Is your business an investment or a lifestyle?

Business owners tend not to think of their business as an investment. 

More often than not they’re a ‘hands on’ owner, usually working hard in the business they founded, managing the team and driving the business forward.

An investment?

Not really. Sure, they may be a shareholder and take dividends on top of their salary but typically the business is their meal ticket. They run it as well as they can, they draw an income (maybe not quite as much as they’d like) and often there’s not much of a surplus after that.

So really it’s a lifestyle business.

They enjoy it (most of the time) and it pays the bills but is it a saleable asset? To have value the business needs to make a profit after allowing for replacing the owner’s drawings with a ‘market rate’ salary. In other words if a competent manager was hired to replace the owner, what profit would the business make? If the answer is nothing or a very small figure, the business does not have a great deal of value.

All is not lost though.

Lifestyle businesses can transform themselves into a business that is a genuine investment. A business that is resilient and sustainable and generates a profit without the day to day input of the owner.

It requires robust processes and systems and a strong and capable management team. It won’t happen overnight. It needs a plan and consistent effort.

A profitable business not reliant on the owner becomes a business worth keeping or perhaps selling to a buyer who can see a healthy return on their investment.

So thinking of your business as an investment can be a good thing. Transforming it into one is even better.

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