Posted by Richard Parker on May 18, 2009 at 07:11 AM in Buying a Business which can be found at: http://blog.bizquest.com/2009/05/buying-a-business-to-run-absentee.html
It is a fantastic idea to buy a business, have someone else run it, and get a wonderful return on your investment. The problem is that the concept seldom translates into reality.
While absentee ownership has been the foundation upon which fortunes have been made, and a model that has worked well for large corporations and private equity groups, it is a cumbersome task to successfully translate it to an individual level where you would be buying an owner-operated business.
Don’t get me wrong; I love the idea, and I have, on two occasions, been able to do it myself. However, what I see far too often are individuals who are looking to buy a business and they begin to dream (maybe hallucinate) about the concept of building an empire before they have even tested the waters, or run any type of business.
Keep It Simple
Absentee-run businesses have traditionally been associate with what people believe are more simple businesses such as coin laundries, liquor stores, for good reason. The less complex the environment, the more readily it can operate without the owner being there full-time.
You Can’t Learn It If You’re Not There
Unless you are very familiar with a particular business, it would be reckless to attempt to buy a business and simply hand over the operations to the employees. Many small businesses thrive because of the hands-on nature of the owner. This model is also why some businesses do not transition well to a new owner. As such, if you are looking to run a business absentee that doesn’t currently operate that way; you categorically must get involved initially and learn the business. The idea that you will just hire a manager won’t work, unless strong management is already in place. If you are not well-versed in the business, you are not in any position to even know what is the profile of the ideal manager so how can you hire them? Once you get the keys to the place, you cannot just hand them over to a third-party.
At the very least, you will need to seller to remain in place, with a vested interest to do so, until such time as a replacement can be found. But again, this is not an ideal strategy. It is far better for you to get totally immersed in the operations and once you understand all aspects of the operations, you can look to engage a manager to take over from you.
Of course if there is already competent personnel in the business that has been running it day-to-day (or can do so), you can continue that strategy but make sure that you validate the capability of the employees. And to do so, you will want to be involved after you take over to be certain they are the right people to run your company.
It All Comes Down To Systems
If someone else is running your business, you have to implement policies, procedures and reporting systems that will allow you to keep a pulse on the business. If not, mayhem will likely prevail. And worse, if the business starts to slide, if you do not have adequate reporting procedures in place, by the time you uncover the problem, it will likely be too late to repair. Another aspect to the systems is especially important in cash businesses. If you’re not there to monitor the flow of money, you can rest assured that some of it will find its way into the employee’s pockets.
If You Want To Just Collect the Cash Then Buy an Armored Car Company
I always laugh when buyers tell me they envision the day when they can just show up to the business and collect the proceeds. I promise that won’t happen; only Brinks can do that. Regardless of how effective your systems may be, if you are not involved in the operations, or if you really have no clue how to run the business, ultimately, you will fail. Even on the most basic level, what happens if your manager suddenly quits, or cannot run the company? Who will take the reins?
The Strategy to Follow
The overriding lesson to having a successful absentee-run business is to be certain that you are capable of running it. If you adopt the philosophy that you are simply going to put the future of your business in someone else’s hands, then you have to be prepared to let them control your destiny. You do not have to look any further than the Madoff scandal to realize that when someone else holds your purse strings, you are never in control. Furthermore, the idea behind business ownership is to take control of your destiny, so you have to be on top of it.
In theory, absentee-run businesses can be a tremendous way to accumulate wealth, but building an empire starts with a rock-solid foundation. Take the time to get the base in place and you can build from there.
Have a great week.