Many successful businesses have a hidden weakness: everything depends upon the owner.
The owner may control customer relationships, approve expenditure, negotiate with suppliers, manage employees and hold much of the knowledge required to keep the business running.
This can work while the owner is present, but what happens during illness, holidays or eventually when the owner wants to retire?
A useful test is to imagine that you could not work in the business for three months. Which decisions would be delayed? Which customers would demand to speak to you? Would employees know how to deal with unusual situations? Could somebody else access the information needed to run the business?
The answers can reveal areas where greater resilience is required.
Owner dependence can also have a significant effect on business value. A purchaser is primarily buying the future profits and cash flows of the business. If those profits depend heavily upon the existing owner remaining involved, they may be regarded as less secure.
Reducing dependence takes time. Responsibilities can be delegated gradually, procedures documented and customer relationships shared with other members of the team. Important information should be held within business systems rather than only in the owner's head.
Management information can help too. A business with reliable systems, documented procedures and regular financial reporting is much easier for somebody else to understand and operate.
Even if you have no intention of selling, reducing owner dependence can improve your quality of life. Being able to take a holiday without constantly checking emails is itself a worthwhile objective.
The strongest business is not necessarily one whose owner works the longest hours. It is one that can continue to operate successfully when the owner is not there.
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Published by The NAS News Team
