What Is an Absentee Run Business?
An absentee-run business can be just the ticket for those who want to keep their day job and have a secondary source of income or those looking for passive income without the grind of a 9-to-5.
But it can also be a one-way ticket to disappointment and even business failure for entrepreneurs who don’t understand that even absentee business owners must keep their eye on the ball.
That’s because an absentee owner, however hands-off, must remain involved in the business to keep it on track. Absentee ownership also requires special skills that small business owners who work on-site daily don’t always need.
What Is an Absentee Run Business?
An absentee-run business is one where the business owner doesn’t take part in day-to-day operations. The daily business is usually handled by a manager or group of managers, and the owner of the business monitors it from afar.
Semi-absentee businesses, a close cousin of absentee businesses, are similarly managed by employees. However, the owner of a semi-absentee business usually spends some time on-site weekly with hands-on responsibilities, usually 10-15 hours a week.
Some examples of the types of businesses that lend themselves to absentee ownership include:
- Laundromats
- Dry cleaning
- Car washes
- Gas stations
- Vending machines
- Landscaping
- Party and event rentals
- Self-storage facilities
As a buyer, it’s important to note that an absentee-run business might not start that way. Buyers should pay careful attention to the existing procedures, the staffing, and the operational structure of the business they want to acquire. In some cases, the business might be set up to run with an absentee owner. In other instances, a buyer might have to put in considerable time and effort to organize and structure the business to run successfully without the daily presence and input of the owner.
Choosing the Right Business
Some business types are more easily run with absentee ownership. In general, buyers should look for businesses that are simple to operate, have a proven business model, and are already well-established in the marketplace.
The more moving parts to the business, the more you’ll have to rely on employees and managers to make decisions. Left to their own devices, employees might make those decisions based on expediency and not in the best interests of the company.
More likely than not, a business with a proven business model has established processes and procedures in place. Employees need only follow existing operating procedures. There’s no need to reinvent the wheel.
Likewise, buying an established business means customer and vendor relationships are already in place. Relationship building usually falls to the business owner, requiring a full-time effort.
Franchise businesses often lend themselves to absentee ownership because they have proven operational procedures, an established brand, and customer awareness. At the other end of the spectrum, service businesses are often difficult to manage from afar because they rely on relationships between the business owner and customers.
As with any acquisition, you’ll want to make sure that the business you buy is financially sound and free of legal and regulatory liabilities. In addition to assessing whether the business can flourish under absentee ownership, conduct due diligence to ensure you’re buying a profitable business with reliable cash flow.
Pros and Cons of Absentee Run Businesses
Entrepreneurs considering becoming absentee owners should take careful stock of the advantages and drawbacks of these business models. Absentee run businesses come with significant risks as well as rewards.
Pros of Absentee Run Businesses
An absentee-run business can be a good income stream in retirement or for business owners who want to build a portfolio of investments. These business models also offer a way to transition to full-time business ownership by allowing you to keep a full-time job until the business grows enough to be your only source of income.
Absentee-run businesses can provide:
- The freedom to pursue other interests. Since you’re not spending every waking hour running the business, you can pursue other interests. Retirees can spend more time with family or traveling. Entrepreneurs can explore other business opportunities. Professionals can continue their careers. An absentee run business allows you to pursue these interests without giving up income.
- The ability to maintain a full-time job while transitioning to business ownership. Quitting a job to buy a business comes with risks. It can take time—years, in some cases—to generate income from your new business, and you’ll have to dip into your personal savings during the startup period. But if you buy an absentee-run business, you can keep your day job and transition to full-time business ownership when the business grows large enough to be your only income.
- The opportunity to diversify your investments. Some entrepreneurs use absentee-run businesses to diversify the risk in their portfolio. Investing in different absentee-run businesses can insulate you from market fluctuations and reduce the chances that an economic downturn in one market will significantly affect your livelihood.
Cons of Absentee Run Businesses
The biggest drawback to owning an absentee-run business is that the person running it isn’t you. You can find good employees and competent managers, but no matter their experience and skill, they’re not going to make the same decisions you would make or run the business exactly how you would.
The risks of handing over control to others have other potential downsides:
- Employees aren’t motivated to build your business. Most business owners focus on improving efficiencies, increasing gross revenue, and seeking ways to expand the business. Employees tend to be focused on their success, not the success of the business. Their interest is in keeping their job and getting promoted. They won’t have the same interest in building the business, so it’s probably unrealistic to expect them to do more than their jobs.
- Employees can quit, leaving you stranded. You might have to pick up the slack if a key manager quits. Unless you have a solid succession plan where employees are cross trained in job responsibilities and capable of immediately stepping into new roles, your business might suffer while you look for and train a replacement.
- Employee oversight. Effective oversight and monitoring procedures are essential when employees are responsible for handling payments or other financial transactions, ensuring the safeguarding of your business's earnings and promoting transparent and accurate bookkeeping practices.
Businesses with long-term, well-trained, and experienced employees are essential for successful absentee ownership. The flip side of that is that these businesses also usually command a higher valuation and asking price because you’re paying for a management team that can work well independently.
Best Practices for Absentee Run Businesses
If you’re on-site managing a business, you can observe daily operations first-hand. You’ll usually have a closer relationship with your employees because you work and communicate with them daily. You can monitor the workflow, intervene quickly if you see problems, and implement changes, as needed.
Absentee owners don’t have the same luxury. They must rely on systems and procedures to ensure the business is working as it should. Absentee owners also need advanced skills and business knowledge to compensate for their absence.
Some of the ways you can overcome the challenges of absentee ownership are:
Choose a Business You’re Familiar With
Even when buying a turnkey business, it’s a good idea to choose a business and industry you already know. If you don’t bring your own business experience to the table, you risk putting the fate of the business entirely in the hands of employees and managers.
Develop Ways to Stay Engaged With Employees
The old saying, “When the cat’s away, the mice will play,” is particularly fitting for absentee owners. Not only are employees likely to give less than 100 percent because the boss isn’t around, but they might think that an absentee owner doesn’t care much about what happens to the business.
Video chats and on-site or off-site meetings with employees and managers can help counteract those ideas. You should also engage employees and managers by asking for their feedback and involving them in management decisions.
Assert Leadership
Leadership is more than commanding authority. As an absentee-owner, it’s especially important to find ways to motivate employees, keep lines of communication open, and establish a system of incentives to recognize employees for their work.
Trust, but Verify
The biggest danger of absentee ownership is that by the time the business goes south, it’s too late to correct course. It’s essential to find ways to monitor the business’s performance in real-time, not just monthly or quarterly.
Electronic accounting procedures can keep you abreast of the business promptly. Similarly, make sure you are copied on customer and vendor emails, so you’re in the loop on all communications.
In short, you must find ways to be present in the business, even when you’re not physically there.
When looking for passive income opportunities, start your search for absentee businesses for sale and take the first step toward building a strong and diversified investment portfolio. You may also want to consider hiring a business broker for expert guidance, and leverage your professional network to uncover insider insights. Visit BizBuySell’s Business Broker Directory to connect with experienced professionals who can assist in evaluating absentee run businesses.