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

Which Employee Share Ownership Plan is right for your business? Watch our Free Webinar 

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

Blog

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

By , July 22, 2020
business value not dependent on owner - Succession Plus

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.

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.