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Guide

Owner dependence: the first thing a buyer tests

Updated

Every owner believes the business could run without them for a while. Diligence is designed to find out how long, and the answer is usually shorter than the owner thinks.

What owner dependence actually means to a buyer

A buyer is acquiring future cash flow that arrives without you. Wherever you are the only route to a decision, a customer, a supplier or a technical answer, they are acquiring an obligation to keep you, or a risk that the cash flow leaves when you do. This is why the same trading performance can attract very different structures: a business that runs itself can be bought outright, while one that leans on its owner tends to be bought with a large deferred element that keeps that owner working.

How a buyer detects it

  • The email address on the contracts. If every customer agreement, supplier account and bank mandate names you personally, the business has a single point of failure.
  • Who signs off. Approval limits that all end at one desk are visible in the accounting system.
  • The org chart against the payroll. A management layer that exists on a slide but not in job titles or salaries is easy to spot.
  • Holiday records. An owner who has not taken two consecutive weeks in three years has answered the question already.
  • Where the knowledge is. If the answer to a process question is 'ask the owner', that is the finding.

What actually reduces it

  1. Name a second in command, in writing, with a job description and the authority to match it.
  2. Move customer relationships from you to named account owners, and introduce them formally rather than quietly.
  3. Write down the decisions you make that nobody else can, then delegate them one at a time with a spending or approval limit.
  4. Remove yourself from the operational chain: take a month away and let the gaps surface while there is time to fix them.
  5. Then let a full trading year run, so the change is evidence in the numbers rather than a claim in a presentation.

ICAEW's guide to selling a practice frames the reward in the same terms: a higher price is achieved where the systems are thoroughly documented, the essential paperwork is in place, and you can demonstrate that the business will run independently of you (ICAEW, September 2020). It does not attach a percentage to that, and neither will we.

Not sure where you sit? Run the checker: the first question is this one, and it is the one that decides how the rest of the conversation goes.

Questions, answered directly

Can I sell a business that depends on me?

Often yes, but usually on different terms: more of the price deferred, an earn-out tied to performance after completion, and a longer commitment to stay. The alternative is to spend a year or two moving relationships and decisions to other people first, and to let a full trading period evidence the change.

How long does it take to reduce owner dependence?

Longer than the changes themselves, because a buyer needs to see the business trade without you rather than hear that it could. Delegating takes months; proving it takes a trading year. That is why exit preparation is usually described in years rather than weeks.

Find out what a buyer will find.

Six questions, in the order a buyer's adviser asks them. No score theatre, no invented uplift.

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