Exit Planning Tools for Business Owners

business sale

The Exit Planning Fallacy – A Business Owner’s Perspective

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One of the most common sales pitches you might hear from someone claiming to help you “enhance value” goes something like this:

“I’ve reviewed your company and believe it’s worth $4.2 million today. With the right planning, it could be worth $7.7 million. Would you rather exit with $4.2 million or $7.7 million?”

That’s not really a question—it’s a setup. Of course, no business owner would willingly choose the smaller number. But the real issue isn’t which number you prefer. It’s what it actually takes to bridge that gap—and whether you’re being given a full picture.

Are You Falling for the Planning Fallacy?


There’s a psychological term for this overly optimistic way of thinking: the planning fallacy.

A private equity investors group I follow, Chenmark.com, once cited a study published in the Journal of Personality and Social Psychology that perfectly illustrates the concept:

From a psychological perspective, the planning fallacy can perhaps be studied most profitably at the level of daily activities. Consider one familiar example: Academics who carry home a stuffed briefcase full of work on Fridays, fully intending to complete every task, are often aware that they have never gone beyond the first one or two jobs on any previous weekend.

The intriguing aspect of this phenomenon is the ability of people to hold two seemingly contradictory beliefs: Although aware that most of their previous predictions were overly optimistic, they believe that their current forecasts are realistic. It seems that people can know the past and still be doomed to repeat it.

What’s fascinating is that they know this pattern. Yet, every weekend, they’re sure this time will be different. Business owners do something similar: despite knowing how long things usually take (and how unpredictable growth can be), we still believe “this time” will follow our best-case forecast.

You may hear that big valuation potential and think, “Yes, that’s what I’ve always wanted—to grow the company by 83%! I just needed a plan.”

But a plan alone isn’t enough. It’s a start—but not the whole story.

What Really Closes the Gap?


Let’s reframe that optimistic pitch with a more realistic one:

“To grow from $4.2 million to $7.7 million in five years, you’ll need proper planning, dedicated effort, some strategic hires, and reinvesting a significant portion of your profits. That requires growing the business 19% annually—starting immediately. That’s more than double your best year to date. If you spend a year building that foundation first, then you’d need to grow at least 25% annually over the next four years. If you keep growing at your best year’s rate of 7.5%, it will take over 12 years to reach that goal.”

Those are the facts. And the reality is that very few business owners hit those growth rates without serious changes—and trusted advisors to help them.

The Power of Perspective (and the Right Guide)


You may have a solid company. It supports your lifestyle, your employees, and your reputation. Maybe you’ve even dreamed of taking it further. But the risks, the effort, or the lack of a clear roadmap have held you back.

That’s exactly where experienced advisors come in—not to promise easy gains, but to help you map a realistic path to your goals. They help align what you want (your proceeds), with what you’re willing to do (your effort), in the time you have left (your exit timeline).

In our work, we use a Value Gap coaching model that considers four essential pieces:

1. Current business value
2. Your desired outcome—not just “more,” but a specific number
3. The timeframe in which you want to exit
4. The required growth rate to get there

Often, once those last two are on the table, the conversation changes. It’s not just about the money—it’s about what you’re willing and able to do to get there.

The real planning fallacy? Believing it’s just about hitting a number. The truth is, getting the outcome you want depends on understanding the full picture—and working with an advisor who helps you navigate it honestly, strategically, and with clarity.

John F. Dini develops transition and succession strategies that allow business owners to exit their companies on their own schedule, with the proceeds they seek and complete control over the process. He takes a coaching approach to client engagements, focusing on helping owners of companies with $1M to $250M in revenue achieve both their desired lifestyles and legacies.

Goals and Resolutions

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There is a difference between goals and resolutions.

Businesses set goals. These can be budgetary, operational, recruiting, sales or profit oriented. Individuals make resolutions.

Business Goals

Goals are focused on a particular outcome, and so should be specific. It’s worth the time to get into the details. If you intend to increase the company’s cash flow, how will that be done? If it’s by boosting sales, what has to change to make that happen? You could add a new product line or enter additional territory. It may require hiring and training new salespeople.

You can also increase the cash flow by reducing your Cost of Goods. Is there a purchasing analysis software that would identify ideal order quantities? Should there be new competitive bidding between vendors? Perhaps the company has grown to the point where it needs to recruit full-time purchasing personnel.

Cash flow can also be improved by production efficiency to reduce expenses, early payment incentives for customers, or by financing receivables.

Once the specifics are determined, the rest of the SMART equation comes into play. How will you Measure success? Who is Accountable for making it happen (and does their compensation reflect success?) What Resources should be allocated? Any effort requires personnel or investment, and frequently both.

Finally, what is the Time Frame? Is it the whole budget cycle? What interim measurements are needed to track progress? Are there contingency plans if the goal falls behind schedule?

hand pointing to a bullseyePersonal Resolutions

Individuals make resolutions. They are promises (even if only to yourself) to commit to a new behavior. By definition, they are often tied to a broader aspiration.

If that aspiration is an exit strategy, your resolution may begin with the time frame. “I will leave Acme Widgets on December 31, 2029.” It’s still worthwhile to think through the SMART process, but the focus would be on your individual behavior.

Specific. By 12/31/29 I will be prepared for an active second act dividing my time between clearly identified community service, our grandchildren, and traveling both domestically and overseas.

Measurable. To support my lifestyle, I will transfer my company to new owners for a price of not less than $6,000,000, which will be added to the $2,000,000 in savings I accumulate in the next five years.

Accountable. The only person responsible for this is me. I will review these resolutions every month, on the last day of the month, to consider whether I have moved forward on my goal.

Resourced. Maximizing the value of my business and leaving without regret requires that I have no day-to-day operational duties. I will create a delegation plan defining who will assume each aspect of my job(s).

Time Frame. Well, that’s where we started. Now you can sketch out the interim measurements.

Goals and Resolutions

In any business managed by the owner, both goals and resolutions are necessary to move forward. No business is likely to succeed in its goals if the owner’s objectives are in conflict with them. No owner can expect to succeed in his resolutions if the business goals don’t match.

Remember, sooner or later every owner exits his or her business. It typically goes much better if there is a plan. An exit plan is merely a strategy with an end date. Having that date defined helps a lot of other things fall into place.

John F. Dini develops transition and succession strategies that allow business owners to exit their companies on their own schedule, with the proceeds they seek and complete control over the process. He takes a coaching approach to client engagements, focusing on helping owners of companies with $1M to $250M in revenue achieve both their desired lifestyles and legacies.

Deal Momentum, Deal Fatigue, and Pre-Sale Diligence

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With the help of her Exit Planning Advisor, Betty has decided that selling to a third-party buyer would best accomplish all of her goals (financial, values-based, legacy).

Quantifying her business and personal resources with a financial gap analysis has been helpful to Betty in determining her departure date in six years. She now knows the current fair market value of her business and how much it will need to increase in value to attain her financial objectives at sale in six years.

Betty now also understands (again with the help of her Exit Planning Advisor) the importance of maintaining “deal momentum” when she eventually enters into a sale transaction.

Betty now knows that all too often, “deal fatigue” sets in and damages or destroys deal momentum experienced early in the process. She also understands that deal fatigue typically results from a difficult and lengthy due diligence process. Due diligence is defined as the process by which the buyer requests documents, data, and other information about the business they want to review to identify any potential liabilities or hindrances to a deal getting done. The process of due diligence involves setting up a digital “Data Room” where all requested information is deposited for review.

Person at a desk demonstrating: Deal Momentum, Fatigue and Diligence
A key component of Betty’s comprehensive exit plan is to do everything possible to ensure deal momentum and avoid deal fatigue when the time comes.

Betty also wants to be prepared if a serious and qualified buyer comes calling earlier than her six-year time frame. So, with the assistance of her Exit Planning Advisor, she is going to conduct “Pre-Sale Diligence” systematically over the next 12 months, including setting up a virtual data room that she will regularly review and update as needed. This preemptive approach will significantly increase her chances of deal momentum and a smooth transaction experience.

At that point in the future, when Betty is approached by a potential buyer or when she takes her business to market, having conducted Pre-Sale Diligence, she will be better prepared, more confident, and less stressed and anxious—all of which lend toward sustaining deal momentum and a successful transaction.

Pat Ennis is the President of ENNIS Legacy Partners. The mission of ELP is to help business owners build value and exit on their own terms and conditions.

Main Street Business and Middle-Market

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Main Street BusinessA common area of confusion among both business owners and advisors is the difference between a “Main Street” business, a “Middle Market” business, and a “Mom and Pop” business.

Main Street Businesses

The International Business Brokers’ Association and other professional intermediary organizations define “Main Street” as any company with a Fair Market Value of less than $3,000,000. That is about the upper limit of a business that can be purchased by an individual using “normal” 20% down financing. He or she is acquiring for the purpose of earning a living.

Main Street businesses typically calculate cash flow as Seller’s Discretionary Earnings (SDE). As discussed by Scott Gabehart, the creator of BizEquity valuation software, SDE is a better measure of a business’s return on owner labor, rather than return on investment.  SDE includes the benefits of ownership including salary, employer taxes, distributions, health insurance, vehicle, and other perks of ownership. It also includes non-cash tax deductions such as depreciation.

The average selling price for an owner-operated business in the United States is 2.3 times its SDE. That cash flow has to support any debt as well as provide a living for the principal operator.

If we extrapolate from the average multiple (which from my past experience as a business broker is accurate,) we would say that “Main Street” encompasses businesses that produce up to $1.3 million in cash flow. That number is actually pretty high and crosses the threshold of where Private Equity companies typically seek acquisitions. At that level, a buyer would have to have $600,000 for a down payment and about $25,000 a month for debt service.

In reality, companies that generate more than $500,000 a year in adjusted EBITDA cash flow (not counting owner compensation) are more commonly sold for multiples of EBITDA. At that size, a multiple of four times adjusted cash flow is pretty common, and would classify a company with up to about $750,000 in adjusted cash flow as “Main Street.”

Mom and Pop Businesses

There is no definition of what is too small to be considered “Main Street,” but I like the description used by Doug Tatum, author of No Man’s Land: Where Growing Companies Fail. Doug says that many entrepreneurs start a company to build wealth. They do all the jobs in the business and grow it by dint of their unflagging effort and willingness to work long hours. Eventually, they are earning an income that is three times what they could have made just holding down a job.

Unfortunately, they are earning that income by doing the work of three people. That is my definition of a “Mom and Pop” company. The owner is making a living, but the only way to improve that living is by further denigrating his or her lifestyle.

A local distribution business may have $10,000,000 in revenue, but operate with a half dozen employees and the owners. Their profit before taxes could be as little as $200,000 – putting this $10 million business squarely in the category of “Mom and Pop.”

Mom and Pop business owners are seldom candidates for exit planning. When they stop working, the business ceases to exist. Their best hope is usually to pass it to a family member or employee who is also willing to work really hard to earn a decent living. There is seldom enough free cash flow to support much in the way of debt for the purchase of the company.

Middle-Market Businesses

Middle-Market businesses are defined by investment bankers as having revenues between $100 million and $3 billion with less than 2,000 employees. The US Department of Commerce lists the parameters as between $10 million and $250 million in revenue. One accounting association says the “lower middle market” is classified as companies between $5 million and $100 million. Investopedia.com pegs it as $10 million to $1 billion. Divestopedia.com goes with $5 million to $500 million. TheStreet.com has the widest range at $5 million to $1 billion.

Of course, a $5 million revenue company could easily have less than $500,000 in pre-tax earnings, which would put it squarely in the Main Street category. On the other hand, a substantial number of software and Internet-based companies have become “unicorns” (over $1 billion in market valuation) with far less than $100 million in revenue.

This discussion illustrates two points. First, few people know exactly what they are referring to when they say “Main Street” or “Middle-Market.” They have their own idea and definition, which is fine. Unfortunately, it is unlikely that the person they are talking to has the same definition.

Second, inexperienced advisors may say they “don’t work with Main Street.” Many Main Street business owners are excellent candidates for exit planning. In fact, when the $3,000,000 fair market value yardstick is specified, two-thirds of exit planning professionals say that half or more of their clients are in that category(1).

The Business Owner’s Perspective

Why should any of this matter to a business owner? There are two areas where these definitions play an important role in your exit planning.

First, when you look for an intermediary to help you sell, understanding the market they serve is critical. Most business brokers will list a Mom and Pop business, and sell those to downsized corporate executives or others seeking to earn a living. They also handle Main Street listings, although those with over a million dollars in earnings are probably out of reach for 90% of their buyers. You should carefully look at their track record in selling businesses of that size.

Most business brokers will also say that they can handle lower middle-market companies. As we’ve seen, that covers an extremely wide range of revenues and earnings. Again, if you are in the range of profitability that would attract a corporate or financial acquirer, you are likely better off retaining an investment banking firm for the sale.

(1) 2022 National Exit Planners Survey – www.exitplannerssurvey.com

John F. Dini develops transition and succession strategies that allow business owners to exit their companies on their own schedule, with the proceeds they seek and complete control over the process. He takes a coaching approach to client engagements, focusing on helping owners of companies with $1M to $250M in revenue achieve both their desired lifestyles and legacies.