Businesses that rely on their owners as the primary source of success are common. They’re also the most dangerous kind of business to own when you want to plan for the future of your ownership interest. Unless your goal for the future of your ownership is to liquidate the business and shut it down, you’ll likely need to build your business’ transferable value.
One way to define transferable value is that it is what a business is worth to a qualified buyer without the owner present. Essentially, a business that relies on its owner for success is worth less to a buyer than a business that can run smoothly without its owner. For some businesses, over-reliance on the owner can make the business not only worth less but also worthless to buyers, despite all other indicators of success.
This might seem at odds with the tenets of entrepreneurship, ownership, and job security in general. Many of us are taught to take on as many responsibilities as we can to make it harder for a company to do without us. Entrepreneurs often take pride in how many different hats they wear as they build their companies. This attitude is admirable but also dangerous for owners who want to plan for the future of their businesses.
Working hard is admirable and necessary for success. But when it comes to planning for the future of your ownership, it’s wise to make yourself inessential. If the business cannot succeed without you, you’re likely to find yourself with limited options.
3 WAYS TO INCREASE VALUE
One suggestion would be to employ Key Employee's that would continue with the business after a sale. This could be one lieutenant capable of all tasks and benefits the owners provides or several key employees that are experts in multiple business areas needed to sustain and grow the business. Get these key employees in place and the value of your business will increase significantly.
Build a SECURE data base of processes, procedures, marketing content, and any proprietary / intellectual property that makes your business unique and successful. Even outline corporate culture and what helps empower your team to achieve goals. New buyers will greatly appreciate written documentation that becomes on of the larger assets of the business to be considered in the sales price.
RECRUIT, REWARD, RETAIN
Building a written recruiting process that works for your business to find quality long term productive employee's is very valuable to buyers. Where did you find your best employees, do you have relationships with local education organizations training groups or unions, and why did the employees pick you over another opportunity. Have a clear compensation plan but more importantly write up what your employees value most about their job. If that is autonomy, training, empowerment, culture, and any other benefit besides a financial benefit that will prove to be valuable information for a buyer. Finally have a strong retention program for Key employees as well as other employees. Strong benefit packages with vesting into the future to realize the benefits is a great way to retain employees. Buyers like to know employees have "skin in the game" if they stay on-board after a sale.
If you’d like to discuss why and how you should position your business to be more valuable without you, or other tax deferral exit strategies that will give you an even more successful business sale please contact Adam Ausloos today at 414.269.2600 firstname.lastname@example.org.