What is your business worth without you?
One family operating business owner wanted to sell the business. The next generation of the family was too young to contribute to operating the business. When the owner consulted with an investment banker he was convinced by the banker he could sell the business to a strategic buyer at top dollar and the buyer would take on the management risk.
Then came the rude awakening. The buyer found out the hard way that without key management personnel the business was only worth a fraction of his desired amount. Back to square one. This situation was clearly avoidable and the negative impact of the employees knowing he was trying to sell the business resulted in departures of several key management personnel.
If you’re a business owner, no matter where you’re at on your journey, it’s time to make building transferable value part of your strategy. Personal goodwill is not transferable but business goodwill is.
What is transferable value? It’s what your business is worth to another party after you exit. It is the value of your business that can thrive after you depart. It’s not what your business is worth to you, but what its worth to others, whether they are buyers or successors.
To start, ask yourself the question, “Is my business worthless without me?” If you are in charge of attracting new clients, financial planning, and day-to-day operations, it may be. Even a company making millions a year could be forced to shut down if there’s nobody to replace management when they depart. No one will be willing to buy your business if they can’t run and grow it without you.
Your goals, including maintaining your philanthropic activities and building your legacy, will not be possible if your company isn’t able to live on without you. This doesn’t mean you should step away from running your business, but it does mean you need to train and retain a capable management team who can keep the business going.
There are any number of ways to build transferable value, but the following may be the most important. If you’re failing to build transferable value in any of these areas you should reassess the role you play in that area.
What builds transferable value?
- Demonstrating sustainable and increasing capital
- Having a management team ready to assume control while recruiting and retaining key employees
- Creating a strategic business continuity plan to prevent and recover from potential threats
- Producing metrics and documenting your progress to display financial and organizational information clearly
- Proactively consulting with financial advisors who can foresee potential challenges and implement controls
Even if you don’t envision selling your business in the near-term, it’s critical to start building transferable value. The sooner you do, the sooner you’ll reap the benefits, including increased cash flow. Without it your business is exposed to greater risk, and you have limited exit plans and few options if disaster strikes.
For advice on exit planning, including building transferable value, contact Cendrowski Corporate Advisors at cca-advisors.com.