Increase Your Business’ Value by Making Yourself Dispensable
Could your business continue to function and prosper without you? If the answer is “no, ” it’s time to change that or you could lose out.
By Jane Johnson
If you’re an owner who is thinking about selling your business, either internally or externally, it’s time to start thinking about how to increase business value so that you can receive the best price. While many owners assume that merely increasing revenues will do the trick, it might be surprising to find out that revenue is not always the most important value driver from the perspective of a potential buyer.
While revenue and market position are important, one of the biggest concerns a buyer usually has about a business is its dependence on the current owner. Not only can excessive dependence on the current owner cause a business to be unattractive to a buyer, it also creates greater risk for the current owner and the business. Investors and acquirers want to buy businesses that can function effectively without the owner.
Here’s a short list of factors that business owners need to address in order to make their businesses more attractive to potential buyers:
Time to Sell Your Company? 6 Key Business Value Drivers
Business independence from the owner/strong management team
Increasing revenues and profits
Proven and documented processes and procedures
Diversified customer base
Clean financial and tax records
An effective sales and marketing plan
In this article, we focus on how owners can to start to decrease dependence on themselves and increase their businesses’ attractiveness to buyers. We discuss all of these value drivers in our book, Cashing Out of Your Business, Your Last Great Deal.
Owner dependence in a business is bad for business
It stands to reason that many businesses, especially small businesses, revolve around the company owner or founder. Most owners have achieved success because they have been the driving force of their businesses for many years. However, too often, the owner is the only one who has control over the business relationships, processes, procedures, and technical know-how. In other words, the owner is the business. Unfortunately, this makes the business completely dependent upon the owner and unattractive to potential suitors.
An owner’s heavy involvement in the business decreases business value because it is inherently risky. If something unexpected happens to the owner, whether it’s death, disability, or something else, business value is likely to plummet, which could be disastrous for the employees, customers, and the owner and his or her family.
How do you know if your business is too dependent on you?
A great way to gauge if your business can function without you is to plan to take the elusive extended vacation! Work with your key management team to develop a plan for how the business will function without you. It will provide them with the opportunity to spread their wings as leaders, and it can help you see where the gaps are and where improvements are needed in order to decrease owner dependence, improve business efficiencies, and increase the value of your business to a prospective buyer.
How to decrease owner dependence: Business Transition & Succession Planning
To decrease owner dependence and improve value, you must have a well-trained management team that can operate the business without you. This can be achieved by developing your Business Transition Plan, and a succession plan, which identifies who will take over the reins and outlines the process of replacing the owner in the business. As part of this you should:
- Aim to hire and retain key managers who are smart, can garner the respect of the employees, and help ensure business continuity without dependence on the owner.
- Empower the management team to effectively manage the day-to-day operations with an eye towards growing the company in the future.
As you’ll likely discover once you take that extended vacation, the succession process will be involved and time consuming. It’s also likely that it will be a little difficult for you from a personal and professional perspective. After so many years of working in and growing your business, it is a large part of who you are. Extricating yourself and transitioning out of the business can feel akin to losing part of your identity. Figuring out what you want to do and where you want to spend your time will be critical to a smooth personal transition.
One of an owner’s main responsibilities should be to maximize and protect the value throughout the life the business, and as we’ve discussed, value is enhanced by the reduction of risk, including owner dependence. So, if you’re thinking about selling your business in the next few years, it’s imperative to start planning early so that you have time to make improvements and increase the value of the business.
Taking these steps to lessen the business’s dependence on you will pay off when it comes time to sell.
We thank Jane Johnson, founder of Business Transitions Academy, for contributing this guest post. Jane is a CPA, a certified business exit consultant (CBEC), a certified merger and acquisition advisor (CM&AA), and a professional family business advisor (FBA). In 2010, she received the Excellence in Exit Planning Achievement Award from Pinnacle Equity Solutions. BTA offers business transition advisory services to companies with annual revenues of more than $5 million. Learn more at BTAplans.com.
Sales Renewal’s JointSourcing marketing solution gives business owners and managers a chance to focus on the day-to-day aspects of running the business while our team of marketing and technology experts run your marketing programs – marketing programs specifically designed to grow your revenue. Learn more about JointSourcing at SalesRenewal.com
Sales Renewal’s insight:
Could your business continue to function and prosper without you? If the answer is “no, ” you need to make some changes to make your company more attractive to potential buyers. Advice from Jane Johnson, certified business exit consultant (CBEC) and founder of Business Transitions Academy.