If you’re an ambitious business owner then there’s often a dichotomy about growing a business, in that day-to-day management decisions should also be looking at the end game… you leaving it.
Related: How to value your business
This isn’t about actively seeking exit (though an offer would be nice!), it’s about maintaining an operational and management focus on what makes, cements and enhances the value of your business. The key to this process is understanding and eliminating the intrinsic importance of you, the owner-operator.
Yes, if you’re the owner of a business and when you walk, the value walks. The SME deal process is bedeviled by vendor’s being embedded in their business & buyers getting a sense that the value will disintegrate one second after completion.
Furthermore, the Vendor often fails to understand the huge impact on the value that relates directly to this issue. Ask any seasoned observer of the SME deals market to name one major obstacle towards success, and a consistent response will be owner-operator dependency.
Yes, plan ahead and implement a strategic process that extracts you from your business. Think about transferring personal goodwill into business goodwill, so that you eventually become surplus to the essential requirements of your business;
- Personal Goodwill relates to the individual rather than to the business;
- Business Goodwill relates to the brand reputation or trading characteristics that represent a particular business, regardless of who the owners are
By transferring the goodwill, you are reducing owner dependency and reducing the acquisition risk profile. Not only will you provide the buyer market with a less risky, higher value proposition, but by removing yourself, you’re removing one of the primary obstacles to achieving a deal of any kind.
Examples of goodwill transfer
|Business Function||Personal Goodwill||Business Goodwill|
|Sales||Generated by personal contacts||Generated by reputation of brand, location, pricing|
|Management||Decisions based around owner and/or their micro management||Autonomous team can continue after departure of owner|
|Marketing / Advertising||Focus on the individual||Focus on the brand|
|Process||Not systemised, remains in owners head||Systemised, documented, transferred|
|Agreements||Loose collection of agreements, personal relationships||Formalised agreements between stakeholders and business|
|Referrals||Generated via personal relationships and networks||Driven by formal, commercial relationships|
Take holiday test
If your business is so all-consuming that you struggle to get away for a proper holiday, then it’s probably suffering from a heavy dose of owner dependency. Alongside the transfer of goodwill, set yourself an incremental holiday test that proves (to you & the buyer) your business can survive and thrive without you.
Take unexpected days off. Whatever holiday you took last year – take more this year and again next. Structure the business so that it no longer relies on your blood, sweat and years. Ultimately, why not aim for a pre-sale, breathtaking sabbatical – a two month Andean Trek with Ben Fogle or 6 weeks fly-fishing with JR Hartley? Then watch from a distance, as your valuation moves nor
Summary: Steps towards removing you
1. Conduct an Operational/People Audit that Does Not Include You
2. Address the Gaps and Start to Build a Strong Management Team
3. Support Staff Development by Implementing Training Program
4. Financially and Contractually anchor Key Staff
5. Introduce Management to Key Business Contacts
6. Remove Fear of Failure Culture (Brace Yourself for Mistakes)
7. Systemise as much Process as Possible (Download what’s in your head)
8. Take unexpected days off (The Holiday Test)
9. Remove Yourself as the Go To Contact
10. Learn to Trust & Delegate
11. Take that Sabbatical
Related: How to sell your business