As a business broker, the phrase I hear most often from my buyer clients is, "I am looking for an absentee owner business." Since it is such a popular topic of discussion, let me offer an alternative method of business selection. There are a couple things to keep in mind as you search for an absentee owner run business.
1. EVERYONE is looking for an absentee owner business. So, if you are looking for an absentee owner business and are looking for a great deal, I donít believe you have a very good chance of that happening. You can view other articles here on BizBen that show the likelihood of finding a true absentee owner business.
2. Very few absentee owner businesses sell. After all people sell businesses because they are burned out, tired of dealing with employees, etc. With an absentee owner business, this is less likely to happen. If a business is completely absentee and profitable, why would anyone sell it? Even if someone is retiring, if the business is absentee and profitable, they donít need to sell it even into retirement. Many baby boomers arenít looking to sell their absentee owner business to retire, but rather to keep it to retire.
3. Related parties. In the rare exceptions, where even though a business is absentee it still needs to be sold, such as divorce or cash emergency, many times the business is sold to a related party, such as a relative, employee, vendor etc.
So to sum up, if for example (numbers are only for simple illustration purposes) 5 out of 100 businesses for sale are absentee owner businesses, probably only a few are going to make to the public offering arenas like BizBen. Also of 100 potential business buyers 95 have absentee ownership as the number 1 criteria for their business search. So, you have 95 percent of the business buying population looking at 5 percent of the business listings. That isnít where you are going to find your gem.
I suggest an alternative approach.
You will find your diamond in the rough, by looking at businesses that arenít absentee owner, but have the potential to become absentee, or become more absentee than they currently are. In some cases, business owners are so up to their eyeballs entrenched in the business that they fail to see certain small changes that can make the business more absentee.
Certain small business owners might poor delegators. Many small business owners believe that an employee wonít do as good a job as they will so they donít like to let others do the important tasks. However, its common practice in large profitable businesses to delegate tasks even though the delegatee wonít do as good a job. According to Peter Drucker, a good rule of thumb is if your subordinate can do the task at least 70 percent as well as you can, you should delegate.
Besides delegation, another way to improve a business is marketing. Many businesses have an owner who has extra time so he begins selling and marketing, until he creates an excess of business so he gets busy managing and stops marketing. Then once that business is complete and things start to slow down again he starts selling and marketing again and so what you end up with is a sales cycle of peaks and valleys and with no steady reliable sales revenue. It's difficult, in this situation, to be able to hire and pay for more employees. It's a vicious cycle.
Making some improvements to the marketing of your target small business, by creating automated marketing strategies and maintaining a marketing calendar can reduce these peaks and valleys, and therefore make it easier to hire and train staff and therefore create an environment that supports absentee ownership.
An injection of cash. Many small businesses arenít in need of any changes but instead just need an injection of cash to take it to the next level. In this case, the current owner takes all profit from the business each month to pay for his living expenses. Especially in the San Francisco Bay Area where living expenses are so high. So, because the owner takes all net profits to survive, he doesnít have any money left over at the end of each month to invest in growing the business.
Maybe the business needs an increase in inventory, a new sign, a new piece of equipment or some other capital expenditure. A simple injection of cash to purchase a "certain item" can drastically improve the profitability of a business and therefore the opportunity to become more absentee.
If absentee ownership is the number one criteria for your business search, look for businesses that arenít currently absentee owner, but can easily be converted to such. A little creativity and foresight will assist in making a business purchase decision that will get you the return on investment you are looking for as well as the level of owner involvement. It may take 6 to 8 months to get the business where you want it to be, but it is a much better approach than searching and searching for the illusive absentee owner business.