How valuable are you in the daily operations of your business?  More importantly how much of the value of your business will walk out the door when you leave?  In Part 1 of this article “How Valuable is the Owner” we talked about this “Owner Value”, or more importantly an “Owner Value Discount” being a key to the value that will be placed on our business by a potential buyer.  We also talked about some of the ways a buyer might try to protect themselves from losing this value when the business is handed over through tools like “employment contracts” and “Earn Out” provisions in the purchase negotiations and purchase agreements.  In this article we will talk about ways to help minimize this “Owner Value Discount”

At the end of Part one of this article we started working on how to determine how valuable the owner is in the daily operations of the business.  I asked you to think about or draw a picture of how your business is structured, where do you fit?  Draw in who reports to you, how is the decision making done, who deals with problems, etc.  What does your involvement picture look like?   If you haven’t done it do it now before reading on.  I’ll wait……..

I like to view the owners involvement in the business with a couple of picture illustrations.  If your drawing looks like, or could be described as something like a wagon wheel with you at the center with all the spokes leading out to key people in the organization, where most of the communication and problem solving must come back through the center to be handled, it would be tough to replace you.  A wagon wheel without a center hub doesn’t function, and the hub of a wheel is a hard thing to replace.  What we really want to achieve for your position and to add more value for the business is usually to be in more of a coordinator role.

Let’s use a sports analogy.  If you are teaching a new offense to a football team, to start you would have the team look at the offense maybe with pictures or on film.  You would then be on the field participating, walking through how to run the offense and showing them what needs to be done to be successful.  You would then be on the sideline maybe calling the plays and watching them run the offense and giving guidance.  Once the offense understands and embraces the vision they can begin calling the plays or changing the plays as they see opportunities, with you in a coaching role still heavily involved, maybe helping call plays, being able to critique how they are doing play by play.  The real goal in business is to actually go one step further, more like a coordinator in the press box that can give guidance based on experience and seeing the whole picture but letting them mostly call and run the plays themselves.

When you are in this position in your business your team can confidently perform daily functions without you and make good decisions with minimal input, they are more self reliant.  A buyer loves this realization, because they know the team can perform and your exit should not materially hinder opportunities or results of the business.  This type of management structure and input from the owner will help minimize the “Owner Value Discount” a potential buyer may place on the business as they determine how important that owner is to the success of the operations of the business.  Whatever you can do to build your organization into this type of structure will help optimize the value you will receive for the business upon your exit, or give you a higher level of confidence of success of the new owners if selling to family or employees.

There are many other things to consider in minimizing this “Owner Value” discount.  Are there skills or knowledge you possess that have not been but need to be transferred to others in the organization for the continuation of success?  Determine what is “Tied” directly to you in the business and how can you sever or minimize the impact these ties would create if you are not in the picture?  Look at things like relationships, specific duties, financing issues etc.  Work on how you can transfer your abilities and knowledge.  Some owners find this difficult, feeling like they are losing their worth or importance in the business by making this transition, others find it tremendously satisfying to see the legacy they can create.

This is something you will have to sort out.  Think about your desire to see the business succeed, grow and prosper as you move to the next stage in your life, and potentially get the maximum value and satisfaction in the transition.  Remember: In the day to day operations of the business the less important you are to your team maintaining successful results the more a potential buyer is usually willing to pay for your business.

If you are interested contact me and I will provide you with a Free worksheet identifying key areas of the business and help you think through and assess how valuable you are to the business.  Remember: Less means More!

 2 Timothy 2:10