In the sale of a small business, the role of the owner often has a meaningful impact on value. An easily replaceable and less involved owner brings higher values. A more involved owner brings reduced valuation. Potential buyers always ask about the role of the owner, often in the very first contact they make with the seller. How much the owner works per week, how specialized that work is, and if they pay themselves a salary are subjects that influence the price a buyer will be willing to pay for your business.
If you work a lot and do not pay yourself an owner salary, then the potential buyer will need to review your financials with an eye to the cost of replacing your labor. This will increase the cost of running your business for the new owner, and therefore decrease the sale price.
The less involved you as the owner are in day to day and client contact activities, the easier you are to replace and the less the value of your business is dependent on you personally.
Do your clients come for you, or is it your employees who do most of the work directly with clients? If your character, persona or personal connections are at the heart of your business’s success, this will impact the value that a potential buyer can see transferring.
In this situation you have two options: Accept a lower valuation for your business, which factors in the cost of replacing your labor or the inevitable loss of business upon your departure. Or you could decide to change how you run your business in order to earn a higher valuation in a sale.
Consider what you can do now to adjust how your business runs and reduce your role. Could you train your employees to do more of the direct client work in your style? Could you scale back your involvement on the administrative side, letting some of the daily operations of your business flow without your input? Both of these changes would impact your valuation, as they create space for a new owner with a different skill set to step in and take over.
