Building Business Value by Becoming Replaceable, Part 1

March 4, 2020
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As an employee, you always want to try and make yourself as irreplaceable as possible. When it comes to being a business owner, however, being replaceable can actually be a benefit. This is especially true when you have plans to sell your company or if you are getting ready to retire and remove yourself from an active leadership role. Being more replaceable can build business value.

There’s an old adage that some entrepreneurs like to use: “Does you work for your business, or does your business work for you?”

What Would Happen?

What would happen if you stepped away from your business for a week to take a vacation? What if you had an illness or some other life emergency that took you away from work for a month or longer? What would become of the business if you retired tomorrow?

If the answers to the questions are all something along the lines of “my business would crumble,” then your business is definitely not working for you. It means your business is very dependent on your involvement and it will have a hard time thriving without you at the helm.

Estate Planning and Succession Planning

Last week, we talked about ways to make your business more valuable and attractive in the eyes of potential buyers. We’ve also been talking about estate planning and succession planning in recent Illumination Wealth Blog articles. These topics all go hand-in-hand with the point we’re trying to make in this post. It all boils down having a personal exit plan that allows the business to continue to be successful once you are gone. This is what succession planning is all about and it’s one more big way to make your business more attractive as a seller.

It can be tough to think about the idea that you are not needed for your business to be productive and profitable without your involvement. You’ve invested your time, money, blood, sweat and tears into growing it into what it is today. Think of it like raising a child. Eventually, they need to leave the nest and live life on their own. They’ll never be successful as an individual if you are always there pulling the strings.

Making Yourself Replaceable

A buyer simply won’t be interested in purchasing a business if its success is so dependent on the previous owner’s presence. They want something where they can slide right in and take over the reins, or they want to know that there is an effective succession plan in place. In other words, there is someone else already in the company prepared to fill your role without skipping a beat. If this succession process is going to cost the new owner a lot of time, money and training to complete, it will devalue the company in the buying process.

If you are planning to retire and want to remove yourself from a key leadership role—even if you retain ownership stake in the company—a succession plan will be vital in helping the management of the business make a smooth transition.

The last scenario we’re about to talk about is kind of morbid, but it is a reality we all must face. What happens if you have an injury or illness that prevents you from ever working again? Or even worse, what happens if you pass away suddenly? You want your business to survive without you and you want your heirs to inherit something successful—not a burden. Your business succession plan and personal estate plan should work in harmony to make sure the company continues to do well after you’ve gone.

Long-Term Business Planning

Whatever your end goal, the more replaceable you can make yourself over time, the better off your business will be in the long run. Of course, there is nothing wrong with being heavily involved in building and growing the company where you want it to be. As time goes on, you can work to make yourself more replaceable. Hire and train the right people to take your place someday. Build a business model that will work whether you are there or not.

Next week on the Illumination Wealth Blog, we will get into some specific methods and strategies for making yourself replaceable as a business owner. Stay tuned!

At Illumination Wealth, we work with many business owners who are looking to make hard decisions like these and put the right plans in place. From estate and succession planning to tax planning and personal wealth management, we are here to help entrepreneurs like you prepare for the brightest future possible. Contact Illumination Wealth today to schedule a free 30-minute introductory conversation with one of our leading financial advisors.