17:14,660 There's a lot of regulation involved. 292 00:17:14,660 --> 00:17:17,510 There's going to be a lot of legal work involved. It's, it's highly, 293 00:17:17,510 --> 00:17:19,910 highly complex to be able to take a company public. 294 00:17:20,090 --> 00:17:22,220 So not an option that most folks would be considering, 295 00:17:22,220 --> 00:17:25,100 but certainly one that we have to consider with the businesses that we work 296 00:17:25,100 --> 00:17:26,390 with. So again, 297 00:17:26,390 --> 00:17:30,050 those options are going to be strategic sale or sale to a competitor, 298 00:17:30,560 --> 00:17:34,250 a sale to private equity or an initial public offering. 299 00:17:35,030 --> 00:17:39,980 I feel like the IPO option was incredibly popular 300 00:17:39,980 --> 00:17:44,840 in the eighties and in the nineties before private equity really burst 301 00:17:44,840 --> 00:17:49,530 onto the scene and was focused on, you know, 302 00:17:49,710 --> 00:17:54,390 grabbing companies and combining companies and doing those 303 00:17:54,390 --> 00:17:58,830 sorts of things. I I actually was part of, uh, 304 00:17:58,830 --> 00:18:03,660 an IPO, one of the companies I worked for was part of an IPO. They , 305 00:18:04,020 --> 00:18:08,280 they went public and then they were immediately bought by Marriott right after 306 00:18:08,280 --> 00:18:09,060 they went public. 307 00:18:09,060 --> 00:18:13,320 The whole purpose of them going public was to make the purchase by Marriott 308 00:18:13,320 --> 00:18:17,460 International easier for them. And it was, 309 00:18:17,460 --> 00:18:21,630 the business at the time was, you know, 310 00:18:21,630 --> 00:18:26,040 it was significant, but today it would have to be more significant. 311 00:18:26,040 --> 00:18:30,780 So kind of the rule of thumb to think about is if you wanna think 312 00:18:30,780 --> 00:18:32,760 about an initial public offering, 313 00:18:33,240 --> 00:18:37,680 your business should probably be doing 75 or a hundred million 314 00:18:37,680 --> 00:18:42,360 dollars in annual revenue in order to even think about it. 315 00:18:42,360 --> 00:18:46,980 Even then, that would be kind of a small initial public offering. 316 00:18:47,190 --> 00:18:52,050 You're probably going to be pursued pretty heavily by private equity funds if 317 00:18:52,050 --> 00:18:53,880 you grow the business to that level. 318 00:18:54,120 --> 00:18:57,120 And their offers may be quite generous, 319 00:18:57,120 --> 00:19:00,090 probably more generous and, uh, 320 00:19:00,690 --> 00:19:03,510 slightly less onerous than an IPO. 321 00:19:03,510 --> 00:19:08,250 So my thought process is strategic sale or a sale to private 322 00:19:08,250 --> 00:19:12,240 equity. That's what most business owners are looking at. They're, they, 323 00:19:12,360 --> 00:19:15,600 they have an eye toward. But to be candid with you, 324 00:19:15,660 --> 00:19:20,400 if you are doing 75 a hundred million dollars in annual revenue and you want 325 00:19:20,400 --> 00:19:24,000 to run your business like you're preparing for an IPO, 326 00:19:24,000 --> 00:19:27,390 a private equity sale will be it. You'll be able to, 327 00:19:27,390 --> 00:19:30,420 you'll be able to get through the due diligence period with a private equity 328 00:19:30,420 --> 00:19:32,430 sale. Those of you who are listening here, 329 00:19:32,460 --> 00:19:37,020 you're probably not running businesses of that size. So strategic sale, 330 00:19:37,020 --> 00:19:41,970 private equity sale, IPO, those are the three. All right, let's talk now Nicola, 331 00:19:41,970 --> 00:19:45,420 about the 10 drivers of enterprise value. 332 00:19:45,450 --> 00:19:47,790 'cause one of the questions we get all the time is, 333 00:19:47,790 --> 00:19:52,590 what are the 10 key drivers of enterprise value for any business? 334 00:19:52,680 --> 00:19:57,540 And people wanna know how each of those kind of fits into 335 00:19:57,600 --> 00:19:59,850 exit strategy and exit planning. 336 00:20:00,180 --> 00:20:04,860 Why don't you take the first two and we'll go kind of two by two and cover each 337 00:20:04,860 --> 00:20:05,340 of these, 338 00:20:05,340 --> 00:20:09,960 just touching on the tops of the 10 drivers of enterprise 339 00:20:09,960 --> 00:20:13,920 value as an intro for our folks who are listening, 340 00:20:13,920 --> 00:20:15,360 the folks who are watching today. 341 00:20:15,600 --> 00:20:16,830 Of course. And so to be clear, 342 00:20:16,830 --> 00:20:20,820 the 10 key drivers are those that we've identified in exit success labs. 343 00:20:20,820 --> 00:20:23,970 So this is not, you know, just a, a market 10 key drivers. 344 00:20:23,970 --> 00:20:27,750 These are our 10 key proprietary drivers that we've identified that we believe 345 00:20:27,750 --> 00:20:30,060 apply to any business in any industry, 346 00:20:30,150 --> 00:20:33,810 and regardless of where it is in its lifecycle. So that first one, 347 00:20:33,810 --> 00:20:36,870 the first one is there for a reason in place number one, 348 00:20:36,870 --> 00:20:39,540 which is your diversity and quality of revenue streams. 349 00:20:39,660 --> 00:20:43,950 You hear us talk about this often and we can't talk about it often enough given 350 00:20:43,950 --> 00:20:47,620 how important it is for driving profitability and revenue, the business, 351 00:20:47,980 --> 00:20:49,000 when we say quality, 352 00:20:49,000 --> 00:20:52,840 we're looking at what's the quality of the customer base and do we need to, 353 00:20:52,840 --> 00:20:55,540 for example, diversify that customer base because for example, 354 00:20:55,540 --> 00:20:57,760 the business is too dependent upon a single, 355 00:20:57,760 --> 00:21:01,660 a single customer or a single set of customers. And then we also look at 356 00:21:01,660 --> 00:21:04,960 diversifying the revenue. So diversifying the revenue in different ways, 357 00:21:04,990 --> 00:21:08,890 for example, like geographically for example, by, you know, other businesses. 358 00:21:08,890 --> 00:21:09,580 So it's, 359 00:21:09,580 --> 00:21:13,330 it's focusing on both aspects of that and making sure that your revenue is not 360 00:21:13,330 --> 00:21:14,560 coming from a single source, 361 00:21:14,710 --> 00:21:18,880 but you have multiple streams and that revenue is recurring in the business so 362 00:21:18,880 --> 00:21:21,400 that you have predictability in the revenue stream. 363 00:21:22,210 --> 00:21:26,740 Second point we look at is leadership development and management succession, 364 00:21:27,670 --> 00:21:32,380 making sure that you have a plan to develop the leaders that are already part of 365 00:21:32,380 --> 00:21:36,910 the organization and have a management succession plan is what is going 366 00:21:36,910 --> 00:21:41,320 to drive the growth, not only the growth of your business, but sustainability. 367 00:21:41,650 --> 00:21:43,090 So this is really kind of the, 368 00:21:43,090 --> 00:21:46,600 the core group that's going to keep that business where it is and moving 369 00:21:46,600 --> 00:21:47,290 forward. 370 00:21:47,290 --> 00:21:51,550 So it's important to have both in place a plan to have leaders on the track to 371 00:21:51,550 --> 00:21:55,300 develop, so you know, you're investing in those employees and for management, 372 00:21:55,300 --> 00:21:57,910 having a plan, having a succession plan in place, 373 00:21:57,910 --> 00:22:01,180 which is something else that we work on with respect to the second key driver. 374 00:22:01,510 --> 00:22:04,330 So Dave, let me turn it over to you for key drivers three and four. 375 00:22:05,350 --> 00:22:09,970 All right, key driver number three is standard operating procedures. 376 00:22:10,000 --> 00:22:13,990 This is something that I like to beat the business owners over the head with. 377 00:22:14,680 --> 00:22:19,210 People need to have guidance for doing their jobs. 378 00:22:19,240 --> 00:22:23,770 If you don't have a plan in place for how to do every 379 00:22:23,770 --> 00:22:28,570 single task in your business, you're leaving money on the table. 380 00:22:28,690 --> 00:22:31,720 Start with the biggest tasks and narrow them down. 381 00:22:31,900 --> 00:22:36,670 Have the people in the organization write down step by step how they do the 382 00:22:36,670 --> 00:22:40,360 most important things that they do day in and day out. 383 00:22:40,510 --> 00:22:41,860 Then get granular, 384 00:22:42,010 --> 00:22:46,360 continue to develop and improve these standard 385 00:22:46,360 --> 00:22:50,800 operating procedures on a regular basis. Document them, 386 00:22:51,010 --> 00:22:53,830 have them written and put them in. 387 00:22:53,860 --> 00:22:57,280 You can have them in binders in each department in your business. 388 00:22:57,430 --> 00:23:02,320 You can have them in the hard drive that is onsite. 389 00:23:02,320 --> 00:23:07,180 You can have them in a file on the cloud. You should also have them in your 390 00:23:07,180 --> 00:23:09,160 knowledge management system. 391 00:23:09,520 --> 00:23:14,200 You should have these standard operating procedures in as many different 392 00:23:14,200 --> 00:23:19,120 places saved and updated as regularly as possible so that people 393 00:23:19,120 --> 00:23:24,010 coming in, whether it's new employees, new managers or new ownership, 394 00:23:24,370 --> 00:23:29,290 can read through a standard operating procedure and have a guide to doing 395 00:23:29,320 --> 00:23:33,310 any job, any task, any role in the company. 396 00:23:33,880 --> 00:23:38,320 I can't stress enough how valuable these standard 397 00:23:38,320 --> 00:23:40,150 operating procedures are. 398 00:23:40,390 --> 00:23:44,830 It can add literally points to your bottom line. 399 00:23:44,840 --> 00:23:49,610 You can get more money for your business if you have standard operating 400 00:23:49,610 --> 00:23:54,440 procedures in place because new management coming in will be 401 00:23:54,440 --> 00:23:56,840 able to look at them, read through them, 402 00:23:56,840 --> 00:23:59,720 and evaluate the people who are doing the work. 403 00:24:00,080 --> 00:24:04,280 Standard operating procedures are great for the ongoing 404 00:24:04,490 --> 00:24:07,400 managing, uh, and leading of your team, 405 00:24:07,550 --> 00:24:11,720 but they're also great for when you're ready to sell the business. So one of the 406 00:24:11,720 --> 00:24:12,620 top things, 407 00:24:12,830 --> 00:24:17,720 fastest ways to improve the value of the business is by documenting 408 00:24:17,750 --> 00:24:20,870 the standard operating procedures that are already in place. 409 00:24:21,410 --> 00:24:24,680 Number four is human resources best practices. 410 00:24:24,680 --> 00:24:29,600 So every business is a compilation of 411 00:24:29,600 --> 00:24:32,780 the talent of the people that work in that business. 412 00:24:33,140 --> 00:24:37,880 How you recruit, hire, retain, 413 00:24:38,240 --> 00:24:42,860 engage the talent that is part of your company is 414 00:24:43,280 --> 00:24:47,450 it's, it's critical to the success of your company overall. 415 00:24:47,600 --> 00:24:52,460 So your policies, your practices related to hr, 416 00:24:52,760 --> 00:24:56,450 that is the fuel that makes the company go. 417 00:24:56,840 --> 00:24:59,720 Who do you select? How do you select them? How do you find them? 418 00:24:59,720 --> 00:25:01,010 How do you onboard them? 419 00:25:01,010 --> 00:25:04,040 How do you make sure they stay engaged and they're successful? 420 00:25:04,160 --> 00:25:06,950 What's your performance appraisal process look like? 421 00:25:07,040 --> 00:25:09,380 What is your training process for your people? 422 00:25:09,410 --> 00:25:11,720 What's your training process for your managers? 423 00:25:11,870 --> 00:25:16,250 How do you determine who becomes a leader? All of these things are HR 424 00:25:16,250 --> 00:25:21,020 practices plus all the admin aspects of your HR practices. 425 00:25:21,320 --> 00:25:24,560 You need to have these buttoned down. You need to have them nailed down. 426 00:25:24,560 --> 00:25:29,180 Now there's a shortcut. If you're a smaller business or a mid-size business, 427 00:25:29,390 --> 00:25:33,890 you can bring in, uh, A PEO, you can bring in a, uh, 428 00:25:33,890 --> 00:25:38,810 a professional employer organization that will work with 429 00:25:38,810 --> 00:25:43,760 you on a, almost like a co uh, a co, um, 430 00:25:43,820 --> 00:25:46,010 ownership basis of your employees. 431 00:25:46,040 --> 00:25:50,420 And they will manage all the administrative aspects of your business for you. 432 00:25:50,750 --> 00:25:55,490 You still have to be a leader. You still have to engage and train your folks, 433 00:25:55,490 --> 00:25:58,520 and you still have to have policies and practices in place. 434 00:25:58,760 --> 00:26:03,740 So my advice to you is when you grow to beyond 10 or 435 00:26:03,740 --> 00:26:05,300 15 employees, 436 00:26:05,570 --> 00:26:10,490 look to bring on someone who is focused on employee engagement, 437 00:26:10,670 --> 00:26:14,510 employee recruiting, employee retention and onboarding. 438 00:26:14,720 --> 00:26:19,280 Even if you decide you wanna help have someone help you with the admin 439 00:26:19,280 --> 00:26:22,910 functions of your human resources best practices, 440 00:26:23,270 --> 00:26:27,440 no matter what you do, this is gonna be an area that is scrutinized, 441 00:26:27,560 --> 00:26:31,550 that is poured over by someone who's looking to buy your business. 442 00:26:31,670 --> 00:26:36,440 So you better have these in shape in your company from day 443 00:26:36,530 --> 00:26:40,220 one. So those are the first four. Now for number five, 444 00:26:40,220 --> 00:26:44,010 we're gonna turn it back over to Nikki G for something that's near and dear to 445 00:26:44,010 --> 00:26:44,370 her office. 446 00:26:44,370 --> 00:26:46,950 That's right, legal risk and exposure, . 447 00:26:47,970 --> 00:26:49,500 So there's two aspects of this. 448 00:26:49,500 --> 00:26:53,610 So the first of course is identifying and minimizing the areas of risk and 449 00:26:53,610 --> 00:26:57,870 exposure in your business because you want to avoid disruptions and expense. 450 00:26:58,260 --> 00:27:01,770 So are you in compliance with all the laws that are applicable to your business? 451 00:27:02,070 --> 00:27:05,790 Are you reviewing regular policies and procedures that are in place? 452 00:27:05,820 --> 00:27:07,980 Hopefully you have policies and procedures in place. 453 00:27:08,370 --> 00:27:11,880 Are you keeping up with changes in the law and making sure that the business is 454 00:27:11,880 --> 00:27:14,730 in compliance with those? Because when you fall out, 455 00:27:14,730 --> 00:27:18,660 that's where you can become most vulnerable, most vulnerable to disputes, 456 00:27:18,750 --> 00:27:21,420 lawsuits and disruption inside of the company. 457 00:27:21,510 --> 00:27:25,470 And that's what's going to not only cost money for the business, but time, 458 00:27:25,620 --> 00:27:29,370 time at the C-suite level, the managerial level, the employee level. 459 00:27:29,400 --> 00:27:30,510 I mean I've seen it all. And you, 460 00:27:30,570 --> 00:27:34,470 the last thing that you want is a lawsuit because that's really where everything 461 00:27:34,470 --> 00:27:38,820 comes to a halt and time is being spent on that rather than keeping the business 462 00:27:38,820 --> 00:27:43,800 running. Now the second aspect of this that I think is often overlooked that 463 00:27:43,800 --> 00:27:46,950 we focus on is how this drives value for a business. 464 00:27:47,340 --> 00:27:51,930 So by the time you get to the due diligence phase because you're ready to have a 465 00:27:51,930 --> 00:27:53,460 successful exit of the business, 466 00:27:53,700 --> 00:27:58,500 this is going to be heavily scrutinized and anything that is a problem is going 467 00:27:58,500 --> 00:28:01,560 to be exposed there. For example, do you have pending lawsuits? 468 00:28:01,710 --> 00:28:05,520 Are there threatened lawsuits or are there just problems with the documents that 469 00:28:05,520 --> 00:28:07,320 you have in place? Maybe they're dated, 470 00:28:07,350 --> 00:28:10,050 maybe you're not in compliance with some of those areas of the law that you 471 00:28:10,050 --> 00:28:10,883 should be. 472 00:28:10,890 --> 00:28:14,130 And that's going to cost a business owner a lot in due diligence because you're 473 00:28:14,130 --> 00:28:15,990 gonna have to go back and fix those issues. 474 00:28:16,260 --> 00:28:19,380 That sale is not gonna go forward if there are legal issues associated with that 475 00:28:19,380 --> 00:28:23,760 business because a buyer is not going to want to inherit the problems. So that's 476 00:28:23,760 --> 00:28:25,560 going to cost time and, 477 00:28:25,560 --> 00:28:28,830 and certainly in terms of a setback for what the timeline is going to look like 478 00:28:28,830 --> 00:28:29,580 for that sale, 479 00:28:29,580 --> 00:28:32,520 and it's going to cost an investment to make sure you're correcting all of it. 480 00:28:33,000 --> 00:28:37,830 So taking care of these now and laying that foundation as you're moving forward 481 00:28:37,830 --> 00:28:41,640 in a business is going to save you a lot of time and expense in the long run and 482 00:28:41,640 --> 00:28:45,690 prepare for that successful exit. The next driver on our list, 483 00:28:45,690 --> 00:28:50,370 number six is brand reputation. Your brand is a powerful asset. 484 00:28:50,610 --> 00:28:54,810 That asset can have its own independent value when you're looking at the time of 485 00:28:54,810 --> 00:28:55,110 a sale, 486 00:28:55,110 --> 00:28:59,550 depending upon how strong that brand has become and outside of its value, 487 00:28:59,610 --> 00:29:03,150 it has value with your customers. When you have a strong brand, 488 00:29:03,150 --> 00:29:05,010 people want to do business with the company, 489 00:29:05,070 --> 00:29:06,900 they start to recognize the company, 490 00:29:07,020 --> 00:29:10,380 there becomes a familiarity and level of trust in doing business with the 491 00:29:10,380 --> 00:29:12,420 company associated with that brand. 492 00:29:13,020 --> 00:29:17,520 So using that brand allows you to engage with your customers and be able to 493 00:29:17,520 --> 00:29:19,380 retain customers in the long term. 494 00:29:20,100 --> 00:29:23,730 So that's why we focus on brand reputation and developing a powerful brand 495 00:29:23,730 --> 00:29:24,900 because, and again, 496 00:29:24,990 --> 00:29:28,470 adding value to that business by the time you're at a successful exit and 497 00:29:28,470 --> 00:29:31,650 helping you with that customer base and making sure that you're developing 498 00:29:31,770 --> 00:29:35,370 credibility with your customers and have that loyalty so that they stay with you 499 00:29:35,370 --> 00:29:39,360 in the long term. Dave, lemme turn it over to you for seven and. 500 00:29:39,360 --> 00:29:40,590 Eighth. All right, 501 00:29:40,590 --> 00:29:45,130 nu number seven is sales and marketing systems and 502 00:29:45,130 --> 00:29:45,963 support. 503 00:29:46,270 --> 00:29:51,220 Where is the money gonna come from if you don't know your business isn't 504 00:29:51,220 --> 00:29:53,620 worth? Well, it isn't worth anything. 505 00:29:53,980 --> 00:29:58,780 You need to have a system and a process in place for identifying, finding, 506 00:29:58,870 --> 00:30:02,170 uh, attracting, closing, and onboarding new customers. 507 00:30:02,650 --> 00:30:06,910 So your sales and marketing systems and support is critical. 508 00:30:07,060 --> 00:30:11,110 You need to be able to highlight the customer journey all the way through from 509 00:30:11,110 --> 00:30:14,740 the time when you suspect they might be a customer to you, to, 510 00:30:14,740 --> 00:30:17,980 when you convert them into a prospect, they raise their hand, say, yes, 511 00:30:17,980 --> 00:30:19,540 I'm interested in what you have to say, 512 00:30:19,540 --> 00:30:23,740 I want to hear more to the time when the prospect converts into a client, 513 00:30:23,950 --> 00:30:26,500 to the time when a client becomes a repeat client, 514 00:30:26,500 --> 00:30:31,390 until the point where you can measure client lifetime value. 515 00:30:31,390 --> 00:30:36,340 All of that is in your sales and marketing systems and support. If you don't 516 00:30:36,340 --> 00:30:39,640 have systems in place, your business is not saleable. 517 00:30:39,880 --> 00:30:43,270 We need to know where your next dollar is gonna come from. 518 00:30:43,450 --> 00:30:48,130 Sales and marketing systems. That's what will help you be able to point to that. 519 00:30:48,340 --> 00:30:51,610 That's what's essential for you to have in place. 520 00:30:51,610 --> 00:30:54,130 And the better your sales and marketing systems are, 521 00:30:54,370 --> 00:30:57,130 the more money you'll get for your business overall. 522 00:30:57,820 --> 00:31:01,840 Number eight is market, industry and supplier conditions. 523 00:31:02,200 --> 00:31:06,760 Can you imagine if you had a business that was dependent on 524 00:31:06,760 --> 00:31:11,380 one supplier to provide you with raw material to make your 525 00:31:11,380 --> 00:31:15,460 product or your service, and then that supplier for whatever reason, 526 00:31:15,460 --> 00:31:18,310 had a disruption, they closed down, they went bankrupt, 527 00:31:18,310 --> 00:31:19,390 they went outta business, 528 00:31:19,630 --> 00:31:23,770 there was a pandemic where they're located and they were no longer able to 529 00:31:23,770 --> 00:31:24,730 produce for you. 530 00:31:24,970 --> 00:31:29,050 Your business would come to a halt until you could find another supplier. 531 00:31:29,320 --> 00:31:31,720 So analyzing market, 532 00:31:31,720 --> 00:31:34,600 industry and supplier conditions is critical. 533 00:31:34,750 --> 00:31:38,620 And you need to be able to adapt to the market dynamics that are constantly 534 00:31:38,620 --> 00:31:41,620 changing, having a plan in place, 535 00:31:41,770 --> 00:31:44,500 a primary supplier and a secondary supplier, 536 00:31:44,500 --> 00:31:48,790 a market where you're doing business and a secondary market where you're also 537 00:31:48,790 --> 00:31:49,690 doing business. 538 00:31:49,960 --> 00:31:54,340 Industry focuses where your clients are concentrated and 539 00:31:54,340 --> 00:31:56,200 secondary industry focuses. 540 00:31:56,560 --> 00:32:00,490 Having alternatives in place is a really good thing. 541 00:32:00,790 --> 00:32:04,180 The more diverse your market penetration is, 542 00:32:04,330 --> 00:32:06,970 the more diverse your customer concentration is. 543 00:32:07,180 --> 00:32:11,350 The more diverse your suppliers and supply chain is, 544 00:32:11,890 --> 00:32:16,120 the better off your business is, the higher the value of your business. 545 00:32:16,120 --> 00:32:20,050 So we wanna look at market, industry and supplier conditions. 546 00:32:20,260 --> 00:32:23,590 Make sure that you're not concentrated in any one market. 547 00:32:23,710 --> 00:32:26,020 You're not dependent on any one supplier. 548 00:32:26,170 --> 00:32:31,060 You don't have any one industry that is providing you with all of 549 00:32:31,060 --> 00:32:32,980 your revenue. All right, Nikki g, 550 00:32:32,980 --> 00:32:37,660 bring it home for numbers nine and 10 on the 10 drivers of enterprise 551 00:32:37,660 --> 00:32:38,493 value. 552 00:32:39,140 --> 00:32:43,310 All right, number nine, financial conditions and reporting. So here, 553 00:32:43,370 --> 00:32:45,110 this is the health of your business. 554 00:32:45,170 --> 00:32:46,910 Your books show the health of your business. 555 00:32:46,910 --> 00:32:50,270 It is incredibly important for you to make sure that those books are done 556 00:32:50,270 --> 00:32:54,410 correctly from an accounting perspective. And everything there is nice and neat. 557 00:32:54,710 --> 00:32:58,220 That is often the first stop in due diligence is let's look at what the 558 00:32:58,220 --> 00:33:01,700 financials show. Why, because we need to see how healthy this company is, 559 00:33:01,700 --> 00:33:04,850 how profitable this company is, and what's been going on. 560 00:33:05,420 --> 00:33:08,630 And oftentimes we have a partner we work with in our community as, 561 00:33:08,630 --> 00:33:10,550 as you all know, Roski corporate advisors. 562 00:33:10,580 --> 00:33:12,590 And they work with a lot of businesses, 563 00:33:12,650 --> 00:33:15,650 including very sophisticated ones whose books are a mess. 564 00:33:15,890 --> 00:33:17,930 And it takes time to clean all of that up. It's, 565 00:33:17,960 --> 00:33:21,710 it's often surprising because you assume that more sophisticated businesses, 566 00:33:21,710 --> 00:33:25,430 larger businesses have all of that in order. That's not always the case. 567 00:33:25,790 --> 00:33:29,960 And it takes a long time to be able to go back and to clean up those books to 568 00:33:29,960 --> 00:33:32,480 make them to the point where they're nice, neat. 569 00:33:32,780 --> 00:33:35,300 They show that the company is nice and healthy by the time you get to due 570 00:33:35,300 --> 00:33:38,540 diligence. So very important to be focusing on the books, 571 00:33:38,540 --> 00:33:39,650 making sure they're done right, 572 00:33:39,770 --> 00:33:42,950 making sure they're done in the right accounting standards too. So for example, 573 00:33:42,950 --> 00:33:45,950 if you end up in a trans, a private sale, a business, 574 00:33:46,100 --> 00:33:48,230 there's gonna be a quality of earnings report that's done. 575 00:33:48,290 --> 00:33:50,750 And that's going to look at, you know, what accounting have you used? 576 00:33:50,750 --> 00:33:54,830 Have you used gap principles for accounting to make sure that your business is 577 00:33:54,830 --> 00:33:56,420 in compliance with those? And if not, 578 00:33:56,420 --> 00:33:59,330 then you'll likely have to go back and use that. So again, 579 00:33:59,330 --> 00:34:03,320 just making sure those books are nice and in order is going to be a an early 580 00:34:03,320 --> 00:34:07,940 stop for you. So make sure that's done. And then finally, driver number 10, 581 00:34:08,000 --> 00:34:11,420 the one that should be keeping every business owner up at night, 582 00:34:11,480 --> 00:34:14,780 which is cybersecurity risk and information Technology systems. 583 00:34:15,110 --> 00:34:17,870 This is all about protecting your digital assets. 584 00:34:17,870 --> 00:34:20,180 So are you protecting your data properly? 585 00:34:20,480 --> 00:34:22,820 Are you protecting the systems in your company properly? 586 00:34:23,240 --> 00:34:26,360 There's always going to be cyber threats out there. For example, 587 00:34:26,360 --> 00:34:29,090 we are all susceptible to phishing, to malware. 588 00:34:29,150 --> 00:34:33,050 Things that are out there every day trying to get our attention and to get us to 589 00:34:33,050 --> 00:34:36,320 click on that link are going to happen. It's just, 590 00:34:36,350 --> 00:34:40,250 do we have that plan in place to best protect ourselves against when that does 591 00:34:40,250 --> 00:34:42,920 happen? So we look at just high level, 592 00:34:42,920 --> 00:34:45,470 we look at three different areas when we're dealing with cybersecurity, 593 00:34:45,650 --> 00:34:48,920 we're looking at the human aspect of it, which is the people. 594 00:34:49,010 --> 00:34:53,150 Have you provided education and training for those in your company? Do you have 595 00:34:53,150 --> 00:34:57,200 policies in place that are going to help you implement the guidelines that 596 00:34:57,200 --> 00:35:01,370 you've identified to use to protect that information for the company? You know, 597 00:35:01,370 --> 00:35:03,260 second, we look at the processes. 598 00:35:03,470 --> 00:35:06,830 What are you doing in order to make sure that's protected? 599 00:35:07,610 --> 00:35:08,900 And then finally the tools, 600 00:35:08,900 --> 00:35:13,550 like what specific tools are you using to help carry out those processes and to 601 00:35:13,550 --> 00:35:15,560 make sure that you are protected. 602 00:35:15,920 --> 00:35:19,460 So an area of business that should be keeping everyone up at night and that we 603 00:35:19,460 --> 00:35:22,340 ought to focus on because of how important it is. 604 00:35:22,670 --> 00:35:25,640 And you've gotta have a plan in place. That's the biggest takeaway here, 605 00:35:25,640 --> 00:35:30,290 is having a plan in place and having a multi-layered defense system really. 606 00:35:30,560 --> 00:35:33,110 'cause it can't just be one thing. It's not simply, well, 607 00:35:33,110 --> 00:35:36,440 we made really strong protected passwords, or we have a firewall. 608 00:35:36,860 --> 00:35:39,990 It's holistic system that really works together to protect that business. 609 00:35:39,990 --> 00:35:43,110 And it's gotta be layered because if any one layer fails, 610 00:35:43,170 --> 00:35:47,670 you have multiple backups to help save you and to help save your information 611 00:35:47,700 --> 00:35:49,830 from being exposed or being lost altogether. 612 00:35:50,280 --> 00:35:54,690 Great job. Really well said. Okay, so the final question is, 613 00:35:54,720 --> 00:35:59,550 how does a business owner determine which driver of enterprise value to 614 00:35:59,550 --> 00:36:01,500 focus on first? You know, 615 00:36:01,500 --> 00:36:06,360 I will tell you that the best thing for you to do is to 616 00:36:06,420 --> 00:36:11,370 go through all 10 of these and prioritize them in 617 00:36:11,370 --> 00:36:13,050 order of exposure. 618 00:36:13,440 --> 00:36:18,240 So prioritize them in order of where you are most deficient. 619 00:36:18,540 --> 00:36:20,490 Rank them one through 10, 620 00:36:20,820 --> 00:36:24,030 and then next to each of the drivers, 621 00:36:24,030 --> 00:36:28,200 write the name of the person in your company who would be responsible for 622 00:36:28,200 --> 00:36:28,890 fixing, 623 00:36:28,890 --> 00:36:33,540 shoring up or managing that key driver of enterprise 624 00:36:33,540 --> 00:36:36,870 value. Now, don't be, 625 00:36:37,050 --> 00:36:41,640 don't be panic stricken if you don't have a person in your company for every 626 00:36:41,640 --> 00:36:42,570 single one of these, 627 00:36:42,960 --> 00:36:47,940 this is the point where you call us and we will help you look through 628 00:36:47,970 --> 00:36:52,860 each of these drivers and we can connect you with professionals who work in 629 00:36:52,860 --> 00:36:55,440 each of these areas. Nicola and I, 630 00:36:55,470 --> 00:37:00,240 we do some of our best work in two of those 10 areas, but if we're really busy, 631 00:37:00,240 --> 00:37:04,410 we may recommend other people to do the work in those areas anyway. 632 00:37:04,710 --> 00:37:09,600 So that's the reason why we've built the Exit Success Lab 633 00:37:09,600 --> 00:37:10,320 community. 634 00:37:10,320 --> 00:37:14,850 And that's the reason why the consultants that we work with are 635 00:37:14,850 --> 00:37:16,350 so important. 636 00:37:16,710 --> 00:37:20,340 We do not work in all of these areas. 637 00:37:20,550 --> 00:37:22,980 We may come in and do an overall audit, 638 00:37:22,980 --> 00:37:24,870 and that's the second point I wanna make about this. 639 00:37:24,870 --> 00:37:27,870 If you're not sure where to start, you can call us. 640 00:37:27,870 --> 00:37:32,010 We'll come in and do an overall audit. It's very much like a strategic plan, 641 00:37:32,010 --> 00:37:35,340 which is also something that we do in Exit Success Lab. 642 00:37:35,340 --> 00:37:40,320 We'll look at all 10 of the drivers and we will rank your exposure for 643 00:37:40,320 --> 00:37:40,710 you, 644 00:37:40,710 --> 00:37:44,670 and then we'll sit down with you and decide what you should start on and where 645 00:37:44,670 --> 00:37:48,930 you should start and who you should call. But the consultants that we work with 646 00:37:48,930 --> 00:37:53,610 are critical because they're the ones who help the clients fix each of these 647 00:37:53,610 --> 00:37:54,443 areas. 648 00:37:54,690 --> 00:37:59,370 Our focus is on helping business owners grow and helping 649 00:37:59,370 --> 00:38:03,720 business owners scale their business and helping them do so in a way that gives 650 00:38:03,720 --> 00:38:05,850 them the most options when they're ready to exit. 651 00:38:05,850 --> 00:38:10,260 So if you're listening to this podcast or if you're watching the show 652 00:38:10,440 --> 00:38:14,730 and you are concerned about 653 00:38:14,970 --> 00:38:18,480 growth and you're not at all worried about an exit, 654 00:38:18,690 --> 00:38:21,480 this is something you should be focusing on because it's, 655 00:38:21,510 --> 00:38:26,310 it will help you grow faster and it will help you create a more valuable 656 00:38:26,310 --> 00:38:30,120 business. It will help you create better, stronger, 657 00:38:30,360 --> 00:38:34,950 more durable revenue streams that are predictable. 658 00:38:35,260 --> 00:38:39,040 If you're thinking about an exit, but it's 10 or 15 years down the road, 659 00:38:39,040 --> 00:38:41,830 that's the perfect time to call us. By the same token, 660 00:38:41,830 --> 00:38:43,840 if you're thinking about an exit in a year, 661 00:38:43,990 --> 00:38:47,080 you need to call us right away because there are some things we can do 662 00:38:47,080 --> 00:38:51,700 immediately to help increase the value. So determining which 663 00:38:51,700 --> 00:38:56,200 driver to focus on first really is dependent upon three 664 00:38:56,200 --> 00:38:58,090 things. Number one, 665 00:38:58,150 --> 00:39:02,650 what your biggest needs are as a leader and where you think the biggest exposure 666 00:39:02,650 --> 00:39:04,930 is. What's keeping you up at night? Number two, 667 00:39:04,930 --> 00:39:08,500 what your intention is for the business wanna sell tomorrow. 668 00:39:08,590 --> 00:39:12,460 There's drivers that we can focus on that'll increase the value of your business 669 00:39:12,700 --> 00:39:16,540 from today to six months from today in a dramatic way. 670 00:39:16,630 --> 00:39:19,390 We can help you do that really, really quickly. 671 00:39:19,600 --> 00:39:21,520 If you don't wanna sell immediately, 672 00:39:21,520 --> 00:39:25,150 then there are some longer term things we should be doing in addition to the 673 00:39:25,150 --> 00:39:29,260 shorter term things that be that we should be doing. So what your intention is, 674 00:39:29,270 --> 00:39:33,880 that's the second thing to think about as you determine which drivers you should 675 00:39:33,880 --> 00:39:36,250 focus on. And then number three, 676 00:39:36,250 --> 00:39:40,360 the third thing you should think about is overall, 677 00:39:40,540 --> 00:39:45,070 what is the way that you can have the most impact 678 00:39:45,310 --> 00:39:50,230 on your business for you personally? After 679 00:39:50,230 --> 00:39:55,030 all, this is your business. What will make your life easier? 680 00:39:55,210 --> 00:40:00,010 If you're not planning to sell in the next two or three years and your growth 681 00:40:00,010 --> 00:40:04,930 is good and you're scaling your business and you're happy with your growth, 682 00:40:05,200 --> 00:40:09,010 but there are just some things that are bothering you, 683 00:40:09,190 --> 00:40:12,970 there's some things that you can't handle anymore. 684 00:40:13,120 --> 00:40:16,240 There are just some things that you don't wanna do, 685 00:40:16,630 --> 00:40:21,430 then maybe you should look at those key drivers of enterprise value 686 00:40:21,520 --> 00:40:26,260 and begin to put plans in place to make sure those 687 00:40:26,380 --> 00:40:31,120 are handled with or without you so that you can step away from them 688 00:40:31,330 --> 00:40:34,900 and you can have a positive impact on your wellbeing. 689 00:40:35,140 --> 00:40:38,440 So those are the three areas. What are your intentions for the business? 690 00:40:38,530 --> 00:40:41,140 What's the biggest vulnerability? What's keeping you up at night? 691 00:40:41,350 --> 00:40:46,060 And what would you like to have fixed so that 692 00:40:46,060 --> 00:40:49,180 you can step away from it in your business? 693 00:40:49,180 --> 00:40:52,960 And we can put it on autopilot so it can run with your oversight, 694 00:40:52,960 --> 00:40:55,990 but without you involved in the day to day. Nicole, 695 00:40:55,990 --> 00:40:57,790 you have anything to add before we close out? 696 00:40:58,510 --> 00:41:02,740 I would like to emphasize something that's really critical to what we do in Exit 697 00:41:02,740 --> 00:41:05,170 Success Lab associated with these 10 key drivers, 698 00:41:05,200 --> 00:41:09,790 which is that we want to start looking at this with business owners as early as 699 00:41:09,790 --> 00:41:10,623 possible. 700 00:41:10,630 --> 00:41:13,870 We're not talking about just when you're upon an exit or you're just a couple 701 00:41:13,870 --> 00:41:17,620 years out. Yes, we can add value there, but that's often the the last, 702 00:41:17,860 --> 00:41:20,050 the last stop that you can last exit. 703 00:41:20,050 --> 00:41:22,630 You can take off the expressway to start adding some value. 704 00:41:22,750 --> 00:41:25,630 We wanted to start at the beginning. We wanna start at the beginning. Why? 705 00:41:25,630 --> 00:41:29,440 Because that helps us drive value over the lifetime of the business leading up 706 00:41:29,440 --> 00:41:33,260 to that point. That's really where you can maximize value. It us, 707 00:41:33,260 --> 00:41:35,720 the time to assess all of these 10 areas. 708 00:41:35,960 --> 00:41:39,830 Make sure that business is in top shape so that it achieves its highest value, 709 00:41:39,950 --> 00:41:43,280 achieves its highest multiple, and you have more options when you exit. 710 00:41:43,520 --> 00:41:44,690 So that's really important for us, 711 00:41:44,690 --> 00:41:47,930 is having that longer timeframe because that's really where we can make much 712 00:41:47,930 --> 00:41:49,820 more of a difference for our business. 713 00:41:49,910 --> 00:41:52,170 So it's thinking about it now and we don't, 714 00:41:52,170 --> 00:41:56,900 we don't think about exit strategy or exit planning as already putting that that 715 00:41:56,900 --> 00:41:58,850 plan in place, you know, for a short timeline. 716 00:41:58,880 --> 00:42:02,780 It's putting it in place for the longevity of the business so that eventually 717 00:42:02,870 --> 00:42:06,380 when there is a change and there will be changes inevitable that you're prepared 718 00:42:06,380 --> 00:42:08,600 for it and you're at a great place when it happens. 719 00:42:09,110 --> 00:42:12,650 All right, that'll do it for this episode of The Inside Via Show. 720 00:42:12,650 --> 00:42:15,770 I'm Dave Lorenzo, the godfather of growth, and she is. 721 00:42:16,220 --> 00:42:16,880 Nikki G. 722 00:42:16,880 --> 00:42:20,480 We'll see you back here again next week for another edition of our show. 723 00:42:20,660 --> 00:42:25,070 Until then, here's hoping you make a great living and live a great life.