redactedThis is an excerpt from the Selling Your Canadian Business expert interview series, where David Prowse of the Shaughnessy Group spoke with Joe Graci, Managing Director of the M&A Club in Ontario. A former business owner, Certified Exit Planning Adviser (CEPA) and member of the Exit Planning Institute in the U.S., Graci discusses business value, personal readiness and the preparation involved in an eventual exit. This interview has been edited for length and clarity. It is for educational purposes only and is not professional advice. Always consult qualified professionals. Prowse: Joe, tell us about your background and how you became involved in exit planning. Graci: I've run three businesses: a scale-up, a turnaround and a startup. I've been through the full cycle of business ownership, from buying into a business to exiting, a few times. I began thinking about what was next and how I could help other business owners. Exit planning requires a completely different skill set. I decided to focus my time on helping owners plan their exits while remaining involved in the M&A Club, a community that supports business owners. Prowse: We're both members of the Exit Planning Institute. What is its Value Acceleration Methodology, and how can a business owner use it? Graci: The Exit Planning Institute's Value Acceleration Methodology is a strategic business framework that integrates exit planning into daily operations. It focuses on rapidly maximizing a company's enterprise value — a metric that really matters but rarely gets measured. The methodology puts that into perspective while aligning the owner's business, personal and financial goals. Those form the three legs of the stool. Prowse: How can those three legs help improve an owner's chances of a successful exit? Graci: From a business perspective, you're trying to maximize transferable value while reducing risk. The operative word is transferable. If your business isn't transferable, there isn't a lot of value in it. That can be a learning curve for owners. The personal side is about planning for life after business. What are your goals? What will your day-to-day life look like? Selling a business brings a major shift, and you want to be prepared, both personally and as a family. What will fill your day and give you a sense of fulfillment? Finally, there's financial planning: your personal financial plan, estate planning, tax planning and wealth preservation. All of those affect life after the sale. The three legs organize an owner's focus around the exit journey. Prowse: In my experience, financial and tax planning are often addressed fairly well, but business readiness can be left until the last minute. Personal readiness is often overlooked entirely, and that can cause problems during a sale. An owner may not have fully considered the exit options or what it would mean to sell to a competitor. That's why I find the three-part methodology so sensible. Graci: Absolutely. Personal readiness and the mental preparation required to enter that process are important pieces. Prowse: Why do some owners fail to achieve their goals when exiting their business? Graci: The most obvious reason is not planning early enough. It takes two to five years to prepare a business for an optimal exit. There may be things to address to make the business transferable and marketable, and those changes can take multiple years. That could change your business strategy altogether. You want to build in the direction of an exit, so it's a constantly evolving process. Another reason is deferring the discussion until an adverse event or an unsolicited offer puts the owner on the defensive. You need time to prepare mentally and to approach the business side in a thoughtful, structured way. Without that preparation, you limit your options and your ability to find the right buyer. Prowse: I tend to find the optimal planning window is three to five years ahead. What are your thoughts? Graci: I see exit planning as part of business planning. If you incorporate it into that process, you're already ahead of the curve. You're also de-stigmatizing the concept of an exit or transition for yourself and your management team. There are teachable moments in those conversations. One underrated aspect is how engaged management teams can become when you introduce exit planning as part of business planning. Prowse: What can an owner start doing today to improve the business's valuation and chances of a successful exit? Graci: First, get a valuation of your business. Understand the levers that drive its value. They may not be what you think. Revenue and bottom-line profit are only part of the picture. Second, identify the risks buyers would perceive. The operative term is perceived risk. You may not consider something a risk, but a buyer might. Look at the business from that perspective. Third, build in the direction of an exit. You want to be attractive to the widest possible pool of buyers, including strategic buyers, private equity buyers, financial buyers and competitors. Embedding exit planning in your business planning is important to that. Prowse: A valuation can be a wake-up call. Many owners have what we call a golf club valuation: someone at the golf club says they received seven times something, but we don't know what that something is. Even if that multiple was justified, it may have nothing to do with another owner's business. A valuation establishes where you are today and provides a framework for thinking about where you want your enterprise value to be. Graci: In my experience, unrealistic valuations are driven by three things: emotions, ego, and lifestyle needs, rather than market data. Without enough planning and understanding of how valuations work, those factors can become the owner's central focus and undermine the process. Prowse: We've both seen owners try unsuccessfully to sell. Some keep operating, while others liquidate and close. What are the biggest obstacles? Graci: Unrealistic valuations are one obstacle. Expectations need to reflect what the market is willing to pay, not emotions, ego or lifestyle needs. According to the Exit Planning Institute, 70 to 80 per cent of businesses put on the market fail to sell. High owner dependency is one reason. That's an area I specialize in through my private practice in exit planning and scale-up growth planning. It's also covered in Chapter 9 of Selling Your Canadian Business. Another obstacle is failing due diligence. Receiving an offer or a letter of intent can be exciting, but owners can underestimate how much due diligence buyers conduct. Having gone through an exit myself, I've found the scrutiny is greater than before. Buyers look at concentration risks, internal processes, dependency risks and financial risks. They may like the business and its owner, but the deal may not pass due diligence. Finally, there's cold feet. Owners need to prepare mentally for a process that can be exhausting. Graci: If you're an owner-operator putting 110 per cent of your time into running the business, you need to free up at least 30 to 40 per cent of your capacity for the exit process and its preparation. It's taxing and can be frustrating. Exhaustion can lead to cold feet, and suddenly the deal is no longer on the table. Prowse: That brings us back to personal readiness. Selling a business is an emotional process. If issues haven't been addressed during planning, the pressure of a sale can become too much. That's where a lot of deals fall apart. Graci: Has the exit been properly discussed within your family? Being mentally prepared yourself is one thing, but is your family prepared? What will life after the exit look like for them? We're doing this for our families, too, and they're part of the process. Discussing it with your spouse or partner, children and whoever else is important in your life is critical. Prowse: In my experience, there are more buyers than ever, and they're more sophisticated. Private equity firms, family offices and search funds place considerable importance on due diligence, so the process is getting tougher. If you aren't ready, buyers may walk away or try to renegotiate the price downward. Graci: Absolutely. Prowse: You're managing director of the M&A Club in Ontario. What is the M&A Club, and what does it aim to achieve? Graci: The M&A Club is a national organization with 3,000 members and 16 chapters across Canada. Our role is twofold: to educate the network on topics relevant to mergers and acquisitions, and to build strong relationships so service providers can bring the right people into a transaction. The network includes investment bankers, lawyers, lenders, private equity participants, insurance professionals, tax professionals, valuators and wealth planners — people involved throughout the transaction ecosystem. We aim to maintain a diverse network. We also encourage owners who are actively selling or buying a business to get involved. It's a way to meet service providers who specialize in supporting deals, build relationships and learn. Prowse: I've seen buyers attend M&A Club meetings, and we're actively involved ourselves. It's a valuable networking group, and I hope it continues to grow. Thank you, Joe, for sharing your insights into exit planning and the need for a structured approach. redacted