I work limited hours in my business so it should be worth more, right?
It may go without saying that a business where an owner works fewer hours to produce the same level of profit is going to tend to be both more marketable and valuable. Who doesn’t want to work less and make the same amount of money or more?
However, as a business broker I see that most small and lower mid-market business owners work long hours, so if you are the rare exception who works limited hours, some business buyers will be skeptical of that claim, and will wonder “does the business owner really only work 10 hours per week, or is it closer to 40?”
Here are three suggestions of ways to help support a claim of working limited hours:
Don't hang around at the business when you aren't working. It's not unusual for a business owner that doesn't have to work much in their business to still go to their office and spend part of the day dealing with other business and personal interests. Perhaps they spend an hour a day talking on the phone to family and friends, read the paper for 45 minutes, spend time looking for real estate investments, monitor a personal stock portfolio, call up friends in the industry, etc. The problem with doing all of these activities at the office within a year or two of selling is that while you know that you are only working 10 hours a week, your employees, vendors, and customers see you at the business in what appears to be a full-time capacity. So, during due diligence when a buyer starts trying to verify your claim that you only work 10 hours a week, they will find that others see you there "all the time". From a business broker's perspective, if you work limited hours, my suggestion would be that 12-24 months in advance of when you want to start marketing your business, that you be very disciplined about only being at your business when you are doing work related to the business.
Create a work journal. It may make sense to create a work journal starting 6 months to a year before you are ready to engage a business broker to sell your company. If you keep diligent daily records of the time you work and the tasks you do while you are working, it will help provide proof of your limited working hours. Sure, it's a bit of a hassle, but if you are truly working limited hours, it shouldn't take that much extra effort. There are smart phone billing apps that could be used to easily track your time. It’s important that this be accurate so that you won’t face assertions of mis-representation if, after a buyer acquires your business they find themselves working 40 hours per week rather than 10 hours as represented, while doing the same basic tasks. The added benefit of doing this is you can share more accurate information with a buyer of how, exactly, you spend your time.
Take a couple of 3-4 week vacations the year before you are going to sell. One good way to prove that your business can run well with more limited active owner involvement is to take a couple of 3-4 week vacations without working while you are out of town. If you and your business broker can document your extended vacations and show that there was continued good performance despite your absence, it will give a prospective buyer confidence that they will be able to step into a business that is operationally sound where they can focus more on strategic initiatives.
If you are on the other end of the spectrum, where you are working very long-hours in your business, it can negatively impact both marketability and value. If you are working more than 50 hours a week, on average, you may want to consider creating better systems, cross-training staff, delegating more work, and/or hiring more people to help you manage your work load down to less than 50 hours a week.