How To Run a Business as an Absentee Owner to Boost Value
Owning an absentee run business is the ultimate goal for entrepreneurs growing their own operation, offering the freedom to focus on other endeavors, or simply leisure, while the business income just keeps rolling in. Business buyers will also pay a premium for the privilege, and are always on the lookout for absentee run businesses to buy.
The trick to running a business as an absentee owner is to set it up so that customers, employees, and, when the time comes, potential buyers, hardly realize you haven’t been around.
Preparation, organization, planning, and follow up are key when you want to make certain that your business runs smoothly and efficiently and continues to increase in value without your day-to-day involvement.
What Does It Mean to Be an Absentee Business Owner?
Just as the name implies, an absentee business owner is someone who delegates day-to-day responsibilities for running their business to key employees or a management team while keeping arm’s length from the operation.
Not that absentee owners just sit back and collect income from the business. They might not be engaged in day-to-day operations, but the success or failure of the business is nevertheless in their hands. They must make sure that employees are well-trained and consistently monitor sales, operations, expenses, and all the other facets of the business.
Pros and Cons of Absentee Ownership
Who wouldn’t want a business that lets you make money and gives you the flexibility to determine how you’ll spend your time? But the benefits of absentee-run businesses come with some challenges as well.
Benefits of Absentee Ownership
The biggest benefit to absentee-owned businesses is freedom. For most small business owners, the business isn’t just 9-5. It’s 24/7. As an absentee owner, your every waking hour isn’t tied to the business, and you can use that time to pursue any number of activities.
Some absentee owners work a full-time job elsewhere or own another small business where they spend the bulk of their time. For them, the business they run from a distance might offer a second source of income, or a way to transition to full-time business ownership without risking their personal finances to get a startup off the ground.
In other cases, absentee ownership can buy you time for leisure activities or travel, or it can serve as a source of income to finance retirement.
Potential buyers see absentee-owned businesses as less risky. The success or failure of most small businesses comes down to the owner, and that presents a problem when it’s time to sell the business. Potential buyers want to know that the business they’re considering for purchase will continue to thrive once the owner is gone. When a business has been running well without the presence of its owner, buyers can rest assured that the success of the business will continue uninterrupted under new ownership.
Challenges of Absentee Ownership
Absentee owners must rely on others to carry out their vision. Well-established practices and procedures can help to ensure customers are treated fairly, business expenses are held in check, equipment is well-maintained, and so on. However, in some cases, employees may not have the same vested interest or the vision that owners have in seeing the business succeed.
Putting your trust in others can be challenging. For some absentee owners, it can be especially difficult to trust employees to manage the business well. As an absentee owner, you’ll have to give up some control and trust that your employees have been properly trained and empowered to run the operation as directed.
Best Businesses for Absentee Ownership
You can compensate for some of the challenges to absentee ownership by choosing the right business model to begin with. The simpler the business, the easier it is to put it in the hands of someone else.
Many franchise businesses also offer good opportunities for absentee or semi-absentee ownership because they run on established systems and procedures with ready-made support systems for training, marketing, and other functions.
Choosing a business and industry you’re already familiar with will also compensate for some of the drawbacks of absentee ownership. Without a frame of reference for how the business should run, you’ll have to rely on employees and managers and their way of doing things with no way to evaluate whether theirs is the best way. Having your own professional experience with a business and industry also helps you to anticipate problems and set up systems to avoid them.
Make Your Absentee-Run Business Turnkey to Increase Value
Running a business as an absentee owner with the aim of selling it at a higher value requires the creation of systems and procedures that support your objectives, including methods for reporting and monitoring day-to-day operations.
The idea is to make the business as turnkey as possible so that it runs well without you. Not only will this increase the value of your business for prospective buyers, but if your exit plan is to sell the business to an outside party, documenting operations will help buyers plainly see you’ve built in a solid plan for continuity.
When it comes to preparing your business for sale, you’ll want to take the time to identify opportunities to boost its value. Creating systems in place to make sure the business can run successfully without you at the helm will attract buyers. In order to have your company run more like an absentee business, you’ll want to:
Create a Solid Business Plan
Your business plan should include marketing and business strategies, as well as goals and timelines for achieving them. It should build in scalability, both for organic growth and any unexpected uptick in business.
Develop Clear Policies and Procedures
Formalize procedures, not just for day-to-day operations, but also for carrying out your business’s mission and values. Written policy and procedure manuals won’t cover every situation, but they should cover most of the issues likely to arise.
Build a Strong Management Team
Provide training and coaching so that your management team is well prepared to handle the day-to-day decision-making necessary. Managers must also be given authority to handle problems that arise so that issues don’t get swept under the rug.
Utilize Technology for Reporting and Oversight
Technology can be especially helpful when you are managing a business from afar. Make sure you review financials on a monthly basis, if not more frequently, to track your business performance in real time. Use accounting and payroll software for tracking outgoing expenses, cash flow, and other key metrics of your business performance on a regular basis. Review CRM status reports to make sure the sales team is following up on business opportunities.
Set up Checks and Balances
Use non-compete and non-disclosure agreements for key employees and managers. Monitor emails and outgoing correspondence to make sure employees are conducting business as you would if you were there. Hold briefing meetings with key employees and managers and use location visits to stay in touch and keep lines of communication open.
Establish Strong Vendor and Customer Relationships
No matter how good your team is, vendors and customers want to know that you are actively involved in the business. Check in with vendors and customers periodically. Keeping open lines of communication with vendors and customers can also help you to backstop any problems employees don’t bring to your attention.
Practice Good Leadership
The ability to lead your team and oversee operations remotely is one of the most important skills you’ll need to keep your finger on the pulse of the business. In fact, retaining key employees is critical to selling your business. The retention of key employees is a key component that potential buyers will examine when evaluating your business. If essential personnel leave the company after it’s sold, that will have an impact on business performance and continuity. Prospective buyers are often interested in to keeping employees to ensure continuous operations after the business changes hands.
Delegate, Don’t Abdicate
Prospective buyers, in many cases, are looking to purchase a steady stream of income. They may not be looking for a hands-on job. To free up more time, delegate as many tasks as possible to vendors and employees. A buyer looking to generate your seller’s discretionary income (SDE) would either have to work the same hours as you or factor in a new expense line in the P&L to hire someone else to handle the work. This ultimately affects the sale price, as it directly impacts the company’s profitability. But by putting systems and procedures in place so the business runs smoothly, absentee owners can increase the value of their business and prepare it for a profitable sale.
BizBuySell has many tools and resources to help you understand the value of your business. Learn more about your business’s worth by visiting our Valuation Center or get an instant estimate BizWorth Calculator.