Throughout my life, I have met two primary types of businesses—those where every decision and all knowledge resides with the owner and/or one key employee, and those with a structure that allows the team to make day-to-day decisions and where knowledge is spread throughout the team through a system of processes in place to run the business. The latter often includes a leadership team that not only makes day-to-day decisions but also sets and leads the strategy for the business.

When a potential buyer evaluates a business, they typically prefer a business with structure and a system in place. This reality reduces the risk of losing key knowledge and effectiveness of the business. And it greatly increases the likelihood that the business will continue to operate and produce as it did pre-acquisition. Business owners are often looking to exit in short order post acquisition, even when they say or think they aren’t—and buyers know this.

System benefits

Businesses that have a formal system in place often are more profitable, can grow more effectively and with less pain, and are more likely to be sustainable. These are all reasons a buyer would be more inclined to consider purchasing a business. If they are already operating a business in the same space, a formalized structure and system are more likely to align with or at least be comparable to their existing business(es). This makes them easier to integrate and operate long term and provides for less revenue and profit interruption when they do so.

Scalability, sustainability and profitability, therefore, have a direct impact on the potential sale price of a business. A business with no formal structure, no scalable system in place and where all the customer and operational knowledge resides with the owner, is basically only worth the salary value of the business owner; unless there can be some guarantee of the owner delivering a transition of not only clients but also the knowledge they hold in operating the business.

Ease the transition

A business with a capable and builtout leadership team, as well as formal systems in place to manage customer relationships and the business operations, can easily be transferred to the new owner and continue operating without the continued employment of any one individual.

There would commonly be customer contracts in place that provide at least some guarantee of continued customer engagement and the risk of losing the "knowledge" of the business is much lower because it is carried by multiple people.

When you consider the possibility of selling your business, ask yourself how well the business can operate without your day-to-day involvement? If the answer is truly that it can’t, I suggest spending the time and energy to change that before you put your business on the market.

Jumpstart solutions

1. Create an organizational structure that requires others to participate in the day-to-day operations.
2. Empower that team to make decisions and act on the customers’ and business’s behalf.
3. Implement a standard system with a software program to run the business.
4. Create and document standard operating procedures (SOPs) for the team to follow.
5. Hold the team accountable to established goals and key performance indicators (KPIs).

David Gallagher is principal for Spiritus Business Advisors. He has over 25 years of experience as a senior service-oriented leader on all aspects of property service. Contact him at david@spiritusba.com.