How achieving owner independence can skyrocket your business value

owner independence | bizval Business Valuations

At bizval, after running thousands of business valuations, we’ve uncovered fascinating patterns that provide actionable insights for both buyers and sellers. One standout trend is the significant impact of owner independence on a company’s valuation.

In the realm of business, much like in music, getting the timing right can make all the difference. Whether it’s capitalizing on market conditions or navigating the interest rate cycles to determine if it’s a buyer’s or seller’s market, timing is key. However, achieving perfect timing is a challenge, often elusive even for seasoned investment professionals. For busy founders, it’s an even tougher nut to crack.

Yet, an encouraging truth emerges: longevity and time spent building your business substantially contribute to its overall value. This endurance not only gives potential buyers a clearer picture of the business’s performance across different economic seasons but also cultivates a company that stands robustly independent of its founder.

The veracity of numbers

Our extensive database, enriched with thousands of real-world business valuations, reveals compelling trends that speak volumes. We categorize businesses by age, ranging from nascent startups to those over a decade old, to analyze their performance and valuation metrics.

The longevity of a business inherently instills confidence in buyers, often justifying higher valuation multiples. This is akin to the premium placed on well-established, “blue-chip” companies in the stock market compared to their smaller, younger counterparts. However, the true intrigue lies not merely in the age but in the degree of independence a business has from its founder.

Independence as a value driver

The correlation between a business’s age and the founder’s ability to take a break is stark. Among companies over ten years old, a mere 3% of founders find themselves too entangled in daily operations to enjoy a holiday. Conversely, a significant portion of these seasoned entrepreneurs can afford extended vacations, with some even managing three weeks off the grid. Not surprisingly, these businesses command the highest valuation multiples.

Here’s a snapshot of our findings:

  • Owner’s holiday time vs. business value: The ability to take a holiday, especially an extended one without constant check-ins, directly correlates with higher business valuations.
  • Founder well-being: Anecdotally, we’ve observed that founders who can afford such breaks are likely the most content and well-adjusted, pointing to the broader benefits of cultivating business independence.

The value of a break

The trend is unmistakable: as businesses mature, founders gain the freedom to step back. This detachment is not just crucial for preventing burnout but is a vital ingredient in enhancing the business’s market value. For businesses over a decade old, there’s a notable jump in valuation multiples from below 3x earnings for those tied to their founders, to around 6.3x for those with systems allowing complete founder independence.

Building a business capable of thriving without your day-to-day involvement might be one of the most significant steps you can take to boost its value. It seems, then, that investing in a robust succession plan and crafting a business that lets you indulge in your dream holiday could be one of the most profitable decisions you’ll ever make.

As evidenced by our data, such a vacation might very well fund itself, several times over.