Scott Snider of Exit Planning Institute: Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit
An Interview with Jason Hartman
A highly experienced team needs to surround the owner to get to the lucrative exit. A business owner must have a team of professionals alongside their internal team to build significant and transferable value in their business. These team members should include at the core a CPA, Financial Advisor, Attorney, and Growth Consultant. The members of the transition advisory team should also have a focus or certification in the exit planning process. As such the team will be holistically focused, share a common goal and organizing principle, and a common framework and process. Allowing the team to drive the business from successful to significant.
As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit, I had the pleasure of interviewing Scott Snider.
Scott Snider is the President of the Exit Planning Institute (EPI) and the Operating Partner of Snider Premier Growth, a small family investment company. Scott is a nationally recognized industry leader, growth specialist, and lifetime entrepreneur. As an exited business owner himself, Scott’s passion is helping business owners create significant companies while aligning their personal financial plans and helping the owner find and tap their personal purpose.
Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?
I am a lifelong entrepreneur and exited owner. About 20 years ago I started my first company and was able to sell that company by the age of 24. This was my first exit. Then I went onto buy our current company, Exit Planning Institute, with my father, Chris Snider. At EPI, we educate advisors to become Certified Exit Planning Advisors (CEPAs). My Dad was a CEPA, certified in 2008, and was running a consulting and M&A practice where he and his business partner would help business owners grow value and transition. After selling my company, I quickly realized many owners were not surrounded with a holistic minded team focused on transition. I thought my Dad had a great philosophy, concepts, and process that helped owners do that. So, in 2012, we bought EPI, flipped our model from working with owners to working with advisors, and began teaching the market the Value Acceleration Methodology. Today, we are the authority in this space and teach advisors worldwide.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
I don’t quite know if this is funny per se, but the biggest mistake I made when starting was letting my business define me. I quickly learned after exiting that I had no life outside of the business and felt quite lost for several months before realizing it was entrepreneurship that really drove me. Helping people, solving problems, and building companies was my purpose. I learned that as an owner, holistic planning is critical to ultimate success. That an owner must have business, personal, and personal financial goals aligned to have a fulfilling and significant life and exit.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“Do not follow where the path may lead but go instead where this is no path and leave a trail.” This has been a part of my life since I can remember and has always stuck with me. I think a core characteristic of great leaders is they are curious. I think this quote speaks to the importance of challenging the status quo, taking risks, binge curious, and investigating and creating your own path. I think living by this quote or perhaps what has been a core value for me, has allowed me to position things like our company as a front runner and innovator in our market. I also believe it allows for creative thinking and problem solving.
Ok super. Thank you for all of that. Let’s now shift to the main part of our discussion. Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?
I was able to build, scale, and sell my business by following the Value Acceleration Methodology. Whether it was my first company or EPI, we focus on creating income and value, creating revenue and net profit, and on building a company that is highly valuable. To do this, we focus on what’s called the four intangible capitals. We formally assess, monitor, and measure the 4Cs, Customer Capital, Human Capital, Social Capital, and Structural Capital and work these into our overall vision and strategy. By doing this, we not only identify opportunities and solve issues that are more immediate, but we also create longer term value. The more immediate elements allow us to have an optimized company with great employees and great customers. It benefits both our short-term gains and long-term value.
Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”. Please give a story or example for each.
- Understand that its not just about your business. The biggest mistake business owners make is that they only focus on the business. 75% of business owners profoundly regret selling their company just one year after selling it. And it is not because they didn’t have a lucrative exit. They did. It’s because they made no personal plans for the next phase of their life. How much your business needs to sell for should be determined by the owner’s Wealth Gap. To determine this gap, the owner must focus and create a plan around what’s next. This way, their team can help develop a personal financial strategy, and it will tell the owner how much value they need in their business. Exit planning is holistic. It is equally important to plan for each of the 3 Legs of the Stool: Business, Personal, and Financial.
- 80% of your company’s value is within its intangible capital. Many business owners are concentrated on income generation and not value creation. Or in other words, they are focused on driving profitable revenue and not how they drive the profitable revenue. Buyers want to understand the “how” so that when the company transfers, the buyer can replicate and scale it. 80% or more of the company’s value is inside the four intangible capitals. Those are Structural, Customer, Social, and Human. Structural Capital includes items like process, procedures, and intellectual property. Customer Capital looks at how entangled, diverse, and loyal your customer base is. Social Capital is the company culture and communication style. Lastly, Human Capital is the company’s people. Focusing on building value will create a scalable and profitable company, but if the owner only concentrates on income they will not be prepared at the time of exit.
- A highly experienced team needs to surround the owner to get to the lucrative exit. A business owner must have a team of professionals alongside their internal team to build significant and transferable value in their business. These team members should include at the core a CPA, Financial Advisor, Attorney, and Growth Consultant. The members of the transition advisory team should also have a focus or certification in the exit planning process. As such the team will be holistically focused, share a common goal and organizing principle, and a common framework and process. Allowing the team to drive the business from successful to significant.
- Understand your exit options. According to Exit Planning Institute’s State of Owner Readiness Survey, 66% of business owners indicated they didn’t understand all their exit options. Business owners are also taught that the eventual sale of their company, whether internal to buyers like their family members, employees, or management, or external, to corporate strategic buyers or private equity, are one time exits, or “one bite of the apple.” This is simply not true. Owners should focus on having hybrid exits over a planned time period. Getting “multiple bites of the apple.” As the company focuses on value growth, they become more valuable. Yet this becomes riskier to the owner’s personal financial portfolio given the company makes up 80% of their entire wealth. To mitigate risk in the personal financial portfolio, the owner should begin to sell small portions of shares along the way to get to the eventual larger exit.
- Know that 50% of exits are involuntary. Plan for the unplanned. According to the State of Owner Readiness Survey, 55% of owners indicated they had no plans for exit. Yet, 50% of exits in the US today are caused by involuntary and unplanned events forcing owners to exit or close their doors. These are called the 5Ds. Divorce, Death, Disability, Distress, and Disagreement. I once spoke about this topic at an event. I looked at the first row and there was a woman crying. As I finished the keynote, she pulled me off to the side to chat. She told me that she and her three sisters had owned a company. The oldest sister was the President and visionary for the company. Unfortunately, her sister had gotten cancer unexpectedly and within 4 months had passed away. She and her other sisters were devasted and didn’t know how the run the business. Their intangible capital was lacking. Between the hardship personally of losing her sister and the lack of process, procedure, and how-to, they closed their doors and sold off all of their inventory. Killing a 20+ year old business. All a result of a death and the company and its owners being ill-prepared.
In your experience, is there a difference in approach for building a service based business versus a product based business when you have the intent to eventually sell the business. Can you explain?
There is no difference in approach. All companies should follow a universal and proven process called the Value Acceleration Methodology. This process can be adapted to many companies, regardless of type or industry, and then evolved inside of the business. All owners and all companies need to focus on holistic planning that includes business, personal, and financial elements. Owners must concentrate on value creation not income generation by developing the four intangible capitals: Human, Customer, Structural, and Social.
How does one go about the process of finding a buyer
Through your qualified transition advisory team. The buyer could be internal or external. If you look internally, there are family business advisors and advisors who can structure an employee or management buyout. Externally an owner would work with an M&A advisor, likely an investment banker or business broker.
How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?
Business owners should focus on building an owner independent company. These companies are highly valuable. For the company to truly scale and operate without the owner they must have a strong set of 4Cs. This will provide the owner residual income or “mail money.” However, to know when to exit, the owner must have a clear personal strategy, hence why holistic planning is so critical. Eventually all owners will exit. Their overall plan will tell us when.
Can you share a few ways that are used to determine a good selling price for the business?
You can think of it as simple math. All companies sell for some form of cash, typically EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), times a market multiple. The market multiple is determined by the private capital and industry type, and it falls within a range. For example, if you looked at a managed IT services company, they may have an industry multiple range of 3x EBITDA to 8x EBITDA. The managed IT services company will sell within that range. Higher multiples go to better companies or companies that have a strong set of 4Cs making it a highly ready and attractive business. Putting the math to it, say this IT services company has $2MM of EBITDA. A selling price could be $2MM EBITDA x 5 market multiple, making this example company worth $10MM.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
Helping small to lower middle market business owners create companies of significance. Right now, 70% of companies do not transition and fail. If we can help owners have successful transitions this will have both a positive economic and social impact.
How can our readers follow you on social media?
Thank you so much for joining us. This was very inspirational.