When you are deciding to exit your business, an important part of the process is establishing what you have to sell — do you have a business, or are you self-employed?
The E-Myth
Michael Gerber, in his best selling book, The E-Myth, described the common scenario he had seen so many times in small businesses. He witnessed business owners who have started or bought a business and have simply bought themselves a job. They may have bought a database or a few customer contracts (common in trades such as plumbing, mechanics), but the income is essentially derived from the business owner directly servicing clients. Robert Kiyosaki’s definition of a job is ‘Just Over Broke’ because there’s no equity value. The day you stop working, the money stops.
The ability to run the business without YOU being involved is a critical step in adding value. Often a business owner is involved in every aspect of the business, causing the growth bottleneck.
What’s the Value?
This type of business has little or no resale value, unless you can find a way to replace yourself in the business with at least the same results. A good way to determine whether or not you have ‘a business’ is to consider how long you could be removed from it without affecting operations. If you could take weeks off and the business would continue to survive and produce income, you have a business. If you’ve got a position where you have to be there all the time, you’ve got a job. The income stops when you stop.
It is important at this point to identify whether you have a ‘job’ so that you can spend time in your succession planning building a business or making the most of what you have. An Succession Plus adviser will help determine the best path for you.
