As a business owner, you are often the most important person at the table. When you talk, your employees listen, and they take the prescribed action. You make quick decisions, give directions and solve challenging business problems faster than any individual on your management team. You understand every aspect of your business better than anyone. In essence, you are your business’s most valuable employee. And therein lies the problem:
If your business cannot thrive without you, then your business has very little value to a buyer.
Furthermore, the sale of your business will not be the commencement of your retirement. It will be the beginning of a multi-year employment contract working for someone else: the buyer of your business. Contingent sales proceeds will make certain you fulfill your multi-year employment contract to the best of your ability.
Trading your business for an employment contract will not be the exit you imagined.
Business owners should focus their attention on business value.
A business owner should understand their business’s current value from a buyer’s perspective. One of the greatest killers of business value occurs when the owner is the most important employee, and there is too much owner dependence. Therefore:
A sure-fire way to increase business value is to fire yourself.
Yes, fire yourself, and replace yourself with employees who can manage the operational aspects of your daily work. You need to delegate the tactical matters and train your employees to manage them. Some of your employees are capable of performing far better than what you have asked of them. They may have grown complacent, believing you will never trust them to take the reins with many aspects of their job responsibilities and decision-making. If given the chance, they may surpass your expectations. In fact, with the proper training, they may excel in the opportunity.
You will also need to establish processes and procedures for all areas of business operations, document them, and use these as standards of operations for your employees to run your business. This is your “playbook,” which will convince buyers that you have a best-in-class business and turnkey operation — and which can operate well without you. That is a high-value business.
Is your business value suffering because of too much owner-dependence?
To examine this in an operational context, consider the following questions:
- Are you the best salesperson in your business?
- Are you the one who is generating the marketing ideas?
- Are you the first person a customer will call if there is a problem?
- Are vendor relationships based on your personal relationship, rather than on contracts?
- Are you managing all tactical matters regarding banking and financing?
- Are you directly overseeing the bookkeepers?
- Are you in charge of all compliance matters (environmental, legal, taxes, etc.)?
- Are you making all the personnel decisions?
- Are you the key decision maker on all tactical matters regarding the delivery of products and services?
- Do you spend many hours of the day solving routine business problems for your employees?
- Do you often describe your day as “putting out fires”?
If you answered “yes” to any of these questions, you have found where you are dragging down your business’s value due to the business being overly dependent on you, the owner.
Identifying these areas is the first step. The next step is devising an action plan for remedying these deficiencies and value killers. The most difficult part of this process for business owners is letting go. To do so effectively, make certain your employees receive the proper knowledge, skills, training and tools. Let them know they now have the authority to take over these key areas.
This is not going to be a quick and easy transition for you, but it is a necessary one if you want to maximize your business’s value. Letting go of these operational responsibilities takes practice and the determination to build a business that runs without you.
It may take time for your employees to change their paradigm: to believe that you are willing to invest in their development and that you are ready to place responsibility for operational matters in their hands.
It may also require you to make tough decisions in the event that certain employees may be unwilling or unable to rise to the occasion. However, it is better to find that out and take appropriate action, now, rather than ignore this until you are ready to sell your business. A buyer sees weakness in your management team as an opportunity to discount the price offered to buy your business, and rightly so.
If you remember one thing:
Exit planning is a process. It takes time to determine what aspects of your business are dragging down business value, devise a plan to make the necessary changes, implement those changes and demonstrate sustained improvement over time as a result.
Making yourself the least important employee is part of that process. It will result in you having a value-driven business, which will command a higher price when you exit your business.
Fire yourself. Develop or hire employees who are better, smarter and more capable than yourself in all areas of your business operations. It will propel the value of your business to new heights.
Click here to find a copy of Rich Gunn’s article as originally published on the Forbes website on July 5, 2022.