In order to attract buyers and successfully sell your business, you must be able to transfer ownership of your business to the new owner without significantly harming its performance. While this may sound obvious, it is not always guaranteed. The more reliant your business is on you, the harder it will be to sell. Knowing how to remove yourself from your business before selling it is key to creating a successful exit.

In this article, we discuss:

• How removing yourself from your business can help you sell it
• Why transferability is important
• Three barriers to transferability and how to overcome them
• The importance of working with a business Advisor

Related Article: What You Need to Know to Successfully Transfer Business Ownership

How Removing Yourself from Your Business Can Help You Sell It

Imagine you are looking to buy a travel website business to own and operate. During your search, you encounter a content site with great revenue and profit margins, a price tag in your range, and solid operations. So far, so good.

However, you quickly realize that the site content solely features personal stories, reviews, and articles that all incorporate the current owner’s image or personality. If you were to buy and operate it, there would be a sudden switch in content format once the owner steps away. Ultimately, this throws the future performance and viability of the site into question. Given this, would you still want to buy the business?

“Knowing how to remove yourself from your business before selling it is key to creating a successful exit.”

From this perspective, it is easy to see why removing yourself from your business prior to selling it is crucial to achieving a successful exit. This is just one example of how owner involvement can hinder the exit process. Put simply, it all comes down to how easily you can transfer your business from one owner to the next.

What is transferability?

This quality is referred to as transferability. It is the degree to which a business can change hands without negatively impacting performance. Some businesses are easily transferable by nature, while others are next to impossible to transfer. Fortunately, it is possible to make most businesses more transferable with the right approach and enough time.

The more an owner needs to be involved in the business for it to succeed, the less transferable it is. On the extreme end, think of a consulting practice, where the product is the owner’s time. If the owner sold the business to a new owner, the product would change with the new ownership. Clearly, this business would not be considered very transferable.

On the other end of the spectrum, consider a content site where all of the content is generated by a team of writers managed by a content manager. All other tasks are handled by contractors or employees. The owner only checks in once in a while to make sure the site is performing well and collect her checks. This business would be easily transferable.

Most businesses lie somewhere in the middle. Again, many businesses are transferable without any extra work. However, it is important to consider how transferable your business is prior to selling it.

“The more an owner needs to be involved in the business for it to succeed, the less transferable it is.”

Why Transferability Is Important

Unfortunately, many business owners fail to think about transferability until it is too late. You could have a booming and well-run business, but if it isn’t transferable, you will find it very hard to achieve a successful exit. In this section, we cover some of the ways poor transferability could impact your exit experience.

Fewer interested buyers

If your company isn’t easily transferable to a new business owner, it will attract much less interest from potential buyers. Any smart prospective buyer will note the situation and likely avoid making an offer. In the worst-case scenario, you may not attract any buyers at all.

If you do attract offers, the fewer you receive, the more challenging the exit process will be. Having lots of offers, on the other hand, creates a competitive bidding environment, putting you in the driver’s seat. In this scenario, you have more latitude during negotiations and are likelier to come out on top.

With fewer, lower-quality offers, you have less power to negotiate and less say in how the deal unfolds.

Lower value

The first consequence of this is generally a lower purchase price. If your business relies heavily on your involvement for its success, your business will be worth less than it otherwise would. You will receive lower-priced offers and fewer of them, leaving you little room to renegotiate. If you do decide to accept an offer, you will ultimately walk away with less than you were hoping for.

“Selling a business that isn’t easily transferred makes the selling experience even more challenging.”

More challenging selling experience

Selling your business can be quite stressful. Every business owner wants a clean exit process and a smooth transition. Unfortunately, selling a business that isn’t easily transferred makes the selling experience even more challenging.

As mentioned, it reduces the number and quality of offers you are likely to receive. At the same time, it diminishes your negotiating power and leaves you with less room to advocate for your interests. Rest assured, the buyer will be extremely thorough during the due diligence process, an already difficult step of the journey.

Worse deal terms

When selling a business, most of the focus is placed on the final sales price when evaluating success. In reality, the final deal terms you arrive at with the buyer have a huge impact on your post-exit experience.

There are many different types of deal terms possible when selling your company. You could have a clean break, where the buyer pays you one cash payment up front in the full amount. Or the buyer may ask to make a partial payment up front, with the remainder being paid in installments over time.

Sometimes, these ongoing payments may be conditioned on the future performance of the business. In this situation, you stand to lose out if the business takes a hit.

When selling a risky or weakened business, prospective buyers are likelier to ask for terms that favor themselves or shield themselves from the risk. Again, with fewer offers on the table, you have less room to make a counteroffer. As a result, you may wind up having no choice but to accept unfavorable deal terms if you want to sell your business.

Clearly, selling a business that isn’t easily transferable can lead to some less-than-ideal outcomes. To avoid this, it is important to understand the qualities that make a business less transferable. From there, you can develop strategies to overcome these barriers prior to listing your business for sale.

Barriers to Transferability and How to Overcome Them

In general, there are several common barriers that can negatively impact the transferability of a business. These include:

• Specialized knowledge
• Lack of automation
• Owner’s personal involvement

Specialized knowledge

If your business requires specialized knowledge to operate successfully, it will be more difficult to find a qualified buyer. Naturally, this makes it challenging—but not impossible—to successfully transfer your business without harming its performance.

This situation may be quite common with skilled service businesses. For example, if you run a specialized physical therapy practice focusing on treating foot injuries, you need a buyer who is a physical therapist who specializes in treating foot conditions. While not impossible, this specialization does limit your potential buyer pool.

This issue is generally less common with online businesses. Amazon FBA companies, ecommerce companies, and others usually don’t require highly specialized knowledge. There are situations where this could become an issue, however, even for an online business.

“If your business requires specialized knowledge to operate successfully, it will be more difficult to find a qualified buyer.”

For example, let’s say you run a content site that provides useful guides for a highly technical niche like classic RV repair. If you have a wealth of knowledge on your subject matter, a new buyer would find it hard to put out content that meets your standards.

To address this gap, you either need to find a qualified owner (rare as they may be), or outsource the content production to an individual or team who does have the specialized knowledge needed to produce quality content.

The time to do this is long before you decide to sell your business. If you wait until you want to list it, it’s too late. Start early, find the right people to take over your role, and implement the changes with ample time to spare.

Lack of automation

That brings us to the second common barrier to transferability: lack of automation. When business operations are disorganized or poorly managed, the owner often has to play an outsized role in managing daily operations.

This may work for you for a time. As the owner, you know what needs to be done and how to do it. And it is true that running a business can be a practice in managing creative chaos. Having chaotic operations, however, makes it very difficult for a new owner to successfully take over the reins.

The answer to this challenge is to automate your business processes as much as possible. The best place to start is by creating clear standard operating procedures (SOPs). SOPs spell out exactly how your business operates in detail. When a new owner takes over, the SOPs act as an instruction manual for managing all aspects of your business.

Another way to automate your business is to hire individuals or teams to handle the day-to-day operations. This could include a senior management team to oversee all operations if your business is large enough, or it could mean individuals to handle specific tasks. From marketing to fulfillment, the more you can automate your processes, the more transferable your business will be.

Again, the best time to do this is long before you sell your business. If you haven’t done so already, create a business exit strategy that includes steps to automate your operations.

“The more you can automate your processes, the more transferable your business will be.”

Owner’s personal involvement

The more your business is tied to you for its success, the harder it will be to sell. If your branding relies on your name, image, or personality, it would be impossible for a new owner to replace you without significantly changing the business.

The best time to reduce your business’s reliance on your image is when you start it. By building a business from the ground up that is separate from your image, you position yourself for a cleaner exit. That being said, it can be difficult to think about selling your business when just starting out.

If you do own a business that relies on your image, leave yourself ample time to remove yourself from operations. Most business brokers or business Advisors suggest leaving yourself at least 12–24 months to achieve this.

If you suddenly disappear from your business after being heavily involved, customers will take note. Some may leave, and your business may decline. Instead, make gradual changes that allow you to remove yourself over time.

For example, if you run a travel site that features your adventures, start publishing other content like guides or travel tips. Gradually remove your name and image from your site and marketing materials. Once you have sufficiently removed yourself, leave enough time before selling to demonstrate that your business is still performing well.

“An experienced broker will be able to identify transferability barriers in your business and offer advice on the steps you should take to overcome these barriers.”

The Importance of Working with a Business Advisor

Given the importance of making your business transferable before selling it, many owners find it helpful to consult with an Advisor or business broker. An experienced broker will be able to identify transferability barriers in your business and offer advice on the steps you should take to overcome these barriers.

Conclusion

Your business is only valuable to a new owner if they can take over ownership without negatively impacting its performance. If your business is not transferable, you will have a hard time attracting qualified buyers. Fortunately, by removing yourself from your business before selling it, you increase its transferability along with your chances of achieving a successful exit.