As a business owner, sometimes there can be a bit of ego involved. The business is your baby, you built it, you've worked hard, and you are the backbone of that business. And there really is nothing wrong with that… except when it comes time to sell it.

To understand how the value of the business can be affected by its reliance on the current owner you need only consider the proposition from the viewpoint of the potential purchaser. It's basically like saying to them “I want you to buy this business at a premium price, but first I am going to fire the key employee before the sale’. Would you buy that business? I know I wouldn't.

Some businesses are completely unsellable because the business is entirely reliant upon the owner’s skill set, relationships with customers, knowledge of a particular product or service, or any other number of things that only the owner possesses. If it isn’t going to be left behind in the business once it is transferred to a new owner, why would they pay for it? Well, in short… they won’t.

But the real kicker here is that reliance upon the owner does not just affect the value of the business in the open market, it also affects the business every day. The reliance upon one person in a business can impact the viability of the business itself. In some cases, an owner is the only person capable of signing cheques and processing payments, there is little if any delegation of key tasks, and as a result the growth of the business is hampered due to every complex decision needing to be reviewed and approved by the owner. This creates a bottleneck and means that the owner has to be involved at every step… and there is always a point at which that starts holding back the business.

Having a strong, competent, empowered management team in place in a business means that any owner or prospective owner can confidently leave the day-to-day management of the business to the team. Its effect is twofold: It releases the owner from the day-to-day work whilst it also frees them up to start to work on business strategy to grow the business, and it significantly increases the value of the business due to the reduced risk caused by non-transferable owner expertise.

So how do you grow that strong, competent, empowered management team that is going to make such a difference? Well, the owner first needs to determine what it is that they do every day. Once they work that out, the tasks that can be easily delegated to existing staff should be delegated! For more complex tasks they need to work out what their core competencies are so that they can find and hire new staff who possess those skills. For instance, they could include marketing, finance, sales, or technical staff. Finding the right staff can be tricky and time consuming. Sometimes it feels like you are paying someone else to do a job you could do faster and more efficiently and cheaper yourself. But stick with me… it is totally worth it!

Once you have the staff, you need to mentor and train them so that they're doing the job that you want them to do, and then actually delegate to them (and stop doing it yourself). The owner should then be a resource that the senior management team can turn to when they need guidance, rather than being the engine room of the business.

When the time comes to sell the business, any prospective purchaser will see that the business can be operated without any owner involvement, and as such can be purchased as an investment at an arm’s length rather than as a prospective full-time vocation. When assessed by business valuer, the presence of a good management team is indicative of a lower transfer risk to a purchaser.

Many business owners will read this article and think to themselves ‘that is all quite obvious’. But in the last 1,000 odd business valuations I have performed, I could count the number of businesses that operated without the owner working in the business on my fingers and toes.