OK, welcome everyone to today's session on how to start an exit planning conversation with your clients. Those of you who are with me today are members of Exit Success Lab. Everyone here is a member of our community.

Part of the value of being a member of the Exit Success Lab community is that we work together to help improve the enterprise value of our clients so that they have more options when they're ready to exit. So if you're, for example, like Rick at Supporting Strategies and somebody says to Rick, what makes you different from everybody else who does bookkeeping services? In addition to giving the Supporting Strategies differentiators, he can say, well, I'm also a member of this group, Exit Success Lab, and our goal is to work on these 10 areas that will help improve the value of your business so you have more options when you're ready to exit. While you know me for bookkeeping and for creating fantastic financial reports for you, you also can count on me if you need help with cybersecurity, if you need help with overall brand development, if you need help with protecting your trademarks, if you need help with business organizational documents.

I'm a member of a community and we have dozens of people that are trained to help you increase the value of your business. So if you haven't thought about your exit strategy, maybe we should have a conversation about it. And then when the business owner says, Rick, I'd love to have a conversation with you about my exit strategy, Rick has this document that he can pull out.

So I want you all to open the Exit Ready document. And once you open it, I will go ahead and share my screen. And we can talk about some of the things we're doing with this document and how you can use it to enable the success of your business moving forward.

So I'm going to give you two seconds now. Everybody take a second and open the document. You can save it to your desktop.

All right, so question number one here, personal and financial goals. If I were you, I would use that as an opportunity if you're talking to the business owner to educate them about the difference between the value of their business and what they need for retirement. So there's a difference between the value of their business and what they need for retirement.

A lot of financial advisors who are exit planners, whether they go through a certification or not, there's a tendency for them to conflate the need for retirement with the value of a business. And I want to make sure that we are being responsible professionals and we are sitting down with the business owner and we are saying, Mr. Business Owner, as a certified enterprise value advisor or someone who's a member of Exit Success Lab working with you, I want to make sure you understand that the value of your business is completely separate from what you need for your retirement. You need to meet with a financial advisor.

You need to meet with somebody who's a professional at helping you get ready for retirement. They will help you understand what your lifestyle is going to be like and they will help you with what you will need for retirement. My role is to help you increase the value of your business and hopefully the value of your business will far exceed what you need for retirement.

My role is also to help you explore all the different options for your business when you're ready to retire. Some of those options may include selling your business to your employees or to your management team. We don't have to sell your business in order for us to enable your retirement.

You should think of your business as an investment separate and apart from your retirement needs. I would take this question and use question one as the opportunity to have that discussion with the business owner because it's so important that the business owner understands that their personal and their financial goals are separate and apart from the value of their business. Nicole, you have anything to add about that? That would have been my highlight there is make sure that you're discussing both with the business owner.

Biggest takeaway is making sure personal goals and business goals and those are two separate discussion points for them to make sure we're not conflating the two so that we're emphasizing the fact that the business has independent value from the personal aspect of this meaning what do you need to retire or what are your overall financial goals to be able to step away. Why don't you take question number two? Sure. Question number two, we're looking at business valuation.

We're asking the business owner here, have you had your own valuation of your business performed? I mean a professional one, one like a group such as Sandrowski Corporate Advisors, folks who will really do the deep dive and give you exactly what that valuation is. The reason we want to know if they've done this and frankly, if they're above like one or two million in EBITDA, they really ought to be doing this because heading into any potential sale, they're going to have a very good understanding of what that valuation is. That really helps us set expectations as we work through the process and work through negotiations and gives us an objective viewpoint to work off of when we are entertaining offers with them and talking through those.

It also can help us really highlight if there's any sort of weaknesses in the business that gives us time to look at that and make any adjustments that are necessary. So really valuable tool in order for working through this process that we'd recommend doing. And if you're under that threshold I mentioned, I would still do at least evaluation where Dave and I can walk through one that's a little more informal, but to give you some understanding.

Heading into these situations blind really creates a recipe for a lot of bumps in the road because the expectations tend to generally always be high with business owners as to what that business should be valued at. So we want to make sure we're working off of something that truly is an objective viewpoint that helps ease those negotiations in the process. One of the things that we would do, so if the owner comes to us and they don't want to invest in having say John Alfonsi or another CPA firm do evaluation for them, one of the things we would do is we would take a snapshot of the business.

We would look at comparable business sales based on their size and their industry. And we would tell them what other businesses have sold for. If they have an interest in potentially selling their business, we could even take it a step further, write up a confidential offering memoranda and we could send it out to a handful of private equity funds that we know work in the space where the business owner is and get a sense for what those PE funds would have an interest in paying for a business like that owner's business.

But we would only do something that extensive. We would only be able to go to the PE funds if the owner agreed that they were going to entertain a serious offer. I would not go to a PE fund just on spec and say, hey, this guy's thinking about potentially selling his business.

Would you be interested in how much would you pay him? I would want to be able to open up a dialogue if the person, if the PE fund got to a number that was a number that the person who was interested wanted to offer their business. So for our purposes, we can easily access a comparable database. We have access to three different comparable databases of businesses and we'll do this as we bring businesses into the community to give them a ballpark for where their business stands on the value spectrum.

And if they're interested in taking it to the next step, we certainly would be happy to do it with them. But if they haven't had a valuation, we need to look at comps and see what we think their business is arguably worth so that they have an idea. All right.

So number three is the ideal buyer profile. Does the owner have a clear understanding of their ideal buyer? Now, there's never going to be just one category of ideal buyer for any business, okay? But this question of all the questions, this question is the one that gets the owner really focused on thinking about the future of his or her business. If you sit down with a business owner and you say to them, hey, how does this business end for you? And the business owner doesn't have an idea, I would go to question number three and say, well, if you were to sell your business, who do you think would buy it? And these days, I spend a lot of time talking to managed service providers.

So I spend a lot of time talking to business owners in the technology space. And when I say to them, if somebody was going to buy your business, who do you think it would be? They all say, oh, private equity fund. Private equity fund is going to want to buy my business.

And sometimes I look at them and say, yeah, you're right. A private equity fund probably will want to buy your business. But would it surprise you to know that you're probably not going to get the most money? You're probably not going to get the highest return on the time that you've spent in the business.

You're probably not going to get the best multiple from a private equity fund. Would that surprise you? And they sit back and they go, are you kidding me? Those people, they have more money than God. Of course, I would get the most money from them.

And I generally will say no. There are two types of businesses that private equity funds buy, right? They buy platform companies and they buy bolt-on or add-on companies. A platform company is a company that serves as a foundation for them to buy other companies.

And those platform companies, those companies that are the first company that a private equity fund buys in a sector, those companies get the highest multiples. And the reason those companies get the highest multiples is because they're the foundation for everything else. And those companies are usually the most sound.

They're usually the most well-run. The 10 drivers of enterprise value in those companies are usually in complete and total alignment with what a good company, what you would expect from a good company. So if you're not a platform and a private equity fund is making you an offer for your company, it's always going to be a below market rate offer.

And the reason is because they can add on dozens of other companies and reduce the overhead, reduce the expenses by eliminating redundancy and immediately begin to make money. So they don't have to pay a premium for add-on companies, but they will most times pay a premium for the platform company. So when I say to a business owner, who's the ideal buyer for your business? I generally don't accept a private equity fund as the answer.

What I would want them to say is I want them to have either an idea of selling to somebody internally. So I'm going to sell it to my partners. I'm going to sell it to my management team, or I've set up an ESOP and I'm going to sell it to my employees.

Or I want them to say, I'm number three in my market nationwide. I want to sell my business to number one or number two, because I'm in Cleveland and I have the market cornered in Cleveland and they don't have any presence in Cleveland. So if they buy my business, they will dominate Cleveland.

And I'm going to move to Columbus and gain huge market share in Columbus as well. So that once we go to Columbus and Cincinnati, we'll be dominant over the whole state of Ohio. That's what I want to hear from the business owner.

I want to hear from the business owner that they know who the strategic buyers for their business might be. Now, it may be a pie in the sky dream for them to be bought by one of their strategic, by a strategic buyer, by somebody who's number one or number two in their industry. But if they're thinking about it and they're planning for it, their business is going to be better off as a result of it.

So when we ask question number three, who's the ideal buyer for your business? Who's the ideal person for you to sell this business to? I would love for them to come up with a strategic buyer as the ideal buyer profile. Because if you're getting ready for a strategic buyer to buy your business, you're going to have a great business, whether it's bought by a strategic buyer, whether you sell to your management team, whether you pass it on to the employees in an ESOP, whether you do, you grow to 100 million or more and you decide to do an IPO. If you're thinking about selling to a strategic buyer, you're already thinking about building a really sound business.

You're going to have something that's valuable to offer. Do we have any questions about that? Nicola, do you have anything you want to add? The takeaway here is really having an understanding of that because that's going to allow us to maximize the value of the business when we know who are we targeting so we can really tailor that offering to that particular ideal buyer that's going to give us the biggest number. Let me go ahead and move on to operational independence.

We have a number of these to go through. So here we're asking, can the business operate without the owner's involvement? Now, if you attended our seminar recently where we were talking about succession planning, this was our opening question. If the business cannot operate without you, it's not going to be sellable.

So we need to endeavor to make sure that that business can operate whenever you're gone and whenever somebody new steps in and we're able to continue and repeat the exact same results that you have achieved. That's going to allow us to show that that business is strong. It is capable of continuing without the owner, not dependent on the owner.

If it were dependent on the owner, that will absolutely either cause the buyer to walk away entirely or will cause them to really reduce that offer. So significant and reduction in the offer if it's dependent upon you. You also want to make sure that you're positioning yourself to step out of that business.

That's going to provide the best opportunity to be able to sell the business. So making sure the business operates on its own and without you. And there are a number of ways we do that.

And we will talk about standard operating procedures because that's stop number one as to how we ensure that that business is going to operate without you. So your standard operating procedures are how each and every task is done in your business. We take the people that we work with through an SOP process that is thorough.

In fact, Randy and Ray, who are part of the master's program, along with Paula and Allison, are working on creating a process to help them achieve their goals for this coming quarter. Part of what we're doing in helping them with their building their habits, and the habits lead to leverage, increasing leverage leads to creating a process that can be installed in the business. Once we have that process refined, we're going to work with them to capture that process and develop standard operating procedures.

So it is a natural extension of what you're doing. Everything you're doing should have a standard operating procedure. I'll give you a great example.

Nicola and I are refining the process for inviting guests to appear on the InsideBS show. And part of what we're doing now is we have a standardized email that's going out. We just started sending it out yesterday.

And we have a document that we created that highlights the entire process for how we record the show. It includes what browser they need to use, how they can log into the show. So that document, along with the email, and along with a confirmation that our assistant will be using to follow up with them, is going to be part of the standard operating procedure when we invite guests on the podcast.

So guests that appeared prior to Saturday, guests that started appearing last week or last year, they didn't go through this standard operating procedure. Future guests will be going through the standard operating procedure as we move forward. And we're developing the standard operating procedure through the process of inviting guests through trial and error by capturing the things that we're doing.

The idea behind asking about standard operating procedures is not to slap them on the wrist if they don't have them. It's to get them thinking about capturing each practice so that they know they have processes and procedures in place that can be passed on to people, whether they're buying the business or they're just starting a new job. When somebody's starting a new job, they should be able to sit down and review all the standard operating procedures for their roles and responsibilities.

All right, number six is leadership development. Is there a leadership development plan in place to groom future leaders? Nicole, you want to take a couple of minutes and go through that? Sure. So also related to our seminar on succession planning, we talked a lot about identifying that next group of leaders to take over in the business in different, I mean, depending on the size of the business, it could be in different sections of the business from your executive team to your leadership team, to your C-suite level, or it could just be those few key positions in your company for you that you need to plan so that someone is ready to take over those positions.

That's going to require making sure they have functional competence in a position that is the know-how to do the day-to-day, which comes from your SOPs, and that they have the experience and training as leaders to be able to step into those roles. Our goal is going to be to make sure that there are seamless transitions into each of those positions, especially as you start preparing for that exit to show that potential buyer out there that you already have a plan to make sure that that business will remain stable, will have the continuity that it's had with the leadership team that has gotten you to where you are today and gives them the confidence it will continue under that new ownership. Number seven is revenue streams.

So there's a whole host of activity and questions you can ask about diversity and quality of revenue streams. I just want you to ask the question, is 20% of your revenue coming from only one source? You want to make sure that the revenue that is coming into the business is spread out among as many sources as possible. The maximum you want to see is 20% of revenue coming from one source.

If you have one client that's producing more than 20% of your overall revenue, you're in a spot where you're really vulnerable to things that could go wrong or economic conditions or economic downturn that could impact the industry that your number one client is in. So for example, if your top client is in the financial services sector and the financial services sector takes a hit like it did in 2008, 2009, you could be in a world of hurt where you've got all of your clients, if 20% or more of your business is coming from the financial services sector, feeling the pinch of a difficult economy and they could cut back on spending and that could mean cutting back on your services. So we want to know if they have revenue streams that are coming from multiple clients in multiple industries across multiple geographies.

That's the way to think about revenue streams at a very high level. Clients, industries, and geographies. If you had clients that were in LA that were in the wildfire area and it was 20% or more of your business, you had a problem because the businesses might've been interrupted.

If you have clients in South Florida and a hurricane comes through, you might have a problem because you might be vulnerable to a service interruption. So you want diversity of revenue streams as much as possible. We just wanna ask the question upfront.

Nicole, you wanna take number eight, HR processes? I would love to. So with your HR processes, what we like to ask business owners is who's handling your HR? Is there something where you already have somebody who has a full-time position in the company or a part-time position? And this is going to cover everything from onboarding new employees to training and developing them, your payroll, your benefits, those sorts of questions that come up. That's something that as you know, as business owners, in the beginning, we have to wear many hats and we have to handle a lot of different positions until we can bring on additional professionals.

But this position is not the high and best use of the business owner's time. We wanna make sure we've outsourced that to a professional that we are working in relationship with. And we have partners in this community who can handle that on a cost-effective basis and also the larger ones as the companies grow.

And that really needs to be a function that's entirely run by another group. If you end up selling to private equity one day, as we all know, they're just gonna overhaul the whole HR function to a PEO, a professional employer organization. But in the meantime, we want to be able to demonstrate as a business is approaching any potential sale or growth that we have that function covered, that we know we're in compliance with what we need to be in compliance with from a legal perspective and a HR perspective to minimize the risk associated with any potential issues from not having that button down.

Okay. Whoops. Hang on one second.

There we go. Okay. Now we're moving into section two, which is financial health.

So financial statements. Are your financial statements accurate, detailed and up-to-date? That's pretty self-explanatory They should have a P&L. They should have a balance sheet.

They should have a statement of cash flows. There should be a trial balance where they itemize their expenses and they categorize them. And these financial statements should be done on a monthly basis.

No exceptions, even the smallest businesses, monthly financial statements. Not gonna spend a lot more time on that. Pretty self-explanatory.

Cashflow and profit margins. Are cashflow and profit margins consistent and predictable? Everybody knows the difference between cashflow and profit, right? If you want, I can explain it. Cashflow is simply people paying their bills, you paying your bills, right? And having a little bit of money left over at the end of the month.

Think about that. Money coming in, money going out. You need to have money left over, right? Positive cashflow, there's money left over.

Negative cashflow, no money left over. People go out of business because of negative cashflow. They don't go out of business because they are short in profit, okay? There are many businesses, believe it or not, which have a lot of revenue but go out of business anyway because revenue is recorded at the time that work is done or at the time that products are shipped.

That doesn't mean that people have paid their bills. You can rest assured that I'm a big fan of getting paid upfront. In fact, I'm doing a whole podcast episode on it coming up.

We will do an entire two-hour session on it coming up. But cashflow is the really big important deal when you're talking to business owners about exit readiness. Profit is important too.

If there's a profit but no cashflow, there's a big problem. There generally won't be cashflow without profit. So cashflow and profit margins need to be consistent and predictable.

This is why we love recurring revenue so much. Financial key performance indicators. Does the business monitor financial key performance indicators? Every industry has specific KPIs, okay? In the hotel industry, for example, they look at revenue per available room, which is called REVPAR, revenue per available room.

They also look at the average daily rate, ADR, and they look at how the ADR and the REVPAR compare to their competitors. There are different reports that are available that track those KPIs, and those are specific to the hotel industry. The airline industry looks at revenue per seat mile.

So how much revenue is the airline generating per every mile flown per seat on an aircraft? And you can buy reporting, you can subscribe to reporting that compares one airline to the next so you know how your airline is doing. I give you those examples so that you know the industry-specific key performance indicators that exist. I would use question 11 to say, what key performance indicators are important in your industry? And how do you compare to your competitors? If we don't know, we need to find out.

Number 12 is tax strategy. Has the owner prepared for the tax implications of selling the business? Nobody has, okay? Nobody has prepared. So when you get to question 12, what I would ask the owner is, Mr. Owner or Mrs. Owner, how is your business structured? Because there are some business structures that have different tax treatments when the business is sold.

And if the business owner says anything other than a corporation, you should have them talk to Harry because Harry is an expert at the Qualified Small Business Exemption in the IRS code, which will allow them to shelter a ton of money from taxes when they go to sell their business. But there is a five-year look back period. So the tax strategy question is my trigger for making an introduction to somebody like Harry to have the question of tax implications of selling the business addressed by a professional.

I'm asking you to ask this question so that they can start thinking about how they're going to structure their business moving forward so that they can take the most benefit from a sale of the business. Are there any questions on the financial section here that we just walked through? Section two, Nicola, do you have anything that you'd like to add? On that last point, I just want to emphasize that you ought to be looking at the tax implications of a potential sale well in advance of a potential sale. I can't emphasize that enough.

We've had Harry talk about that here in High Net Worth before, that if folks wait too long, they will often be completely surprised at the tax implications associated with how they structure the sale of a business. We don't want you or your clients to be surprised by any of that. And that comes from having a discussion with a competent tax professional in advance, discussing the potential options.

Hey, the seller or the buyer wants to structure this one way, I'm thinking the other, whether it's in terms of the equity or the assets and the sale, you need to understand exactly what the tax implications are to you to better negotiate what's going to be favorable for you to the extent that you can negotiate that position on your behalf. So we want to make sure looking at that early, don't want you to be hit with a huge tax bill or your clients. And earlier, the better.

All right. Go ahead, Nicola. You can take the next section as I scroll down.

Market position. Dave, this is Sheldon. Can you hear me? Yes, Sheldon.

Hello. Good, good. I apologize.

My laptop's not working, so I don't... David, how far are you and Nicola comfortable with us taking this initial threshold list of questions before? Ideally, you want us turning it over to you ASAP. If it just comes about happenstance and we sort of take it to question five, are you comfortable jumping in at that point? Or would you prefer that unless we can direct them to you initially, you don't want to be doing damage control for what misinformation we may have given them? Well, listen, if you're just asking questions and recording answers, you can ask them all. I'm sharing this with you because I want you to start the conversation, right? I'm not concerned with you... What I'm expecting is for you to say my role as your consultant is to ask you questions and get you thinking.

I want you to take these questions and circle the three that are going to keep you awake after our conversation. And based on those three, I'll connect you with an expert to have a deeper conversation with you on those three. So if those three are in an area where you're comfortable, if it's your area of focus, then you go ahead and detail, go into detail in the conversation.

If those three are not in your area of focus and you want Nicola and me to direct you to the right person in our community, we'll be happy to jump on a call with you and with the client, go deeper and then connect them with the right person. If you know the right person in the community based on these questions, I think you can go to that person yourself and bring them into the conversation. So my point in sharing these questions with all of you is not for you to... I mean, Nicola and I would love for you to get us involved when you're working with business owners at any level, anytime.

You can call me if you've got a business owner and he's got a question, you call me anytime, I'll be there for you. But if it's a question specific to an area and you have a relationship with the person in the community who can address it, go right to the horse's mouth, go right to the resource and connect them. So the accounting questions, for example, if Harry can help you with the accounting questions, set up a meeting for you and Harry with that client and say, I was going through the exit success lab assessment.

They don't know what they're going to do with cash flow because they're going to have a cash flow issue in six months. Harry, can you take a look at this and make some recommendations? I would say go for it. So my answer to your question is twofold.

Bring me in anytime. Happy to take your call and answer that question anytime. But if you know the specific person in the community and there's an answer to be given post haste, get that person involved.

Make sense? Thanks for the clarification. Yes. Yeah.

And don't answer questions that you don't know the answers to. OK, don't make stuff up. Don't answer.

That's the quickest way to erode trust is to make up answers to questions you don't know the answers to. The best thing you can do is say, I'm asking this question because I want us both thinking about this. Let me bring in an expert to address your concerns here.

That makes you look smart. Spewing a line of crap makes it. Yeah, yeah.

No, definitely just say, look, you know, I'd rather bring somebody in to discuss this in more detail. If it sounds like it might be of interest to you and it's of interest to me to make sure that we work through that. If that's something for your business that we should be focusing on.

The point here, folks, is to use this as just a guide to have a conversation beyond the services you're providing, just like the educational programming in this community. We are arming you with information to have further discussions with business owners to show them I'm thinking about your business in ways that you might not even be thinking about it because I care about that relationship and I care about your business. So that's really what the overall design of this is.

So don't worry too much about getting into the detail here. We're just we want to give you enough to be able to think about these different concepts, understand them and ask questions. So let me jump into market position now.

So here we're asking, you know, how are you competitively positioned within your market? Something I'd be thinking about is, you know, I would ask the business owner, what's your value proposition? How do you differentiate yourself in consumers minds to your competitors? Every business owner must know who their biggest competitors in the market are and how they distinguish themselves from those competitors. This is what we want to know to help us see how are they their position so that they have a competitive advantage vis-a-vis their competitors when it comes to their product or service offering and also that brand perception. So the bigger you get, the more important your brand.

You know, all of us right now ought to be focused on our own personal brands because we are the business. I mean, our brand right now, personal brands are front and center over the business brand in the market. So focusing on what truly is that brand, how well are we positioned compared to others who are providing that similar service or product in the marketplace? Industry conditions.

We want to know what's going on in the industry. Is the industry growing? Is the industry contracting? Are there consolidation trends happening in the industry? If there's a consolidation trend, things may be favorable for a sale right now. If the business, if the industry is still growing and it's growing at a rapid pace, it may be a good time for a sale.

If the industry is contracting, for example, and I use this example all the time, I had a dear friend who was the top salesperson for a company called Standard Register. And what Standard Register did was they printed checks. That industry was not only consolidating, it was contracting because people were not using checks anymore.

So my buddy who is selling paper and checks realized that his days were numbered and that the company itself realized that they needed to move into a different sector. So if the industry conditions are favorable for a sale, we need to look at that business and position it well with the short term in mind. If the industry conditions are not favorable for a sale, but the industry is still in a growth mode, we might want to look at opportunities to reposition the business in a niche market within that industry.

But just asking about industry conditions as a whole will lead to a highly productive discussion for the owner. Brand reputation. Is the brand well regarded in its market? There are two things to think about here.

One of the things to think about is what we all look at before we buy anything these days, and that's just the good old fashioned reviews, right? Google reviews, Yelp reviews, that sort of thing. The other thing to look at is the brand reputation within the industry. So I would do a little homework, do a little investigation, call around to competitors or to industry trade associations and ask on a confidential basis without revealing who I was, ask about the business and how well the business is regarded.

If there are brand studies that are published in the industry, I would look at those brand studies. You can take those with a grain of salt. J.D. Power, that sort of thing.

They're all able to be influenced from the standpoint of working with those companies will oftentimes influence where you rank in a J.D. Power ranking, but it still provides you with an idea for who the top players are so you can get a sense for what the brand reputation is of the business. We want to know if the brand is damaged. We want to know as soon as possible so that we can do some rehabilitation.

If the brand is in good shape, we want to know why. We want to know what the customers think of the brand and why they think that so that we can really build on those strengths. Nicole, you want to talk about supplier stability? Just take that one and I'll take all section four.

Okay, yeah, section four makes sense for you to take, perfect. Okay, supplier stability. Are supplier relationships stable and diversified? COVID brought this out in stark relief.

If you are getting your stuff from China, COVID crushed you. You want to make sure that any business that is dependent upon suppliers in order to deliver raw materials to create a product, you want to make sure that they have a primary supplier and a backup supplier for everything they receive. The primary and the backup can be 90-10, excuse me, but the supplier who's supplying the 10% has to have the ability to scale up if the 90% supplier goes offline for any reason.

So we want to know that supplier relationships are stable and diversified. We also want to make sure that the supplier is supplying raw materials or anything necessary labor-wise to build your product or service. We want to make sure that they're supplying the raw materials or the labor in a way that is in accordance with international law.

We ran across a company, I ran across a company when I was doing consulting work that was sourcing things that were harvested using labor that was not in compliance with international law and it became a big problem for the end user because the end user had to sever the relationship, or not the end user, but the selling company. The selling company had to sever the relationship with the supplier because the supplier was using labor that was not in compliance with international law and the day they found out, they had to sever that relationship and it was a big, big problem. So we want to know about supplier stability.

We want to know that the relationships are stable and we want to know that they have a primary supplier and a backup supplier for everything they develop at minimum. All right, Nicola, this is your moment, legal and management, legal and risk management. Go for it.

You know, I love this area because I love to keep business owners out of trouble. I spent a lot of time dealing with disputes that were largely preventable. If not, we could reduce those, minimize the exposure and resolve them.

So this area is really focused on how can we ask questions to see if there are concerns in the business from a risk standpoint and a liability standpoint that we can help those business owners clean up so that it does not take time and money away from the business. So in the area of exposure, we want to find out, you know, are they facing any pending legal actions? So whether it's an active dispute or it's already in litigation, that's something that is good to know about because they can use some assistance in that area. When we talk about risks, we would, questions you can ask because you shouldn't kind of come in and say, hey, are you facing any lawsuits, right? We want sort of softball questions that get them talking and will volunteer some of that information.

So what I would ask is, when's the last time, you know, you looked at your contracts, you know, have you updated those contracts in the past few years, the past few months? Laws change regularly. And if you're not updating your contracts, taking a look at them to see if you're in compliance with them, that's a big area where we might find risk. We'll also find risk if there is, you know, those HR systems we were just talking about.

If we don't have nice tight procedures in our HR area, employment issues really pop up quick in those areas when we don't have that button down. Other areas of risk are just going to be, you know, what else, what is the business doing? And does the business have a system in place to be able to track updates in laws and updates in compliance that they need to be, that they need to make sure that they are positioned to not misstep. If they've got an in-house legal person, you can assure yourself that they have some protection there.

But most businesses don't. Most businesses don't have somebody they've already hired to come in-house unless they are a certain size to justify that salary. So that's where we can ask more of those questions because that means they're using outside counsel whenever these areas are popping up and they don't have someone who's scrutinizing it on a daily basis.

We also want to make sure that they are protecting areas of their business so that we don't create more risk. And that's really where the intellectual property comes up. Here we can ask questions such as, you know, you see their logo or they have a cool business name.

I like to ask about them. Like, hey, how'd you come up with that business name? Has that been protected yet? And they'll tell you outright yes or no. And if the answer is no, then I recommend that you speak with one of the several IP attorneys in our community who are excellent at what they do, who have helped us protect our own information so that we aren't facing, you know, copyright or trademark issues down the road.

You want to make sure that you're protecting that because it adds value to the business and reduces the risk that you're going to have somebody come knocking on your door years into business saying, hey, by the way, that business name you're using is mine, it's protected. Or that logo looks just like mine and I have protections over it. You don't want to be dealing with that later on in the business.

So you're better off checking that information in advance to see if it's open to the market. It's something that you can take and protect as your own. Add that value to your business and know that you will be adding value to the business continuously so that by the time you get to an eventual exit, that IP may carry its own independent value aside from the business.

And then insurance coverage. Folks, we had a very lengthy discussion in one of our ESL meetings last week. I want to say it was an office hours where we started talking about putting insurance in place so that it protects you in the areas where you are most vulnerable.

And that comes down to, you know, how is the business really structured? If it's, for example, a partnership, you want to be thinking about life insurance on the other person's life, disability insurance. If you've got a business that is doing a lot of business online, accepting payments online, I'd be thinking about cyber insurance. So that comes down to just understanding what the business does, where are areas of high activity where we want to be thinking about do they have the right insurance coverage in place? That's certainly a question you can ask is, you know, what type of insurance is this? You know, do you have for your business to understand, you know, as a professional being able to help them identify areas where they have risk and make sure they're protected, definitely adds value to that company.

And insurance is a minimal cost when you look at the potential risk associated with not having it in place and not having the right coverage in place. So something that you want to make sure you're doing is not just identifying what potential insurance policies can apply to this business, but have we asked the right questions to make sure that the concerns we have with what we are doing in our business will be protected by that type of insurance policy. Okay.

Now let's move on to technology and cybersecurity. So question number 20 there, cybersecurity audit. Has the business had a cybersecurity audit? 90% of them are going to say no, they have not.

And that's your opportunity to call one of the folks that we recommend all the time. So you call Michael, you call one of the folks that's a member of our community that can go in and actually do a cybersecurity audit. I will tell you that they probably don't have cyber insurance if they haven't had a cybersecurity audit.

So you should be asking about that as well as Nicola mentioned. Cybersecurity is a huge, huge deal. Are all of their technology systems up to date and scalable? I have a client who all of you will know, who's been a client of mine for 10 years, who literally changes CRM systems every single year.

OK, so when you ask about their technology systems, you want to ask them, hey, when was the last time you updated your CRM? When was the last time you updated your technology system? If they're in manufacturing, are you using an ERP? Are you using an enterprise system to manage your entire business? If you are, when was the last time it was updated? Do you have someone on your team who's the system administrator who manages that system? Do they have a checklist that tells them what they need to look at, when they need to look at it? And do you at least go in there on a monthly basis and scrub your system to make sure that there are no vulnerabilities and all your data is backed up somehow? So technology systems, are they up to date? Are they scalable? If somebody bought you as a business, how long would it take them to get your data and integrate your data into their systems? If you don't know the answer to that, there are some people you should talk to so that we make sure that you have these things buttoned down. If you're thinking of growing or scaling your business, absolutely, if you're thinking about selling your business. All right.

So sales and marketing system is up next. So for your sales process, we would be asking clients, what is it that you do to bring customers into the business? So you identify those ideal customers and what do you do on a regular basis to continue to bring them in? We want to understand what that pipeline looks like, how they're building it and how they are proceeding to recruit those customers to be able to become, well, those potential customers, to be able to become customers of the business. We want to understand what that process looks like and make sure that it is scalable and repeatable.

So if one day, for example, your business development person is no longer there, your head of sales is no longer there, we need to make sure that we already have that process in place so we can bring somebody else in who would take over it so we can make sure we have that continuous flow of new customers coming into the business, which gives it then its greater chance of sellability. For your marketing system, so there we're looking at what type of systems do you have and are they integrated with each other and effective? If there's anything that taught us that we need to have multiple channels, this week it was the news with TikTok, right? TikTok has been shut down. So for those folks and business owners who went all in on using that as their only marketing source, that became a problem because now there is no marketing going on for the business.

So having multiple systems is going to help hedge against that risk that any one platform is no longer going to be effective or something's going to happen that impacts how effective it is. So whether using social media, marketing, direct mail, phone calls, we ought to have a system that combines multiple different channels and those systems all work together so that you have a nice several step campaign to be able to bring those customers in. And then finally, the customer base.

So we have a strong customer base. Is there reliance on any key accounts? Here's what we want to avoid. We want to avoid having just a few customers where we have a lot of business tied to them.

At any given time, something can happen in the industry, something can happen in that customer's business and we lose our biggest client and there's a massive impact to the business. So just thinking about how are we diversifying that risk by having different customers and having different customers and across different channels, if possible, we want to achieve that. So making sure that's a diversified customer base.

So we're not increasing the risk of our business by having just a few key accounts. A couple of things to think about here. So sales is about conversion and marketing is about leads.

So you want to have a great marketing system to generate a ton of leads. You want to have a good sales process so that those leads convert from leads into customers, right? Sales is the process of converting prospects into customers. Marketing is the process of identifying suspects and converting suspects into prospects.

So somebody starts out as a suspect, marketing finds them, converts them from a suspect into a prospect by making some sort of an offer of an engagement device, a honeypot, a lead magnet. They take the lead magnet, they become a prospect, sales picks up, the prospect converts the prospect into a client. Once the prospect is converted into a client, they go into your customer base and the whole game is about growing customer lifetime value after that.

Suspects to prospects, prospects to clients, clients, you're deepening lifetime value. So these are the three areas that we're looking at here. Are they generating a lot of leads? That's great.

Are they converting at a pace that is outpacing everybody else in their industry? That's great. Then are they deepening that relationship? Are they making second and third sales to increase the client lifetime value? That's what we're looking at there. That's how you determine the health of a good business.

All right, section seven, emotional and succession planning. Number 25, post exit vision. I know really good business brokers will not take a listing of a main street business if the business owner doesn't have the next step of their life already planned.

So has the owner articulated a clear vision for life after the exit? If it's a small business, you better believe that that owner's next step needs to be cast in concrete or that business ain't going to be sold because they've been getting up and going to work there every day for the last 35 years. They're not going to stop tomorrow, even though they say they're going to stop tomorrow. Now, bigger businesses, the owner should have articulated a clear vision for what they want to do next.

Most often those are going to be either serial entrepreneurs or people who are at the end of their careers. So they're planning on playing golf, sailing around the world or starting the next big business, which they probably have already done. They just want to spend all their time in it.

What you're looking for with post exit vision is you're looking for plans. You're looking for something to engage that owner because if the owner doesn't have plans for a next step after they sell the business, they may back out at the last minute or they may fall into a deep depression after the business is sold. Both of those things are bad.

One of them absolutely affects us because the deal will go sideways. So you want to know if they have their next act planned. Nicole, you want to talk about leadership team? Sure.

So we are on the final two folks. So we we talked about this a little bit earlier with succession planning. So with respect to your leadership team, I ask the business owner, you know, how how are we preparing for that next generation of leaders? Have you already thought about identifying who they are, putting a plan in place to make sure we are developing them and positioning them to be able to take over that key role? So there should be a plan in place for every key leader within your business, a succession plan, that is.

So we know who's going to be taking over and make sure that we have positioned them well for success so that we've given them the know-how, given them the skills and training as a leader to step into that role and help that seamless transition whenever we have a new owner. And the same is really going to relate to the next category of the sales and marketing team players. That's also about having a succession plan in place for your key positions for those different areas.

So making sure we know who the head of sales is going to be, the top producer spot and your marketing head so that there's a seamless transition with those as well. We've made sure we've positioned those leaders for success and we allow the business to continue on without us and make sure that those roles are fulfilled in a way that allows that continuity and success that you've had as a business owner in establishing that business. So that's your exit ready questionnaire.

It's not designed to be comprehensive. It's not going to be a full exit planning audit. It's not designed to be an enterprise value roadmap.

It's simply designed for you to start the conversation with people that you're working with. What I would encourage you to do is if you're meeting with somebody on a weekly basis or on a monthly basis, take two of those questions and ask them two of those questions each time you meet. And you'll have in three months, you'll have a comprehensive overview of what their business looks like.

If you want to take one section at a time and spend a half hour with them asking questions about each section and having discussions, it's designed for you to have a comprehensive understanding of the business so that you can make recommendations to them so that they can feel comfortable that you know what you're talking about as you're planning for the future of that business, as you're helping them do whatever you're going to do with them.