Creating a Transferable Business (Part 3)
When you exit, who will do your job?
Mel B. Bannon
As the owner of a privately-held business, you are likely a catalyst for the ongoing running and growth of the business. The roles that most owners fill in their companies often span a number of different areas within the business. Even with an established management team, owners are often still the “straw that stirs the drink” on a daily basis. Without the stirring where would your business be? And, as you consider your exit from your business, you need to answer two questions on this topic. First, “How dependent is my company on me?” and next, “Who will do my job when I leave?”
What Is Your Job at Your Company?
In your business are you the sales person or are you the head of operations? Or are you both? Do you innovate within your processes and/or product line? Do you limit yourself to watching over the finances on a regular basis? Or do you do some of both? Are you the leader amongst the staff or are you the owner who stays in their office in order to empower others to do their jobs without micro-managing them? Overall, how much of your company is dependent upon you and who will fill those roles after you exit from the company? Again, these are critical questions to answer if you want to have a smooth transition of the business and achieve the highest value with the fewest continued obligations from you during a “neat and orderly transition” later.
Are You a Bottleneck for Your Business and Your Exit?
An important question to ask about the job(s) that you perform at your company is whether or not you actually slow down the growth of your business. In other words, are you a bottleneck to your company?
You likely are a bottleneck to your company and your successful exit if any/all of the following apply to you:
- You are critically involved with decisions on a daily basis, to the point where projects or steps in a procedure cannot advance without you.
- You are the only person who holds key vendor and customer relationships and the only person who takes those phone calls and/or meetings.
- Planning and services or product design and innovation, comes only from you.
- You are the only person who knows the company’s financial position and has bank relationships to fund the business.
- The strategic direction of the business is primarily set and understood by you.
- Employees are generally disempowered to make decisions without your input and/or final approval.
Unlocking the Bottleneck Start with a Measurement of Your Company’s Dependence on You
It is difficult to manage something that you cannot first measure. Therefore, if you are interested in knowing what your job or your role is at your company, as well as how dependent your business is on your individual efforts, you can take the Owner Dependence Index survey (developed by Pinnacle Equity Solutions, Inc.). The ODI survey asks forty questions, spread over eight areas of your business, that will then provide a score of 1 percent to 100 percent and let you know how dependent your business is on your individual efforts. Moreover, your ODI score will help identify how much of a bottleneck you may be at your company.
Below is a link to the Owner Dependence Index online survey. There is no fee to take the assessment and a private customized report will be confidentially sent immediately to your email.
http://odireport.com/Survey/Register/D532A288_40 (Pinnacle Equity Solutions © 2016)
The Challenges to Overcome
Owners typically resist changes to how they work in their businesses for a variety of reasons. Some simply don’t want to make any changes after years of getting things the way that they want them. Other owners want to make the changes but don’t want to do the work or do not know where to begin, while others do not want to spend the money on new hires to do the jobs that these owners should not be doing. Further some owners simply do not trust other people with these critical functions.
Give serious consideration as to what is holding you back from making these changes and letting go of certain tasks that others could more easily complete. One motivation to make these changes is that your pool of potential future owners becomes more limited if you are a bottleneck to your business and do too many jobs.
The Exit Challenge to a Bottleneck
Overall, the only person who will be willing to own your business after you is someone who not only wants the exact job that you currently have but also is as qualified as you to do that job. If you have not properly assigned and delegated critical responsibilities, then it stands to reason that in most cases, the only person who can do your job after you is someone with the experience to do so as well as the financial backing to purchase your company. All things being equal, this person, if they exist, is likely running their own business today.
Exit and Other Benefits of a Low ODI
When you can reduce your owner dependence by distributing responsibilities to others, you are in a stronger position to execute on an exit plan that liberates you from your business. What is also interesting about going through this exercise is that your business will likely actually run better once you begin to take a step back and empower capable people to do certain tasks without you.
As a business owner who may be beginning to think through the eventual exit from the business, this online assessment tool may be the ideal starting point for preparing for your ultimate business exit. Reducing the dependence that your business has on your individual efforts will allow you to identify and develop others who can run the business, as well as create a more valuable, more transferable business, increasing the pool of potential purchasers.
We hope that this perspective will assist you in achieving a more successful and profitable exit on your terms and your schedule.
Mel B. Bannon, CLU, ChFC, RFC, is a registered representative of Lincoln Financial Advisors, a broker/dealer, member SIPC, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, 31111 Agoura Rd., Ste. 200, Westlake Village, CA 91361 (818) 540-6967 or 1500 W. 33rd Ave., Ste. 210 Anchorage, AK 99503 (907) 522-1194 . Insurance offered through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. Exit Planning offered through unaffiliated third parties. AK Insurance License #19665 CRN-1539028-070516
This article first appeared in the September 2016 print edition of Alaska Business Monthly.