Start With the End in Mind: Built to Sell: A Roadmap for Small & Middle Market Owners - Article 1

 [Editor’s Note: The M&A market for SMB owners has been relatively stagnant for the last 2 years. We think it’s time for owners to take the step to be prepared. We recently heard the following call to action for business owners: 

“If you had the opportunity to keep an extra 30% or more of your sale proceeds, Don’t be “that Guy” who passed it up!” -dpm]

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Most business owners spend years building something valuable and weeks planning how to sell it. That gap — between the years of effort and the rushed preparation at the end — is where wealth quietly disappears.

The owners who walk away with the most from a transaction are rarely the ones with the highest sale price. They are the ones who started planning early enough to control the outcome. Three years is not an arbitrary number. It is the minimum runway required to move the needle on value, on structure, on how your business presents to buyers, and critically, on what you actually keep after the deal closes.

A successful sale is not an event. It is the result of a deliberate process that begins long before the first buyer conversation.

What You Sell For and What You Keep Are Two Different Numbers

The gap between your gross sale price and your after-tax proceeds can be enormous — often 30 to 40 cents on every dollar, sometimes more. And most of the decisions that determine that gap are made years before a buyer walks through your door.

The tax clock starts long before the transaction process begins. Many of the most powerful mitigation strategies require two to three years of lead time to execute properly. Used early, they are legitimate and effective. Attempted at the last minute, they invite IRS scrutiny and often fail entirely.

The right strategies depend on your entity structure, your basis, your personal financial picture, and your timeline. But here is what is available to owners who start early enough to use it.

Basis reduction — Cost segregation studies accelerate depreciation on real property and equipment, reducing taxable basis before a sale. Section 1202 Qualified Small Business Stock exclusions can shelter up to $10 million in federal capital gains entirely — but only if the structure was established correctly, well in advance. F-reorganizations allow owners to restructure their entity type to optimize how gain is recognized at closing.

Life insurance strategies — Corporate-owned life insurance (COLI) builds cash value tax-deferred while serving as an executive benefit tool. Irrevocable Life Insurance Trusts (ILITs) remove the death benefit from your taxable estate entirely. Private Placement Life Insurance (PPLI) wraps investments inside an insurance structure to defer or eliminate gains for higher net worth owners.

Charitable and trust structures — A Charitable Remainder Annuity Trust (CRAT) allows you to transfer appreciated business interests before a sale, defer capital gains, and receive a fixed income stream over time while generating a partial charitable deduction. Donor-advised funds offer a simpler alternative for owners with philanthropic intent.

Timing and structure — Installment sales spread gain recognition across multiple tax years. Qualified Opportunity Zone reinvestment defers and potentially reduces capital gains by rolling proceeds into designated funds within 180 days of closing. Deferred compensation plans established before the transaction reduce ordinary income in high-earning pre-sale years.

One critical distinction: your regular CPA is not your transaction tax advisor. Transaction tax is a specialty, and most general practice CPAs are not equipped to design and execute these strategies. The right advisor lives in this space every day. Engaging them three years out is not premature — it is exactly right.

Your Investment Banker May Be One of the Most Important Hires You Will Make

Many owners approach a sale the way they approach most business decisions — they rely on their existing network, take the first serious call that comes in, and attempt to manage the process themselves. This is one of the most expensive mistakes a seller can make.

A skilled investment banker does not simply find buyers. They engineer a competitive process — identifying the full universe of strategic and financial buyers, preparing materials that tell your story compellingly, and creating the competitive tension that is the single most reliable driver of premium pricing. The difference between a well-run competitive process and a single-buyer negotiation is frequently measured in millions of dollars.

A buyer negotiating without competition has every incentive to chip away at price and push risk back onto the seller. A buyer who knows they can lose the deal behaves very differently.

Beyond price, a seasoned investment banker brings current market intelligence — realistic valuation ranges, deal structures gaining traction, and where the landmines are in today's lending environment. They have closed dozens of transactions in your industry. You are likely closing one. Engaging them a year or two before going to market — not just when you are ready — gives you their perspective on positioning the business and what gaps need to be addressed before the process begins.

Your M&A Attorney Is Not Your Business Attorney

The same principle applies to legal counsel. Your business attorney knows your company and your history — but a middle market M&A transaction is a specialized legal undertaking, and the stakes are too high to approach it with a generalist.

Representations and warranties — the statements you make to a buyer about the condition of your business — carry significant financial exposure if poorly drafted. Indemnification provisions determine how much of your proceeds sit in escrow and what events can trigger a clawback. Deal structure decisions — asset sale versus stock sale, earnout provisions, rollover equity — all carry legal implications a generalist may not fully anticipate.

The right M&A attorney has seen every version of these negotiations. They know where buyers' counsel will push, where you can hold firm, and where the language in a purchase agreement can cost you far more than their fee if it goes unexamined. They also understand the interplay between legal structure and tax outcome — working in close coordination with your transaction tax advisor to ensure the deal protects you on both fronts. Engaging them early also surfaces the corporate housekeeping issues — contract assignability, IP protection, employment agreements — that are far better resolved quietly in advance than discovered under pressure mid-process.

Build a Financial Story Buyers Will Trust

Sophisticated buyers do not buy your most recent year of earnings. They buy a pattern — a clear, consistent, and credible financial story that gives them confidence in future performance. If your financials are difficult to read, inconsistently prepared, or laden with personal expenses, that confidence erodes — and so does your multiple.

Three years out is the time to get your financial house in order. Ensure your statements are clean, consistently prepared, and audit-ready. Identify and properly document legitimate add-backs that a quality of earnings analysis will scrutinize. Understand your true EBITDA and how it will be presented to a buyer's financial team.

Also take a hard look at revenue concentration. If one customer represents more than 15 to 20 percent of your revenue, that is a risk flag for every serious buyer. Three years gives you time to diversify your customer base and arrive at the table with a story that demonstrates resilience rather than dependency.

Reduce Owner Dependency — Before It Reduces Your Value

The business that cannot operate, make decisions, or retain customers without the owner at the center is not a business a buyer wants to acquire at a premium. It is a job they are being asked to buy — and they will price it accordingly.

Three years is enough time to change this dynamic. Build out your management team. Hire or develop people who can run the business without you in the room. Document the processes and institutional knowledge that currently live only in your head. The owners who arrive at a transaction with a leadership bench that operates independently — and can demonstrate it — consistently command the strongest multiples.

Clean Up Legal and Corporate Housekeeping

Nothing slows a deal or erodes buyer confidence faster than legal, contractual, or governance issues discovered mid-process. Review your corporate structure and ensure it is properly documented. Audit your contracts for assignability clauses and anything that could complicate a transfer. Resolve outstanding litigation. Protect your intellectual property. Ensure key employees have appropriate non-compete and confidentiality agreements in place. These items take time — and addressing them under the pressure of an active deal process is always more costly than handling them in advance.

Invest in the Strategic Growth Story

Buyers pay multiples of earnings — and higher multiples for businesses with a credible path to continued growth. A business showing consistent growth, expanding margins, and a clear value creation story will attract premium buyers at premium prices. Three years gives you time to invest intentionally in that story — whether through entering a new market, building recurring revenue, improving margins through technology, or simply executing with consistency and documenting the results.

We Can Help

The Mead Consulting Group is not a tax advisory, investment banking, M&A legal, or financial advisory firm. But over 35 years of working with middle market owners through transactions, we have built deep relationships with the best transaction tax specialists, investment bankers, M&A attorneys, and financial advisors in the business — people who have helped owners keep significantly more of what they earned and close transactions on their terms.

More than that, we have spent decades helping owners build businesses that attract the best buyers at the best prices — by reducing owner dependency, strengthening management teams, cleaning up financials, and building the growth story that commands a premium multiple.

If you are beginning to think seriously about a sale in the next three to five years, the most valuable conversation you can have right now is about preparation. The decisions you make today will determine what you walk away with tomorrow.

Contact Dave Mead at (303) 660-8135 or meaddp@meadconsultinggroup.com. The conversation is free. The cost of waiting is not.

Next in the series: Article 2 — "No Time to Wait - Maximizing Value When Your Exit Is Sooner Than Planned."

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Your Management Team — Built for Yesterday or Ready for What’s Next?

Most business owners will tell you their people are their greatest asset. Far fewer can honestly say their management team is built for where the business needs to go — not just where it has been.

That’s an uncomfortable distinction. And right now, in a business environment that is moving fast and rewarding agility, it’s one that matters more than ever.

Here’s the hard truth: the management team that got you to where you are today may not be the team that gets you to where you need to be tomorrow. That isn’t a criticism of loyalty or effort. It’s simply the reality of business growth. The skills, instincts, and habits that work well at one stage of a company’s development can quietly become the ceiling at the next.

Recognize the Signs

How do you know if your team is built for yesterday? Some signs are obvious. Decisions that should be made three levels down keep landing on your desk. Meetings produce agreement but not action. The same problems resurface quarter after quarter with slightly different explanations. Good people leave, and the team barely notices.

Other signs are subtler. Your managers are excellent at executing what they know but uncomfortable with what they don’t. They optimize existing processes rather than questioning whether those processes still make sense. They manage their departments in isolation rather than leading across the business. They are, in the truest sense, very good at yesterday.

None of this makes them bad people. It makes them human. But it also makes them a constraint — on your growth, on your agility, and ultimately on the value of your business.

Mapping Your Team: The Performance-Potential Matrix

One of the most useful tools for an honest assessment of your management team is a simple two-axis evaluation: performance on one axis, potential on the other. Where each person lands tells you something important — not just about them individually, but about the overall health and readiness of your team.

Figure 1: Performance vs. Potential Matrix

Y-axis: Potential (Low → High)    X-axis: Performance (Low → High)

Hidden gem High potential, needs development and the right role	Rising star Strong potential, solid performer — invest heavily	Top talent Your future leaders — retain at all costs
Question mark Unclear fit — assess carefully before investing	Core player Reliable contributor — coach toward next level	High performer Delivers results — explore growth path
Underperformer Low performance and potential — act quickly	Effective contributor Solid today, limited upside — manage expectations	Strong contributor High performance, moderate upside — keep engaged
Low performance	Medium performance	High performance

 

The top-right corner — Top Talent — represents the people you are building the future around. The bottom-left — Underperformer — is where difficult decisions need to happen sooner rather than later. But pay close attention to the middle column, top row: Rising Stars. These are the people worth investing in most heavily right now — and the ones most capable of meeting the demands ahead.

What “Ready for What’s Next” Actually Looks Like

The managers who thrive in today’s environment share a few characteristics that go beyond functional competence. They are intellectually curious — genuinely interested in what’s changing in the market and what it means for the business. They are comfortable with ambiguity and can make sound decisions without waiting for perfect information. They develop people around them rather than protecting their own domain. And critically, they think like owners — connecting their daily decisions to the broader direction of the company.

These are not personality traits you can train into someone who fundamentally doesn’t have them. But they are qualities you can screen for, hire toward, and build a culture around.

Where AI Fits In

Here is where the conversation about management readiness gets both more urgent and more interesting. Artificial intelligence is no longer a technology story. It is a leadership story.

The managers who will drive your business forward in the next three to five years are not necessarily the ones who understand AI at a technical level. They are the ones who know how to use it as a thinking tool — to sharpen decisions, stress-test assumptions, identify patterns in customer and financial data, and move faster without sacrificing judgment.

Consider what this looks like in practice. A sales manager who uses AI to analyze which customer segments are most profitable and model the impact of pricing adjustments is operating at a fundamentally different level than one who relies on intuition and last quarter’s spreadsheet. An operations leader who uses AI-assisted scenario planning to anticipate disruptions is more valuable than one who reacts to them after the fact. A CFO who uses AI to model multiple growth scenarios in real time gives ownership a qualitatively better picture of the business than one who produces a static annual forecast.

The gap between managers who embrace these tools and those who don’t is widening quickly. And here is the critical point: AI does not replace strong management judgment. It amplifies it. Which means the managers who combine genuine business acumen with AI fluency are becoming disproportionately valuable — and disproportionately rare.

Look back at your matrix. Your Rising Stars and Top Talent are the natural candidates for AI investment. These are the people with both the capability and the upside to use these tools to their full potential. Prioritize them for development. Make AI literacy an explicit expectation — not a nice-to-have.

What To Do About It

Start with an honest assessment. For each member of your management team, ask two questions: Are they performing at the level the business needs today? And are they capable of performing at the level the business will need in two to three years?

Where the answer to either question is uncertain, act. Invest in development for those with real potential. Create the expectation — from the top down — that AI literacy is not optional. And where the fit simply isn’t there, make the difficult but necessary decisions sooner rather than later.

The companies that win in uncertain times are led by people who are genuinely ready for what’s next — not just comfortable with what worked before.

 

Your management team is either building that advantage for you — or quietly limiting it.

The Mead Consulting Group has worked with scores of organizations to help them build high-functioning management teams that plan and act strategically. If you would like to discuss your situation, contact Dave Mead at (303) 660-8135 or meaddp@meadconsultinggroup.com.

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Smooth Seas Never Made a Skilled Sailor — And This Is Not a Smooth Sea

 Smooth Seas Never Made a Skilled Sailor — And This Is Not a Smooth Sea

There's a reason that quote has endured. It isn't motivational filler. It's a simple truth that every experienced business owner eventually learns the hard way: capability is built under pressure, not in spite of it.

Right now, the pressure is real. Economic signals are mixed. Costs are up. Customer confidence is uneven. Supply chains remain unpredictable. For many small and mid-size business owners, the instinct is to pull back — cut expenses, freeze hiring, wait for calmer water. It feels like the responsible thing to do.

It isn't.

History is unambiguous on this point: rough seas are not the great equalizer people assume them to be. They are, in fact, one of the greatest in business. The companies that treat turbulence as a reason to pause are the same ones that look up two years later and wonder how their competitors got so far ahead.

The Differentiation Gap Widens When Things Get Hard

In my 3+ decades working with small and mid-size companies, I've watched this play out over and over — through recessions, credit crises, global disruptions, and everything in between. The companies that come out stronger are almost never the ones that simply survived. They're the ones that made a deliberate choice to while everyone else was playing defense.

Think about what that looks like in practice. When the labor market softens, defensive companies freeze. Offensive companies quietly hire the best talent they couldn't attract a year ago — people who were locked in elsewhere and are now available. When customers pull back, defensive companies slash marketing. Offensive companies invest in relationships, deepen their service model, and come out with stronger loyalty on the other side. When uncertainty makes planning feel futile, defensive companies abandon strategy altogether. Offensive companies sharpen theirs.

The gap between these two types of companies doesn't close when the economy recovers. It compounds.

Clarity Is a Luxury. Agility Is a Strategy. Clarity is often a lagging indicator.

One of the mistakes I see owners, CEOs and Boards make during uncertain periods is waiting for clarity before they act. The problem is that clarity is often a lagging indicator — by the time things feel clear, the window has already moved.

The better approach is to stop trying to predict and start trying to prepare. That means running multiple scenarios. What does our business look like if revenue drops 15%? What does it look like if a key customer reduces orders? What does it look like if we aggressively pursue a new segment while competitors are distracted? Scenario planning isn't about being pessimistic. It's about building the organizational muscle to respond quickly — whatever direction things go.

Companies that do this well don't just survive disruption. They are positioned to accelerate when conditions shift in their favor, while slower-moving competitors are still figuring out what happened.

Use this Moment to Build Capability.

Rough seas create space that doesn't exist in calm ones. Vendors are more negotiable. Talent is more accessible. Customers who felt locked into relationships with larger competitors are suddenly open to conversations. Strategic acquisitions that looked too expensive 18 months ago may now be realistic.

But none of that opportunity is available to companies that are frozen.

This is also a powerful time to do the internal work that gets neglected when business is running fast. Clean up your processes. Get clear on which customers are actually profitable and which ones are consuming resources without real return. Invest in your management team. Build the bench that will allow you to grow without everything running through you.

These aren't just defensive moves. Each one increases the value of your business — whether you're planning to sell in three years or run it for twenty.



Decide to Go.

President Kennedy didn't announce the moon mission when conditions were ideal. He made the commitment when the path forward was anything but certain. What made it real wasn't the announcement — it was the daily discipline that followed. The processes, the people, the relentless focus on a goal that seemed audacious at the time.

The best companies I've worked with operate the same way. They don't wait for the environment to cooperate. They decide what they're building, and they go build it — adjusting course as needed but never stopping forward motion.

The seas are rough right now. That's not a reason to drop anchor.

The question isn't whether conditions are difficult. The question is: what business leaders are deciding to do about it?

 ________________________

 The Mead Consulting Group helps dozens of companies and organizations -like yours - every year with both scenario planning, strategic planning & execution, executive coaching, and preparing to maximize value in an exit. Clients that utilize these processes consistently outperform their competition.

 If you would like to discuss your situation, please contact me to set up a complimentary meeting. Dave Mead at (303)660-8135 or meaddp@meadconsultinggroup.com.

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Deciding to Go

[Editor's Note: The decision to become an extraordinary company is not coincidence or happenstance. Rather it is a conscious choice. Shouldn't you be great at what you do? Shouldn't you decide to become the company your customers can't live without? Some companies have remained defensive, chastened by the shock of the early pandemic months. I thought this article that I first published several years ago was appropriate for these times with Artemis in mid-mission -dpm]

Author and speaker Joe Calloway opens many of his presentations with a story from the movie Apollo 13: "The movie opens with a gathering of astronauts to watch Neal Armstrong who is about to become the first human being to walk on the moon. As we hear Armstrong's immortal words, 'One small step for man; one giant leap for mankind,' the mood becomes quiet, even reverential. ...Shortly after the broadcast, the party breaks up and everyone goes their separate ways, Jim Lovell, who is played by Tom Hanks, is alone with his wife, Marilyn in their backyard. Looking up at the moon, Lovell says, 'From now on, we live in a world where man has walked on the moon. It's not a miracle. We just decided to go."

Calloway makes the point that the first step that great companies make is the deliberate decision to pursue greatness. Many organizations talk about change. Sometimes companies will orchestrate management retreats, spending two or three days at some resort developing great ideas in a sea of flip chart paper and white boards. Six months later, everyone wonders, "What happened to those great ideas we had."

Strategic Planning without a "Decision to GO" is a waste of time

Decide to go... or go home. Strategic planning without a "decision to go" is a waste of time. You might think it peculiar that a company like ours would make such a statement. After all, The Mead Consulting Group helps companies develop and execute strategy. But, after more than 35 years helping companies, we have learned that it is the commitment to ACTION that determines success. "Deciding to go" is the biggest differentiator among companies.

What many people don't know (or likely are too young to remember) is that when President John F. Kennedy made the statement in May 1961 that the U.S. would put a man on the moon by the end of the decade, it was simply not another political speech. He rallied support in all sectors of government and the country. He helped us all see that this was a major commitment that was worthy of our time, resources, and commitment. He helped us "decide to go." You might say that President Kennedy created what Jim Collins ("Good to Great") calls a BHAG - a Big Hairy Audacious Goal. 

Processes Institutionalize commitment

Motivating the populace was just the start. We needed processes and plans to achieve such a feat. After all, at the time of Kennedy's statement, the U.S. space program had not even managed to orbit the earth. To speak of going to the moon struck some as an impossible task. It would have been an impossible task if significant changes were not put in place. NASA and the other key organizations worked together to put organizations, plans, people, and processes in place.

Research shows that not a day went by that at President Kennedy did not inquire about some facet of this commitment - notes to the Vice President about funding from Congress, encouraging commitment to math and science education, speeches to keep the issue in front of the American people - making us all feel proud to play a part in this journey. 

Along the way, it became OUR goal. It was the processes and daily commitment of many people - at all levels - that made it work. Kennedy was alive for only the first 1000 days of the journey. During that time he helped us make this BHAG ours. Then we took it the rest of the way.

Become the best at what you do

Organizations define themselves - set their own limits. Leadership helps paint the picture for greatness. It is too easy for small and mid-size companies to say that "we're only a small company" or "we sell undifferentiated, unglamorous products." With that attitude, why bother getting out of bed in the morning. A mentor of mine once told me, "There are no boring jobs, only boring people." What he meant was that people need to be inspired. If you have an undifferentiated product or service, whose fault is that? Do something to transform the customer experience. 

Develop a big goal. Then go make it happen. The successful companies are focused on the daily details to accomplish that big goal. Everyone wants to be part of something great.

Become the best at what you do - whatever it is. Make the Decision to Go!

Why Some Companies Grow — And Others Get Stuck

 

Over 40 years of consulting at The Mead Consulting Group with hundreds of private companies, I've seen a clear pattern: industry, size, and the economy aren't what determine success. The real difference comes down to how companies are led and built.  Here are 8 traits that separate growth companies from the rest:  1. Be clear: Lifestyle or Equity Value? Are you running the business for cash flow and personal flexibility — or building something with scalable, sellable value? Neither is wrong, but straddling both guarantees you'll underperform on each. See the article Which Do You Have – a Lifestyle Business or an Equity Value Business? It’s Important to Know the Difference  2. Empower your employees. Companies can't grow beyond a certain point if all real decisions stay with the owner. Growth companies build cultures where people can make decisions — and learn from mistakes.  3. Hire for the next level. Don't just hire for today's needs. Bring in talent that can manage 1–2 levels higher. Paying more for top talent more than pays for itself.  4. Develop flexible strategies you can execute well. Ditch the rigid annual plan. Some companies revisit strategy every 8–12 weeks. The best companies rehearse responses to multiple future scenarios through periodic scenario planning exercises.  5. Build an adaptable organization. Create a culture and leadership team that can react quickly and course-correct when the market shifts.  6. Focus on a superior customer experience. Call it "emotionally connected" clients or "under-promise, over-deliver." Growth companies build systems to wow the customer at every touchpoint.  7. Play offense, not defense. Years of cost-cutting creates a culture of "NO." Growth companies replace it with "HOW" - constantly testing new models, products, and projects.  8. Develop a Board of Advisors to help you think through key decisions.  The bottom line: Examine your company honestly. Are you living these traits — or just surviving?  ________________________    The Mead Consulting Group helps dozens of companies and organizations -like yours - every year with both strategic planning & execution, strategic business coaching, and preparing to maximize value in an exit. Clients that utilize these processes consistently outperform their competition.  If you would like to discuss your situation, please contact me to set up a complimentary meeting. Dave Mead at (303)660-8135 or meaddp@meadconsultinggroup.com.   Best regards, Dave Mead

Which Do You Have – a Lifestyle Business or an Equity Value Business?

 It’s Important to Know the Difference

In speaking to a group of business owners recently about defining their business vision, I suggested that they be clear about whether they want an "equity value business" or a "lifestyle business", because the way they approach building a business would be very different depending on how they will define success. 

 The Lifestyle Business. The term “lifestyle entrepreneur” was coined in 1987 by William Wetzel, a director emeritus of the Center for Venture Research at the University of New Hampshire. Mr. Wetzel was using it then to describe ventures unlikely to generate economic returns robust enough to interest outside investors. In financial jargon, “there's no upside potential for creating wealth," he explains.

 "Lifestyle ventures are usually ventures that are run by people who like being their own bosses," Wetzel says. "But they're in it for the income as well. Indeed, lifestyle entrepreneurs offer a different...view of success than those who are mainly focused on longer-term wealth accumulation.

 Lifestyle businesses are businesses that are set up and run by their founders primarily with the aim of sustaining a particular level of income and little more; or to provide a foundation from which to enjoy a particular lifestyle. Some types of enterprises are more accessible than others to the would-be lifestyle business person. Those requiring extensive capital are difficult to launch and sustain on a lifestyle basis; others such as small “creative” businesses are more practical for sole practitioners or small groups such as husband-and-wife teams.

 Lifestyle businesses typically have limited scalability and potential for growth. In conventional business terms, lifestyle businesses typically have limited scalability and potential for growth because such growth would impair the lifestyle for which their owner-managers set them up. However, a lifestyle business can and do win awards and provide satisfaction to its owners and customers. These are firms that depend heavily on founder skills, personality, energy, and contacts. Often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographic area, or simply to express themselves. But without the founder’s deep personal involvement, such businesses are likely to, well, founder. Professional investors therefore rarely get involved with lifestyle businesses. A lifestyle business is also one that can allow the owner to call his/her own shots and to move at his/her own pace. It’s a business that fits his/her current way of living rather than dictating how things ought to be done. For millions of people, these sorts of small ventures are an excellent way to “do what you love.”

 The Equity or Value Business. Equity can be defined as: A company's assets, less its liabilities, which are the property of the owner or shareholders.  Popularly, equities are stocks and shares which do not pay interest at fixed rates but pay dividends based on the company's performance. The value of equities tends to rise over the long term, but in the short term they are a risk investment because prices can fall as well as rise.

 An equity or value business is one where the owner intends to build real assets with a grow-able, tangible value that can be bought and sold - either as shares or the entire business. Success would be defined as the increase in value of the business over time. These businesses by definition will be built to succeed without the presence of the owner(s). In many cases, current lifestyle of the founder/owner is sacrificed in order to build significant long term value. In equity value businesses, owners focus more on building value as seen by potential buyers: sustained improvements in revenue/EBITDA, strong management team that can operate and grow the business without the owner’s constant involvement,

By contrast, a lifestyle business is one where the entrepreneur seeks to generate an "adequate" income while living where s/he wants, doing what s/he loves, or having the flexibility to be around when the kids or grandkids come home from school or take long weekends in the winter to go skiing. Success would be defined as an increase in satisfaction with one's life over time.

It’s imperative to decide which one you are. These are very different scenarios. "Equity value or lifestyle" is one of those fundamental decisions you should make early in your company’s history. If you're contemplating going into business with a partner, determine if you both would answer the same way. So why is it important to decide? Businesses that do not have a clear understanding of the type of business they want – and are prepared to suffer inferior returns. Going down a path that straddles both lifestyle and equity value camps is sure to generate both lower current cash (compensation for the owners) as well as lower growth and value potential (lower equity value). Consider one company with an innovative product in the education products space. The founder had a stated goal of building a value business. However, actions demonstrated to key employees and managers that the true motives of the founder were to facilitate lifestyle. A confused culture prevailed. Top employees and managers interested in growth left the company, leaving a cadre of lower performers, interested in maintaining the status quo. The company growth and profitability lagged and the company ceded its leadership position to more aggressive competitors. In the end this company accomplished neither growth in value nor an exceptional lifestyle for the owners.

 Be honest with yourself about your appetite for risk, your need for autonomy, your desire for current compensation. In the end, neither is good or bad. It's just, which one is for you?

 

The next selling cycle may be near

[Editor’s Note: The M&A market for lower middle market and middle market companies (under $250M in revenue) has been relatively stagnant for the past two years. With professionals expecting two to three rate cuts this year, plus the enormous amount of capital on the sidelines (both private equity and strategic), late 2026 and 2027 look very promising for well-prepared companies looking to go to market.              -dpm]

The exit sales process may take longer than you think. With credit markets still tight and many buyers sitting on the sidelines, it may seem counter-intuitive to be writing about preparing your company to be ready to sell. However, there are record levels of capital, sitting as dry powder, and interest rates are coming down. Many professionals believe the next major sales cycle will begin during 2026 and extend through 2027.

While some business owners may believe they can pull the string when they are ready to sell, the truth is, for many business owners, the exit sales cycle may take several years to execute. In order to sell at highest value, the process includes time to get ready, 1 year for the transaction, and then you may have to spend 3 years or more with the company after the sale.

Much of the preparation can be accomplished in advance. Companies can focus on making fundamental improvements to their business that will help them be healthier and more prepared than their competitors.

1. Focus on customer net profitability

2. Upgrade management

3. Cleanup business processes

4. Develop a strategic growth and execution plan

 Focus on customer net profitability. The tendency for many business owners is to cling to any customers and revenue no matter the profitability level. A common comment is that “at least they absorb overhead.” The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business’ ability to continue to grow. Additionally, removing unprofitable business adds to your EBITDA.

Upgrade management. While velocity is slow in the labor market today, there is a great supply of good talent stuck in their current companies. In many cases this may be talent that would not be available in better times. Take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance – the results make it very clear which ones have been a drag on the company.

Cleanup business processes. During boom times, some companies claim they are too busy to scrutinize business processes, to make improvements, and to streamline workflow in order to increase throughput. That “excuse” leads to suboptimal performance.

Develop a strategic growth and execution plan. You need a plan that will allow you to be agile enough to take advantage of opportunities and will be attractive to a prospective buyer.

Take a lesson from the Boy Scouts: Be prepared. These steps can add value to your business. Your business can accelerate faster and be well- positioned. Well-prepared businesses are always more attractive and sell first as the market heats up. Those businesses will find a hungry group of buyers and investors who have been sitting on their hands during 2023, 2024, and 2025.

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 The Mead Consulting Group helps dozens of companies and organizations -like yours - every year with both strategic planning & execution, strategic business coaching, and preparing to maximize value in an exit. Clients that utilize these processes consistently outperform their competition.

 If you would like to discuss your situation, please contact me to set up a complimentary meeting. Dave Mead at (303)660-8135 or meaddp@meadconsultinggroup.com.