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.