Has your business outgrown you?

Mike Ashley’s recent appearance before a House of Commons Select Committee was interesting in many ways. In particular that Mr. Ashley admitted that his company, Sports Direct, may have outgrown him – likening it to an oil tanker.

It’s a subject that is particularly relevant to SMEs as well as to large organisations. SME owners often find it difficult to take a step back from the operational aspects of the business. In itself that’s not surprising – it takes a lot of self-confidence and resilience to be an entrepreneur and, certainly in the early years, an owner has little choice but to be totally involved in all aspects of the business.

But for businesses to thrive they need different skill sets and no single person can expect to have them all. So if a business is to reach its full potential owners must bring in and nurture managers with those skills so that he or she can gradually hand over the operational reins.

Not only is this essential for growing businesses; when the time comes to sell the business such owner-reliance will have real financial repercussions.

If the owner is an integral part of the business much of that company’s value is tied to the owner and can’t be easily transferred. Result – a buyer will expect the owner to stay on in the business and the terms of the deal will be structured to ensure that the owner delivers the financial forecast. That usually means a reduced amount being paid up front with the residue being paid against performance targets.

Not only that, but many potential acquirers won’t even get to the negotiating table. They will consider that the business will have either already outgrown the skills of its owner or is likely to do so in the near future. This constitutes a big risk for a buyer and one which will make many potential buyers walk away before even making an offer.

It can be a salutary lesson to learn and it often comes about because business owners don’t have enough time to stop and think about the future of their companies. Yet the payback for taking that time out to reflect and plan can be considerable. Whilst most of us are unlikely to be called to account by a Select Committee, as business owners we are all accountable to our shareholders and stakeholders but also to ourselves and the goals we set when we set up our companies. Surely that’s worth some time out?

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