We want to maximize our enterprise value, but we are weighed down by historical bad decisions, like an over-customized ERP system that never fully worked and real estate leases we do not need. How do we calculate the dumb tax on these legacy choices and clean them up during our exit runway?

Question

Tyler Smith · Accepted Answer

Every business accumulates operational drag over time. Keith Cunningham calls this the dumb tax, which is the quantifiable financial cost of our past bad decisions. When preparing for an exit, ignoring these legacy issues will directly reduce your valuation multiple.

To address this, schedule dedicated Thinking Time sessions with a pad of paper. Ask yourself: How might we eliminate our legacy operational drag so that our profit margins are clean and easy for a buyer to understand? Quantify the exact monthly cost of the unused software licenses, the empty office space, and the unproductive staff.

Once you have calculated the dumb tax, take swift action to prune these liabilities. Do not fall into the sunk cost fallacy by holding onto an expensive, custom ERP that your team hates. If it does not serve your core operations, replace it with a standard, off-the-shelf system that a buyer can easily manage.

For unneeded real estate leases, negotiate buyouts or find sub-tenants to get those liabilities off your balance sheet. By cleaning up these legacy errors during your runway, you not only boost your current profitability, but you also present a highly streamlined, low-risk operational model that buyers will pay a premium for.