How Can I Make My Business Owner-Proof?

One of the things I’m regularly asked to help clients with is ownership transactions, which could either entail buying a business or selling a business.  There’s a lot involved in the conveyance process, and it’s typically fraught with friction points.  The greatest challenge in many cases is replacing the existing owner with the new owner.

Entrepreneurs wear many hats, so to speak, and they perform many functions.  As the owner of the business, they are an investor, and as such, they should expect to receive a reasonable return on (ex: a dividend) and eventually a return of their capital investment. 

Oftentimes, the owner is also an employee of the business, and as such, they should expect to receive an appropriate wage for their services.  Thus is a reasonable expectation because the alternative would be for the owner to hire employees or contractors to fulfill the duties.  If the owner is performing tasks instead, shouldn’t they get paid just like an employee would?  Of course! 

For most entrepreneurs, they spend the vast majority of their time working in the business.  What I mean is, they are directly involved in tactical functions, like revenue production, monitoring expenses, and ultimately, achieving profitability. 

There’s also the task of working on the business, which is a strategic function.  This commonly include things like strategic planning, raising capital, monitoring changing customer preferences and business conditions, building culture, business expansion, structuring partnerships, etc. 

In my experience, not enough time is spent working on the business, which is topic for a future post.  The business owner is commonly involved in tasks that are more appropriate to be performed by employees and managers.  When the owner is involved in pretty much everything, he/she becomes the company’s key person.  The business won’t run, or run nearly as well, without them. 

When buying or selling a business, the most important thing is for the business to be ‘owner-proof’.  In other words, the business is able to function just as well if the owner is there or not.  So, how do you make a business owner-proof?  It can be done.  It isn’t always easy, but it’s necessary in order for a successful change of ownership to occur.  Let’s review some of the ways. 

Hire well

Hire people, and then let them do their job.  Train them properly and expect that they’ll do what you want done, and how you want it done without micromanaging them.  All employees need to be managed, but if too much management is needed, that means you hired the wrong people.

Create a playbook

If you suddenly were not able to perform your duties, what would happen to the company.  Would others know what you do and how you do it?  If not, start building a document that functions as an instruction manual.  Map out all the processes involved with producing whatever it is you sell.  Do the same for the support functions.  It should read like a how-to guide.  When it comes time to sell the business, this will make it much easier for the next owner to step into your shoes. 

Diversify relationships

The owner of the business is usually the only person who has relationships with  key stakeholders.  This includes customers, suppliers, partners, collaborative intermediaries, and even competitors.  It’s best to have multiple people within the company who has a relationship with each of the stakeholders.  Think of it as a secondary or backup contact. 

Give yourself a promotion

Again, you need people to work in the business and on the business.  If you have successfully implemented the ideas contained herein, you can spend less time working in the business and more time working on it.  Be the ‘big picture’ person where your primary role is to direct other people on how to execute your vision.

Identify a successor

Is there an employee, particularly a manager, who you see as potential protégé?  If so, start grooming that person to take on more of your duties and responsibilities.  This could be a family member, in the case of a legacy business, or a trusted and valued employee.  You need someone who can think and act as an owner.  The biggest benefit of grooming such a person is that you won’t have to worry about finding an outsider to take over your company when it’s time for you to exit. 

Conclusion

Everyone likes to feel needed and loved, and entrepreneurs are no different.  But having a business that is wholly-dependent on the owner is more of a liability than an asset.  Realizing this and correcting it is an important strategic function that first requires the owner to shift away from working in the business to working on it.

The opinions and viewpoints expressed herein are those of the author.  Community Investment Corporation makes no warranties or representations as to the accuracy or forward-looking guidance of the material.  Readers are encouraged to conduct their own, independent research and consult professional advisors before making any decisions.  Oh, and one other thing - none of this was written by AI, except where noted.