What Would Happen To Your Business?

Posted on Aug 3, 2012 | 0 comments

What would happen to your business if …

… you had to step away from it for an extended period? Can you afford to take a long holiday? Can you afford to get ill or suffer an injury?

Would your business survive?

Most small businesses place high reliance on the owner for the day to day operations of the business. Typically the fewer the number of employees a business has, the more reliant the business is on its owner.

What does this mean for you?

The more reliant a business is on its owner, the less it is valued.

The more reliant a business is on its owner, the greater the likelihood of the business failing should the owner suffer serious injury or illness or go on an extended holiday or sell the business.

As an example, think of it from a prospective buyer’s point of view. Imagine a buyer with the choice of purchasing one of two almost identical businesses. Both operate successfully in the same industry with profitable trading histories and good growth prospects.

One is owner reliant – that is, the owner manages client relationships, holds all the knowledge of the processes in his/her head and with few or no staff trained to do his/her job. The other business has a general manager in place, systems are documented and all staff are cross trained.

What happens when these businesses get sold? The one with the manager in place trades on as usual with barely a hiccup, whereas the owner-reliant business grinds to a halt. All of sudden the former owner is not around, nobody understands client needs, the processes aren’t written down and the new owners aren’t trained – they lose their drive and direction. The end result is that the new business’s owners suffer significant loss.

For this reason the degree of reliance your business has on you, its owner, directly and significantly impacts your business’s overall risk rating, capitalization rate and business value.

With the number of businesses listed for sale on the rise, the business sales market is becoming increasingly competitive. If you are considering selling your business within the next few years it pays to start thinking now about your business’s exposure to owner reliance. If you want to make your business more attractive to prospective buyers you need to reduce the risk to buyers of business failure following the sale.

If you’d like to discuss how to reduce “owner reliance” in your business or need any other information on your Business Valuation, call the JWA team today on (07) 5585 8555.

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