What is wrong with being an owner and managing my business?

Generally speaking, while there is income derived from owning a business, wealth is created when a capital event (the sale of a part or all of the business) occurs. For the vast majority of business owners, those who own closely-held businesses, this is difficult to accomplish because the owner is an integral part of the business. Another way to say this is that if the business requires the owner’s operational and management participation to be successful (profitable), then the owner leaving the business (as happens with most business sales) will make it less successful and less valuable. From the perspective of wealth creation, the sooner the owner is not essential to the business, the sooner the business can create more wealth. Often being an essential part of the business is confused with control of the business. That the owner is not essential to the business does not mean that the owner is no longer controlling the business.

The wealth building event is transferring the business for value. For various reasons (mostly involving issues of control), owners tend to resist delegating and creating management competency in the business. Often what changes the course is helping an owner understand that the more the business depends on the services of an owner, the less it is worth on transfer. This means the owner should not be the chief executive officer of the business.

A sophisticated buyer will have a problem with the purchase of a business which requires the services of the seller. The challenge is met when the founder accepts the wisdom of managing the business well by constantly preparing it for a transfer for value by internal sale (pursuant to owners’ agreement) or external sale (to a third party).

Understand what owners should do. Please click to access a PDF providing the business owner’s job description.