There is an old saying in business that you only truly own a business if you can go three months without going to it and it’s thriving just as well when you return as when you left. Although everyone can appreciate the benefits of this, the mechanics of making it happen can prove rather daunting. In fact, many business owners I’ve spoken to over the years scoff when I tell them this needs to be their objective – they’ve spent so long doing things the way they do them they can’t see any other alternative.
A self-running business is not a fallacy. I’ve seen too many examples of people doing it to accept anyone’s claims that it simply can’t be done – and the real benefits are not just in the immediate realization of more spare time for the owner, but in the building of a saleable asset through a self-running business.
At the end of the day, we are all inherently lazy. We naturally like to get something for nothing. Sell a business that promises an owner 60 hours per week and you won’t find a queue outside your door waiting to buy it. Show someone a way to make money while they sit on a beach and the line of interested parties, and ultimately the selling price for the business, will grow accordingly.
The real benefit in building a business isn’t just the profit you can reap without having to go to work every day – it’s in the intangible value you have created that you can sell when you leave the business. The benefit of building an intangible asset is that it doesn’t require money reinvested in it. Add a new plant and sooner or later you will need to replace it. Inventory has to be replenished with more cash. Fixtures and fittings will need upgrading, but intangible assets for a business can be built and added to often without an outlay of cash.
Jewelry stores can be fortunate in that they don’t require a heavy reinvestment in a plant or machinery. This frees the majority of capital up to be invested in inventory which can be turned over relatively quickly and offer a good return on investment. Given that many businesses are able to source some of their product from willing vendors on a memo basis, even this investment doesn’t have to be too onerous. Combine this with the positive cash flow nature of retail (get paid as you sell, pay for the goods much later) and realize there are many strong advantages to this type of business model.
I’ve seen retail jewelers sell their business for a price that consists largely of goodwill. The value they have built has been in intangible areas that translate into increased profit and a stronger selling price when they leave the business. So what factors make a difference? If someone is looking to buy your business, they are looking for a model that works with minimal effort. In the same way that a renovated home commands a premium, so does a business that has as much as possible already in place.
You can create value in your business in a number of ways. Strong contracts are a good example of added value. I know one jeweler who adds 8% to his sales figure by negotiating an ongoing arrangement for the supply of insurance services. Does the value of this lie in the inventory? Know the value is in the strength of the contract – a few words on a piece of paper that adds immensely to his business value whether he opens his doors or not.
A data base is another example. Most businesses don’t work their database well, yet everyone has heard the saying that it’s 7 times more expensive to get a new customer than keep an old one. By simply retaining the records of customers and how to contact them you are creating an intangible asset. I have friends in the speaking industry who know that each name on their list is worth over $400 per annum in revenue. How good is that? You are effectively being paid just by building a list? (I will add the quality of what you send them is important)
Setting up systems is also crucial. I don’t know a business owner who can leave their business for an extended period of time without an effective system in place. Good systems are an intangible asset that translates into more time, more profit, and a higher selling price.
David Brown is President of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact inquiries@edgeretailacademy.com or call 877-569-8657.
