By Adam Caplan, Director

What would happen if you could not come into work tomorrow? Would the business function normally, or would it struggle to keep up?

One of the biggest hidden risks for SME businesses is that the company grows around the owner, with little space for delegation through a process known as owner dependency.

This has many drawbacks, including damaging workplace culture, creating operational bottlenecks, and making it harder to withdraw from the business.

The good news is that it can be fixed.

A business that once relied on the owner to juggle every ball can be transformed into a stable, saleable asset with a high ceiling for expansion.

Owner dependency – What problems can it cause?

Owner dependency is an issue that might not be immediately obvious but is one of the most underestimated financial risks for SMEs.

Without the ability to delegate, a business’s capacity for growth becomes limited, seriously damaging its value and saleability.

Relying on just the owner as the single point of failure means there is no contingency if things were to go wrong, which they often do.

How to diagnose an owner-dependent business

A key symptom of owner dependency is where client and supplier relationships are directly managed by the owner instead of being institutionalised.

This results in an organisation effectively becoming a single-person franchise, where people know an individual rather than the business.

Banks, lenders and insurers who suspect an owner-centric structure might see a business as riskier and raise borrowing costs.

Another telling feature of owner-dependency is that the decision-making power, knowledge and responsibilities are all concentrated at the top.

If almost all business decisions are made at the highest level, people underneath might hesitate to act independently out of fear that they aren’t allowed to.

For example, when an owner is solely in charge of financial decision-making but is absent, urgent decisions either stop or are passed to someone without the context to make them effectively.

This also impacts employee morale and retention.

Talented staff who are handed little decision-making power can feel undervalued and compelled to look elsewhere if there is no path to real responsibility.

If a team is used to deferring every decision to the owner, this also might lead to a lack of confidence and adaptability when overcoming new challenges.

All these factors can create huge organisational bottlenecks that can be a source of frustration for everyone involved.

The commercial consequences

Owner-dependency is also a main stumbling block for SME business owners who are planning an eventual exit or sale.

It makes sense – if operations grind to a halt without the owner, then how could someone else take it over without paying large premiums?

Buyers are often not looking to take on more challenges and would opt for an operation that can grow without too much intervention.

Imagine you are sick or on holiday and suddenly the business can’t deliver.  At worst, this situation makes a business unsellable.

Likewise, an owner caught up in day-to-day tasks because they can’t delegate means important business decisions on strategy, development and long-term planning are overlooked.

If an organisational structure means there is no clear vision for the future and no possibility for a takeover, it is likely that a business will stagnate.

How to build a business that can function without you

1. Define roles and business structure

The place to start is by clarifying the leadership structure and defining the responsibilities of each role.

This means everyone is on the same page when it comes to decision authority, performance expectations and operational ownership, so employees can understand and perform their role.

2. Record core processes

To prevent a concentration of knowledge at the top, processes must be recorded to move them away from individuals and into systems.

3. Establish a capable management team

Capable leadership is important for companies moving away from a one-man band and into a growth phase.

Effective leaders can execute strategy, overcome operational challenges and lead the way during change.

4. Measure performance

When the core structure of the business has been established, you then need to make sure performance is transparent.

Key Performance Indicators (KPIs) can help leadership teams monitor progress and support strategic decision-making.

5. Look to the future

Once you have completed all these steps, you can begin to move your involvement away from daily operational control.

This means a business can now become independently functional, while the owner can decide the long-term direction and make important strategic decisions.

Where we can help

We pride ourselves on our range of financial services that can help your business move away from the precarious situation of owner-dependency.

While it feels good to be important for your business, being indispensable has many undesirable consequences.

Anything from exit planning and business restructuring, all the way to implementing financial systems, we have you covered.

If you are ready to start that conversation, our friendly team are the one to help you build a business that can thrive independently.

Don’t undervalue your business or wait for a crisis to happen. Get in contact today.