Home  >  Discussions  >  Absentee Run Small Businesses - Is That Really A Possibility?

Absentee Run Small Businesses - Is That Really A Possibility?

Share This Page    See All Discussions    See All Contributors    All New Discussions & Comments

Comments & Replies: 14     Views: 5200     Posted By: Peter Siegel MBA  

It seems like these days that's all I hear from buyers in the BizBen ProBuy Program is they want a absentee or semi-absentee business to buy. I understand why, but most buyers don't understand how difficult that is to accomplish this feat successfully. I address this with other Advisors on BizBen.

Topics: Buying A Business     Tags: absentee run, buying a business



Seems like these days that's all I hear from buyers in the BizBen ProBuy Program (educational and business buyer coaching program) is they want a absentee or semi-absentee business to buy. I understand why, but most business buyers don't understand how difficult that is to accomplish with running a small business.

Here was my reply to this buyer:

Yes there are absentee run small businesses. The most important question to ask is whether there are absentee run businesses that operate satisfactorily for the owner. And that depends on the kind of business and what the owner wants to get out of it. With a few exceptions, most small businesses don’t generate enough money to support someone not contributing to the company’s operations.

If the owner isn’t waiting on customers, providing service, managing the office or responsible for some other task that is necessary for the business to function productively, there is little likelihood that he or she will enjoy much return from the money invested. Basic economic principles dictate that a small business can only generate enough earnings to support a non-working participant if prices charged for its products or services exceed, by a significant margin, what is needed to cover the costs of producing or providing those products or services. If so, there will be money for the non-working owner. But competitive pressures in most industries work against a business that charges substantially more for what it does than other companies in the same business. it won’t stay in business for very long if its customers are over-charged.

Alongside the economic principle is the human principle that suggests an owner who isn’t "minding the store," eventually will discover the business is not performing as well as it could with owner involvement, or that some of the business income is "disappearing." Or both. A notable exception is the business of coin operated laundry facilities. In this situation the money is collected into the change and soap machines and a locked box associated with each washer and dryer. The owner may limit active involvement to collecting the cash and hiring someone to keep the facility clean and manage the business bookkeeping.

A few entrepreneurs are happy to be absentee business owners and to lose money or break even. Their objective is not to receive an immediate return on investment, but to be able to claim business expenses to reduce tax liability on income from other sources.

And, like some absentee gas station owners during the Seventies, they may expect that a business not providing any profits now will someday be worth substantially more than the investment and yield a satisfactory capital gain.

---------------------------------

What is your view on absentee run small businesses? What have been your experiences with these types of businesses? Do most owners "stretch the truth" when they say its absentee run?

Would love to hear what you have to say (include your experiences) on this topic above via a discussion and replies. Thanks.

Contributor: Business Appraisals, Valuations Advisor

Rarely. Most businesses will deteriorate when an owner is not present. It is extremely hard to find a manager that has the same drive as a financially invested owner.


A laundromat is the classic example of a so called "absentee run" business. Though I am sure there are other such businesses I think the promise of an absentee owner is the reason why so many people want to be in the laundry business.

There are several other motivations for entering the business such as flexible hours, a less stressful work environment, few if any employees and a potentially nice return on an investment. These are legitimate and attractive reasons but absentee run?? I may buy semi absentee run but in the end if you are not there on a regular basis a Laundromat, like any other business, will at best limp along and at worst fail entirely.


While many small businesses can be absentee-run as far as the day-to-day business with a qualified manager or the right model and systems, it's very rare to find a small business that can truly be absentee-owned on auto-pilot without any guidance.

The skills needed run a business day-to-day as a manager are different than the skills required to market, adapt and be proactive. Most people who make good business managers wouldn't necessarily make great business owners.

You may not have to sweep floors, sell your services or lock up at night, but it's helpful to at least understand how it gets done. You're also very likely to still need (and want) to have executive oversight as an owner. No one will ever care as much about your business as much as you do, not even a great manager. If you want your business to be successful in the long term it's your responsibility to guide it through financial, legal, marketing and competitive challenges as they come up and to plan for the business to compete in your market in the long run. You may have people to help execute your goals and visions, but you don't want to rely on someone else to set those goals and visions.

If you buy a great business it may run profitably for a long time even without your oversight, but you're eventually putting your investment at risk if you don't take any role in guiding it.


Indeed fully absentee run small businesses really are a possibility – thought oftentimes the truth is stretched insofar as what constitutes “absentee”. At present, we have 5 businesses on the market that fit what I call the Four Hour Workweek business model. The are firms that have their products manufactured abroad, import them and house them with a fulfillment firm, and even outsource customer service. The ‘varying degrees’ of involvement typically depend on how much of the marketing, web development (these tend to be firms with a heavy internet focus) and customer service or backend administrative work and bookkeeping the owner chooses to do. These services, however, also lend themselves to being outsourced once a robust platform and the requisite infrastructure is created.

At present we have a tech product on the market that requires less than 1 hour per week of the owner’s involvement. While he’s had the manufactured product for nearly 2 years, he is entirely unaware of any aspect of the company’ s day to day or even monthly operations. In fact, his bookkeeping is the only party with any form of oversight on the entire operation. To the owner, the company is essentially an income annuity – which is what many buyers seek. Since we’ve had a great deal of success with buyers wanting such opportunities, we’ve actually come to start helping sellers prepare for sale by positioning their firms to mirror this business model, as we know that a low maintenance perpetuity can command a premium in the marketplace. Of course, a buyer will always need to dig to determine exactly how ‘absentee’ is being defined, however, nowadays most firms lend themselves to outsourcing or placing competent and trusted staffer in place to oversee many functions.

Replies To This Comment
 
Ryan really nailed it -- The successful "absentee owner" model fits the "Four-Hour Workweek" model, not the "ZERO-Hour Workweek" model. If the prospective absentee owner keeps in mind the maxim "Trust, but Verify", (and uses that "four hours per week" to do so), then it's a business model that can work.



When talking about "absentee ownership", it's important to distinguish between "out of sight" and "out of mind". Frankly, one of the criteria I use in valuing a business and determining its sustainability is asking the owner "If you disappeared for three to four weeks, would your business not only survive but continue to thrive? If so, you have a very valuable business." And, that's one way to judge what is meant by "absentee."

A business can certainly be owned and managed "out of sight" by an owner who understands the intricacies of the business, has checks and balances in place, recruits and rewards competent, honest, reliable management, and implements regular and comprehensive monitoring of the business. On the other hand, if the business is "out of mind", with the owner relinquishing ultimate control to the employees, the absentee-owner will soon lose control of his business, his revenues, and his profits.

In short, absentee ownership can be a wise investment move; but, it still requires ongoing diligence and strategic management by the person who has the most to gain--and to lose, the owner.

With proper investment of time and attention, a business-owner can be successful on an absentee basis--but, he either has to build the business with that goal in mind or buy a business that is already self-sustaining. Years ago, I started a computer manufacturing company and worked like a dog for three years building it up to multi-million dollar sales and 40 employees. My wife, two kids, and I finally took a four-week vacation to Europe--back in the days of complicated international phone calls. The second day away, I called the office, got my messages, and asked, "Does anyone need to talk to me?" After a long 8-10 wait on hold, our receptionist came back on the line and said, "No, Tim, I'm sorry, no one needs you." Two days later, I made the same call and got the same response. On hanging up the phone, I turned to my wife and said, "NOW we have a business." We enjoyed our four weeks away and found the business in even better shape than when we left. That was the reward for a lot of business-building beforehand.


All businesses are better off with a general of the troops. There is no substitute for an active owner-operator who is engaged in the day to day affairs of his or her business. Usually those are the most profitable businesses that we bring to market. Do most owners "stretch the truth" when they say its absentee run? My experience is that most Sellers tell the truth. But there are always the outliers, or, outliars maybe. If it's truly absentee a decent physical observation period should tell the tale on whether the claims of any prospective Seller are true. If they are not engaged for a week or two with the Company and revenues match whatever is advertised, the buyer should feel better about the purchase overall.


I’ve been in this business for 18 years, have seen thousands of businesses and have yet to see a truly "absentee run business". To have an absentee run small business, it typically requires a manager who you like and trust. The salary for that manager comes out of what the owner takes home.

Businesses like coin op laundries are not really absentee run businesses. Typically the business owner needs to go in to unload the cash boxes and if the cleaning person doesn’t show, they will need to go in and clean the place. Typically most small businesses need someone to watch over them, especially the businesses with a cash component.

Contributor: Business Broker, Northern California

The most important role in any business is the CEO or owner as their role is to not only deal with the present but also bring a vision for the future direction of the business. The CEO of McDonalds in the US just stepped down because he was unable to execute that role despite moving up through McDonalds during the last 25 years. The economy changes so quickly that I would be concerned with buying any absentee business how long it will be around. If its a successful model then competitors will copy it. If its unsuccessful the market will take care of it by not buying its product or service.


Buyers ask me about my thoughts regarding this all the time. I tell them; I remember when I was a kid cruise control just came out on vehicles. My parents were laughing at a story about a guy who got a new camper with cruise control so when he got hungry, he just left the wheel to go in the back and make breakfast! That's how I feel about absentee businesses.

I think what buyers fail to realize is that if the business is absentee for the seller, it probably didn't start that way. It took the seller time to find people that he could trust and understand but that doesn't transfer to you as a buyer.The seller also has a highly developed nose for issues and detect if somethings off immediately and correct it before it becomes a real problem, that also won't be transferring.

All that said, it doesn't mean that businesses being advertised as absentee aren't going to be less trouble to manage, they are probably going to be easier because of the support in place. I tell my buyers that its foolish to think you can buy a business from day one and spend zero time there and expect everything to go well, that's no going to happen. A reasonable plan would be to work in the business as much as possible at first so you can get to know the staff, the customers and the issues that could potentially cause a problem. The more confident you feel, the less you need to be there.


  Helpful Resources To Assist In Selling And Buying California Businesses

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

The Bottomline: What Exactly Is Adjusted Net Income, SDC, And Cash Flow?

The use of add backs & adjusted net income is common among sellers of businesses when showing their financial information/performance. But buyers are cautioned to review financials and tax returns / documents closely. Peter Siegel, MBA with BizBen (ProBuy & ProSell, Financing Expert) explains.

How Do I Navigate Through The Negotiation Process When Buying A Business?

Negotiating the terms of a business deal is a delicate process, where one wrong move can cost you the business that you wanted to purchase. Peter Siegel, MBA (BizBen ProBuy Program) discusses the ins and outs of negotiations, and how to work well with the seller to get a deal done.

Buy A Business Or Start From Scratch? 5 Key Differences For Business Buyers

Some buyers believe it's better to start a business from scratch rather than buy an existing enterprise. While this may be good advice in some cases, usually it's not the best strategy. Here are five tips to help a buyer make the right decision from from Peter Siegel, MBA (BizBen Director).

I am Buying A Business: Should I Buy The Property As Well? A Good Decision?

There are advantages and disadvantages to owning commercial property. Here are a few questions to ask when it comes to deciding whether or not to buy the property along with the business. Peter Siegel, MBA with the BizBen ProSell Program reviews this issue with potential sellers and intermediaries.

Financing A Business Purchase With Limited Or No Real Estate Collateral

In my experience working with the "right banks and financial institutions" repayment ability sometimes overrules collateral pledged by someone needing financing for a business purchase or a down payment. Peter Siegel, MBA (Business Purchase Financing Expert) at 866-270-6278 shares his experience.

Uncover Hidden Problems In Due Diligence When You Buy A Small Business

Most everyone who's decided to buy a small business in California knows the importance of due diligence. That involves close examination of a business prior to removing contingencies. But not everyone knows how to uncover problems that are not obvious. Here are five of the most common hidden issues.

Before Buying A California Business, 10 Questions You Should Ask Yourself

Before buying a business, all serious business buyers should ask themselves some key questions about possible buying a small California business, franchise, or opportunity - from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 866-270-6278.

Absentee Run Small Businesses - Is That Really A Possibility For Buyers?

Is buying a absentee run small business really a possibility? Peter Siegel (BizBen ProBuy Director) gets asked this question a lot in his consulting sessions with business buyers. Read more about what other Advisors and Intermediaries feel about this topic on this popular BizBen Discussion!

See All News, Tips And Events

Bob Hughes Business Broker Riverside County San Diego
Prabhjot Randhawa Business Broker SF Bay Area
Southern California Legal Services For Buyers And Sellers
Larry Larsen Laundromat Broker


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million




BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2017, All Rights Reserved

                       
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
4 Reasons Why Business Brokers Do Not Cooperate With Other Brokers & Age...
Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Busin...