When buying a California business there are basically two types of owners you will encounter. The hands on owner that is involved in the day to day operation and actually works at the business and the absentee owner that hires someone to run the business for them. There are benefits and disadvantages to both scenarios but for now, let's look at the pros and cons of buying an absentee run business.
Potential buyers contact me all the time wanting to know more about buying an absentee run business. It sounds too good to be true, right? You buy a business, hire someone to run it and the profits end up in your account. Sounds like a no-brainer, who wouldn't want that? Well, it's not that simple and absentee ownership comes with both pros and cons.
So who would be interested in buying an absentee run business? This type of business model is often attractive to people who want to continue working their own jobs but are looking to invest. Some want to invest with the idea that this will one day be their sole income, while others just want a second source of income. Other that are attracted to buying an absentee run business are people who like to travel, those who are already retired or someone who is in a place in their life where they don't want to be working a typical 9-5.
Some businesses that are commonly absentee run include carwashes or Laundromats. Other businesses like bars and restaurants are typically more successful when the owner is involved in the day to day operation. When thinking about becoming an absentee business owner, first consider the type of business you would be buying into and determine if it's one that could be successfully run by an absentee owner.
The "Pros" to Buying an Absentee Run Business
I think the "pro" to being an absentee owner is pretty obvious and goes without having to say much; you have the opportunity to earn income from something you aren't investing much of your time in. Now, the key word in that sentence is "opportunity." As we'll discuss more in the "cons," not all absentee run businesses are profitable.
Next, buying an absentee run business allows you to continue working your full time job. This basically takes some of the risk out of starting and/or owning your own business. In this scenario you could work your full time job until the business gets to a place where it is profitable enough to become your new full time job so you don't have to go through a startup period with no personal income.
Lastly, owning this type of business gives you freedom, one of the greatest "pros" I can personally think of. You're on a beach enjoying a cocktail, while your business is open and generating the income to pay for you beach trip. Not bad!
Like anything, with the good comes the bad, so let's dig into the "cons."
The "Cons" to Buying an Absentee Run Business
In my opinion, the biggest drawback to buying an absentee run business is that you are putting your investment and the potential for future profits in someone else's hands. If you are a person who likes to be in control and likes having things done a certain way, absentee ownership probably isn't for you. Once you hand the reigns over the manager, you pretty much have to trust that they'll do what you want and expect them to do in your absence. I think it goes without saying that you have to have top notch employees that you trust explicitly.
If you put your business in someone else's hands you also have to understand and come to terms with the fact that they will most likely not put forth the same effort you would. As a paid employee, while they may be trustworthy and do a good job, at the end of the day, it still isn't their business. If it fails, they just walk away and go get another job. What I am saying is, they don't have as much skin in the game as you do, so it's going to be difficult to find an employee that will treat your business as if it were their own without them wanting some of the profits.
Additionally, on the topic of employees, not only do you have to trust how they will handle certain things, but you also have to trust that they aren't stealing from the business. When buying an absentee business you'll want to make sure that you have the proper procedures in place to provide a checks and balances system to ensure your money and inventory is not going home in your employee's pockets. An occasional surprise visit with an audit may help with this. I don't think I even have to say this, but I will, consistent theft from employees will not only hurt your profits but could eventually damage the business to the point of no return so be sure you have good, trustworthy people working with you.
To sum this all up, as I said before, with every good comes some bad. In my opinion, there are some types of businesses for sale that can be run by an absentee owner and be successful while there are others that really need an owner who is a part of things. Selecting the right business is half the battle in the quest for success with an absentee run business. From there, looking at how the previous owners have managed the business, the employees and determining what you could do once taking ownership will put you on the right path to buying a successful absentee run business,
About This Contributor: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) working with business buyers, owners/sellers, brokers, agents, investors, & advisors). Phone him at 925-785-3118 to discuss strategies regarding buying, selling, (or financing a puchase of) CA businesses.
Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business
Comments Regarding This Blog Post
As I've commented often, a "four-hour-workweek" business is much more realistic than a totally absentee-owned business. And, the essential management and staff need to have some tangible stake in the success (and consequence for the failure) of the enterprise. And while the business may be "out of sight," it can't be "out of mind;" the owner must be familiar with the essential operations of the business and follow the time-honored adage, "Trust, but verify."