Buzz Harris
Today's column is about a buying phenomenon that we are seeing more and more frequently these days. Where are routinely getting inquiries from people who are considering buying a business who are currently employed, but don't plan to quit their jobs.
Because of the recent volatility and poor performance of the stock market, many of these types of buyers have realized that as a business owner, the return on their investment can be significantly greater when successfully operating their own company. Their plan is to continue to earn a secure living and enjoy a better return on their investment dollars.
In theory, this is a good idea, but the reality with small businesses is that absentee ownership is usually only successful when there is no need to have supervisory personnel in place to oversee the operations. Unfortunately, beyond coin operated laundries and self-serve car washes, there are not a lot of businesses that fit this profile.
In addition, it is rare to find a highly-profitable, well-run absentee business. It's even rarer to find a highly-profitable, well-run absentee business which is for sale. After all, if such a business or generating a lot of income and very few headaches for the current owner, why would they want to sell?
When looking at such businesses, the buyer really needs to understand the seller’s motivation for wanting to sell and make sure it is not related to anything adverse which might be happening with customers, competitors, equipment, etc. In our experience with absentee-run businesses, part-time effort generally equates to part-time results.
An alternative strategy is to invest in an existing and profitable business that can offer the buyer enough security to quit their job. They can then focus on learning the business, running it, managing it, growing it, and then starting to bring in others to take over so that they can spend time away from it.
If the above strategy does not fit the buyer's interest, they should consider the following advice. Find an above average manager with whom they have complete trust with and have them operate the business as they would. Even after finding the right manager, they'll still need to implement a security system to manage the flow of cash flow through the business. Also, we have seen clients develop profit sharing plans and or give their managers a small amount of equity in the business.
The moral of this article is that finding an absentee-run business that is profitable can be a fruitful endeavor, but you're likely a winemaker searching for the perfect grape, it will take some time.
