Owner Addicted Businesses Sell For Less

Is your business addicted to you?

Most of us think of addiction in terms of our being addicted to a habit or substance. Alcohol, gambling, drugs, tobacco, food, internet, shopping, all can be addictions that cause serious problems for some people.

But did you know a business can be addicted to its owner? 

If your business thrives when you’re there, but suffers when you're away, then it has an unhealthy addiction to you, the owner. If you’re preparing to sell your business this can have financial consequences. Simply put, businesses that are highly dependent on their owners have less market value and businesses that get reliable results without the owner have greater market value.

When it comes to selling your business it’s good to check if it has an unhealthy addiction to you. The two we see most often are customer addiction and operational addiction. Either of these will reduce the value of your business when you sell it. The good news is if you start the withdrawal process, your business will be healthier while you own it and more valuable when you go to sell.

Customer Addiction: When a business owner personally holds the relationships with key customers, and sales will suffer if the owner leaves.

In this situation buyers will seek assurance that the customers will remain with the business when the owner leaves. If customer retention is in doubt buyers will likely seek to modify the structure of the deal.

For example:

• The owner may need to remain in the business after the sale to participate in successfully transferring the relationships.
• The buyer may propose an earnout, holding back a portion of the sales price, and tying payments of that amount to the retention of key customers, or other performance indicators in the business.

Withdrawal Process: To reduce dependency on the owner:

• Begin transferring customer relationships to others.
  • Shift your customers’ expectations of who can provide them the best service. Introduce them to others in your business and explain that although you won’t be taking action on something, they can depend on your business to get them what they need.
  • Customers understand a change in who services them when owners can explain they are moving into a more strategic role in their business and are focusing on growth and business development.
• Ensure your business has other employees that can do what you do.
  • If you have unique knowledge of a customer, make sure you document that knowledge, so it is transferable to others. Items like customization of products or services, or special pricing should be in writing.
  • Document the processes you go through to provide service to your key customers. If you train others to care for your customers, they can record the steps you take as you are training them. The result is that your business will have the beginnings of a documented process.
  • If you have a unique skillset or expertise that requires you to service customers, begin to train others in your business to know what you know, or do what you do. Ensure they understand the standards, timing, quality or quantity of a customer’s needs.
  • Consider hiring others with your expertise and training them to your process.

Operational Addiction: When a business owner HAS to be at the business for it to function.

You know your business operations are addicted to you if:

• You can’t take more than a few days away from the business.
• Your employees can’t make decisions without you.
• You feel like you need to be there to ensure the quality of work meets your standards.

Withdrawal Process: To reduce dependency on the owner:

• When employees come to you with questions – stop giving them answers. Instead, answer their question with a question. Where would you find that? What would you do if I weren’t here? How could you find that out on your own? What do you think should happen? What is your recommendation?
  • As you ask questions you can challenge them to think through the dynamics of decision making. Instead of relying on you for the answers they will learn to think through a problem or challenge to get to the solution on their own. They will begin to think like you think.
  • After you hear their answers to your questions, you will better understand what they know or don’t know, what training they might need, or what standards they aren’t aware of.
     
• Collaborate with employees to seek solutions for your business. For example, have employees recommend improvements to processes or products. Seek their ideas on ways to improve the customer experience or reduce the time it takes to achieve a result. Asking employees for their input and ideas gives them an active role in solutions that help them be more effective or efficient and can make their jobs easier or more enjoyable.
   
• Document systems of work! Engage your employees to help create checklists, videos, cheat sheets and other resources that make it easier for your business to train new employees and help your existing employees to get reliable results. Having documented operational systems increases the market value of your business. 
   
• As you begin to replace yourself and step away from the day-to-day operations, start spending more time away from the business. Begin with a few days, then increase it. You will learn the weak spots, work with your team to make them strong and eventually your business operations won’t need you around to get consistent results.

If your business is addicted to you, start the withdrawal process today and begin increasing the market value of your business!