Many business owners operate their companies believing that they have to work a full-time schedule, or more, to be successful. The idea that this is necessary to run a successful business is a myth. You might feel like you must be involved in every decision, be constantly present, and wear many hats, but by doing so you are actually hurting your business’s value. If you are considering selling your business in the next few years or just looking to spend less time running it, take a look at the difference between full-time and absentee ownership. Examine the risks and rewards of each to see why you might not need to work so hard to run your business.
The Owner/Operator Model of Running a Business
This model of business ownership requires that the owner is heavily involved in day-to-day business operations. When you assume this full-time role, there is typically little time for outside interests, because all your time is spent running the business. Owner-operators often work during off-hours to make sure they don’t fall behind. They spend the majority of their time growing and running the business.
While being a full-time business owner is time consuming, it does have some key benefits. Many people dream of someday running their own business. Operating a successful business on your own does provide a certain level of personal satisfaction. It can also help you built your leadership skills and provide you with fulfillment. Being a hands-on owner helps you to learn new skills as you take on different roles from being involved in all aspects of the business. If you have been running a business for several years, it probably also provides you with good cash flow. Doing a lot of the work yourself gives you more flexibility in pricing and helps you to control your profit margins.
There are several risks and challenges to running a business full-time. One of the more obvious ones is that time is sparse. As an owner-operator, your plate is always full. A heavy involvement in daily operations could come at the expense of strategic tasks. This may limit your company’s growth potential.
If you’re starting to plan for the eventual sale of your business, it’s important to know that the owner-operator model is seen as a big risk to buyers. They will not pay a premium for a business when the core knowledge belongs to one person, the one who is planning to leave. This knowledge includes customer and vendor relationships, or custom solutions that are not well documented. It also includes an intimate knowledge and control of operations. Instead of seeing a business built on a strong foundation run by capable, key employees and strong systems, buyers will see a business that requires considerable effort and investment to operate and get it to where they want it to be.
The Absentee or Semi-Absentee Model of Running a Business
The absentee or semi-absentee model allows the owner the time and freedom to pursue outside interests, including other business ventures. When you operate a business in this capacity, the business can generate income independently without you having to manage every aspect of it. A semi-absentee ownership model requires roughly 5-20 hours per week of work, which allows the owner to pursue other income streams or enjoy other aspects of life. The owner can still operate a successful business while tending to other obligations.
If you are pursuing absentee or semi-absentee status, you will have to hire a general manager to oversee daily operations. The manager oversees daily operations and builds relationships with clients, customers, vendors and employees. You still run the show, but from behind the scenes. While your plate will not be as full, you should still prioritize setting aside time each week to review financials. This way you can ensure the business is being operated to your standards. In addition to hiring a good manager, you need to thoroughly document business processes, to make training and knowledge transfer easier. With strong leadership structure, well-trained employees and a complete operations manual you can be well on your way achieving absentee status.
The most prominent benefit of absentee ownership is the ability to earn income from a business that you don’t have to spend much time in. Detailed industry knowledge becomes less of a requirement when running a business as an absentee owner. Your success will depend more on your ability to hire a capable manager. As previously mentioned, it also allows you to diversify your income. You could work full or part time in another field, run another business, or expand the one you already own. You can gain a better work-life balance and get all the benefits of business ownership, without a full-time commitment. Ultimately your business will also be much more valuable to potential investors because it can operate without constant owner involvement.
The primary risk of absentee ownership is longer development time when it comes to generating the desired revenue. If you invest all your time and effort into growing your business, you could achieve faster growth. However, there will be a point at which you cannot continue to grow without hiring someone to delegate operations to. Putting the success of your business in someone else’s hands is also a risk though. Making a poor hiring decision could certainly set you back. If this is a big concern for you, continue to stay involved full-time until you can ensure that the manager or team you’ve hired is capable of running the business successfully.
While traditional, full-time business ownership has its benefits, it also has its limitations. At some point, you may decide that you’re not as passionate or personally invested in the business as you once were. Burnout may start to creep in, and you may long for shorter work days. You may desire more time with the people you love, pursuing a hobby, or charting a new career path. You could also be at the twilight of your career, looking for a smooth exit transition. Whatever your motivation, learning to take a step back and spend less time in your business could be the key to making it more successful and more valuable.
If you are trying to plan an exit from your business, or just looking for a way to spend more time away from it, we can help. Corporate Investment Business Brokers (CIBB) has been working with Southwest Florida business owners since 1986 to create valuable businesses and successful exit strategies. Contact us for a free, no-obligation consultation and discover how spending less time with your business can help boost its value in the long run.
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