At the last count there were nearly five million businesses in the UK, and around 98% are small and medium-sized. Of these, most are one-man – or one-woman – bands, operating as sole traders. The rest are partnerships or limited companies, the majority employing fewer than five people, managed by the people who own them. They tend to reach a certain size and remain there, providing a living for their owners and employees. Just a small minority are genuinely entrepreneurial businesses, founded by people with the ambition and talent to grow their firms into something significant.
When business owners reach the point of thinking about retiring or moving on, it often comes as a nasty shock as they discover there is less value in the business than they supposed. In concrete terms, that means the price someone else is prepared to pay is a lot lower than the owner has in mind. Worse still, any offer frequently comes with strings attached. The commonest is a requirement for continuing involvement in the business on the part of the seller – not an attractive option if you’ve been planning to retire, particularly to sunnier climes. Unsurprisingly, many owner-managed businesses, even those with quite large turnovers, change hands for a nominal sum or simply cease to trade.
The main reason for the shortfall in expectations of value is that the business is overly dependent on the owner. Sometimes it is wholly dependent on the owner, and when he or she is away the business more or less grinds to a halt. Employees are unable or un-empowered to take anything other than routine decisions. In spite of handovers and briefings, the owner is at the receiving end of a stream of enquiries and requests for answers. It’s not a great way to spend a vacation and explains why so many small business owners are reluctant to take holidays and keep their absences from the business to a minimum.
I call such firms Brand Me businesses. They are businesses which are inseparable from their owners. In their early days all businesses are Brand Me businesses. But if a business is ever going to flourish and mature, it has to make the transition from ‘Brand Me’ to Brand Business, a state when the business has independent value in its own right.
There are some telling signs when a business is still in the Brand Me stage:
- As mentioned above, the reluctance of the owner-manager to take holidays.
- Employees’ routine referral of decisions, big and small, to the boss: the owner in effect becomes a kind of performing seal.
- A corresponding lack of any real senior management team.
- Difficulty in retaining or attracting talented and motivated staff, because of limited discretion and few opportunities for career progression.
- On the financial side, the persistence of personal guarantees, often in support of short-term financing such as overdraft facilities, which tie the owner’s personal finances into those of the business.
Sound familiar? There are remedies to this situation, in the form of active steps which business owners can take. In the features that follow, I’ll be exploring the tried and tested ways in which owner-managers/company founders can create the value in the business they aspire to.
David Molian is a commercial writer and business author. David is a leading authority on high-growth entrepreneurial businesses in the UK and the former Director of the Business Growth Programme (BGP). David is the Ex-Chairman of the CMA, the Cranfield alumni association. He is also a board adviser to numerous businesses, he co-authored ‘Growing Your Business’, the authoritative guide for ambitious entrepreneurs and is now a Visiting Fellow at Cranfield University.