For 25 years, Joe ran a successful courtroom consulting business, providing tech support for lawyers. He built the company while raising his young family and even battling cancer for ten years. He’d never really thought about selling it. Most of the time, like most small business owners, he was just trying to get through the day and meet clients’ needs—trial attorneys are a demanding group.
When he was ready to move on after almost three decades, one company expressed interest. However, negotiations quickly broke down during the due diligence process when they realized the business was overly dependent on Joe. He was the company. He was, among other things, the sales, marketing, and finance departments. Without him, there was no consulting firm. As a result, the opportunity for a seven-figure payday, once on the table, disappeared.
Dave ran a thriving commercial development company for 20 years, building warehouses and industrial parks throughout Milwaukee. At its peak, it was bringing in eight figures a year. Its success was responsible for a great lifestyle for him and his family–a beautiful home, private schools, vacations, country clubs, and more. Life was good. But Dave suffered a stroke, and within three months, the company folded. Like Joe, it was too owner-dependent, and there was no one to step in and run it.
Joe and Dave are not just generic case studies. And their experiences are not uncommon, as the data confirms. Like Joe, 79% of small businesses have no exit plan, with 80% that list unable to sell. Similar to Dave, nearly 50% of all exits are involuntary by one of the 5 D’s—death, disability, divorce, disagreement, and distress. And, again, like Dave, many owners have their personal wealth—up to 85-90% of it—tied up in the business.
No, these two stories hit close to home. Joe and Dave are family members, and their experiences guide me as I work with owners nationwide to grow, scale, and ready their businesses for an exit. What I know from advising thousands of entrepreneurs over the years is that, even if you have no intention to sell, when you build a company with an exit in mind, you not only maximize its value, but it also becomes easier to run.
So, what does a business owner do to avoid a situation similar to that of Joe and Dave?
Start by asking yourself these six questions to begin the process of becoming exit-ready:
- Do we have a 12-month micro cash flow and 5-year macro forecast for revenue, expenses, margin, and profit?
- Do we have a diverse mix of clients, ensuring no client accounts for more than 20% of total revenue?
- Do we have a clear and effective strategy to identify ideal client personas (ICP) and target them with the right offerings?
- Do we have people responsible for each department and contingency plans in place to avoid key person dependencies?
- Do we have job descriptions and key performance indicators (KPIs) linked to a compensation plan for all roles in our company?
- Do we have standard operating procedures (SOPs) documented and systems and workflows automated to support all departments?
Once owners understand where their company is today and where it could go by putting a few systems in place, they can make immediate adjustments, leading to higher short-term profits, increased long-term value, and, most importantly, a successful exit.
I learned so much from Joe and Dave. Both are guiding forces in my own journey as an entrepreneur. From them, I saw up close the courage it takes to bet on yourself and the importance of resilience and a strong work ethic. However, the biggest lesson I took from Joe and Dave, which I share daily with my clients, is to build a business with an exit in mind. Even if you have no intention of selling, you owe it to yourself and your family to protect your biggest asset.
Dan Gramann is the Co-Founder and SVP of Sales at Cultivate Advisors. The coaching firm has helped thousands of small businesses in 160+ industries grow, scale, and become exit-ready. Connect with Dan on LinkedIn or email at dan@cultivateadvisors.com. You can also take Cultivate’s free online assessment of your business’ value, health, and exit readiness, which also includes a 25-page report and two-hour consultation, at: https://exit.cultivateadvisors.com/.
