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Is The True 100% Absentee Owner Business a Myth?

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Comments & Replies: 3     Views: 2722     Posted By: Craig Osterhoudt  



Topics: Buying A Business     Tags: absentee run, buying a business, for sale by owner



I recently had a discussion with a small business veteran who has bought and sold over 20 of his own small businesses in just about every industry imaginable. He had found a business he wanted to buy and we were discussing the financials and operations of the business. Upon further review into the nuts and bolts of the business in question, I mentioned that this particular business we were discussing appeared to be a bit too "hands on” for someone like him, and that I would imagine he was looking more for an "absentee owner" business.

His exact reply was, "The true absentee owner business is a myth. No matter what business you buy, there will always be some level of owner involvement." So I asked him, "Well, can't you just hire a manager to run the day to day operations then?" He replied, in summation, that as small businesses hire, to the point where no owner involvement is required, the profits accordingly disappear. He said it may not happen overnight, but the combination of additional overhead, and diminishing supervision, leads to loss of profits. This was a bit disheartening, almost like hearing that there really was no Easter Bunny, but after all, it was just one man's opinion, regardless of his extensive experience.

I would like to know from other BizBen Users and Contributors: What business types or situations do you feel are more likely to succeed in true absentee owner form?, Which business types are less likely? Please comment on this page, I would love to hear your feelings on this topic. Thanks.


For years people have told me they want a semi absentee or full absentee ownership business. As stated by Craig, this idea is really a myth for main street businesses. Main street businesses are for the most part doing less than $5 Million in annual sales and have a profit of less than $1 Million per year. You can find businesses that are being run by educated, and experienced managers in slightly larger businesses with salaries over $100,000 per year. The more qualified the manager the higher his wages and benefits are. One of the reasons that main street businesses sell for such low multiples of profit compared to middle market businesses is that middle market business have layers of management, which protects the company from the loss of a key employee. Small companies, are in big trouble when they lose their manager who is usually the owner. The other comment I want to make is regarding what an owner who is not working behind the counter of his business should be doing with his time. He or she should be doing website work such as blogs, pay per click, and press releases. Sending out flyers to the neighborhood and letters to existing and prior clients also needs to be done. Marketing, promotion and advertising is what an owner must be doing continually, regardless if he is full time, part time or no time. To neglect doing this is a sure fire way to make your business smaller.

Replies To This Comment
 
Great comments, thanks for the reply.



I couldn't agree more.

Often I encounter potential buyers who are looking for a "cash cow" with little or no effort on their part to invest time into the business. -- The proper investment for them is the stock market (or, maybe, very passive real estate), not a small business.

Never have I seen a truly "absentee ownership" operation in the small business marketplace. While one may find a "4-hour work week" SEMI-absentee business, even those require more time and talent from a new owner than is often apparent to the prospective buyer.

So, Mr./Ms. Buyer, when you see "absentee ownership" in an ad, be wary and be skeptical.... and do extensive detailed due diligence inspections. You might find a rare gem, but you are most likely to find a lead sinker.


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