February 2019 Newsletter – Owner Dependence

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Here’s what’s new from Prometis Partners:

Our topic for the month of February has been owner dependency – how business owners can determine whether their businesses are too dependent on their skills and presence and how they can address this problem before it’s too late.

What Is Owner Dependence?

owner dependence

To begin with owner dependence is a key element of business valuation. For many owners, their company is their biggest and most important asset. To be able to move on to another phase of their lives, they will need to be able to sell it. And to sell it, they need to objectively determine its value and, if possible, increase that value until the right time comes for them to sell the company. If a company is too owner dependent, buyers will shy away. They will know instinctively that the business will not survive a transition in leadership, let alone thrive after the sale.

What are some red flags that indicate a business is owner dependent? Click here to read more.

Exit Coach Radio Podcast

In this podcast, Vincent discusses how the traditional model of building a business around yourself is flawed. According to the U.S. Census Bureau, almost 89% of businesses are owner dependent in the sense that they are still reliant on the business owner having some function in the business. Most business owners Vincent consults with are handling important day-to-day tasks themselves. This is true of even of large companies that generate high annual revenue.

Click here to hear when Vincent believes a business should begin reducing owner dependency and the question he always asks every business owner he talks to.

Prometis Partners Is Featured in MiMfg Magazine

MiMfg Magazine featured Vincent in its February 2019 edition. He talks about the intersection of manufacturing and employment.

How Does Reducing Owner Dependence Improve the Company’s Value?

There are four major benefits of having an owner independent business. They are:

  1. The business becomes more stable, both financially and operationally. An owner dependent business is like a pedestal table. If you pull out the pedestal, the table crashes. Conversely, if a table has four legs and one leg is damaged, it can remain upright and in use until that leg can be repaired or replaced. You want the important aspects of your company to be handled by a number of people who know what they are doing and are capable of training others.
  2. A strong company has a greater impact in its market. You want your company to represent what is best in the industry and have a solid reputation for good work and profitability. A company that dominates its market will sell itself.
  3. Buyers are attracted to profitable businesses that run themselves. Buyers don’t want to have to worry about the functionality of the business. They don’t want to take on an asset they’ll have to struggle to keep afloat. They’re looking for a higher return on their capital. They also want to have a life outside of work and time to pursue other life goals.
  4. Staff have more security and growth opportunities in an owner independent business. The business itself is not at risk of going under, and because the key responsibilities are taken care of, management is in a better position to assess the skills and talents of employees. As the business expands, more opportunities will also arise. A rising tide lifts all boats.

In making his business less owner dependent, there are also many benefits for the business owner too. These include increased net worth and the ability to focus on other goals or take personal time to enjoy life outside of work. Strengthening the company is a win-win for everyone involved, but the process takes time, so it’s better to begin with assessing your company now so you can make any necessary changes thoughtfully and over time.

Prometis Partners would be happy to talk to you about any transitional planning you have in mind for your business. While it’s always best to start early in reducing owner dependence, we can help your come up with strategies for both the short term and the longer term now.

 

Vincent Mastrovito

Vincent Mastrovito

vincent@prometispartners.com
(616) 622-3070
250 Monroe Ave. NW, Suite 400 
Grand Rapids, MI, 49503

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