Imagine that tomorrow morning you were suddenly unable to work.
Not permanently, but for three months.
Could your business continue operating normally without you?
For many owner-managed businesses, the answer is less certain than the owner might like to believe. The business may employ capable people, have established customers and generate healthy profits, but important knowledge, authority and commercial relationships can still be concentrated in one person’s hands.
How dependent is the business on you?
Consider what would happen during your first week away.
Who could access the bank accounts and authorise payments? Who knows the important passwords? Could somebody deal confidently with your largest customers? Who would make decisions about employees, suppliers, pricing and unexpected problems?
Perhaps most importantly, how much essential information exists only in your head?
These are not simply questions about preparing for illness or an accident. The answers tell you something important about the underlying resilience of your business.
Start documenting what you do
One of the simplest ways to reduce owner dependence is to document important systems and procedures.
You do not necessarily need a large operations manual covering every aspect of the business. Start with the processes that would cause the greatest difficulty if you were unexpectedly unavailable.
Record where important information is held, who has authority to make decisions, what needs to happen each week or month and who should be contacted if something goes wrong.
You can then consider whether responsibility for some activities could gradually be delegated.
Consider the financial risks
Financial resilience matters too.
Would the business have sufficient cash reserves to cope with disruption? Are appropriate insurance arrangements in place? Are banking authorities adequate? Does somebody other than you understand the company’s financial position?
Businesses with several shareholders should also consider what would happen if one shareholder died or became unable to participate in the business.
Resolving these questions in advance is considerably easier than trying to deal with them during a crisis.
A more independent business may be worth more
There is another reason for reducing the business’s dependence on you.
One day, you may want to sell it.
A purchaser is not simply buying the profits generated last year. They are buying the expectation that the business will continue generating profits after the existing owner has left.
A profitable company that depends heavily upon one individual can therefore be less attractive than a similar business with documented systems, delegated management responsibilities, established procedures and customer relationships spread throughout the organisation.
Reducing owner dependence can consequently be part of building the long-term value of your business.
Put your business to the three-month test
Ask yourself a simple question: what would happen if I disappeared from the business for three months?
Make a list of everything that would stop, become difficult or require your personal involvement. That list provides a useful starting point for improving business resilience.
If you would like to assess how dependent your business currently is on you, speak to us. We can help identify the principal risks, establish priorities and develop practical steps towards creating a stronger, more independent and potentially more valuable business.