By Eric S. Lynch – Indiana Business Advisors
As a former business owner, I remember discussing with fellow owners what their plans were for their businesses. The majority of the time, they would say, ‘they’re going to carry me out!’ or ‘I’m going to sell and have a great retirement!’
At the other end of the spectrum, some business owners have never considered the day they do not return. As I reflect on that question, I was definitely in the latter. I was SO busy working in my business that I never looked up to consider the long view. Now I understand that I was caught in what has been coined as ‘the owner’s trap!’ – a cycle where the business owner controls every activity within the company rather than outsourcing some operations like accounting or inventory to an employee or contractor. Their common argument being, “if I can make the entries into Quickbooks, schedule my own meetings, order all of the office supplies, etc., why would I have anyone else to do that if it costs me money?” Furthermore, they were so deeply entrenched in the details of their operations, they hadn’t placed any value on what others were contributing to their business, no matter how small. There was never a good rebuttal to this statement…until now.
To provide the facts for this real world application, there are groups lead by thought leaders like John Warrillow, who have gather information from more than 20,000 businesses to study the statistics that make a difference in a business owner’s life. With these statistics, we know that when a business owner is at the center of all business activities, they may be saving money, but they are detrimentally effecting their business’ ultimate value.
For example, when the customer is only doing business with that company solely because of the owner, statistically we know if a customer is only doing business because of a direct relationship with the owner, the business’ ultimate valuation may drop as much as 22 percent as compared to the average business. However, the business’ value may increase by 20 percent if the business owner does not know the customer and rarely gets involved in serving individual customers. Think about that, if a business owner backs himself or herself out from being the sole reason the customers are doing business with them and have a system in place to take customer orders by employees, the ultimate value of the business increases by as much as 42 percent.
So, doing some quick math, if you approximate your business’ value at $100,000 or even $1,000,000 and you can boost your business’ value by 40 percent by training and relying on someone else to do the activities that weigh you down as the business owner, you can quickly gain $40,000 or $400,000 in personal wealth and have a personal life, too. With all of this, the question then remains – Are Your Business Practices’ Purpose to Add Value or Reduce Expense?
Eric Lynch is a Certified Business Broker and a Certified Value Builder with Indiana Business Advisors, the largest business brokerage firm in Indiana. He serves West Central Indiana small business owners, helping them get the most value out of their company.
Contact Eric at eric@indianabusinessadvisors.com to learn more or for further comment and conversation.
