When undertaking a business valuation I look at hundreds of factors to investigate how the business works and how much profit it should make in the future. Does the business need a genius to be successful? This is one of the key factors I’ll form an opinion on when calculating the value of a business. 
When undertaking a business valuation I look at hundreds of factors to investigate how the business works and how much profit it should make in the future. Does the business need a genius to be successful? This is one of the key factors I’ll form an opinion on when calculating the value of a business.
Maybe I’m just lucky, but I seem to be dealing with a disproportionately high number of genius business owners. How do I know this…they tell me. Do I believe them…it doesn’t matter.
What really matters is whether the business needs a genius to make it work. Not whether the current owner is a genius. I don’t care too much about the current owner because for most business valuation engagements I have to make the assumption that they’re not there in the future anyway.
What I really care about is what the current owner does, what can be delegated and what can’t be delegated. And more importantly, whether they should be doing any of those things in the first place.
Far too often I see businesses with overcomplicated business models and procedures. Take my own business for example. In the early days I did a lot of the website and software development myself. I did it because I wanted to learn it as I went and I enjoyed it. To find another chartered accountant with my skill-set would be almost impossible. Does that mean that my business is worth nothing just because I can’t clone myself? Absolutely not…because someone else would outsource that stuff and spend all of their time charging clients instead. So in theory the business has even greater potential than it would seem. I’ll elaborate another time why I still do an amount of development myself because not everything is about short-term measures like chargeable hours.
People often have a vested interest to take a position on whether they call themselves a genius or not. In a business valuation for divorce they will tell me that their business is one-of-a-kind and without them it would cease to exist. This is often far from the reality for most businesses.
People also tell themselves they’re irreplaceable so they can feel they are contributing in a way that others can’t. It’s a bit of a self-esteem thing. This often leads to a fear of delegation. They fear that if an employee or contractor can do what they do then it will surely result in mutiny and would be the end of the business. This is an unhealthy way to grow a business…but having said that…it’s almost always reversible.
I remember a client that spent all his time doing quotes. He assured me that no one else was capable because it was too hard. I challenged him and said that it was a shame he wasn’t smarter or he could have written a basic procedure for anyone to follow. He took my abuse and turned it into a quoting procedure within one week, and he never looked back. I’ve taken my own medicine and make a quoting system for my own business so I’m not the bottleneck. Everyone in my business is fully authorised to quote.
The Lesson: In summary, if a business truly needs a genius to make it work then it’s probably not a business at all. It’s a job. But even then, with a few tweaks it may be relatively easy to make it a real business yet…and the main tweak might be changing the owner!
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