Navigating Business Exit Strategies with Julie Keyes

Brent Peterson (00:01.686)
Welcome to this episode. Today I have Julie Keyes. She is the president of Key Strategies and the author of Poised to Exit. Poised for Exit, sorry, Julie. Go ahead, do an introduction, do it for yourself. Tell us your day-to-day role and one of your passions in life.

Julie Keyes (00:19.47)
Sure, thanks for having me on the show, Brent. Like you said, I'm a president of Key Strategies. It's a consulting firm that I founded in 2012. And a primary foot forward in my services to business owners is exit planning. So I'm a certified exit planning advisor. I had my own exit years ago from another business. And so I decided to tell that story with the book I wrote called Poised for Exit.

And I also have a podcast show of the same name where we talk about exit planning and business owners share their exit stories and sometimes advisors get on and give advice about best practices and stuff like that. So those are some of the other things that I do aside from working with individual business owners to help them achieve their best exit outcome. And it's fun, I love it.

Brent Peterson (01:09.006)
That's all. And passions, any passions in life?

Julie Keyes (01:14.518)
Well, I think my faith is definitely a passion of mine. I also have a blended family. My husband and I each have four children. They're all adults. And we have grandchildren as well. So when we all get together, there's 29 of us so far. And so that's kind of a lot of people. We live on a lake and we love having the kids here at the lake. So that would be definitely a big passion of mine.

Brent Peterson (01:41.506)
Wow, that's awesome. I'll be a grandpa in June, so I'm on the beginning of my journey. I don't have eight kids, but... Great, so thanks Julie. Before we get started, you have volunteered to be part of the Free Joke Project. I'm just going to tell you a joke, and all you have to do is say, this joke should remain free, or yeah, that's chargeable. And just to give you a heads up...

Julie Keyes (01:45.09)
Wonderful. It's the best.

Julie Keyes (01:57.658)
Sure.

Julie Keyes (02:05.449)
Okay.

Brent Peterson (02:10.75)
I think four people have said that's chargeable. So don't get your expectations very high. There are definitely free jokes. Mine is topical, but maybe a couple weeks ago, more topical than it is now, but here we go. I'm gonna tell you the joke.

Julie Keyes (02:14.534)
Oh.

Brent Peterson (02:26.27)
I was told I could look at the eclipse through a colander. I tried, but it strained my eyes.

Julie Keyes (02:36.38)
Okay. I think you better keep that one free. Ha ha ha.

Brent Peterson (02:38.374)
Alright, that's the usual. That's my usual reaction. So yeah, we'll leave it there Yeah, thank you Alright, so let's talk about exit strategies. And in fact, I just had dinner last night with a friend of mine who Who has exited completely exited his business? He was sort of partway doing it he does a lot of public speaking now and

Julie Keyes (02:44.834)
Yeah, it's clever though. Yeah.

Brent Peterson (03:06.67)
He is completely out of the company. And I think one thing I hear a lot from owners who have exited is sometimes that process of exiting isn't always great.

Julie Keyes (03:21.003)
Yeah.

Brent Peterson (03:22.558)
So maybe tell us a little bit about your journey and what made you come and what made you write the book? And and now start doing consulting on that

Julie Keyes (03:34.09)
Yeah, to answer the question as to why that might not be the best outcome or they might not have the best aftermath, there's a lot of reasons for that. But statistically, that number of owners who feel that way is very high, unfortunately. And so one of the reasons could be that they didn't really plan for what was next. You get a lot of years left, hopefully, to live.

And how are you going to live those out? You've been working in this business, building this business, probably identifying it as who you are for a long time. And when that's over with, then what? Do we have any reason to set the alarm in the morning? How do we use what we've learned? Skills, expertise, wisdom.

into whatever we're going to do next. I like to call it the next act because most entrepreneurs don't just quit they just go to do something else and so have an idea of what that something else might be is a great way to be able to look forward to the exit so that you can get on to whatever is next for you in your life. For some people they just want to volunteer and travel and take care of grandkids. For others

They look at maybe taking that liquidity event and turning it into other investments, perhaps even investing in other companies, maybe having a board position somewhere. So there are lots of different ways. Some even consult, you know, they stay in their industry and they consult because they know a lot and they can help other people. So think about those things. Another reason though, conversely could be where a business owner doesn't necessarily have the financial wherewithal.

and that they thought that they had. So they thought that the exit was going to provide for their lifestyle for the rest of their life. And they've learned that after all the expenses and the taxes and everything like that, maybe they didn't get the best advice on what they were gonna end up with for net proceeds. And so that can also be a reason why they regret, maybe they're just bored. A third reason that seems to be pretty common is,

Julie Keyes (05:51.562)
when they sell their business and there's some kind of an earn out that's attached to the exit and for you know for them to be able to you know capitalize or I should say you know.

fulfill the sale of the business over time, right? An hour now, I'm not gonna go into what an hour now is, but sometimes the year now goes bad. Sometimes it's tied to the wrong things. If it's tied to things that they have no control over, like net profit, then that could be bad because net profit can be manipulated.

And so maybe they're not getting what they thought they were going to get from the sale of the business after they've closed. Maybe they're not involved anymore, so they have no control. Maybe it just isn't working out. And so those are some of the main reasons. There's others, right? But there are some of the main reasons why sellers do regret selling. You just have to have good advice, good advisors.

Brent Peterson (06:46.826)
Yeah, so you've built a business around helping people do this planning, right? What are the things that you do in that process of helping others to plan for their exit?

Julie Keyes (06:54.425)
Mm-hmm.

Julie Keyes (07:04.918)
Well, the process can be time consuming. And if there are a lot of things that the owner needs to catch themselves up on or needs to get the business caught up on, it can take even longer than what it should. So typically, my clients work with me anywhere from two to three years. And if it's going to be an internal sale,

where we have a family member that's going to be taking over in the future, then it can take longer than that just to groom the successor on an internal sale. Maybe it's not a family member, maybe it's a management team, but if they haven't started that process and we're just getting started with that process, then just know that you're going to be in it for a while to get that going. And there's a couple of different distinctions that I just like to highlight when it comes to exit planning.

One is owner readiness, and then the other is business readiness. So if an owner's, when I say catching up, if an owner's business is too dependent on them, then it makes it very difficult to transfer the business to somebody else. If the owner's business has a lot of customer or client concentration, where a majority of their business is coming from just a couple or maybe even one customer or client, that makes it kind of risky for a buyer.

And so diversifying that takes time. If the business doesn't cashflow very well, or if it fluctuates a lot, or sales are flat, or key people are not necessarily in the right seats or missing or approaching retirement age, okay? All of those things detract value from a business and to reverse that takes time, okay?

On the owner readiness side, when I say eliminating risk and catching up, sometimes that looks like updating an estate plan because they haven't done it in years. Maybe they don't even have one. If they have partners, when was the last time the buy-sell agreement was updated? Do they have one? Is it funded? So just a few. And then financially.

Julie Keyes (09:20.066)
Do we have a financial plan? Do we have a financial planner, an advisor that we work with that's helped us to diversify our assets outside of the business because the business is usually the nest egg, which is very risky. Because if we need to be able to sell the business for a certain amount in order to live and retire, then we really have to make sure that we know what it's worth. And if we don't know what it's really worth, then we need to find that out.

Because if there's a wealth gap in what we need it to sell for and what it actually sells for, then we have some more work to do there too. So hopefully, it's probably an awfully long answer to your question. But. Ha ha.

Brent Peterson (10:02.25)
No, that's perfect. I wanna unpack a little bit about what you said about the getting ready to making sure that the business is ready and the owner is ready. My experience has been that when we first started we'd never intended on selling. And I think maybe one of the first things that owner should do is when they start their business think about when and how they're gonna exit their business.

And then the next thing I know we did that really helped us was we got our books in order. Because if you don't have your books in order, you can't get a valuation. And getting the valuation is the most important part about selling. So, you know, tell me a little bit about your feelings on when somebody should be planning for their exit. And is the start too soon? Is there is there the right time?

Julie Keyes (10:37.27)
Mmm.

Julie Keyes (11:01.578)
Now, I don't think you can ever start too soon. And that's a really good question, Brent. I think that when business owners emotionally feel like they're ready, then sometimes they think, OK, it's time to sell now because I'm ready. Like my heart's ready, my mind is ready. Emotionally, I'm ready to move on. But that doesn't mean that they're ready. In fact, most of the time, that means that they're not ready. And to your point about valuation, we just have to know where we are today. So as the adage goes,

begin with the end in mind and perhaps you didn't. Perhaps you're 25 years down the road or 30 and you've owned this business, operated it, founded it, bootstrapped it, you know, maybe you've got some investors or partners or whatever, but you're finding yourself going, okay, what do I do? How do I get this started? To your point too about normalizing financials, making sure I know that your books are in order for at least three years, okay, three years is important because

If you are going to sell, then due diligence will require three year records, sometimes more but usually three years. And the trailing 12 months are the most important. And so if you're not confident that you have accurate books, then ask your CPA to conduct some kind of review and maybe even an audit. Because depending on the company, industry, the size, the deal structure, an audit might be required anyway.

And if you've already done it, then you know that you're good and that the numbers that you're submitting for valuation are accurate. And even if you're 10 years out, even if you're 20 years out and you just started the business, you never know when opportunity is going to knock. Because that's what happened to you. Somebody came to you and you weren't even thinking about selling. However, you had your books in order. You were ready.

And so just be ready. And honestly, I think the next few years, three to five years for sure, there will be a lot of opportunities for both sellers and buyers because many baby boomer owners are still running their companies and will have to sell. And so if that's you, if I just described you, get yourself ready now so that you can put yourself ahead of the curve.

Julie Keyes (13:25.77)
and not end up being in a pool of options for buyers because then that just drives the price down, right? So put yourself in a unique position, get your books in order, think about what you wanna do next and do whatever you can to well oil that machine of your business.

Brent Peterson (13:45.422)
I know that you had talked about the right time for the business to sell, and that may not be the right time for the owner to sell, but oftentimes that right time for the business may be the only time. So maybe talk about the importance of what is the right time. And again, my experience was we sold at the height of the pandemic, and in our business space,

Julie Keyes (14:01.696)
Mm-hmm.

Julie Keyes (14:12.472)
Mmm.

Brent Peterson (14:15.446)
Like that was the time to sell. And if we would have waited even a year, our company would have been worth half as much because of the business climate or there wouldn't have been any buyers. So maybe it wasn't, it just happened to be the right time for us. But oftentimes there is the right time where your business suddenly is super hot and you start getting approached, but you don't wanna sell. I know that's a roll of the dice too, but like, talk about that.

Julie Keyes (14:44.536)
Mm-hmm.

Brent Peterson (14:45.498)
that kind of conflict between the two.

Julie Keyes (14:48.974)
Yeah.

you know, ask yourself the question, do I, why do I not want to sell? You know, is it because I'm not financially ready? Is it because I'm not emotionally ready? Is it because, um, I, I just want to keep working. And I think that sellers many times have this mistaken, um, notion that, that it has to be all or nothing and it doesn't. Okay.

You do not have to exit. Exit is a form of transition. And if you're not looking to exit altogether, you just want to take some chips off the table, as they say, then there are ways that you can do that and exit over time. Everyone will exit their business. Everyone. Just like we will exit the earth someday, right? So you're either going to exit on your terms, or you're going to exit on somebody else's terms when it comes to your business exit.

So do whatever you can to be proactive and exit on your own terms. Now, as far as market readiness goes, it's kind of a combination between a crystal ball and actually having a pulse on what's going on out there. So you could talk to any dealmaker, and they would probably say the same thing. There's no guarantee. We don't know for sure. But here's what we're seeing. So looking into the future isn't really going to be a good deal.

a long stretch of time. You're going to look into the future maybe a quarter or two quarters. Pretty tough to look ahead a whole year and predict what could happen in any industry or in the M&A market in general. You can definitely look historically, right? Which is how valuations are done. But I think when it comes to industry,

Julie Keyes (16:41.162)
It's a good idea to work with advisors who specialize in specific industries because they have a better idea of what companies are selling for in that industry. They have access to that information and they can let you know if it's a good time or not a good time. But you can also do your own research, right? You kind of know if you're listening to the news, if interest rates are up and people are having a hard time getting loans, then that might affect how your, you know, the funding of your businesses is gonna happen. If...

You know, if certain industries are hurting, then, and you're in it, then it might not be a good time because maybe the value of your business is a little lower. Like to your point, there were a lot of companies that sold just before or during the pandemic. And that was a hot M&A market during the pandemic, hotter than it is now. And, you know, what an anomaly though, right? I mean, there's no way that we could have predicted that. We didn't know.

So, you know, kind of going back to one of your original questions when you said, what about opportunity and when should you start planning? That's why you want to be ready. Because when opportunity knocks, you may not get another chance. So, you know, for, for instance, if you want a manufacturing firm, you probably would want to align yourself with someone who's a dealmaker in that space early.

If it's a smaller company, you work with a broker. If it's a company above 10 million a year in revenue, which most manufacturing firms are, you'd be working then with either a boutique investment banking firm or maybe even a larger, you know, lower middle market or middle market firm.

depending on the size of the business and if you're global, national, those kinds of things, right? But having that expert advice well in advance so that you can prepare.

Julie Keyes (18:36.526)
And then they know more about your business. You have that relationship established so that if they have an opportunity for you and you're ready, then you know, the two can meet and it's a beautiful thing. I think a lot of business owners are really afraid to establish a relationship with a deal maker like that until they feel like it's time to list it or put it on the market. And I think that that's misguided.

So don't be afraid if you know you have to sell to a third party because you don't have a management team or a family member who's interested in buying your business or legacy is not important to you, you know, whatever your motivators are, then by all means, you know, talk to your colleagues. Who do you know? You know, call me. I'll refer you to the best because I think just establishing that relationship ahead of time is just

so valuable and business owners have spent their whole lives building you know that enterprise and sacrificed time money you know uh sleepless nights the list goes on and on right because we can relate to that right Brent both of us

And they deserve to have the best possible outcome possible. So let's establish those relationships early so we can get that advice and make really good decisions going forward.

Brent Peterson (20:00.862)
I know earlier you talked about exit and that there's different stages of exit. We should help people thinking about selling define what that exit means to them and that exit could mean something different to everybody. And I know you also gave the example of that profit sharing, but there's also a cultural part of that. And I also have another friend who sold their business recently and they sold to a...

private equity company and the culture was completely different from a founder owner when you then going to private equity there's a lot more structure in place and a lot less cowboy ness if i can say that word um which makes the maybe the founder owner a little bit more uneasy as they stay in that role there's probably more safeguards to the founder owner

Julie Keyes (20:46.106)
sure.

Brent Peterson (20:58.334)
in a PE purchase, but there's probably a trade-off in there. Is there a big difference between selling to an organized private equity as compared to just selling to a single owner who doesn't have all that structure around them?

Julie Keyes (21:15.402)
Yeah, there's a huge difference. And I don't know that I would identify one better than the other, really. I think it depends on what the owner really wants. And eyes wide open, regardless of the path that they choose, you're probably going to get more money for the business selling to private equity than you would to a strategic buyer or selling it internally, for sure. Not always, right? There's no blanket statement here. But that's generally the thing.

And if you do sell to private equity, it's not the big bad monster that it has, you know, the reputation for because it's changed a lot. And there are a lot of different facets, different types of private equity. Whereas, you know, years ago, it was just like, you know, the big guns come in, they buy, they turn in five years, some people lose their jobs. Like you said, sometimes the culture gets messed up.

Maybe the owner stays on, maybe they don't. But maybe that still exists out there. I think that they've really cleaned up their act in that industry a lot because owners are kind of onto it. And so now there are lots of different types and hybrids and buy and hold private equity firms that are looking for specific industries to invest in, not to run. They want the owner to stay on and run it.

And if you're an owner that's looking for a way to be able to grow the business and you want resources to be able to do it, that can be an absolutely wonderful way for you to take some chips off the table, stay on, run your business, have a PE firm come in and recapitalize it, and then grow it to the next level and have a really cool second bite of the apple.

Brent Peterson (23:02.59)
Yeah, and I think maybe another advantage, so a lot of times PE gives the owner is they typically get a percentage, they retain a little bit of that ownership, which at the end when the PE turns the business over again, they'll get another payout. From.

Julie Keyes (23:13.721)
Right.

Julie Keyes (23:17.922)
Mm-hmm.

Julie Keyes (23:21.75)
And sometimes, you know what, sometimes those owners that are in there with a minority interest stay again, if it's a fit, like if the new firm that comes in. I've heard stories where, you know, they stay on, maybe they sell another percentage. But I mean, like I said before, eyes wide open, if it's a fit and they're not just coming in and looking at the numbers only, but they're looking at it from all angles, right? Culture, philosophy, values.

you know, team, all of those things. If it's a fit in the holistically, then it can be a really great win-win situation. And I just think every exit, every successful exit has a win-win situation.

Brent Peterson (24:06.41)
Yeah, and I can also speak from experience. I've done some fractional work, and I got to meet a owner who had actually sold back in 2015 and has now gone through a number of phases with the purchasing that keeps getting rolled in, but he's maintained a C-level role. And there's a lot of opportunities, especially if your original business was $10 million and now suddenly you're a...

Julie Keyes (24:11.715)
Mm-hmm.

Brent Peterson (24:33.882)
CTO of a 250 million dollar company it is a it's a different experience that you would get as a business owner that perhaps you wouldn't have unless You were you were able to grow your original business to that level

Julie Keyes (24:38.032)
Mmm.

Julie Keyes (24:50.97)
Right. And honestly, going back to eyes wide open, I'm going to just say that one more time. Not all entrepreneurs can handle taking orders from other people and watching other decision makers make decisions about the business that they founded. But if you can get out of your own way, if you can allow, leave your ego at the door and allow other people who know how to scale, actually do that to the baby that you handed over.

then my goodness, couldn't that be a beautiful thing? Because you have the background, the history of what has transpired in that business up until that point. And that's extremely valuable information. Plus, you have your brand, your name, your reputation in the industry. And marrying that with additional capital so that you can grow the enterprise can be really great.

Brent Peterson (25:45.77)
Yeah, I kind of want to round out our conversation with that idea of that planning to exit and that when you decide and you go through that purchase, you should have a plan in place in terms of how long you want to be there.

Julie Keyes (26:00.89)
Mm-hmm.

Brent Peterson (26:01.822)
I know some owners, new owners ask the original owner, the purchaser asks the original owner to leave after 60 days. So they want them out of the way. They're more of a headache. And sometimes it's an open-ended agreement, which also could lead to issues where expectations aren't met on one side or the other, and they don't feel comfortable. And then there's an un...

Julie Keyes (26:11.56)
Hmm?

Brent Peterson (26:27.018)
an untimely and an unsatisfied exit because there isn't that exit date. Talk about having a hard exit date versus a open-ended agreement where you're just staying.

Julie Keyes (26:31.285)
Right.

Julie Keyes (26:45.246)
Yeah. I don't know of very many situations where an owner is staying on indefinitely without some kind of an agreement. And I wouldn't, if I were the seller, put myself in that position. I would definitely want to have a contract of some kind, either an employment contract or just like an independent contractor contract agreement. That's probably better, the latter versus the former. But it depends. And typically, it's a year.

some sellers give two years, some want to stay on, but with very, very clear communication at the letter of intent stage, at the purchase agreement stage, what it is that the buyer's expectations are, what it is that the seller's expectations are, how can we negotiate something that's a win for either, for both sides, right? And then what do we look, what does the future look like? And if I'm going to stay on as the seller,

I want to clearly know what it is that you expect from me. What's my role? What's my title? What's my job description? And then I'll let you know if it meets my expectations and what I really want to do. Sometimes they'll just ask you, OK, what do you really want to do?

What have you done in the past that really lights you up? And that's where we'd like to have you spend your time in this company, because we all want to get up in the morning and be happy about what we do. So eyes wide open, clear expectations, clear communication, and then clearly documented what's been agreed upon.

Brent Peterson (28:21.566)
Yeah, I mean, that's such a good point, the documentation portion of it. And having some objective numbers to look at, it's so easy after three months to say, you didn't do this or that. And then there was nothing tied to it that was objective and that one person is thinking they're gonna do something other than the other.

Julie Keyes (28:35.66)
Right.

Brent Peterson (28:41.194)
One thing that I've done, especially in a fractional role, is summarize what I've done for the week or two weeks and then give that to leadership so they understand, here's what we're doing, is this still the right direction? And if it isn't, tell me now. So we don't go for three months and there's a huge missed expectation. And I guess then as a subordinate, you are also in the position if the...

Leadership comes back and says well, this is not what we're expecting you as a subordinate can always say then well I've been telling you this every two weeks or every week. How could we be so mismatched? Yeah, go ahead tell me a little bit about that

Julie Keyes (29:18.947)
Right.

Mm-hmm.

Julie Keyes (29:26.542)
I guess I just kind of go back to communication. You know, to your point about the misunderstanding, when it comes to an earn out, that happens probably more than it should. And when I say communication, it isn't just up to the buyer and the seller to communicate with each other. It's about the advisors who are on both sides of the table that need to be.

orchestrating and facilitating that and modeling that. Because they are the ones who are actually negotiating for us. And so they're the ones who have to make sure that they're clear on what it is that we really want and how we want this to shake out. We need to know as sellers and buyers, what are we willing to negotiate on? And then what are our non-negotiables?

What are the non-negotiables that we absolutely have to have? Whatever that is, just really think about that. Because those are the questions that people, your advisors, will ask you when the time comes that you're ready to put the business on the market or whether you have an opportunity that comes along. So have an idea of what you really want and what you know you don't want. And

And I think that that's probably a good place to start. One of the questions that I have asked business owners as an exit planner is, when you think about the future, where do you see yourself and what do you really want? And that's a tough question for many of them to answer because they haven't thought about it much. But if I ask the question, what do you not want? What do you absolutely know that you do not want? That's a very easy question to answer. So sometimes you just got to start there.

Brent Peterson (31:12.338)
Yeah, that's a great way to look at it. Julie, as I close out the podcast, I give everybody a chance to do a shameless plug about anything they'd like. What would you like to plug today?

Julie Keyes (31:25.486)
Um, I think maybe just encourage listeners to, um, check out the poised for exit podcast. We're on all the different channels and platforms. If you're in the, uh, if you're an advisor or if you're a business owner, because there's a lot of content there that can really help you to prepare yourself, um, give you things to think about. So there's, you know, best practices in business growth and management. There's.

Several advisors from different disciplines that talk about how to prepare yourself, prepare your business. And so you can kind of pick and choose based on the topics and the speakers. And they're short, you know, it's a dog walk or a commute, they're under a half hour. And so that would be what I would encourage people to do.

Brent Peterson (32:08.682)
That's awesome. Thank you. And I'll make sure I get those on the show notes. Julie Keyes, it's been such a pleasure speaking to you today. And I look forward to our conversation on your podcast in the future.

Julie Keyes (32:12.356)
Thank you.

Julie Keyes (32:21.246)
Absolutely, Brian. Thanks for having me. We'll see you soon.

Brent Peterson (32:22.678)
Yep.