EP 24 - 10 Questions Every Business Owner Should Ask Before Planning an Exit

Most business owners can name the exit they think they want, but far fewer can clearly explain the problem they are trying to solve. Jason Miller and Makenzie Wirth dig into the 10 powerful questions every owner should ask themselves before choosing an ESOP, a management buyout, or a third-party sale, because transition problems usually start with incomplete questions, not bad intentions. 

From uncovering hidden risks and leadership gaps to evaluating succession readiness, personal goals, and the true value of the business beyond the owner, these questions reveal what’s really happening beneath the surface. This conversation will help you gain clarity, preserve your options, and build a stronger foundation for a successful transition. 

If you want a clearer path through exit planning, business succession, and ESOP readiness, hit play and bring these questions to your next advisor meeting. 

Transcript

Welcome And The Core Question

SPEAKER_02 0:15

Welcome back, everyone, to the Journey to an ESOP and Beyond podcast, where we seek to make all things related to employee stock ownership plans both accessible and understandable. I'm your co-host today, Jason Miller.

SPEAKER_01 0:29

And I'm McKenzie Wirth.

SPEAKER_02 0:32

And one of the most common questions that we get from owners is surprisingly simple. What questions should I be asking? It's a great question because most transition problems don't start with bad decisions. They start with incomplete questions. So today we're going to give you 10 questions that we as advisors wish more owners would ask, either of us or of themselves. Not because they provide answers, but because they reveal what's really happening underneath the surface. So what we're going to do is go through these 10 questions and we're going to alternate and we're just going to ask them and then respond not with the answer, but again, with what is being surfaced or what could be surfaced from asking the question. So with that, Mackenzie, I think you would like to start with asking some questions.

SPEAKER_01 1:34

I would love to. So

What Problem Are You Solving

SPEAKER_01 1:36

just a reminder, this is from the the owner's perspective, or essentially this question is being asked by the owner to themselves in this case. And the first question is what problem am I actually trying to solve?

SPEAKER_02 1:52

Yeah, this is a really good one because often clients that are pursuing an ESOP are aware of some things that they are trying to accomplish with the sale of their stock to the Aesop or to a third party or to management or whatever the choice is. But it aggregates a number of things because it solves some problems, some ownership problems, maybe some liquidity needs. Many successful business owners have been working for a long time. And one of the driving factors could be that they're a little burnt out. Or perhaps have we reached the end of my particular talent, or what I perceive my ceiling to be. And we're we're constrained from a leadership perspective, either gaps underneath of me as the owner or beside me, or I'm recognizing that I've I've reached my limit. Or maybe we've got family in the business, or we have no family. And so we have to figure out something to do with the stock. And one of the things that we talk about pretty often is the concept of de-risking your personal balance sheet. And so, yes, I would like to get some cash, the liquidity element from the sale of the company. But the other is most of my wealth may be trapped in the value of my business. And without a transaction of some type, I can't monetize that. I can't get that value in a way for me to deploy elsewhere or otherwise. So the the underlying, I guess the secondary question to that beyond what problem am I actually trying to solve is how how do I really stop carrying all of this alone?

SPEAKER_01 3:52

I think we we hear that a lot as well from our clients without them asking the question. Maybe when we're asking what is their motivation in selling at this time, these issues become uncovered. They they mention I just I'm ready to, you know, I've been working hard my entire life and I'm ready to now enjoy my life and not be entirely work related.

SPEAKER_00 4:19

And I think we hear it often.

What If You Wait Three Years

SPEAKER_00 4:25

Now I have a question for you. So question number two on today's list. What if what really what happens if I don't do anything for three years? If I ask myself that question as a business owner, what what would that surface?

SPEAKER_01 4:47

Yeah, I think if you don't do anything for three years or however many years, if you just don't do anything, and it may be this constant whisper you have that, you know, like you know it's something you need to start thinking about, but you just put it on the back burner and decide to do nothing because that's the easier thing to do, um, and just focus on your day-to-day, you could run into a situation where you don't have time to plan for your exit properly, and you're more reactive rather than proactive, and things become more urgent. Maybe there's some, maybe you've already hit your burnout and you're ready to get out in the next year or even less than a year, and there's a sense of urgency to sell, and that rushes your decision. That rushes your decision in which path you want to take, how you want to exit, who you want to sell to, whether that's an ASOP or strategic or financial buyer. The other piece of it is there's kind of an opportunity cost. If you do nothing and you wait three years and you have an idea of what you can sell your business for in your head, and you get that valuation done, and it's nowhere near what you would like to receive as the seller. Well, if you had done this three years prior, you would have known the value and you could plan what do I need to do in the next three years to increase the value of my business to be able to get the most out of the stock that you so you're really foregoing a handful of things when you just sit on it and wait. And that's why we we always harp on you can never be prepared early enough, or you can't, there's no, it's never too early to start planning.

SPEAKER_02 6:54

I like those infomercials that the clock is in the corner and they're telling you how great the product is. And then at the end, it's if you order within this window, then you get all these free gifts, right? One of my mentors in the space used to say, you know, if you do an Aesop by Friday, we'll throw in a second one for free. It's like it doesn't, it doesn't work that way. But certain people in your life or certain events in your life could give you a sense of urgency that may be uh more artificial than than real. And some of those revolve around deadlines, like you mentioned. We have to get it in by the end of the quarter or by the end of the year. And it it would be helpful to begin asking why is that important? And then it is that reason important to me? So that that outside influence on that urgency gets deflated a little bit or it becomes crystallized, and then you have a target to work work toward.

SPEAKER_00 8:04

All good points.

If You Vanish For 90 Days

SPEAKER_01 8:07

All right, our third question. If I disappeared for 90 days, what would break first?

SPEAKER_02 8:14

My will to return to work.

SPEAKER_01 8:20

90 days of vacation.

SPEAKER_02 8:21

So a a dream, not 90 days of vacation. So what this would highlight is where you may be concentrated as a leader. And a lot of our discussions this year have revolved around bottlenecks and owners being the source of institutional knowledge and expertise and all of that. So if if you really evaluated what would happen if you just disappeared for 90 days, that it's gonna highlight some of those topics and encourage you to check them out, listeners, if you haven't already. Uh the second is where do decisions end up? Whose desk do they arrive at if you're not there? And then how long do they sit there? Underneath of that is well, what happens if that arrives at someone's desk? What do we do with it? What is our process around making decisions or how much of our processes are held up with personality and leadership strength when you're not there to provide it? And then the last part is maybe nothing would break if you were gone for 90 days. Maybe it would be a great idea for you to plan a 90-day vacation and go, huh. In leading up to this, I want all of my emails read, all of my texts responded to, all of the things that I'm responsible for to be closed out or in a state of doneess that's acceptable and back to someone else. And then see what happens with the organization. And maybe you find out that it's going to run just fine without you, even though you never believe that it could happen. It could. And that's not because you're planning on disappearing, but eventually every transition asks this very same thing to every organization.

SPEAKER_01 10:25

I like the last point there. I think it really shows if if you discover that your organization can operate better than you thought without you there for 90 days, that allows you to trust your team more.

Who Really Knows The Business

SPEAKER_00 10:45

So question four. Who besides me truly understands how this business works?

SPEAKER_01 10:54

Yeah, I like this question. I think it kind of goes or piggybacks off the previous one pretty well. I think this could surface similar to how we we mentioned decision concentration. However, this would be knowledge concentration concentration. So who has all the knowledge that is maybe all just in their head from years of experience? And maybe that uncovers the documentation gap where you have one person or group of people or certain people in the business that truly know and understand a process and how things work just from being with the company and doing it for so many years. But is it truly documented so that others that come onto the team or take the place of someone that unexpectedly leaves, do they know how to perform the work or at least have a starting point with something that is documented? I think this could also uncover your training needs, which kind of goes hand in hand with that. If you have a new team member come on and you do have something documented, it's still a good process to implement some formal training instead of just oh, here, send let me send you this document, follow this. I think this can uncover your need to train either new people or even existing people that in their current role should know how to do X, Y, Z. I think it also in general uncovers your leadership bench strength. So if if the owner is truly the only one that understands certain nuances of how the business works, that may show a lot of weakness in your leadership bench. Whereas if you had a stronger bench, you would have certain people, at least one or two, that you could rely on and trust that they understand how the business works almost as well as you do, if not as well.

SPEAKER_00 13:15

Great point. All right,

Unchallenged Assumptions And Due Diligence

SPEAKER_00 13:20

question five.

SPEAKER_01 13:21

What assumptions am I making that nobody has challenged? This is a fun one.

SPEAKER_02 13:28

Nobody at the top likes to be challenged. And I I say that like that. Many of you do, and you've recognized that when folks that work with you and for you question your methods, your thoughts, your vision, that it it often causes you to reflect on that in a way that you can better articulate it or flesh it out. And it isn't sometimes it isn't good for the ego to hear, but in hearing it and recognizing that people are going to sometimes challenge you could put you in this space on, man, why has no one ever asked me why we have these particular colors or where our slogan came from, or why we do this this way. And if if you start turning your creativity and your entrepreneurial spirit toward what no one has ever asked you before about what makes your business successful in the day-to-day, I encourage you to do that with this question because it's going to highlight your blind spots. It's going to get to why you've done things the way that you've done them. And maybe there's a better way to do them, but because of the power of your personality or the power of the success of your business for doing it that way, it's never been put on the chopping block, so to speak, to be examined, to be enhanced. Sometimes we have emotional attachments to things. I don't know. Maybe you have a mascot that was really cool to you, but it's it's a little outdated. And I say that because recently my my parents have moved. And so in moving, they uncover a bunch of stuff and then they find the things that are really cute and adorable when you're little and then send them to you if they still have them. So my mind did. So my mom sent a my my childhood teddy bear, which I was like, oh, I forgot all about this thing. My wife, however, says that's the creepiest thing I've ever seen. And so for me, I have an emotional attachment to that particular bear that I now have in my possession. And my wife thinks that it's possessed. So it's a good thing to be challenged. And realistically, this question on which what in your organization or in your process or in your business has has nobody been brave enough or vocal enough to challenge, is where good advisors earn their keep. Few people actually like sycophantic advisors that go, you're you're the best thing since sliced bread. Everything's awesome. Many of you invite challenge easier from the outside than you do from the inside. But wherever you get it, whether it's from advisors or from your leadership team or your management team, I encourage you to begin asking yourself this particular question and then diving into what would it look like if it were a challenge? Because you may be operating on assumptions that were true 10 years ago, but 10 years ago, we did not have the landscape that we have today with even technology or reach if you think about outside of your geography locally or statewide or nationally or even globally.

SPEAKER_00 17:07

So nobody likes surprises. Ask yourself what would surprise a buyer or a lender or a trustee or a successor. I think there could be a lot here.

SPEAKER_01 17:32

I think this could uncover or does sometimes uncover issues, specifically if we're referring to, you know, the buyer or the trustee, or really everyone, I guess you just listed the lender as well. In due diligence, there's a lot of information and requested that includes financial data. Maybe it's it's both quantitative and qualitative, maybe it's just organizational type documents. And there may be some flags that are identified and asked to be explained. For example, if you provide the last five years of financials and four out of the five years are great, and one was just a really bad year, can you explain that year? Do you know what what drove those circumstances what circumstances were there that that resulted in that being a lesser year than the others? Do you have the data? Do you maintain the data that supports your explanations for questions that arise in due diligence? Similar to that leadership bench that we referenced earlier, I think this could surface whether you have a strong or weak leadership bench. I think any any buyer, especially in an Aesop transaction, would ask the question what is what is your current involvement as the owner in the business? What is your management depth? Are you the only one that knows how to do what you do? And if so, are you gonna stick around for a couple years to replace yourself? Or do you have someone already that is there to replace you so that you can leave sooner than later? Those are questions that they'll want to know the answers to. And if you say, I'm the only one that does this and I want to be out tomorrow, that that could be surprising. It could also uncover strengths of your business, cultural strengths, competitive advantages. All of the information that's requested as part of due diligence requires you to pull a lot of informal information that maybe you haven't reviewed in a while or even thought about collecting, and it may be even surprising to you in a good way. And then there may be hidden risks involved as well. So maybe you have customer concentration, which that should be known to you as the owner of a business that that may surprise the buyer, or maybe they weren't expecting that to be the case, where you have one customer that accounts for 80, 90% of your revenue.

SPEAKER_00 20:34

So lots of surprises that can that can surface there. I'll kick back a little bit to the last question, and that whenever you invite someone in to see the inner workings of your business, everyone's going to have something that surprises someone else, whether that's good or bad, like you mentioned, which I think was really important.

SPEAKER_02 21:18

Not all surprises are bad. And that that gets to this question in a way where it's if I'm the one providing the value individually or personally, as the owner, as the the person or persons that will be leaving the role sooner rather than later, then maybe the relationships that we have with clients or with vendors or with key persons on the team or with the board, if you have an existing board, that that transforms. Translation or that communication relies solely on you. If you feel like you're the glue that's pulling all of your, not just advisors personally and professionally, but the entire team together. And if you weren't there, it would fall apart in pieces. That says something about what needs to be addressed. Can you transfer the value those relationships bring to the business to someone else without disrupting or threatening to overturn the relationship itself? And then who else should be providing those that leadership development? What opportunities should you be creating in the meantime in what areas of the business? Because without you, there's there's a gap. And I know that we it seems like we say this in so many different ways. And it's kind of the same, I guess it's a melody and a harmony. I don't know anything about music apart from words that I can use without context. But it starts to sound like a similar song. But the there could be in a high degree of value in your company that is solely there because you are are providing that value. So just ask yourself what that could be and then go back to to challenge yourself on that. So since we're being honest and we're asking ourselves difficult questions, to ascertain the landscape of this transition, the whole concept of me transitioning my ownership. If

What Successors Thank Or Curse

SPEAKER_02 23:50

I step outside of myself and into the next generation, whether that's your children, whether that's your managers or your employees, and if they inherited the business tomorrow, what what would they thank you for?

SPEAKER_00 24:10

And then on the other side of that same coin, what would they curse you for? I think this is a question that most owners could probably would would already know the answer to.

SPEAKER_01 24:30

Off the bat. And especially if you go through all the previous questions that we've we've gone through, it would uncover some of these answers as well. I think for what they would thank you for could include those cultural strengths we discussed. Do you did you create a great culture in your company and nurture that culture and keep that culture alive throughout the years? That's a huge one. That goes a long way in a company. Is what is the health of your your organization, your your processes, your people, your connections and in the community, what is the overall health of your organization? That if that's if that's good, that's of course something that they would thank you for. On the flip side, what they would maybe curse you for could be, for example, that that leadership bench that is maybe weak. And if you left tomorrow and you were the main person, the go-to, had all the knowledge, held all the decisions, there would be a lot of leadership debt, which is a phrase that we we discussed in our in our last episode that would probably leave someone very, you know, stressed if you left tomorrow. And then any deferred decisions. So decisions that you've been putting off that are maybe decisions that can be put off for a little bit. Maybe they're they're long-term goals. There's a decision you want to be made within the next three years, five years. And maybe they're not so urgent, so you just keep pushing them off, but they're just constantly sitting in that deferred position, and then one day you're gone, and someone else is left to deal with it. And maybe they have the can pick up the pieces of where what you started with that decision process, or maybe they have to start from scratch. That would definitely, I think, be something that they would they would curse you for.

SPEAKER_02 26:51

I think that's the the idea of if if you're gonna sell your home and you're like, ah, I should should I get the roof replaced? It's 18 years old. Should I, should I get the AC replaced? It's seven years old. There's still a roof, there's still an AC unit. Should we redo the the kitchen counters or should we update certain things or just put a fresh coat of paint on it? And in that same vein, the value of your business for these deferred decisions may have a direct value impact on the sale of your business. You know, what will they will that next generation thank you for kicking that can down the road, or will they curse you for it because inevitably the AC breaks in the middle of the night on the hottest day of the year, and you have to pay emergency rates to get that fixed. So it's not like I've been there before. Or speaking from experience. But just thinking about it in that that context. And I I like what you said, which is anyone who asks themselves this question probably already knows the answer to both sides of the coin.

SPEAKER_00 28:11

I really like the house comparison. It's very true.

Options You Keep Or Lose

SPEAKER_01 28:21

All right, our next question is what options am I preserving and what options am I accidentally eliminating?

SPEAKER_02 28:30

You said something earlier was that led me to think about this, which is the if I just wait, am I really giving something up that that opportunity cost? And this makes you examine that in greater detail. What by not focusing on a transition, then I don't have the mental load of worrying about any of this stuff, because I'm just going to keep doing what I was doing yesterday for as long as I want to keep doing it. But if I am not thinking ahead, then my options may be limited, maybe more limited actually than before. So if I'm 10 years out from wanting to sell my business and I start then, and I get to examine with whatever my industry is and whatever my place in that industry is, I get to examine, you know, okay, who's interested? Is it a strategic buyer? Do I have a private equity exit? Do I know what an ESOP is? Do I have a management team that has the wherewithal to step in financially in a way that's acceptable to me to buy to buy out my stake? And whether or not you are going to go through with it now, investigating early what's available to you is going to help you focus when the time comes. So you may find that there is no PE interest in your industry or in a company of your size or in how how niche your business may be. You may find that there's no strategic buyer for you, and you're left with the options of an ESOP core management team or family. And many people don't have family in their business. So if I only have a couple of options and I know that without material changes in the economy, those are really going to be my most viable ones. I would want to start educating myself on that early. And that helps me to solve, or at least approach that first question is what am I what am I trying to do with this sale? Now I can prioritize. I do want liquidity at close, or I do want to preserve my culture, or I do want to see this in the hands of management. And the ability to put the company in a position to do that for you without it creating this kind of time vortex around, I got a 90-day sprint and I got to be out from here. And then I didn't plan for this well, that the bank can't give me the liquidity that I want. I'm going to have to take a lot of seller financing, or I'm going to have to take a lower multiple, whatever it might be. Start early and you don't have to constantly work on things, but you'll identify what it is that you're able to preserve, which is optionality. And then what you're accidentally eliminating, which gets back to maybe I accidentally eliminated the ability to become an Aesop, and I have to have liquidity at close for as much as possible that leads me to a different type of exit. But I really would have wanted to preserve my culture and to be us for a long, long time for my legacy. And that's what I didn't pay attention to early on. And we often think in terms of transactions, because that's the language that we speak. That's the language your advisors speak, that's the language that you speak, that's culminating in business, that's executing contracts, that's collecting on those contracts after the work has been done. But really, the best transitions begin with preserving your choices. We talk about agency on here a lot and preserving your agency as time goes on.

SPEAKER_00 32:33

So with that, we get to a really personal question. And

Life After A Successful Exit

SPEAKER_00 32:40

this is our last one.

SPEAKER_02 32:42

And I want you to be optimistic, which is hard coming from a cynic, but I want you to be optimistic and think if if your transition is wildly successful, whatever it is, what does your life look like afterward? And I'm going to provide you with one statistic. For a number of years, the Exit Planning Institute put out this state of owner readiness. And consistently, like every every couple of years that they update it, it's that in between 70 and 80%, it's kind of fluctuated between 70 and 80% of all sellers regret selling their business within the first year.

SPEAKER_00 33:29

And it's not because they didn't get enough money. Part of it is they didn't know what to do with their time afterwards.

SPEAKER_02 33:40

And so thinking about that chapter is going to help influence what's important to you, but just dream. And so if it's wildly successful, Mackenzie, what what does your life look like afterwards?

SPEAKER_01 33:57

Yeah, I think this reminds me of I think it was our first episode of the 12 foundations of transition, where we spoke on identity, and this was something that came up where owners spend or ideally spend a good amount of time planning for their exit, thinking about their exit. And then when the time comes, they're they're like, what now? I sold my business, I'm out of the business officially. What does my life look like now? And it can service many different things, one being an identity crisis, if you will. Maybe before when, especially as being a business owner, your your whole life is that business. It's your baby and it's a lot of your identity. And so without that, you maybe don't know who you who you are anymore, what what your purpose is, what interests you, what you want to do with your time now. And to your point, maybe it shows that they weren't ready to fully exit. Maybe they did want to get some chips off the table, but maybe they still want to be involved in a board member capacity or something to keep them tied to the business. It could also surface personal goals. Maybe you have new goals now that they're not all related to the business that you once owned. So I think this can this can uncover a lot and it's it's interesting to think about because you're kind of you're pushed as the owner to think about succession, think about this, what's next, what's next, but you're not it's not very obvious to think about, well, what's next for me in my life.

SPEAKER_00 35:50

Very true.

Closing Thoughts And Listener Prompt

SPEAKER_01 35:55

So that covers all of our all of our questions for our initial question, which was what question should I be asking? That we receive a lot from our clients and from from business owners. And I think what's interesting about the questions that we've discussed today is none of them really tell you what type of transaction to pursue. They don't tell you what type of transaction is right, whether an ASOP is right, whether a strategic or a financial buyer is correct. They don't tell you whether or not you should sell or if you should keep growing. But I think what they do tell or expose is the reality of the current state of your business and how your role in the business ties into all of these other concepts that are surf things that are surfaced from these questions. So I think in our experience, the owners who have the best transitions aren't necessarily the ones with the best answers, but they're the ones willing to sit with better questions long enough to discover or uncover the reality that they may not have seen.

SPEAKER_00 37:22

All said.

SPEAKER_01 37:37

Know what you want us to talk about. So find us at journey to anesop dot com. Thank you.

SPEAKER_00 37:46

Thank you.