“Build your business to suit your preferences.”
– Dan Kennedy
This argument about owners and their business will probably never stop. And it shouldn’t. It is a real issue, concern really, for owners but I think we could all take another look at it.
Why does it matter? Whose problem is it? Whose choice is it? Are they always separate? As an advisor, there are certainly ingrained answers, but often these answers skip over something. It is their business! An owner can do whatever they want with it. now or later (yes, I am assuming one owner with control).
If an owner designs or even falls into a business that delivers income and lifestyle that suits them who are we to tell them they are doing something “wrong”. Perhaps for them it is “right”. The opposite is also true, an owner focused on creating a valuable asset to be treated as such (i.e. transferable), is also “right”.
I will chime in that for these to be true the owner in question should be doing so consciously and perhaps deliberately. An owner with a truly lifestyle business should not be living in the delusion that he is not. If that owner ever goes to sell under that illusion there will be a rude awakening.
It matters to owners when planning for retirement, business sale, or any ownership transition. It also matters for expansion, borrowing, etc.
If a business is income driven and lifestyle designed a retiring or exiting owner will have to plan on income replacement, and it probably will not be supplied by the business value. This can be quickly illustrated using a retirement calculator. Many of those are income based (assume employee status) and rarely consider the sale of a business. If a lifestyle business is “severe” enough that future lump sum will not reflect the income it generated over the years and will leave a significant retirement income gap.
This also works the other direction too. Sometimes when building business value an owner’s personal income may be reduced or less so than if the business was run to max out income. In this case the opposite applies.
Both owner types also need to consider the “how” and “who “of an exit as well. The buyer of a lifestyle business is probably not that same as a buyer of a value driven business.
Which one do have? Did you plan it that way? What are you doing for the next stage?
Here is a truly conscious lifestyle business decision –
“The experts tell you it’s a problem. You can’t scale! You have no leverage! Why don’t you get a “real” business?
Whatever. I’m not doing what I do to get myself in a book about business success stories. And I’m certainly not interested in my “exit strategy” or selling my company for some sort of big multiple. I don’t even have a company! I just have me, and the way I want to live my life. I’m living the life of the well-paid artist. I make things for people who want them.”
– Jason Leister of Incomparable Expert
Hope that works out. It is a valid choice; it’s how you will live, but the trick is risk. If something happens to this owner (artist) there is no business to sell, no ongoing income, etc. There are, however, mouths to feed, bills to pay, etc. That said, some insurance agents probably like this scenario just fine.
Simply said, be aware and know the decision and type of business you are building or have already.