Always Audit Ready

I started my first company when I was just 24 years old. It was an FDA-licensed pharmaceutical packaging and distribution business, in a heavily regulated industry. Honestly, when I jumped into that ice-cold pool of water, I had no idea how hard it would be. On top of all the usual business challenges, marketing, customer service, product development, accounting, and employee issues, I also had to satisfy federal regulators who had the power to shut me down. What I did not understand was that federal regulations are written vaguely, meaning they are open to interpretation.

Then the regulators showed up, and I learned my interpretation was wrong.

Four Months, Four Weeks, Four Days

My company’s first DEA inspection lasted four months. Three agents arrived at my door bright and early every single day. They reviewed every vendor receipt, every customer invoice, and reconciled them against every production record. They made it clear they would not leave until they had accounted for every pill we sold. Even though I was clearly not a criminal, they enjoyed reminding me that my company could be fined $3,000, and I could spend three years in jail, for every single pill we could not account for.

Imagine living with that for four months.

I could have just gritted my teeth and waited for them to leave. Instead, I watched them. I paid close attention to exactly how they worked, what they asked for, and in what order. And out of that pressure, I came up with something nobody told me to build. I designed a system that created an audit trail mirroring the exact steps the inspectors followed, so in all future audits they could get every answer they needed quickly and without questions.

Here is the part that made the difference. I designed the system so the information was gathered as a byproduct of normal business operations. My people did not stop working to prepare for an audit. Doing the work created the evidence. That way, my company was always audit ready.

We passed that first inspection without a single fine. More importantly, the approach worked. Our second inspection lasted less than four weeks. During that one, I kept refining our internal systems to fix the remaining gaps. The third inspection lasted about four days.

A few years later, the DEA asked to film how we ran things so they could show other companies what a best-in-class compliance program looked like. I even received an Outstanding Citizen commendation from the FBI. Not bad for a guy who started out wondering whether he would survive the first audit.

The Inspector Who Did Not Believe Us

That was only my first semester at the School of Hard Knocks.

A few years in, a newly minted FDA inspector arrived, eager to make a name for himself at my company’s expense. He looked at our written operating procedures, and he acknowledged that they were thorough and professionally written. However, he wondered if they were a resource a frontline employee could easily use. He thought they were something a consultant might prepare. Ouch! Although my company passed his inspection, he warned me that the next time would be different.

As the inspector left, he set a new test. He explained that when he came back for our next inspection, he would walk onto the floor, randomly pick one production area, and try to perform the process himself, using nothing but our written procedures and related systems. If he could not do it without help, we would fail.

My production teams and I treated that as an existential threat, because it was. We spent the entire year rewriting, testing, and retesting our systems and procedures until anyone could follow them. Not just our best people. Anyone.

And yes, with great relief we passed his test.

I learned that a written process is only real when it is so clear a stranger can run it without support. If they cannot, it lives in someone’s head, and it walks out the door when they do.

What Happened Next Surprised Me

Something changed in my business as it became more systematic and better documented. The constant fires started to disappear. Customers got happier. My team became more creative, more engaged, and more productive. I slowly became irrelevant to day-to-day operations, which was exactly the point.

Because our processes were documented and anyone could run them, my people were no longer trapped in their jobs. Warehouse employees were cross-trained and moved up to production assistant roles. Production assistants became production managers. Production managers learned to audit our processes. Strong performers moved into customer service, accounting, and management. We were building a deeper bench of future leaders without even calling it that.

And through all of it, I still had complete visibility. I knew how every process and every person was performing, without having to stand over anyone’s shoulder.

The Day the Buyer Showed Up

Then, the unexpected happened. I received a call from an operating team working with John Doerr, one of the most famous venture capitalists in Silicon Valley. They wanted to buy my company. Before long, I was on John’s private jet, negotiating the sale directly with him.

Soon after, his due diligence team came to visit our facilities. They walked our operation, looked at our records, and talked to our people. When they were done, they told me they had never seen a better run company.

Think about what that means. We did not scramble. We did not pull all-nighters getting ready for them. There was nothing to clean up, because there was never a day we were not ready. The same discipline that got us through four months of federal agents in our building is exactly what a buyer’s team is looking for. Can this business prove what it does? Does it run on systems, or on a few indispensable people? Will it keep running after the owner walks away?

After the sale, I stayed on as an executive and continued to grow sales by millions. Every one of my employees kept their job.

Why I Built ManageHub

After I left my company, friends and colleagues started asking me to help them build their businesses the way I had built mine. I wanted to spare them the years of stress I went through figuring it out alone.

So I took what I learned the hard way and, over many years and many client engagements, developed it into ManageHub, so other organizations could adopt the same best practices deliberately instead of under fire. To add even more value I tied my methods to the U.S. Baldrige Performance Excellence Framework, the national standard for performance excellence, so the leaders who adopt ManageHub can have complete confidence they are building on something proven, not something one guy made up in a warehouse.

Since then, I have helped other owners of privately held companies reach the same kind of outcome I did: high-multiple exits with outstanding terms, because their businesses were always ready. You do not have to take my word for it. Several of them tell their stories on camera on the Results page at ManageHub.com.

You Cannot Cram for Due Diligence

Here is what I want every owner to understand. Whether it is a regulator or a buyer, you do not get ready when they show up. By then it is too late. This idea is so important I gave it a name: “Always audit ready.” It is the reason ManageHub adopters sleep easy.

The good news is that you do not have to learn this the way I did. You can avoid the School of Hard Knocks. You and your employees can use ManageHub to speed the process and avoid the years needed to create similar systems.

If you want to know where your business really stands today, call me and schedule a ManageHub diagnostic. We will look at your business the way a buyer’s due diligence team would, and you will know exactly what to work on first.