Investing in a management team
We have seen it across all spheres – from Sir Alex Ferguson leaving Manchester United Football Club, to CEOs leaving a business they’ve made a success of – when the strength of an entity lies in the leadership of one individual, and this leader then leaves, the entity can fall apart.
This is exactly the risk purchasers and investors are concerned by when assessing your business. If you are too embedded within business, continuing to make all of the decisions, it is more difficult to establish where your value as a leader and entrepreneur ends and that of the business, as an independent entity, begins.
This differentiation is essential in providing confidence that your business is lower risk: should you choose or need to step away from the business, it would continue to thrive without you. If a purchaser or investor is reliant on your continued support and involvement this presents a risk which can devalue your business.
To best mitigate this risk, invest in a trusted management team and redistribute your responsibilities to these individuals. To fully benefit from this transition, a team would ideally be in place for at least 12 months prior to transacting enabling them to fully embed themselves and to sufficiently demonstrate their competence. However, even demonstrating a significant shift or commitment to a reduced leadership role can reap benefits. While you could choose to continue in a more strategic position, away from the day-to-day business decisions, it is essential that key external relationships are also transferred to the management team and, as far as possible, held by multiple individuals to avoid the concentration of value and further mitigate any risk.