Savvy business owners keep their distance

ONE of the problems I see in business is the owners' failure to separate themselves from the business entity.

ONE of the problems I see in business is the owners' failure to separate themselves from the business entity.

This problem affects financial performance as much as mental health. It hurts the business owner who becomes so absorbed in their business, they no longer know how much they're earning from it the business owner who doesn't know what their equity in the business is worth and the business owners who work harder than their employees and pay themselves less.

Sound familiar?

The process of starting and running an enterprise is a profound change from a life of employment, and the way many business owners adjust is to totally absorb themselves into the business. This is understandable and I have fallen into this trap myself. However, it isn't the most profitable way to own a business.

In reality, business owners are at their most efficient when they create and maintain a sort of critical distance from their business, so the issues that pertain mostly to the enterprise can be acted upon with a clear head, and personal issues can be dealt with from the correct perspective.

Keeping this distance enables business owners to make better business decisions, have healthier lives, more fulfilling family time, and also to maintain a sense of reward for all their hard work.

Here are a few tips on how to achieve this:

Goals When starting or buying a business, write down why you are doing it, what you want to get out of it and what will define "success". Whatever those reasons, you have to know what they are.

Structure Separating the person from the business starts with corporate/personal structuring. Are you a company, a sole trader, a partnership, a trust? It may not mean much to you now, which is why you need to engage a solicitor and accountant before starting a business. You need to have the ramifications spelt out to you in terms of tax, equity, liability law, business sale, superannuation and a host of compliance issues. You must get this right.

Exit Business owners put a lot of time and energy into their enterprise, and the smart ones have a capital gain to walk away with when they sell. But ensuring you have something to sell depends on things such as intellectual property, a business name/logo, client lists, and having a structure that allows the owner to exit efficiently. It also depends on having a ...

System The separation of business and business owner often comes down to the creation of systems - a system for creating revenues, as opposed to simply having a hard-working owner at the helm. This not only makes your business more valuable to buyers and more reliable in the eyes of the banks, it helps you become a more successful business owner. With a systemised management structure, financial reporting, sales functions, client contracts and so forth, you have the opportunity to work on the business rather than simply in it. This makes you a better business person and also a happier one. Knowing a workplace can keep ticking over if you're not there for a few days gives you the breathing room to ensure your family and personal needs are met.

Liability Separating yourself from the business requires correct structuring so the legal/financial liabilities of the business are not sitting on the shoulders of you and your family.

Protection You need the right insurance, not only for the business but for you, the person. A lot of insurance for business owners is complex and requires some customisation, so I suggest you see an insurance broker. You need to think about yourself not only as the breadwinner at home but the rainmaker in your business. So you need insurance cover for your family should something happen to you, and also for your business. If you have staff, they have responsibilities too, and some sort of key-person or business-continuance cover is essential to ensure they are looked after. Just remember, life insurance is only one part of it. If you are incapacitated, the same amount of damage could be done to the earning potential of the business.

Experts The best way to ensure a business owner has a sense of distance from the business is to engage the right experts at the right time. External professionals focus on the issue and chase results, which gives you - the owner - the chance to see the business through clear eyes, untainted by history, personalities or emotions. The typical experts are solicitors, accountants, finance brokers, insurance brokers and marketing consultants. Don't be the business owner who will happily spend on a mechanic or plumber but won't hire an accountant or IT consultant.

What's in it for me? You're the one who works like a maniac, who loses their weekends, who goes over the spreadsheets late into the night, who misses an afternoon at the beach. You must have your own reward to keep you motivated. Whether you structure this as a salary, bonus or a dividend, you - the person - must be rewarded by the business.

Related Articles