Selling a business when the owner is a brand means something entirely different than selling a business where the owner established a set of business processes. How can a business owner hope to separate their personal branding from a business before selling when they haven’t figured out how to separate their personal identity from a business?
An owner-dependent business sale represents a transfer of a company in which an excess of the total value of the business, in terms of traffic, sales, and customer loyalty, relies on the owner’s presence and activities.
Brand identity and the personal brand of the founder mean the same thing. While a personal brand is an incredible marketing engine for a business, it also represents a massive risk to a potential acquirer. The biggest worry for the potential buyer is business continuity. Will customers continue to be loyal when the face of this company is no longer in the spotlight? The challenge for this evaluation will be to show exactly how this brand identity can exist and thrive without this personal brand.
The problems associated with selling a business closely tied to the owner are numerous. The buyers will naturally factor in a hefty discount during the sale due to the possibility of customer flight post-sale. Some of these issues include:
A conventional business valuation analysis takes a technique based on adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and utilizes a market-driven multiple. But in assessing a personal brand business, such an analysis must be substantially adjusted to factor in the risk of owner dependency.
How owner involvement affects business value is measured by how well this business can function and make sales without the owner’s direct input on a daily basis. The owner’s role can either have a non-significant effect if their role mainly entails direct operations such as fulfillment or customer service. Alternatively, if they primarily focus on creating core assets such as writing all the code, all content, or closing all sales, this can have a negative effect.
What affects owner dependency and lower valuation multiples is owner-dependent business sale risk. A potential buyer purchases a business with expectations of passive revenue. Owner dependency adds unpredictable risk to this because:
Key Man Risk: In case the owner falls ill or leaves suddenly, the revenue generation ceases.
Client Attrition: Clients will follow the owner out the door or simply pick a different company if the owner terminates operations.
Loss of Future Innovation: Where innovation or vision in a business belongs to an individual owner, future growth in such a business can never be guaranteed under a different owner.
The preparation stage of selling an owner-centric business will have to be considered a full-time project. Such a project will have to commence 12 to 18 months prior to the intended date of sale.
The following are steps you can take in selling a business when the owner is the brand
The most effective strategies for controlling owner concentration risk include diversification of relationships and content:
Vendor Relations: Make sure a non-owner employee administers important vendor contracts to show it is an institutional rather than an individual relationship.
Client Relationships: For major clients, establish an account manager for handling all communications. The owner will be in a supervisory capacity only.
Content Strategy: Move the focus of digital marketing strategy from being “I” centered and saying “My thoughts on industry,” to being “We” or “The Company” centered and saying “Our analysis of industry trends.”
The reputation management of owner-centric business is one of the strategies to reduce owner concentration risk during a sales transition. This is a delicate move because, first and foremost, panic has to be prevented among customers and employees in case they think the leaving owner is leaving a failing business.
A good owner-based brand transition plan will incorporate contractual agreements and a gradual exit strategy:
To attain a successful business continuity, it is important for the buyer to have a seamless transition from being the voice of this brand. This is achieved by the development of style guidelines with a definition of a brand voice, language, and style of communication to help new content creators and to make sure that your customer experience does not rely on your direct involvement.
The digital marketing strategy in the stage of pre-sale must do everything in its power to reduce notoriety of the founder without diminishing traffic. It is all about shifting the focus of the business brand from its owner.
The impact of personal brand on the sale price of a business is a two-edged sword. A personal brand with a higher revenue corresponds to a higher multiple, but also corresponds to a higher dependency risk. To achieve a higher sale price, the owner must prove a sound reputation management system. The end objective would be to transfer the personal brand business valuation from being future owner-based to being future profitability-based.
Here are possible ways to improve your owner-centric business for potential buyers:
A business is sold when the owner is the brand by systemizing such business, delegation of ownership responsibilities to a team, and developing an owner-brand transition strategy that requires the owner to only supervise.
As a first step, the owner can begin to incorporate other critical team members in content and interaction with customers, changeover in digital marketing strategy from “I” to “We,” and establish all mission-critical activities by creating detailed and buyer-centric documents.
Owner involvement negatively affects business value because it decreases the multiple used in valuing the business’s earnings. The purchase is considered to have a higher key man risk.
Effective approaches include a gradual or staged exit process where the owner can introduce and recommend an account manager or a buyer to the clients over a six-month period. A business owner’s brand transition plan is put in place by contract to require joint customer meetings and communications.
In a sale of an owner-centric business, a transition may take much longer than in a 90-day transaction. The buyers will require a transition period of 6 to 12 months prior to closing to complete an owner-based brand transition plan and ensure a critical transfer of functions to the new owner.
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