How to Spot an Owner-Independent Business (And Avoid Buying Yourself a Job)

Welcome to Built to Sell, Built to Buy, the podcast for business owners, operators, and bold thinkers ready to take the next big step. I'm Sam Penny, business builder, adventurer, and coach for the brave. Each week, we dive into real stories, sharp strategy, and battle tested insights to help you grow, sell, or buy business the smart way. So let's get to work. Welcome everybody to Built to Buy.

Today's session and this webinar series Built to Buy has been created for people wanting to buy a business to own businesses, but particularly those who wanting to invest in businesses. Today's topic is how to spot an independent owner. Today's session is gonna be about thirty minutes, and then we'll dive into a live q and a. So make sure you jot your questions down along the way. Now, also, you can pop your comments into the chat and ask lives if they if it's something that's relevant to what we're talking about right there and then, I will make that question live.

Now let's dive in because we've got quite a bit to get through. Oh, and okay. So here we go. Built to buy, how to spot an owner independent business. Yeah.

So welcome. My name is Sam Penny. I am the coach for the brave, and today, we're gonna unpack one of the most overlooked risks when buying a business, and it's owner dependent. So if you're looking to acquire a business that can run and grow without you or without the seller, you're in the right place. You're in safe hands, as they say.

A bit about me first. I'm Sam Penny. I've run companies for about twenty five years. And in that time, I've bought and sold companies. I've grown several from scratch.

I've operated in quite a number of different industries, medical devices, beauty, food distribution, ecommerce of distributed products right around the world. One of my products, particularly a medical device company, was in a third of all pharmacies here in Australia. That product then went on to be a worldwide success. I've done a lot of media as you can see here in this first Sky News Financial Review, The Australian, you name it, I've been there, podcast, love a bit of media tard about me. Also, I was lucky enough to be invited to present a TEDx talk, and my TEDx was on why everyone should buy from a regional business across the planet and the benefit that that has to regional communities.

And last but not least, I am also an English Channel swimmer and the first person to have attempted to swim the English Channel in winter. I know. It's dumb, stupid. On top of this, I was once a civil engineer. I hold an MBA in marketing, finance, and entrepreneurship and also did a masters of entrepreneurship at MIT Boston in The US.

So alright. Built to Buy, how to spot an owner independent business. Now we're cooking on gas. Alright. So why does this matter?

Well, here's the brutal truth. Too many buyers, they think they're buying a business, but they're really just buying a job. So if the seller is still in the engine and they walk away post deal, you're left with a shell, basically. So today, we're gonna speak about how to spot those red flags before they cost you. Having bought and sold several companies myself, I've experienced this firsthand of buying businesses where the owner walks away and all of a sudden, some of the business goes with them.

It's just it's ridiculous. So I've learned by my mistakes, but also learned a lot and which is why I wanna share these with you today. So what we're going to go through today and what to expect so, firstly, what does an owner independent business look like? And then what are the red flags? So what are the red flags to look for?

But, also, what are the green lights during your due diligence? And, also, how to dig deeper than the p and l? And quite often, as we know, sort of we look at a business. First thing we do is look at the profitability. We look at the p and l, but there's so much more to a business than that's beyond the financials, beyond the balance sheet, the cash flow, and the p and l.

We've got all the things like the systems. Is it owner dependent? You know, will a lot of the goodwill go as soon as that business owner leaves? And then I'll open it up to your live questions, so make sure you jot them down along the way. And if you've got any questions, pop them into the chat, and and we'll get to them.

So the real problem, if the owner leaves the business and it falls apart, that really wasn't a business. It was a hustle. Now if you're not just buying numbers, you're buying a system. And if the system is called the founder, that's the problem. And that's really what we're trying to avoid through this webinar today.

How can we look for those red flags to ensure that we're not buying a hustle, we're not buying a job, and we've got something that's going to continue on when you buy that company, but also in the future when you may decide to sell it? So these are the early warning signs. If you see the owner in every sales call, key clients will only deal with the the owner. There's no standard operating procedures. There's no documented processes.

And the staff are task doers, and they're not decision makers. And, also, there's no middle management really start to make some red flags of whether that business is a business owner dependent one, and that's what we're trying to avoid. So here are some of the red flags to watch for. When you start having conversations with the seller, you wanna listen for these signs. If they insist on being in all the meetings or if they say, only I know how to do it, Only I know how to if the team can't answer basic operational questions, these are signs of a single point of failure, and we really wanna ensure that we're buying that business that can run independent of the owner.

Can that business owner go on a one week, two week, four week holiday, and the business doesn't fall apart, doesn't fall into chaos? And what does good look like? So what are the traits of an owner independent business? So let's fit flip this script here. So here's what you're looking for.

You're looking for standard operating procedures that actually exist. And I'm not talking about the ones that are filed away in a in a folder, you know, like, everybody's business plan gets filed away. They create it or they get they pay someone to create their business plan or their SOP get filed away. No. I'm talking about the ones that the staff, the team actually run by.

They manage everything by. They make decisions by that. So managers who can run day to day is what we're looking for without the micromanagement of the owner, of the leader, and clients who engage with the business, not the founder. So when they call up, they're not asking for the owner. They're happy to speak with the staff because they know that they're gonna get the right answer from from the staff, and they don't have the need to speak to the owner.

And ideal ideally, the owner is semi absent, already in the business, and it just hums without them. So the owner may be doing, let's say, business building. They might be going out to get new clients, but that's not the day to day operations. So, for example, if we're looking at a mechanic's garage, is the owner under the car? Or do cars get serviced without them being there?

Do cars get booked in without them being there? And so these are three simple questions that you can ask when you wanna deep dive into the due diligence process. So and we wanna go deeper than the p and l. So who runs things when you're away? Really simple question, but you can quite often get from their response.

If there's not one person who's running it, then it's kind of a red flag. And what are the top five documented processes? So and I ran a a parallel webinar series to this called Built to Sell, which is for business owners wanting to remove themselves from the day to day. And in that, we talk about what are the tasks as the business owner cause you most of the stress? What fills your day to day?

And then with those tasks, how can we document them? How can we then delegate them and train them to one of the staff, but also then being able to review the performance of those? So what I've been working with with business owners is to effectively build a feedback loop so that these tasks can happen without the owner being there, but also so the staff can start to make decisions. So what decisions does your team make without you? And they really need to feel empowered and trusted, but also have the procedures, the standard operating procedures in place for them to make decisions whilst the owner is away.

And the kicker, you know, the kicker question, what happens if you take four weeks off? And this is a big thing. You know? And you'll often find that a business owner will say, gee. You know what?

I haven't had a holiday for for because I can't leave the business, or I took a week off last year. You know, even asking them, when was your last holiday? Where did you go? You know, they think that you're asking a personal question and getting to understand them, but what you're actually doing is understanding what their processes are that they've built into their company. So who runs a business when you're away?

What are the top five processes, and are they documented? What does your team do without you, and what happens if you take four weeks off? And one of the reasons why we're trying to understand these, if we look at this scenario so we've got two businesses with the same profit, and they're different because one's owner dependent and one is not. And it's such a massive valuation impact. So let's just say we got two businesses with, say, half a million in profit.

Right? One is completely owner dependent, while the other one runs with a management team and systems. So the owner dependent company might only sell for two times the profit. So it's selling for $1,000,000. But the other one that isn't owner dependent, that has systems in place, that has standard operating procedures in place, who has a team that feels empowered, stood, and can make decisions without the involvement of the owner, The valuation of that company jumps 75%.

So rather than being worth only a million dollars, we're now looking at something that's worth, gee, three and a half times $5,500. Why does my math not work right now? So $1,750,000. That's a massive increase in the valuation. Once again, we're not buying a job.

That's not what we want to do as a business owner. We want a business that we can scale. We want a business where as soon as the previous owner walks out, the thing doesn't fall apart. We don't lose half of our clients. I'll give you an example.

I used to own a chain of hair salons. I had seven hair salons, and I recall two salons that I bought, which did have all the systems in place, but the owner was also working in them. And as soon as the owner left, about half the clients left. And little did I know that those clients had gone because the owner had set up another salon. Now if we had built if the company was not about the owner but about the staff, about the loyalty to the brand, those kinds of things, we would have retained a lot of those staff.

So here's the buyer advantage. You want a business that scales, not stalls. Owner independent businesses, they're easier to finance, they're easier to grow, and they're less likely to implode during transition. So if you want an asset that works for you, not one that needs you, this is the profile that you're buying. And we asked those questions before, you know, to really start to understand what are the red flags that we should be looking for because you're investing your good money into buying a business.

You wanna ensure that you get return on your business, not walking into something that's gonna detonate as soon as the owner the previous owner leaves. And it's it's quite a it's you know, this is an important thing. Owner independent businesses grow faster, retain clients, and are easier to finance. And so here's the final litmus test. I call it the walk away risk test.

So could the seller walk away for thirty days and have things keep running? If the answer is no, then they're not selling a business. They're selling you a job with their name crossed out. Could the owner leave for thirty days without chaos? Have they got systems in place?

Have they got a team that's empowered to make decisions without the owner being there? Do the staff have freedom and trust from the owner, or do they get micromanaged? Will they will the owner walk away and things start to catch on fire? We want operational independence from the founder. We want real systems and an empowered team.

And we want a culture of accountability, not reliance. So let's go through each of these one by one and explain that a little bit further. The operational independence from the founder, has the task that the owner used to to do, have they been documented? Has a relevant person been trained? Does the owner have trust in that person to perform the duty?

And is there a review structure to ensure that the tasks are being performed adequately and to the level that the owner wants. We need to have real systems and an empowered team. So we need to have standard operating procedures, just procedures where each of the staff know exactly how to perform their duties, how to make decisions without having to ask the owner. And when we start to get this empowered team, the team also starts to make strategic decisions as well. And this is a very important part when you've got a culture and a team that's starting to make strategic decisions.

Then when you have your monthly meetings with your team where you get to ensure that you've still got your finger on the pulse and they know that you exist, they come to you with all these great ideas to build the business, to grow the business, and that's the golden egg right there. An empowered team that really thrives in making decisions, strategic decisions, and making the right decisions and learning from their feedback loop. We want that culture of accountability and not reliance. We want people to stand up. And if they made a mistake, just go, yep.

You know what? I put my hand up. I stuffed up. I own that. But, also, at the same time, a team that can think strategically, can think about how can I make my role better?

How can I service the customer better? How can I bring more sales in? How can I improve the efficiency of our admin? How can I market this company better? How can I convert more people in the sales call?

How can I increase the lifetime value of a customer or get more recurring revenue every single month? And when you've got a team that's thinking like this, they're thinking strategically, they're thinking very empowered in an empowered way, then we're starting to have a business that is throwing up so many green flags, green lights for you to go. This is one worth investigating deeper because your return on investment is really going to work for you. So I know I ran through that very fast. There's quite a few things in there.

I'd love pop it in the chat. What's one question you're gonna add to your next due diligence meeting? Also, a recording of this is gonna be made available after the show across all the social medias. I have also created a document for business buyers, which is the whole framework of what we've been talking about in a lot more depth, a lot more detail in how to spot the owner independent businesses because we don't want this. We don't want you walking into a business and having to then be present in all meetings.

Because you don't have the history with the clients, because you don't have history with the business, but everyone's all of a sudden looking to you for direction, things are really going to fall over. You don't want that high staff turnover. Staff can't speak about the numbers, and there's no clear roles. Nobody really knows what they're doing. They're just getting told what to do.

That's exactly not what we want to do. Also, I help buyers get clarity. So if you wanna if you want help navigating your acquisition, valuing the right business, asking the right questions, or avoiding the expensive mistakes, you can book me for a thirty minute strategy call. It's to help buyers get it right. It's no hard sell.

It's just clarity. Look. I've built companies. I've sold companies. Made so many mistakes buying companies, but this is really what it's all about.

I wanna help business owners find businesses that are really worth buying, not buying you a job, not buying you the stress. Yeah. You've worked hard to save up that money or invested that money that you're now going to invest in another company. You need to make the right decisions. You need to make the right decisions to ensure that you're making your money work for you.

This is an investment decision. You don't wanna walk into that company that's going to implode straight away. You wanna walk into a company that, basically, the owner of the owner of the company changes, and that's all that anybody anybody knows. The day to day operations work. Everything just works.

The numbers still happen. There's feedback loops. There's KPIs being achieved. Staff are empowered. Staff are making decisions.

This is just crucial. Now I'll also pop into onto the screen right now. There's a link. If you wanna click that link, you can book in straight away that thirty minute discovery call. By all means, I love speaking with business owners.

It brings me a lot of joy. Owning a business should bring you freedom. It shouldn't bring you stress. And I say it so many times with a lot of business owners that I work with, the amount of stress that it brings them. Being an entrepreneur is a twenty four seven job, and I think it's actually one of the hardest jobs in the world.

But when you've got the machine running, the cogs start turning, everything starts working correctly exactly how we want it, then we're in a position where we do have the freedoms. We can go on holiday. We're starting to have a business that works for us, you know, both emotionally, financially. We get to spend more time with our family. We get to spend more time doing the pursuits that we want.

Swimming the English Channel. All those kinds of things. It really is an important thing. Now as I said, this is part of this is part of the Built to Sell webinar series. This runs every single fortnight, and it's all about empowering business buyers and investors to make better decisions.

Now my next session, it's on the June 5 at 12:30 Australian eastern time. And the next session is what the systems tell you about the business. So being able to look at all the systems that are within that company and really help you during that due diligence. So I hope to see you at that. Now, also, at 11:00 on the same days, I run a similar webinar for the business owners.

And for that side, it's basically the other side of the script, how to ensure that you've got the systems in place so that the business can run without you, so that the business can run smoother. So it's very interesting. You're more than welcome to join me in those sessions in the 11:00 sessions because it lets you see what the business owners are looking at, and, also, they get invited to these ones as well so that they get to see what a buy a buyer is looking for. And it just ensures that we've got businesses that are worth more, probably better. We get a much greater return on investment.

You can make faster decisions, better decisions, and we're going to be in a position where things work so much better. I hope that really helps. I really enjoy providing these sessions. Like I said, book the thirty minute discovery call. Link is on the screen there.

Show notes are going to go out. Also, the document that I've created to help business owners really identify what are the flags of an owner operator business. It's effectively a due diligence checklist that you can implement straight away. And there's so many companies out there for sale at the moment, and we're gonna see so many opportunities that are rising over the next five, ten years as the baby boomers start to look to offload their companies. The smart operators are gonna have all these things in place, but the smart buyers are going to know how to identify the right businesses.

So I hope that helps. Don't forget, book in for a thirty minute discovery call. We can see where you're at, what kind of things are you looking at, what frameworks do you need in place. Do you need my assistance for anything? I'm always here to help.

I love doing this. I hope you have a great time. See you at the next session.