06 Dec How to Make Your Business More Valuable by Becoming a Passive Owner
One of the most important steps you can take to increase the value of your company is take on a more passive role. When you’re not involved in the day-to-day operations, your business will be seen as significantly more valuable than a business dependent on its owner.
This increased value rings true whether you’re going to keep your business or sell it – a business with a passive owner (in other words, in sell-ready mode) simply runs better, because of the systemic approaches put in place.
And if and when you do eventually sell your business, passive ownership becomes a vital selling point. Your prospective buyer isn’t interested in what you offer to the company. In fact, that’s one of the last things he wants to hear. He wants you to say:
“Here’s this amazing company I’ve built. If I left today, you’d still be able to run this business without skipping a beat.”
When he hears that, your company’s value will soar. Simple as that.
How do you become a passive owner?
There are three fundamental steps to take in order to become a passive owner:
1. Systematize your business – A common mistake new business owners make as they start their companies is to hire new people without writing down any systems of what each job title is responsible for. The very first step you need to take to become a passive owner is to systemize your business.
2. Find your go-to person – Since you won’t be handling day-to-day operations, you’ll need someone who can take the reigns. A Chief Operating Officer or General Manager will be the person who runs your business, allowing you to take a step back.
3. Build trust, and accept mistakes – This one’s easier said than done, but you have to start trusting your employees and allowing them to make mistakes. Let’s discus this one in more detail.
Taking a backseat role isn’t always so easy
For all intents and purposes, you could easily replace the term passive with giving up control. Few business owners relish the idea of giving up control of something they’ve built from the ground up, but that’s exactly what’s needed to make your business sell-ready.
From the onset, you likely were in control of every little detail of your company. There’s a simple reason for that: during the early stages of your company, one mistake could put you out of business.
As you look to shift roles in your company, you have to begin to acknowledge that all of your hard work and commitment resulted in a well-oiled machine where mistakes might still be costly, but they won’t cripple you for good.
If your systems are put into place, and you have a go-to person who can take over reigns, then have faith that your company can withstand the inevitable mistakes your employees will make when every action isn’t examined closely by the owner.
Remember: You are not the most valuable asset in your company
At least, you should hope you’re not. Intellectual property or intangible assets associated with your sale are what will make your business more valuable – while you’re running it as well as when it comes time to sell.
When it comes time to sell your business, you’ll be able to share the methodology behind what makes your company successful, and explain how these buyers can use this methodology to grow into a larger enterprise.
But it’s equally as important to remember that becoming a passive owner isn’t something that’ll happen overnight. It won’t even happen over the course of several months. On average, you should anticipate it taking anywhere from 2 – 5 years to truly build a sell-ready business that will be more valuable to you today, as well as when it comes time to sell.