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Your Business May Be Worth More If You Stop Working So Hard

Did you know that the owner's involvement in a business affects its value?

A semi-absentee business is more valuable than an owner operated business; the less an owner directly works the more a buyer will pay, all else being equal.

For many business owners, this might not be possible. Why? Traditional business models require the owner to be on the premises, wearing many hats and performing diverse tasks. As such, it's not uncommon for business owners to work 60+ hours a week to grow the business and generate more revenue.

The truth is, you don't need to work a full-time schedule to become a successful business owner. Not all businesses need a constantly present owner at the helm.

Many businesses are thriving with a semi-absentee owner who spends only a few hours a week managing key business areas. And this comes with many benefits, which will be discussed later in this article.

Owner's involvement in a business can take one of the following three forms:

The owner operates the business on a full-time basis (owner/operator)
The owner is absentee or semi-absentee (has minimal responsibilities)
Multiple owners operate the business

Let's take a look at each of these three scenarios, including their risks and rewards, to show you why you might not need to work so hard to grow a business.

An Absentee Business is Easier to Sell and Worth More Than an Owner Operated Business

How many hours a week do you work? This seemingly innocuous question is the key question I ask business owners to determine if their business is sellable.

Buyers will not pay a premium for a business when the risk of “core knowledge” belongs to one person who is planning to exit. Critical areas include:

Customer relationships based on a single point of contact particularly when personal or custom solutions are at the core of the business.
Long term vendor terms may not be honored.
Intimate knowledge and control of operations including manufacturing and distribution belong to one person.

Put yourself across the conference table from a buyer. Does the buyer see a business built on a foundation with strong systems and key employees in place or a business requiring considerable effort, capital and risk to reach desired results?

Buyers pay a higher price for an absentee or semi-absentee business compared to an owner operated business.

Scenario 1: The Owner Operates the Business on a Full-Time Basis

The owner/operator model of running a business requires the owner to be involved in all aspects of the day-to-day operations.

There's typically little additional time for outside interests when you take on the owner/operator role because all your focus and time is on managing and growing the business. The owner is typically engaged full-time and is active in all aspects of the business.

Benefits

Running an owner/operator business comes with many advantages, including:

Personal Satisfaction and Growth
Running your own business that becomes successful provides you with tremendous personal satisfaction. For many, the business becomes the pursuit of a life-long dream.

It allows you to enhance your business and leadership skills as well as develop new skills, thus providing continuous growth, pride, and fulfillment.
Financial Rewards
If you've been running your business for years, your business is probably providing ample cash flow and benefits such as retirement savings. Managing your business gives you the flexibility to charge what you deem a fair price at profit margins under your control.
Learning New Roles
Delegating management roles only gives you one title; the owner.

However, when you work for yourself and manage all the roles, you can wear many different hats. Basically, the owner/operator business model allows you to learn new skills as you're involved in all aspects of the business moving forward.

Risks/Disadvantages

The owner-operator business model gives operators full control over the business.

While this provides the owner personal satisfaction and growth, it does come with many challenges and risks, including:

Time
If you thought you were working long hours in your 9 to 5 job, think again.

Owner-operators work more than employees because they have more workload to cover. From managing cash flows and setting up contracts to overseeing daily operations, owner-operators don't have much downtime.
Limited Growth
When you're in an owner-operator role, your plate is always full. You focus more on managing the daily operations at the expense of strategic tasks. This denies you the time to diversify and manage multiple businesses, thus stifling growth.

Scenario 2: The Current Owner Is Absentee/Semi-Absentee

Are you interested in investing in other businesses but not yet ready to leave your current job? Or want to diversify your business interests but can't commit to a full-time role?

That's where an absentee or semi-absentee business model comes to play.

An absentee owner is an individual or entity that legally owns the business without managing every aspect.

An absentee owner model is where a business can generate income independently without the owner's full-time involvement. While this category was once relegated to vending machines, self-serve car washes, and laundromats, today, many businesses can generate income automatically with little ongoing attention, maintenance, or resources.

The Current Owner Is Semi-Absentee

A semi-absentee business model can operate while simultaneously running another business or enjoying personal time. Simply put, semi-absentee ownership means owning a business without committing yourself to full-time management.

Unlike an owner-operator model where the owner's presence is required full-time, semi-absentee ownership typically requires roughly 5-20 hours a week of time investment. As such, the business can successfully run while still maintaining other obligations.

Running a semi-absentee business gives you the opportunity to diversify income streams and build equity while keeping a daily job or reduce working time.

The owner hires a general manager to oversee the daily operations, which allows them to focus more on strategic tasks.

Perhaps the biggest benefit of being a semi-absentee owner is that you don't have to spend 60+ hours a week managing business operations. Most importantly, you can own multiple locations or businesses without being constantly present on the business premises.

Since owners aren't working in the business, they can spend more time implementing growth strategies, managing managers, and overseeing key business areas.

How a Semi-Absentee Owner Works

Typically, a manager will be hired to manage the business. The manager oversees the business's daily operations and build relationships with clients, vendors, and employees.

You'll run the business from behind the scenes as the semi-absentee owner. You do not participate in the daily operations or management of the business.

However, you will need to invest quality time (typically 5 – 10 hours a week) to oversee the management of financials and ensure the company is operating to your standards.

Benefits of Semi-Absentee Ownership

The primary benefit of being an absentee owner is obvious; you get the opportunity to earn income in something you aren't investing much time in.

With this business model, you don't have to work around the clock to make your business profitable. Often, detailed industry knowledge is not necessary to run a semi-absentee business, either. Success depends on hiring managers with the expertise required to run the business.

Secondly, buying a semi-absentee business allows you to continue working your full-time job. As mentioned, you can operate semi-absentee while simultaneously having another career.

Most importantly, a semi-absentee business allows you to grow additional businesses or focus on a primary career.

You can reinvest your profits into another business, increasing net worth while maintaining a quality work-life balance. And the best part, you get all the benefits of business ownership without a full-time commitment.

Risks of Semi-Absentee Ownership

One of the trade-offs in absentee ownership is the longer development time when it comes to generating the desired revenue compared to a full-time endeavor.

And it makes sense—the more time and effort you invest in your business, the quicker it will ramp up. In semi-absentee ownership, you hire people to run and manage the business. In short, you're putting your business and future profits in someone else's hands. Hire the wrong people, and they could ruin a business with the potential to make huge profits.

In contrast, a full-time owner invests all the time and effort into growing the business, which often results in faster growth, less expenses and more business opportunities.

Scenario 3: There are Multiple Owners

Many businesses today have multiple owners, and it can make sense to form such a partnership. In the case a business has two or more owners operating the company full-time, responsibilities may be divided by skill, experience and time commitments.

Always put a buy-sell agreement in place to ensure responsibilities, capital requirements, current and future, and exit scenarios are agreed upon. Business Brokers are often brought into disputes or death/disease scenarios without written agreements, making the business unsellable.

The Bottom Line

Traditional business models require the owner to be on the premises, wearing many hats and performing diverse tasks. This model requires owners to work round the clock to turn a profit.

Instead of working on a business full-time, spending over 60 hours a week in a business that is not guaranteed to make a profit, it may be wiser to opt for semi-absentee ownership.

This way, you can manage the business without being present on the business premises full time. Most importantly, you can spend time strategizing on business growth and even own multiple businesses without spending too much time managing the businesses. The result is increased profits, building equity and enjoying work-life balance.