How Being A One-Person-Band Can Make It Harder To Sell Your Business
December 23, 2016
Succession Planning Question 7: How dependent is your business on you?
When you started your business you were probably forced to make every decision, and assume multiple responsibilities. You may have operated the machine tools, hired and trained personnel, secured financing, negotiated with suppliers and, of course, brought in jobs. That’s the nature of entrepreneurship.
However, as a business grows it’s sometimes difficult for the founder to stop controlling every detail. Some even thrive on being the go-to person for all aspects of their business. The problem is, such behaviors make it difficult to build a management team that thinks for itself, solves daily problems and keeps the business running whether or not the boss is on the premises.
Of equal concern is the owner who single-handedly maintains contact with key customers, rather than establishing connections with others in the company. What happens to these closely held customer relationships when the owner is no longer in the picture?
If you were looking for a business to purchase, wouldn’t you want a company with depth of talent beyond the owner? One that isn’t dependent on one individual to bring in orders and make day-to-day decisions? Of course you would.
Which brings us to the two important reasons not to be a one-person-band:
Reason # 1: Without your leadership, management and customer relationships, the value of your business plummets in the eyes of an outside buyer, who knows that the revenue stream may well become a trickle when you’re no longer there. On the other hand, if you plan to sell to your employees, you may be setting them up for failure or, assuming you retain a financial interest in the business over time, significantly reduce your payout.
Reason # 2: When you’re ready to sell the business you will likely want to move on to the next phase of your life. However, if a buyer perceives you to be essential for the future success of the business, he or she will only buy if you are contractually obligated to continue to run the shop for a number of years. So you’ll have to place your future plans on hold.
Although it may be hard for business owners to let go, by developing a strong management team your business will grow and prosper today and bring you greater value when you decide to sell.
Another asset that adds value is having a company culture that appeals to a business buyer. We’ll discuss this topic in our next installment.