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Mastering Succession Planning: Key Insights from Dr Craig West


Mastering Succession Planning: Key Insights from Dr Craig West

By , October 27, 2023
Craig West Quote



In this episode, we discuss succession planning and business exit strategies. Our special guest, Dr Craig West, the founder of Succession Plus and Capitaliz, is here to share his invaluable insights and expertise on how business owners can create a successful transition plan for their businesses.

Dr Craig West, with a background in accounting and over 25 years of experience working with business owners, is a true expert in the field of succession planning. He has helped over 800 business owners navigate the complex process of preparing their businesses for a successful transition. Craig’s commitment to helping business owners achieve their desired outcomes sets him apart in the industry, making him a sought-after advisor.

Succession planning is a critical aspect of any business, ensuring its sustainability and continuation beyond the current owner’s tenure. A well-executed strategy provides peace of mind, knowing that the business can thrive in its next chapter. Yet, many businesses face challenges when it comes to succession planning, from identifying the right successor to managing a smooth transition.

In our conversation with Craig, he emphasises that exit planning is about more than just retirement; it’s about ensuring a sustainable future for the company. One key takeaway is the importance of building a strong team and delegating responsibilities effectively, allowing business owners to focus on strategic matters.

Regardless of your business type or industry, there are essential steps to prepare for a business exit, including evaluating the company’s value, identifying potential successors, and planning for the transition process. Craig also shares his experience with Capitalize, an exit tool that offers a proven methodology based on five stages and twenty-one steps, providing a roadmap and confidence to business owners.

One common pitfall business owners face is procrastinating on exit planning, leading to rushed decisions and overlooked details. Craig stresses the importance of starting the process early, allowing ample time to evaluate the business and plan for the transition. On average, it takes three to five years to prepare for a successful exit.

Succession planning is vital for business owners looking for a seamless transition. By implementing the insights from this episode, you can develop a clear succession plan that will help you achieve your desired results. Identifying potential successors, creating a development plan, and communicating the plan with stakeholders are all essential steps for a successful transition.

Watch the episode here:

Welcome to the podcast that’s dedicated to helping business owners exit like a boss. This is the Exit Insights podcast presented by Succession Plus and today I’ve got a really special guest with me. I’ve got Craig West. Craig’s, the Founder of Succession Plus and also Capitaliz. Look, I don’t know why we haven’t had Craig on the podcast before, but welcome to the show, Craig.

Thanks for having me. Good to be here.

Yeah, well, I guess we had to get a few episodes under the belt and get some traction before we get the master of succession planning and exit planning on the show. But I don’t want to build you up too much. We don’t want you getting a big head now, do we?


Craig, as the founder of Succession Plus, you’ve developed and you’ve written a couple of books and you’ve got some expertise and built some ESOP platforms that are used widely around the world. But today what I want to talk to you about is, I guess, the platform that you’ve built that pulls everything together that you’ve built over the years, and that platform is called Capitaliz. Why don’t you give us a little bit of background about what Capitaliz. is and how it came about. And then what I really want to dig into is from a business owner’s perspective, when they’re preparing their business to be exit ready so they can exit like a boss, why do they want their advisors to be using Capitaliz when working with them? So there’s where we want to go with the episode, but if we just start with some background first.

Yeah, look. My background is in accounting. I don’t do it anymore and I don’t really miss it. I don’t even do my own accounting. But I worked with a lot of clients, all business owners. My practice was almost entirely business owners. And as they got older or as they decided to make changes, they needed a way to get out of the business. And what I heard almost every single time, and don’t forget, this is more than 25 years ago now, but people were coming to me saying things like, I’m stuck. I’m not sure how to get out. I don’t know what to do about this thing I’ve created called a business. And the key word was stuck. People just didn’t know how to get out. They wanted to get out maybe because they wanted to do something else, maybe because they wanted to retire. Maybe they’d turned 75 and wanted to have a break because they were tired. It didn’t really matter. What they almost all had was this feeling of, I don’t know what to do. And I think it’s because exiting a business is much, much more complicated, time consuming and error prone than, say, selling your house. Everybody’s or most people have bought and sold a house. You get an agent, you pick the one you like, you talk to three of them. They give you an appraisal. You go, yeah, I like that guy or that girl. She’s got a good reputation in the area. I’ll go with them. The process is fixed. You sell the house, done. Business doesn’t work like that. And there’s no easy road, there’s no easy agent. There are some business brokers around. Some of them are fantastic, some of them are absolutely bloody terrible. So it’s just this ongoing fear. And I think it’s made much more complicated because it’s very emotional for most owners, particularly back then, I was dealing with mainly baby boomers, and we still do to a certain extent. And most of those people have spent 10, 20, 30 in one case. I’m working with a client at the moment, 55 years founding, running up that business. Now, that’s all he knows. So the actual decision for him to go, yeah, I’m going to exit is quite a big issue. So that led me to sort of say, you know what, the accounting needs to be done and it’s important someone can do that. I want to focus on this exit side. What is this? And so I did a bit of research. I read everything I could find. Not that easy to do back then. Not as easy as is today. I ended up finding the exit planning institute in the United States. I went and did their CPA course, certified Exit Planning Advisor, got on with the guys, found out everything I could about the whole issue of exit planning. And actually, on the way back in the plane, I actually wrote the outline for the first book, which was actually called Planning Your Getaway How to Get Away From Your Business because Everyone Wanted to Get out or Get unstuck. And so there were nine steps towards preparing you, your finances and the business for an exit. Now, go forward 25 years, that process, that outline, hasn’t actually changed, except that now there’s five stages of value, 21- steps. There’s a really refined process and a system, if you like, that we’ve developed over time. We’ve now worked with 800, OD business owners since that day in succession, plus which started in 2009. That’s nearly 15 years ago. We’ve worked with all those owners and we’ve refined the process, worked out what they need, and ultimately long way to answer your question, Darryl. We’ve built a software package that embodies all of that IP, and that’s what Capitaliz is. And the idea behind that was, and I think I might have shared this story several times, but it’s well worth telling. I’ve been involved in several quite successful exits, and those successful exits for me were very rewarding professionally. So I looked at it and thought, I’ve done a good job here. The clients got a great result. In one case, one of my clients donated $5 million to charity and sent me a copy of the receipt with a card saying thank you. Wouldn’t have been able to do this without you, because we sold the business for far more than what it was originally expected. Others have made life changing sort of decisions for their family, made investments, done all sorts of things for charity and so on. And I just thought, you know what, I want to do a lot more of this. And so in the early days, that was Succession Plus, which is a consulting firm, but now when you look at Succession Plus, doesn’t matter how big that gets or how many people we help, and we will continue to do that, obviously, because I love doing it and so do the people that are working with me. But I think there’s an opportunity to be much bigger than that. And the way to be much bigger than that today is scale through some sort of software platform where if I want to help as many people as possible exit and I’m talking about business owners exit, the best way to do that is give as many advisors as possible the best possible tools to help them do that, and hence Capitaliz.

Right. Before we dig into Capitaliz, you dropped something into there that well, you dropped a lot of pearls into there. But might I want to pick up on you said you want to help as many business owners as you can achieve a successful exit. So what’s a successful exit? Because every business owner is going to exit their business one way or another, sooner or later.

Correct. And look, there’s a lot of research around this that more than half of them don’t successfully exit. They actually exit through some sort of failure. So that could be the five death, divorce, disability disputes, all those sorts of things. But it could also just be. I literally spoke to someone today here in Sydney who’s got a very successful business and said, I’m just going to give it away, I’m going to walk away. And I said, Why would you do that? I don’t know. It’s a lot of bloody work. I spoke to a broker, needs all this stuff. I don’t know if I could be bothered. What’s changed? And it’s really interesting, I think, because successful exit to me is actually what’s successful for the owner. So for some owners, and it used to be the case 25 years ago, it was nearly always, I need to sell this for $5 million to fund my retirement because I owe the bank, I don’t know, a million dollars on my mortgage and we got a business overdraft. I pay all that out, I get left with $3 million, I pay some tax, I can happily fund retirement for my wife and I, and we’ll go and do what we want to do. That’s changed a lot. So that was success to that person back then. Other people have said to me, I want to exit and make sure the business continues on and my kids run it for the next 25 years because I’ve done really well out of it and I’ve enjoyed it. They grew up working in it. I want to hand it over to them so they can take it. Now, that’s a successful exit as well, but it’s completely different to the first example. And others have had different types of exits now, where I think certainly worldwide, in most countries, most of the baby boomer generation are actually already quite wealthy. So one of the things that I sort of looked at when I did my doctoral thesis was the difference between a financial harvest as an exit, as in I need $5 million to retire and some sort of legacy or stewardship exit, which is more likely to be I want to look after my employees. I want to make sure the guy in the state next to me that I bought my Widgets from from the last 25 years is successful as well. I don’t want him burnt when I sell the business. I want to look after my kids or I want to make sure that my customers that I’ve known for 25 years get looked after. So that difference really changes what the definition of success is. But to me, it’s always about and the first step in our 21- step process is called goals and outcomes, and it’s actually the owner’s outcome. What is it you actually want to do? What does success look like to you? Because for some, it’s money, for others, it’s family and passing on. For others, it might be their employees or other stakeholders. So you’ve got to make sure that the exit strategy you’re designing and implementing actually meets that criteria for success, because otherwise it’s not what you call a successful exit, in my view.

Yeah. And it’s interesting, isn’t it? We can never assume because success is always a combination of those competing tensions of leaving a legacy and on the other hand, maximising valuation and getting the most from their life’s work that way. But getting your most from your life’s work is that knowledge that you’re leaving a legacy or knowing that you’re going to have enough in the bank account to fund life after work, whether that be pension, super, 401, whatever it is business owners do want to live, there’s a life after work.

And interestingly, there are now lots of different strategies around how you can get the best of both. So can you get a financial harvest and a legacy exit? And the answer is yes, you can. But the important point is it takes longer. There’s a bit more work involved and there’s a bit more to do in terms of preparation, because it’s not something you’re going to do in six weeks, six months or probably even six years. It’s a long term plan to get that kind of successful exit. Yeah.

Okay, so Capitaliz. So you built succession plus over a number of years. You’ve talked about the 21- steps and we’ve referenced the 21-steps and the five stages in the podcast before the 21- steps are all the sort of things well, in your own words, what are the 21- steps?

I think what I’ve done is basically discovered all of the pieces that need to fit together to build to a successful exit, so they cover off on the business itself. So what does the business need to look like? What preparation needs to be done, what structures need to be in place, what does management need to look like? What do the financials need to look like? The actual owners need their own sort of exit strategy. So we talk about things like shareholders agreements and unplanned events and what happens if you get hit by a bus and what does your personal financial position look like outside the business. And then of course, the owner themselves need to have that successful outcome. Now, that might be I want to retire and go and buy a farm or go and live on the beach or go and sail yachts or play golf. But it might also be I want to sell this business so I can go and invest in a new thing or set up a business with my kids or whatever it might be, or become just a professional investor. Now, all those things require preparation. So that 21- step process has been designed to make sure nothing gets missed. And having worked with so many clients over the years, as I said, it started with nine steps and then we added I think we went 9,15, 21 because we just realised there were bits and pieces that needed to be added in. Not all of them that we do, by the way. Often we’re referring some of that work out and saying, look, you really need to get, for example, taxation sorted. Now, if you’re not a taxation accountant, as an advisor, you’re not going to do that. But the owner has to have that sorted. If they don’t have that sorted, that can create major problems. So therefore it sits in that process as one of those 21- steps to make sure everything gets done. And the simple idea I had was, and I’m not trying to be derogatory, but it’s like an idiot’s guide, if you go from step one to step 21, you will successfully exit, I have no doubt. But if you missed five steps in the middle, you may well have a problem. So that’s why I designed it as a really I found that talking to owners, they’re smart people, they’re good at what they do, they don’t know how to exit. It’s the same as I’m not an engineer, so I wouldn’t know how to build a bridge. But if someone said, well, there’s 21 steps in this process and step one is this, and if you need help, you can get this person to help you. And in step four, it’s a different step, and you might need this person to help you instead. Then it’s something that people can follow, understand, and ultimately, and this is where Capitaliz starts to come in, we can provide almost a checklist to say, okay, if you’ve gone from one to 21 successfully through that process, you’re good to go.

Okay, so you’ve done this with succession plus for a number of years. I think you’ve mentioned that as a business, Succession Plus, and obviously I head up succession plus in the UK. But Succession Plus is a consulting business, and historically the consultants in succession plus have used these 21- steps, and all the tools behind the 21- steps to consult and lead and guide and project management and exit plan with their clients as business owners.

Now we’ve got Capitaliz.

What’s the advantage to the client of their advisor using Capitaliz now, and who has access to Capitaliz?

Well, I think there’s a couple of key things. The first big one is it’s got proven methodology, 21- steps, five stages. We already talked about that. So that’s sort of given that’s the whole thing the platform is based on. So we’ve sort of tested the IP over the years. We’ve got it right here it is in a software platform. The big advantage, I think, for clients is probably a couple of key areas. The first one is the collaboration piece. So I don’t think anyone, no matter how experienced or how good or how well qualified or expert they are in exit or succession planning, can do a plan on their own. I’ve done heaps of them, but never on my own. I need an accountant, I need a tax lawyer, I need a financial advisor, I need a wealth manager, I need a banker, I might need a sales and marketing person, I might need all sorts of different expertise, certainly lawyers, for example. Now, the biggest problem that business owners have, and this goes way back to my days as an accountant in public practice, the biggest complaint that business owners had was the advice I get is not coordinated. I’m getting told A, B, and C, and I don’t know which one to do. And if I’m an owner and I’m getting told you can do a, B, or C, what I do is nothing because I don’t know which one’s correct. So I’m actually paralysed by the fact that the lawyer says A, the accountant says B, my business coach says C, and I go, well, I’m not doing anything because it’s all too hard. So the first benefit is really if all the advisors are collaborating using the same tool with the same 21- step process, seeing everything that’s going on, the owner is getting all that coordinated. So the owner knows that the lawyer sees what the accountant’s doing, the accountant sees what the exit advisor is doing. It’s all coordinated. And that gives owners, I think, a great sense of confidence and comfort that everybody knows what’s going on. They’re all on the same page. If the accountant’s doing something the lawyer doesn’t agree with, we can have that conversation, find out the best solution and get on with it, rather than sitting there going, well, I don’t know, who knows what and what’s happening and where we at. So the collaboration piece is important and then I think the other piece that’s really important. And certainly, and I’m sure it’s universal around the world, but certainly in Australia, every single homeowner in Australia knows exactly what their home is worth. If you go to a barbecue in Australia this Saturday, I can guarantee you somebody at that barbecue will say something like, did you see that house up the road last Thursday, sold for $1.68 million? And then they’ll have a conversation about, yeah, but it’s only got two bathrooms, there’s no on suite. The one up the road that sold for 1.9 had a pool. And they will have a very confident and well informed conversation about exactly what that house is worth and why. The problem is, businesses don’t look like that. You can’t look at a business and say it’s got three bedrooms, two bathrooms and a pool, therefore it should be worth 1.75 million. It’s never that easy. And so most business owners don’t know the value of their business. So one of the key things in Capitaliz is this dashboard, where the first thing you get is evaluation. What is my business worth today? And for some owners, that’s a bit of a shock, bit of a disappointment. Maybe it’s a bit of excitement if it’s higher than they thought, but often it’s not. Often I thought it was worth five and you’re telling me it’s only worth three and a half. The key thing, then is not just to say it’s worth three and a half, but to say, Why? Why would it not be worth five? Well, there’s these four things that are actually critical to valuation that you haven’t got. Maybe it’s because the business is all dependent on you. Maybe there’s no management structure, maybe you haven’t got a marketing and sales system, so you’re the person delivering all the revenue, whatever it might be. The business owner doesn’t really know that they’ve been so busy running the business day to day, doing what they have to do to make a living, they haven’t had time to look at that. So now what we’re saying with Capitaliz is one of the most important things to understand is, what have you actually got? What is this asset worth? We’re going to treat the business like your house or your investment property or any other financial asset, what’s it worth? Secondly, what Capitaliz allows us to do through our value potential model, is work out what it could be worth. So even though your business might be worth 3.5 today, it could be worth six. Now, the obvious question to ask then is, what’s the difference? How do I go from 3.5 to six. I’ve never met anyone that says, don’t worry about six, just let’s do the 3.5. Unless they’ve got a very urgent problem. Every business owners, by definition, by nature, they’re entrepreneurial, they’re risk takers and they’ll look at that and say, right, show me how to get the six. In fact, why isn’t that six? Seven, actually. So what they want to know is what’s it worth today and why? What’s driving that value both good and bad? And then what do I need to do to get it to that six? Now, if that six is what I need to retire, that’s even more important to them because I can’t retire till I get there. So what Capitaliz does is shows you what the business is worth today and why, what the key drivers are that will actually get you from 3.5 to six and then working closely with that collaborative advice group that I spoke about before, to actually make that happen, to actually deliver for you that outcome. And the good thing is, the software and the dashboard system now allows you to track that in real time. So you can see as the business changes, as our profit goes up or down, as the economy changes, because all these things have an impact on valuation, interest rates, inflation, all actually impact the cost of capital and therefore our valuation. So when interest rates go up in the UK, that affects the price of privately held businesses. And owners don’t often understand that dynamic. So what this does is allows them to see quite transparently, where am I at? Am I on track for $6 million? Or am I going to have to spend more time, more money, more investment, whatever it might be, to get there?

Yeah, the other beauty of it is, I think, is when business owners know their valuation, from a buyer’s perspective, they can make more informed decisions. Absolutely. Worth three today and it could be worth six, but in their mind, they want to sell it for ten. Then you’ve either got a reality check and go, look, you need to make some planning elsewhere or you need to reset your expectations, it’s going to take longer. Or you need to change your risk profile and take some bigger steps. Or maybe you acquire something as part of your strategy, but you’ve now got a conversation based on as close as you can to facts of what the likelihood is of them being able to achieve their goals and dreams. But now it’s no longer a hope strategy. I hope that someday someone’s going to come and offer me ten, because that’s unlikely.


You can prepare and get everything in your power to proactively increase the ODS of that happening. And when they do come and start looking at your business and sniffing around, they don’t get runaway scared because everything’s in order.

And I think the key thing there is, if you think about it, literally, there’s probably 100 things you could do to take the value of your business from 3.5 to 6 million. Well, no one can do 100 things. So what the owner needs to know is which ten should I actually focus on? Because there’s actually 120 of them, are a complete waste of time, effort and money and will never do anything to your valuation. There’s 50 or 60 in the middle that will do something, but not a lot. It might make a slight difference. And then you find there’s ten, maybe 15 at the top that will really impact the valuation. And what the Capitaliz system does is identifies what they are, puts them in order of priority, I e. The 21- steps and then helps you implement them so you can get to that target.

Yeah. So given that this is an online platform that the advisors collaboratively work with the client, the client can see the progress along the way, or progress along the way. They can see the impact of the valuation increasing. I think you talked about the valuation potential. So they can see, as they progress through implementing these various initiatives in their business, they can see the immediate live impact on their business, so they can feel good about their work they’re doing in developing their business and getting exit ready and getting it closer. What about buyers? How do they treat the platform? When they come and see a business owner that’s gone through this process, or is going through this process and they’ve got all their information already stored electronically, it sounds like it’s halfway through a data room. What’s the feedback there

It is. Where I’d like to get to, and we’re not there yet, but where I’d like to get to is that this is the accepted normal valuation and assessment process for a privately owned company anywhere in the world, whether you’re looking to buy it, lend money to it, invest in it, or own it. What I want to happen is, if you ever go to a knee surge and they’re going to look at operating on your knee, they won’t even talk to you unless you’ve got an MRI. What I want is to get to a point where a business buyer, a banker, an investor, a private equity firm says, I’m happy to look at your business, but give me the Capitaliz Business Insights Report, then we’ll talk. Now, we’re not there yet, clearly, but ultimately we need to have a mechanism where it’s accepted and widely recognised that this is the way to measure valuing businesses. Because when we get to that, then the owner has some comfort because it’s a very difficult, emotional and traumatic experience for most owners to go through a sale because it’s a fierce negotiation. But if the buyer and the seller both have an Insights Report that says it’s worth $6 million, we’re going to end up pretty close to six. And that takes a lot of the friction out of it, but it also gives the buyer the opportunity to look at it and say, well, I can see it’s worth six today, but I can also see how I can get it to eight, and I’m happy to put the money in or the time in or whatever. I’m 45, you’re 75, I got a lot more energy than you. I’ll go and buy the business and I’ll take it from six to eight, because I can see how we can do that. And the Capitaliz model, ultimately, if we can get it to that point, will then become the sort of benchmark standard. It’s a bit like credit report for an individual. If you’re going to borrow a home loan, the bank won’t do anything till they see your credit report. What we want is the Capitaliz Insights Report to be the same thing. No one will buy your business or lend money to it till they see that report. Then we know exactly what we’re dealing with.

That’s a big vision.

Yeah, absolutely. I’m only 55, I got plenty of time.

No worries. So we’ve got the Capitaliz. So from the business owner’s perspective, does this take more time or less time? From their perspective, what’s required as a business owner when they’re working with an advisor using the platform? Because the business owner can’t access Capitaliz on their own, they can’t just go to.

No, it has to be intermediated through an advisor. But we’ve done that on purpose to make it easier for the advisor firstly, but that also makes it easier for the client if everything’s manual and you’ve got documents everywhere and you got different systems, and that’s the way people have typically done it. I mean, I’ve seen business valuations done with an Excel spreadsheet. You sort of think, jeez, I hope there’s no error in one of those cells, otherwise we’ve got a big problem. So you sort of want to have that streamlined approach. It’s like the go to place. I actually told an owner the other day you should put in your diary every Friday from nine till twelve succession. And actually what you should do is log into Capitaliz, go and have a look where’s the advisor up to, what projects are happening in the background, what do I need to do? Is anyone asking me for information or is there some project that I know is coming up? Because I’m now up to step twelve and I know what step twelve is, and I can see it in the software. Let me go and start working on that. And I actually challenged them and said, I’ll bet you if you do that for the next three months, your valuation will improve, because all you’re focusing on is doing that only 3 hours a week. But it’s a focus time, and most business owners don’t do that. And I think Capitaliz has the ability to allow them to actually focus, because it’s all right to put 3. Hours in your diary. But what do you do? Where do I start?


So get into Capitaliz, find out what tasks are there, find out what the advisor is doing. How do I help accelerate this process? And keep things moving will ultimately get you closer to the goal.

Okay, so if we’ve got a business owner who’s proactive, they’re jumping onto the platform weekly, spending a bit of time thinking, learning, growing. They’re bringing the new skills into their business. They’re leaning on their advisor and the network. How long does it take to get a business from that? Just in the example we’ve been using, that three and a half to six mil valuation.  What’s your average time period?

I think on average it’s going to take three to five years to get a business successfully through the process to exit. We’ve done them in two years. I’ve also done them in ten years where all sorts of things were happening on the way through. I think the reality is this is not a process where you can stop and just focus on this. The business still got to run. It’s still got to service customers. I spoke to someone the other day and said, this is not like renovating your bathroom. You don’t use the second bathroom for three months while the guys come in and fix it. You just use the other. I said, you can’t do that. Customers aren’t going to wait. You’ve still got employees, you’ve still got to pay your bills, you’ve still got to do everything else and do this on top. So don’t rush it. There’s no way you can start this too early. The earlier you start thinking about this, the better. And in every client I’ve ever worked with, the longer people spend preparing for this, the better outcome they get. And that’s not rocket science, that’s with anything. If you want to run a marathon and you want to do it next Saturday, you’re going to have a problem. Unless you’ve been running a lot. If you’re going to run a marathon in two years time, most people could probably get to that because there’s a training program they can do all the way leading up to it. But you can’t start this week and expect to run it next Saturday. It’s not going to happen.

Well, it’s the old begin with the end in mind and plan and plan to fail and get there. So we get a business, we work with them for two years, they start getting into shape, they’re exit ready.  And just because they’re ready for exit doesn’t mean they have to exit, does it? They’re now running a business that’s more profitable, more enjoyable to be in, probably less stressful. Half the time business owners start the process and think, I just need to get out of this business because I’ve had enough. It’s just way too stressful. I need to get out. I’ll even give it away. I’ve heard them say, but then they’ll go through this process and, hang on, I’m enjoying this still. I’ve fallen back in love with the business. Maybe I’ll hang around a bit longer and enjoy the last couple of years.

Yeah. And look, I mean, some of the best meetings I’ve ever had are actually and not for the client, but for me. Client was quite stressed about having the meeting and called me and I went up to I’ll never forget, went up to Newcastle. Not your Newcastle in the UK. Newcastle here in Australia? Went up there and the owner sat me down and I walked into the room and I just knew, I actually thought someone had died or something, like I was getting ready for some serious bad news. These people looked devastated and they just said to me, Craig, we’re so sorry. I said, what’s the matter? What’s happened? And I’ll never forget, the lady said to me, We’ve decided not to sell. And I just went, Cool. That’s awesome. Tell me why. Well, we’re working 25 hours a week, not 65. We’re making more money, we’ve got a general manager running the place, our four key employees have got equity and we’re not stressed about it anymore, so we’re going to keep it. And I said, that’s a great outcome. Now, they were thinking I was about to go, oh, my God. But that’s actually a successful exit for me, because we’ve transferred what used to be a stressful, financially struggling business into something that’s now an asset that those people can keep. Now, actually, that’s a story that probably happened in 2015. We’re actually in the process of exiting that business now. Right now, Succession Plus here in Australia is actually selling that very same company eight years later, but not because of the same reasons. Now they’re saying, we want to go and travel around Australia, we’ve made plenty of money, it’s a great business, let’s go. So it’s different reason, different success story. But it’s interesting that when you get the structure in place and you go through the process, one of the successful outcomes is actually, I no longer need to sell it. And that’s a good outcome. That’s success. For me, it’s not really an exit because you’re staying, but it sort of is. You’re exiting that old stressful business and entering a new, properly managed, good exit. Planning and 21- steps and so on is actually just good business strategy. So if you do all that, you’ve then got a good business that’s a good asset to hang on to.

It’s pretty much an operational exit, not an equity exit.

Correct? Yeah, correct.

So let’s talk about one more. There’s a couple of things, and I know we’re pressed for time, but a couple of things I want to explore. You mentioned early on in our conversation around valuations and different people who can prepare a valuation for you. And I know there’s a lot of, let’s say, noise around the marketplace around the different types of valuations and how a business is valued from a tax valuation and to people preparing valuations that are just totally unrealistic and miles off reality. How does Capitaliz prepare a valuation? What sort of methodology? What’s the thinking? Where does it sit in that spectrum?

Yeah, I think one of the big things that I think is different is we’ve spent a lot of time developing the non- financial metrics that drive valuation. So a lot of people talk about valuation. I’ve actually heard someone say, Give me your last two years profit and I’ll tell you exactly what this is worth. I said that’s absolute rubbish. That’s completely irrelevant, because the reality is, two businesses, side by side, they both make a million dollars net profit, are not worth the same amount of money unless they operate the same way. Now, what does that mean? Well, where do the customers come from? Who drives the sales? How risky is that revenue? What does it look like in terms of delivery, factory production? What’s the financial outcome look like? All those factors, clients that have got recurring revenue, for example, if that million dollars profit is contracted, recurring revenue year on year, that’s a very different model to someone that’s got to go and make a new sale every week to get to a million dollars profit. So one of the things Capitaliz has done is our algorithm allows us to look at about 150 non-financial metrics, and they would be questions like, to the owner, do you have a board of directors? Is there an independent director on your board? How often does your board meet? Is there a board reporting pack and minutes prepared after every meeting? Now, all those things are little factors, but what we know is that has a direct effect on risk, and a direct effect on risk has an effect on valuation. So our actual model is fairly standard. There’s nothing unusual about the model itself. What is very unusual is that those non-financial metrics make up about 50% of the drivers of the valuation. And interestingly, that’s the important bit most owners don’t get. Most owners will tell you that if they want to grow the value of the business, they will say, I need to grow my profit. That’s partly true. Higher profits will generally get a better valuation. But there’s so many other factors that can be ignored if that’s all you focus on. So the first thing about the Capitaliz valuation method is we’ve got a whole algorithm around that non-financial data, and as you know from using it, that will automatically calculate for you all of the risk factors. 150 OD inputs coming down to sort of 18 key risk factors to work out what your cost of capital is. Now, after that, it’s very similar. It’s a mathematical exercise to work out your maintainable earnings and what’s your cost of capital and therefore, what’s the capitalisation rate that part is fairly standard and it has to be, because that’s got to be accepted by everyone that uses it. If we had some weird and wonderful method that no one had ever heard of, no one’s going to ever adopt it, so we have to have that. But the non-financial input is quite a unique differentiator. Not many people have got that.

So we’re using a non-financial input. The Capitaliz platform prepares a valuation, it uses some standard methodologies. Have you got enough data to go? Because the word in the street is a business is worth what someone’s going to pay for it.

But a business complete rubbish.

Business owner needs to have some expectations around so they can do some planning and reality around what they’re going to get and do their planning around that. Have we got any information that sort of correlates between what the valuation that Capitaliz putting on a business and for those that have actually sold, how closely they correlate to the actual number they sell for?

Yeah, and there’s a really close correlation. I mean, there’s a whole stack of factors that go into that around who sells it and who buys it and how they do it and funding and finance and all of that. That affects the value in the transaction. But, yeah, we have a very close correlation to the market and we do a lot of benchmarking work. So we’re actually mapping these data points against industry averages. We’ve just done a major benchmarking exercise here in Australia with a large bank, fifth largest bank in Australia, Macquarie Bank, very focused on professional services. So we’ve just done a benchmarking exercise for them, for architects, engineers, surveyors, all in built environment. And one of the things that we’ve been able to do with Capitaliz is actually highlight for them what are the key profit drivers for businesses in those sector? So instead of just saying you need more fees, higher utilisation rate, et cetera, one of the things we found was, for example, firms in the top 20% of profit in architecture have a ratio of about 3.5 to ten in admin people. Now, guess what? People that are in the bottom 10% of profitability have less than half that. So the very simple conclusion from that, out of all the data, is you want to make more money, get your architects to do architecture and get your admin people to do all their admin. Don’t have architects, highly paid, expensive, well qualified resources sitting there doing admin work. Now, when you say it like that, it sounds really simple. But what business owners need, particularly engineers and architects, numbers, data, facts. Now, we can say to them, the top 20% of firms average 3.5 admin people, the bottom average 1.7. Do the math, get more admin people, your profit will go up. Now, that kind of data, that kind of predictive intelligence, using the data, we’ve got to predict what it is that people need to do to improve their performance. That’s the underlying value of the platform, because you can’t do that without having that metric around. How many people are an admin? How many people are fee earners. Now, most valuation platforms won’t have that data to actually make that comparison.


Brilliant. So we’ve got the platform. The platform is now collating data and can provide feedback and useful data and relativity metrics for business owners to help them in their planning and preparation.

Craig, what’s the future? I know that we’re recording this a few weeks before we’re going to come out. You’ve got something interesting that’s about to launch. We alluded to it at the beginning of the conversation – ‘Exit Like a Boss‘. Tell us about that and how listeners can get a little more information on that. Because I think that’s a key to if they want to find out more information and learn about how they can leverage everything that you’ve shared with us today.

Yeah, look, I think, as I said earlier, I think it’s critical for people just to have and I often listen to and I’ve learned a lot from actually the CEO of Capitaliz, Nick Foster. Every time I talk to Nick, he has three things. We have a meeting, we’re going to do these three things. If we have a sales plan, there’s three things in it. Each one of those things has three things, so everything comes down. And I think partly that’s because you can’t take in nine or 15 or 28. You can take in three and focus on it. So Exit Like a Boss. It’s quite a different concept. It’s a podcast, but there are 21 episodes, 21-steps. It’s a 21 day challenge, so you can listen to one a day, but they’re less than ten minutes long each, so they’re not half an hour podcast. They’re short, sharp, you can probably tell. That’s the way I like to operate. So the podcast is designed specifically for business owners. It’s not for advisors. It’s for business owners to look at. And if all they did was listen to each one of those 21 episodes and wrote down the three key things out of each episode, I think there’s actually a couple with four, but that’s okay. They’ll come away with some really clear action items to say, if I want to exit like a boss, here’s the things I need to do. One of the things that will come out of that is I need some help, because there’s a lot three times 21 is a lot of things to do. So even if you break it down to threes, there’s a lot to do. But the Exit Like A Boss podcast, it’s coming out literally right now as we speak. And it’s short, sharp, punchy information for owners as to what do I need to do to get ready to exit like a boss.

That’s what it’s all about. Brilliant. We’ll put all that information in the show notes. Craig West, Founder of Capitaliz and Succession. Plus, thanks for joining us today.

Pleasure. Thanks for having me.

About Craig West

Dr Craig West, founder of Succession Plus and Capitaliz and a strategic accountant who has over 25 years’ experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two master’s degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

In 2022, Craig received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.” Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit. Craig’s proprietary structure – a Peak Performance Trust – has won the Australia wide award for the Employee Share Ownership Plan of the Year twice in four years.

If you would like to learn more about how to start preparing your business, then you can get more information here: It All Begins with Insights.

Darryl Bates-Brownsword

Darryl Bates-Brownsword

CEO | Succession Plus UK

Darryl is a dynamic, driven Business Mentor and Coach with over 20 years of experience and passion for creating successful outcomes for founder-led businesses. He is a great connector, team builder, problem solver, and inspirer – showing the way through complexity to simplicity.

He has built 2 international multi-million turnover businesses; one now operating in 16 countries. His quick and analytical approach cuts through to the core issues quickly and identifying the context. He challenges the status quo and gets consistent, repeatable and reliable business results.

Originating in Australia, Darryl’s first career was as an Engineer in the Power Industry. Building businesses bought him to the UK in 2003 where he quickly developed a reputation for combining systems thinking with great creativity to get results in challenging situations.

A keen competitive cyclist, he also has a B Eng (Mech) Engineering and an MBA.