Business is Dependent on the Owner vs. Business is Independent of the Owner
Business Owner Characteristics
Dependent:
- The owner works more than 55 hours per week in their business and their business likely defines who the business owner is
- Unbalanced personal and professional life, lacking purpose and vision
Independent:
- The owner has a balanced life, feels fulfilled in their work, and likely operates at their highest and best use doing what they are passionate about daily
- The owner has a defined personal purpose and vision for the future inside and outside of their company
Structural Capital
Dependent:
- Intellectual Property, SOPs, and training programs are not documented, copyrighted, trademarked, or patented because the owner either fills the role or knows the role
Independent:
- Clear vision, mission, core values, and 3-year strategy documented and presented companywide
- All processes are documented and standard operating procedures can be followed by the leadership team
Customer Capital
Dependent:
- The strength of the customer relationship is tied to the owner and not entangled with the brand
- Customers are highly concentrated and have a high likelihood of terminating their relationship without the owner involved
Independent:
- Customers are diverse, engaged, and entangled with the company. In other words, they could not possibly think of operating without the company involved
- Customers are attracted to the brand the company has created and the belief in people, process, cause, and the solution (service or product) the company provides them
Social Capital
Dependent:
- Company Culture is intrinsically tied to the owner. The owner is synonymous with “the brand”
- If the owner exits, the culture disappears as well
Independent:
- The culture, brand, and the way the employees work with each other do not depend on the owner at all. The business is the brand, not the owner
- Company culture is driven by core values, internal communication plans, the employees, and customers
Human Capital
Dependent:
- Owner must be involved with and approve company decisions, major or minor
- The Executive Leadership Team struggles to manage daily operations without the owner around
Independent:
- Well-formed executive leadership team with a documented succession plan
- Executive Leadership Team is empowered with the accountability and authority to make key decisions without the owner
Business Value
Dependent:
- Most of the perceived value is tied to the owner, not in the business
- Lack of clear financial reporting historic and projected
Independent:
- The company has a manageable level of risk and is predictable and scalable
- Higher valuation, driving towards best-in-class multiples
Ultimate Sale Price
Dependent:
- Since the owner is the most valuable asset in the business, potential buyers are less likely to make an offer
- In the event that the business does sell, it will be for a lower multiple
Independent:
- Due to strong tangible and intangible capital, the business likely sells for higher multiples
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