By: David M. Bastiaans
Over the last 19 plus years, I have had the good fortune to represent and work with the owners of many privately held businesses. Some owners are very happy and satisfied with their business and others find it a constant grind and struggle. I think the distinguishing factors between these two types of owners are their viewpoint of, and their role in, the business.
The ‘Asset Owner’ - The happy and satisfied owners see their business as an investment or asset that they own. These owners work tirelessly on their business, striving to make it more efficient, sustainable, and independent from their personal involvement. ‘Asset owners’ allow their employees and management to run the business with their role as setting the direction of the business. They see their business as a valuable asset and not just their business. To them, their business is yet another investment that generates dividends much like any other investment in their portfolio.
The ‘Business Owner’ - The owners who see their involvement in the business as a struggle, do not view their business as an asset but see it as where they work or what they do for a living. These owners work in, or for, their business. ‘Business owners’ see their role as that of an employee with the business they own in the role of their employer. Early on in the business life cycle, it is imperative for the owner to be everything to the business. It is expected that the owner will be the sales force, the labor force, management, and owner. Unless the owner can develop the business into an asset or investment, they will always face this feeling of being owned by the business. For these owners, the business is an income asset as they limit their expectations to merely receiving their salary.
The differences between these two types of owners are more problematic than simply owner satisfaction. For the ‘asset owner’, they have created something that is marketable and saleable. The business value can be realized at any point because the owner has built a valuable asset. For the ‘business owner’, they have no transferable value. They as owners are so integral to the success of the business that it has little value without their involvement. This is not to say that for the latter type of owner the business cannot be sold or is not valuable. It is provided the owner is able to market and sell it.
The larger concern is what happens when the owner cannot come to work because of death or incapacity. I would challenge all owners to ask themselves three simple questions.
- If I cannot come to work tomorrow, what happens to my business?
- Who would own my business?
- Who would manage my business?
For the ‘asset owner’, those questions are not alarming. The value of the business will not be lost because the owner is not able to work in the business. Their business is set up to succeed because they have key management in place to run the business. They most likely have a plan in place for someone to succeed to the ownership of the business. For the ‘business owner’, those questions are alarming because they do not have a clear path. The ‘business owner’ is essential to the value of the business. Without the ‘business owner’, the business value will decline because the longevity of the business is vulnerable.
Every owner has a duty to their stakeholders to make their business a value asset. Building a value asset ensures the employees maintain their jobs, suppliers can continue providing goods, customers can continue receiving the products or services they are accustomed to and most importantly the owner’s family can realize the maximum value for the business that the owner sacrificed to build. Who would not want to own this type of business?
I have seen thriving businesses sold for their liquidation value because the owner did not have a value asset. When the owner dies, the employees become insecure and leave for other employment. This leaves the surviving spouse or children with assets used in a business to be sold piecemeal instead of a business as an asset to be sold in its entirety. The pieces and components of the business are rarely as valuable as the business as a going concern.
So, do you own, or are you owned by, your business? What happens to the business if the unexpected happens to you? How will the business continue if you cannot come to work tomorrow? If you struggle to answer any of these questions I invite you to contact me for a consultation to discuss the details of your specific situation.