Previously, I wrote a blog about business value drivers and how certain factors can impact the value of a business. Now I’d like to address what is probably the biggest value driver in any small to medium enterprise – you as the business owner.
In order for there to be any goodwill or value beyond the tangible assets, a business needs to be able to operate independently of the owner. Too often, owners are the heart of the business and are either the only ones with the technical know-how to operate it or the only people with the key customer or supplier relationships that make the business successful. Of course in some cases the skills or relationships can be transitioned to potential buyers however, often times, the reliance on the owner is very significant and it is this value that is so very rarely realized.
There are a number of steps that owners can take to help address this issue.
Make yourself redundant. Create a management team to support you as the business owner in a variety of roles. In situations where a management team is not warranted due to size, then an alternative is to have other people trained as back-ups with knowledge of all aspects critical to successfully operating the business.
Delegation. Reward key employees with additional responsibilities, allowing them to slowly take over specific aspects of the owner’s role. Although no one performs tasks as well as us, relinquishing responsibility over time will yield long term benefits. Holding employees accountable for their new and expanded roles is important to ensure consistency, reliability and ongoing productivity.
Expand customer and supplier relationships. Create multiple touch points within the business for key customers and suppliers so that they know who to contact when you are unavailable. These touch points should be nurtured to grow relationships and lessen the reliance and dependency on you and other key individuals. Develop additional relationships within your customer and supplier base to further entrench your business in theirs.
Documentation. Policy and procedures manuals provide comfort to potential buyers and to your team on what to do when you are not around. Documenting procedures and best practices also helps to ensure consistency in the delivery of products or services to your customers.
Stepping back from the day-to-day operations and taking the time to implement strategies for long term success is a challenge for many owners. However, investing the time now — whether it is to position the business for future purchase or reduced owner responsibility – will yield many benefits including stress reduction and positively impacting the value of the business.