In an exit where the business owner plays a central role in driving the business, their departure post-sale can pose significant risks to the continuity and performance of the business. This dependency often concerns buyers and can impact the valuation of the business. Of all of the potential value penalty areas a company has, this one has the greatest threat to value penalty and sometimes unsalabilty.?
- Operational Continuity: If the owner is pivotal in daily operations, their absence might disrupt business processes.
- Customer Relationships: If customers are loyal to the owner rather than the business, this can lead to a loss of clientele. This happens a lot when the owner is the salesperson. The company has been built on those sales made.
- Employee Morale and Management: The owner might be the key to employee morale and management, and their departure could lead to instability. Many owners are the glue that keeps everyone together. The trials and tribulations that they all have gone through make them tight. There are also times when the business owner is connected to the employees socially. This happens a lot in smaller communities.
- Supplier Relationships: Personal relationships with suppliers might not transfer to new ownership.
- Strategic Direction and Decision Making: The owner's vision and decision-making could be critical to the business’s success, especially if you have been leading the company for many years.
- What Role Do You Play in Day-to-Day Operations?: To understand how integral the owner is to daily business functions.
- How Do Your Customers Perceive Your Role?: To assess if customer loyalty is to the business or personally to the owner.
- Have you ever taken an extended leave?: To gauge how the business operates in the owner's absence.
- Who are the key relationships in the business?: To determine if these relationships are institutional or personal.
- Can You Describe the Business's Strategic Decisions?: To assess how much of the business's strategy and direction depends on the owner.
- High Owner Dependence: This can significantly reduce the business's value as buyers see increased risks in maintaining business performance post-acquisition.
- Lack of Independent Management Structure: Increases buyer's transition risks, leading to potential devaluation.
- What do you do? Develop a “day in the life” of you. Describe a typical day and then the week of what you do. The buyer will be trying to determine relationships they might be unable to replace after your departure.
- Developing a Strong Second Tier of Management: If you have the time before you begin this process, start training and empowering a management team that can run the business without the owner’s daily input. Be prepared to discuss how it is going and the likelihood of success.
- Systematizing Operations: Create systems and processes (and document them) that depend not on any individual, including the owner.
- Transitioning Key Relationships: If you have time, diversify the risk by bringing in employees to serve customers and suppliers. Those critical relationships likely are wondering if and when you will retire/exit and what happens to them.
- Documenting and Delegating Decision Making: Ensure that others in the organization document and understand decision-making processes.
- Creating a Detailed Transition Plan: You know the business more than anyone. How would you transition the business if you were coming in new? Offer a buyer a plan showing the owner’s gradual exit, ensuring continuity and stability.
There is so much here in a few paragraphs. Many buyers have different operational and transferrable leadership skills and backgrounds. It is difficult to determine what is going to be necessary for each. The one thing that every buyer will want to know is if this business can operate without you. If it can, great. If it can’t, we must focus on mitigating the buyer risk through deal structure and effective transition.
