Creating a transferable business (Part 4).

• Author: Bannon, Mel B.
• Position: CONSULTANT'S CORNER

In our last article (Part 3 of this series, September 2016) we spoke about the less dependent a business was on the owner for smooth and profitable operation, the more valuable (thus transferable) the business becomes. Executive development and delegation of responsibilities is a critical step in reducing dependency. In preparing for the ultimate transition, the process should begin well in advance of any business transfer. We introduced the Owner Dependence Index Survey as a tool to assist you in determining to what extent your business may be (too) dependent upon you, the business owner. The survey helps with identifying what areas of management you can address in order to improve the value, marketability, and transferability of your business.

In a recent release of findings from an ongoing research effort being conducted by Pinnacle Equity Solutions, Inc., a national leader in the emerging field of business transition planning, it was revealed that business owners, on average, score 53 percent in terms of the level of dependency that a company has on their individual efforts. Generally speaking, the more dependent a business is on the efforts of the owner, the harder it will be for the company to transition to a new owner. We will discuss these findings here and provides insights for owners of privately-held businesses to learn how to begin planning for your own business transition or exit in the future by knowing more about how dependent your fellow owners' companies are on their individual efforts.

A National Crisis of Owners Unprepared for Transition of Their Companies

It is broadly realized that the United States has millions of baby boomers who own businesses and will be looking to transition their companies in the next number of years. In November 2015, Pinnacle Equity Solutions launched its latest innovative software survey tool called the Owner Dependence Index" (ODI), found at odireport.com/Survey/Register/D532A288_40. This seminal tool provides a system for owners and their professional advisors to assess how dependent a company is on the individual efforts of the owner(s) of that company. Pinnacle created this tool out of a recognition that the landscape of baby boomer business owners is full of those who would like to exit their businesses in the near future but do not currently have a plan or strategy to do so.

Because the failure rate of business transitions is so high, Pinnacle sought to examine a key area, Owner...