Why your Business Value doesn’t depend on you as the owner

If your business value is built around you, then you don’t have a business, you have a job!

One of the main risk factors for SME business owners in preparing their business for sale and achieving maximum value is the dependency of the business on themselves. No one wants to buy a business that is entirely dependent on the owner. Any business that can’t operate without the owner can’t possibly be worth very much money at and if often not saleable at any price. For instance, if the business does not make sales unless the owner is involved, or can’t produce or deliver the product without owner participation.

Typically, businesses that are built up over an extended time often start as a one-man-band (the owner) and grown by adding additional staff into the business. Sometimes that process does not involve proper delegation to allow other employees to make decisions and manage aspects of the business without owner involvement. In other cases, appropriate systems, policies and procedure documents aren’t in place, so employees have to check back with the owner for approval or to check on what the next step should be. Not only is this inefficient and unproductive, but it also leads to an owner dependent business.

To convert a business like this into a valuable asset, the owner needs to be (in the nicest way possible) removed. That is, no aspect of the business should be dependent upon the owner, and all policies and procedures, systems, process manuals, workflows, templates and checklists need to be in place. Employees need to have delegated authority to run the business without referring to the owner, the capacity and resources to make effective business decisions based on pre-agreed limits and within our corporate governance structure to manage risk to reduce owner dependence.

Most employees are happy to take on additional responsibility provided it’s set up properly, communicated clearly and within boundaries and limits designed to protect both parties. Not only does this make the business more valuable by reducing the risk, but it will also make it a more enjoyable place to work and most likely improve productivity and profitability, therefore the business valuation.

Our ownership mindset program works with employees to help them think and act like business owners and focuses on achieving the above outcomes. Get in touch to speak with an Accredited Adviser today.

Dr Craig West

Founder & Chairman | Succession Plus

Dr Craig West is a strategic accountant who has over 20 years of experience advising business owners.

With a background as an accountant in practice and two master’s degrees, Craig formed a strong view that the majority of business owners (and often their advisers) were unprepared and unaware of the steps required to prepare for exit. He then designed and documented a unique 21-Step Business Succession and Exit Planning process to assist owners and their advisers in navigating this process.

Craig now acts as a strategic business and financial mentor for mid-market business owners. Craig has written four critically acclaimed books educating business owners on employee incentives, succession planning, asset protection, and exit strategies. Additionally, he has completed doctoral research on Employee Share Ownership Plans (ESOPs) for succession.

Craig is a Member of the Forbes Business Council where he leverages his extensive experience to contribute valuable insights on helping business leaders navigate the complexities of growing and exiting their businesses.

In April 2024, the Exit Planning Institute admitted Craig to the International Exit Planning Circle of Excellence.