You don’t want to hear this. You might even be a little offended. But when it comes time to sell your business, you are the least valuable part of the equation. Unless you’re sticking around with an ownership stake or long-term employment contract, your experience means very little to a buyer.
What does matter? The quality management team you’re leaving behind.
We recently went through our mid-year team reviews, and it got me thinking about my own succession plan. When I look at where we are today versus five to 10 years ago, I’m very happy with the people we’ve brought on and the things that have come off my plate.
But through the review process, it came to my attention that I’m not spending enough time ON the business, versus IN the business. I’m not doing enough to coach my team and help them grow as professionals.
I know, from talking with hundreds of business owners over the years, that I’m not in the minority. Too many business owners get stuck in the day-to-day of solving problems, growing sales, and attracting the right talent. But there needs to be a balance between growing the business and investing in your team, in both dollars and time.
In the lower middle market, you’ll gain extra value by having a management team or key employee group that can run the business with little to no input from you the owner.
GF Data shows that a solid post-closing management team adds an average of 0.2 to a valuation multiple. For a business with $2 million in EBITDA, those fractions of a point could mean an extra $400,0000 in your pocket. (But I can tell you from experience that without a management team, some small businesses will struggle to sell at all.)
When people think about investing in their company, many business owners think abut updating equipment and driving revenue, but so few truly take the time to step back and build out that management team.
It’s not easy. But when I look at the business issues our clients talk about most, the vast majority are people problems. From recruiting and turnover to culture and productivity, the biggest challenges are people-challenges.
Most business owners invest in routine maintenance on their equipment, but few have the same kind of touchpoint in place for their employees. Going through this review process, in which I reviewed my employees and they reviewed me, I learned that my people want a mentor. They want to learn and grow, and they need my time and attention to do that. I have people that really care, and I’m missing an opportunity. If you’re about to sell, and you haven’t mentored your people along the way, you’re missing value, too.