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Think about where you sit on your company’s organizational chart.
- Are you at the top and all your key managers and employees cascade like a waterfall underneath?
- Or are you stuck in the middle and everyone and everything simply orbits around you?
If the answer is the latter, then you most likely have an owner-dependent business.
Owner dependency is one of the bigger risks that exist in small businesses today. And most likely the reason you won’t receive full value for your business when the time comes to sell, assuming you can even sell it at all.
Acquirers generally avoid owner-dependent businesses because they understand that these businesses can’t run successfully once the owner is taken out of the equation. Like planets that can’t escape the gravitational pull of the sun, so too will your employees never break free from your orbit's force if not given opportunities to own, lead, and direct critical tasks in the business.
Here are six warning signs that you’re running an owner-dependent business and some suggestions for removing yourself as the center of gravity:
1. Your sales and marketing exist in a vacuum.
If relationship management, branding and advertising, and client acquisition is a single point of dependency, then growth will eventually flame out. A true sales and marketing strategy should be well-documented, measurable, and implemented by a team of experienced people, internally or externally. If one person is driving the company’s sales, it’s not a sustainable process.
2. You can’t identify who your key employees are.
When you are the one making all the decisions, it’s hard to tell who else you can count on to make the business run. The best way to build a strong management team is to hire good people then delegate certain tasks to them. Start with the tasks that you simply don’t want to do. Then once those team members gain your trust, give them more critical responsibilities. (Key employee value calculator)
3. Your revenues are in retrograde.
When a business reaches the mature stage of its life cycle — and if the owner hasn’t built a strong management team — revenues will typically remain flat year over year or even decline. That’s because you only have so much capacity as an individual. So as the business grows, no matter how efficient you are, an owner-dependent business’s revenue will flatline at some point.
4. Your vacation schedule coincides with Halley’s Comet.
If it feels like you can only take a vacation every 72 to 80 years, then you are most likely an owner-dependent business. Start by taking one day off and seeing how your company does without you. You can even stay close by. Then gradually work up to a point where you can take a few weeks off, maybe even go out of the country, without it affecting the business.
5. Your days in the office seem like light years.
The average business owner works 52 hours a week. If you would like to get that down to the normal 40-hour workweek, then don’t always be the first one there and the last one to leave. Create a standard operating procedures (SOP) guide that shows your employees how to open the business in the morning and close the business down at night, so you don’t always have to. And give the guide to every employee the day they are hired.
6. Signing authority is a black hole.
Most business owners sign the checks, but what happens if you’re finally taking that long-awaited vacation and an important supplier needs to be paid? Consider giving a trustworthy employee backup signing authority for checks up to an amount that you’re comfortable with. In addition, consider giving frontline, customer-facing employees the autonomy to approve discount requests. Putting the right people and processes in place to handle payments is an essential part of building a valuable business.
One of your first steps as a business owner is to make yourself as redundant in the business as possible. Attracting and retaining top talent, adequately training them on all aspects of the business, and giving them the autonomy to make important decisions can be a giant leap toward building a valuable and transferrable business.
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