How Leadership Development Raises the Monetary Value of Your Business
Did you know the value of your company is based on more than profitability and cash flow? One important factor taken into consideration when having your company appraised is “high owner dependence” (or its counterpart “absentee ownership”). In this blog we dive into what exactly this is and how leadership development is the key to adding monetary value to your company.
What is “High Owner Dependence”?
High owner dependence is a common obstacle that many businesses face. Often, the success and decision-making within a company are heavily reliant on the owner or a few key individuals. This over-reliance can impede growth, hinder scalability, and limit the overall value of the business. In addition, there is higher risk for the operability of these companies because the company cannot function when the Owner steps away for an elongated period of time.
When you go to sell your business, or offer shares to your employees, this is one important factor that is taken into consideration when performing a valuation of your business. By investing in executive coaching and leadership training, businesses can effectively mitigate this issue and directly elevate their value. Let’s explore more below…
The Role of Executive Coaching and Leadership Training:
Empowering Leadership Teams: Executive coaching and leadership training focus on empowering not just the owner but the entire leadership team. By improving the skills, knowledge, and decision-making abilities of the leadership group, these programs reduce the reliance on a single individual's expertise.
Strategic Decision-Making Skills: Coaching and training programs equip leaders with the skills to make effective, strategic decisions. This ensures that the decision-making process is distributed across the team rather than concentrated in the hands of a single owner.
Creating a Leadership Pipeline: Investing in coaching and training creates a pipeline of capable leaders. This not only distributes responsibilities but also prepares the next generation of leaders, ensuring continuity and reducing the shock of an owner's departure.
Cultural and Procedural Changes: Coaching and training often bring about cultural and procedural changes within the organization. A more inclusive and collaborative culture, along with established processes, decreases the reliance on specific individuals for critical operations.
How This Improves Your Business’s Value:
Scalability and Growth Potential: Reduced dependence on the owner allows for greater scalability and growth. The business becomes less susceptible to stagnation or slowdowns when the owner is less central to daily operations.
Enhanced Business Sustainability: A leadership team that's well-trained and capable ensures the business's sustainability, even amidst changes or transitions. It reduces the risk associated with high owner dependence and ensures the longevity of the company.
Increased Attractiveness to Investors or Buyers: When a business is not heavily reliant on a single person, it becomes more attractive to potential investors or buyers. This can significantly increase the valuation of the company.
How Much of an Increase in Value Can You Expect?
Reducing high owner dependence and moving toward an absentee ownership model is not just about spreading responsibilities; it's a strategic move that significantly enhances the value and resilience of a business. How much the value of your business will increase depends on a few variables, such as company size and cash flow, however an average of a 30-60% increase is not uncommon. And, keep in mind, this is if everything about the company’s financial performance stayed as-is. When you consider the impressive ROI and increased performance statistics for companies who invest in their leadership teams, you are increasing the value of the company in more ways than one.
By investing in the development of a capable and empowered leadership team, businesses can position themselves for growth, sustainability, and increased market value. Recognizing the importance of these strategies in reducing owner dependence can pave the way for a more valuable and successful business in the long run.
If you or someone you know recently appraised their business and are on a path to improve their valuation, or are looking to sell their business in the near future, set up a discovery call to see how leadership development can help you increase your company’s value.
