TAKE AN EXTENDED BREAK TO IMPROVE ENTERPRISE VALUE
February 8, 2015
Most SMEs are built from the ground up and undergo slow, sustainable growth that revolves around the hard work of the owner. Consequently SME’s often have a centralised structure in which the owner delegates little and chooses to retain a high degree of control. This inevitably makes the smooth operation of the business very owner-dependent and, whilst this model is fine when it comes to growing the business, it detracts from potential value when it comes to selling the business. Where can a prospective buyer find value when the business is dependent on the know-how of you, the previous owner!
A good insight into the autonomy of a business can be gained when the owner goes on holiday as it gives a true measure of how reliably the business runs without them; a highly desirable trait for any potential buyer. Often owners are surprised at how well their company runs in their absence. Increased authority amongst employees drives productive behaviour and problems are overcome using initiative when they would have otherwise been referred back to the owner. If a business can survive a period of ownership absence then it is much more likely to be successfully sold when compared to those owner dependent businesses.
However for many SME owners an extended break results in a dip in performance and a multitude of emails when the work inbox goes back online. The most important thing to do when returning from a vacation is to keep a cool head and take stock of the problems that have arisen. Rather than frantically trying to correct the problems, take the time to look at the root cause of the problems and see if any preventative action can be taken to avoid the same problems in the future. This is an important step toward an autonomous, non-owner dependent business.
Most issues that arise in owner-dependent businesses are a result of people management and business systems and procedures.
Understandably many SME owners have trouble delegating authority to subordinates as they are the ones who have nurtured the business and they are used to calling all the shots. Giving authority to individuals who may not see things in the same way is a daunting prospect yet it is an important aspect of business growth and, eventually, succession. Establishing a reliable and trustworthy team who ensure continuation of the business when new ownership takes over enhances business value and ensures the success of succession. In order to achieve this it may be that roles need to be redefined in a more formal manner, extra training may be needed and greater responsibility may need to be delegated. Whatever action you may choose to take remember that, ultimately, to take the business forward you should look to build a trustworthy team that understand it’s role completely in order to foster the desired autonomy.
Problems often arise due to informal business practices and a lack of clearly defined systems and procedures (including contingency systems). Many SMEs train staff in an informal manner with more experienced staff mentoring new staff and teaching them the “ins” and “outs” of the job. Whilst this is fine for experienced employees and a management team that is familiar with the business, problems can soon arise when experienced staff leave or when staff turnover is high. This destroys business value as prospective owners who may not have base-level industry experience find themselves at the mercy of the management team they buy into and, similarly, will find it harder to grasp key business/industry practices. This issue is simply addressed. Well-defined training manuals, company policies, procedures and back-up systems not only result in greater job transparency and business autonomy but improve the value of the business.
The most important lesson we can learn from this view of business is that to achieve autonomy, transparency and well-defined business practices is the very basis by which prospective buyers ascribe value. So how about it? Take a holiday and see how valuable your business is.