Are You Running An Asset or Your Baby?

Do you think of your business as an asset? Or is your business your baby? Let me set the record straight. It's not your child or your baby. It's an asset. And, just like any other asset, it has (or should have) value. 

Every business has a backstory; some are downright riveting. Others are ordinary. Regardless of the details of your backstory, if you were the founder of the company, it probably goes something like this—

You found yourself out of work, either voluntarily or involuntarily.

You saw a need for some product or service.

You got very excited about creating something new, so much so that you poured your entire life savings into it.

You launched your company with visions of a great future.

You dreamed that someday you would sell your business and retire in style.

Then, the business became successful somewhere along the way, and something unexpected happened.

You got caught up in the daily grind, and the business became a source of income and lifestyle. 

Then, it became a job, and you stopped thinking about the business as an asset.

Somewhere along the way, another subtle shift often occurs: you become the business. Every important decision, every customer relationship, every problem, and every opportunity begins flowing through you. It feels natural because you're committed to your company, but it also creates one of the biggest obstacles to building enterprise value. Buyers invest in businesses that can succeed after the owner walks away, not businesses that require the owner to stay forever.

Sometimes this cycle takes years. Sometimes it happens so quickly that you don't have the time to suffer. If the latter describes you, you're lucky! But, for most of us, the struggle was real. The pressure was enormous. The risk was more than just money. It was my spouse and family. It was future security. It was life on the edge.

But now that you've made it through the eye of the needle, it's time to enjoy the spoils. After all, the spoils are what made the struggle worthwhile.

Don't get me wrong. I'm not saying that you shouldn't eat what you've killed—quite the opposite. But here's the key: an asset isn't valuable simply because you own it. It's valuable because someone else would want to own it. A business that depends entirely on you may provide an excellent income, but that doesn't automatically make it a valuable asset. The more your business can thrive without your daily involvement, the more valuable and transferable it becomes.

You see, you think differently about a job than you think about an asset.

A job is a source of income. It provides for your family and, if necessary, can usually be replaced. An asset is different. An asset creates wealth. It has value beyond the income it generates today because someone else would be willing to pay for it tomorrow.

That's an important distinction. A profitable business is not always a valuable business. Profit pays today's bills. Enterprise value determines what someone will pay you when you're ready to transition. The businesses that command the highest value are those that can continue growing and succeeding without being dependent on their founder. Whereas an asset is precious, something for which you've worked hard. An asset has emotional ties to you and your family. An asset has value. An asset is something that you can extract money from in the future. If you're fortunate enough to have children, you don't consider them an asset. Why, then, would you think of your business as your baby?

Many owners leave tremendous value on the table when it's time to exit because their focus is on income generation (a job) rather than being focused on building enterprise value (an asset). You invest differently when your primary objective is to improve long-term value rather than short-term profit. And make no mistake, every dollar you put into your business, whether out of your pocket or reinvested profit, is an investment. Every dollar you put into your business, whether it's new technology, leadership development, marketing, equipment, or better systems, should be viewed as an investment in the future value of your company. The question shouldn't simply be, "Will this improve next month's profit?" It should also be, "Will this make the business more valuable, scalable, or transferable?"

Sometimes the return comes through increased profitability. Sometimes it comes through reduced risk, stronger leadership, better systems, recurring revenue, or less owner dependence. Those are all investments that increase enterprise value.

In my last company, whenever one of my managers or front-line employees asked for money to invest in systems or software or whatever, they already knew I was going to ask, "What's the ROI?" And if they couldn't clearly articulate it, they wouldn't get the money. It became such a common question that my team rarely came asking for money without already having an answer. They knew I was going to ask how the investment would improve the business - not just today, but over the long term. Thinking this way changes every decision you make because you're no longer managing expenses. You're building an asset

So, how can you have your cake and eat it too? How can you enjoy income and lifestyle AND build value in this asset that someday you'll be able to monetize? The process starts by balancing conflicting priorities with the end in mind. 

You have a constant internal conflict of competing priorities. You are fighting a battle every day. That battle is between the owner and the employee. I'm not talking about between you and your employees. You are on both sides of this battle. On the one hand, you're the employee or operator who deserves a high income and the perks that come with delivering results. On the other hand, you're the owner who demands those results and more because you're trying to build long-term value. 

Owners and operators think at different levels. Operators naturally focus on running the business. Owners focus on building the business. Operators ask, "How do we hit this month's numbers?" Owners ask, "How do we build a company that's worth more five years from now?" The best business owners learn to think both ways because today's operational decisions ultimately shape tomorrow's enterprise value. There is no better or worse. No right or wrong. Just a different approach. Most business owners are operators who get the job done and deliver results. Far fewer act like owners. 

If you want to eat your cake and have it too (which is the correct use of that phrase), you need to learn to be both. It is a delicate balance. The employee wants to get the job done. The owner wants the job done right. The employee wants to know why he can't put more resources into a project. The owner wants to drive efficiency. The employee wants benefits like vacations where he can get away from work for a while. The owner keeps the cell phone turned on in case of an emergency. The employee wants to be paid well now for his hard work. The owner knows that there is a bigger payday in the future. That payday's size and terms depend on building value in the business today.

Every decision you make either adds to or subtracts from the value of your company. Hiring and developing leaders, documenting processes, diversifying customers, strengthening financial reporting, creating recurring revenue, and reducing owner dependence all make your business more attractive to future buyers. Those decisions don't just improve operations; they build a business that's ready for whatever comes next.

Decide that building long-term value in your business is one of your most important responsibilities as an owner. Every decision you make today either increases or decreases the value of the asset you're building.

The most successful business owners learn to wear two hats. They know when to think like the operator responsible for today's results, and when to think like the owner building tomorrow's wealth. They build businesses that are valuable, scalable, and transferable, not because they're planning to sell tomorrow, but because that's what creates the strongest business today.

Start acting like an owner. Your future self  - and whoever eventually takes the reins of your business - will thank you.

Building a valuable, transferable business doesn't happen by accident. It happens when you intentionally make decisions that increase value long before you're ready to transition. That's how you build a company that's ready for whatever comes next.

About Tom Bronson

Tom Bronson is a serial entrepreneur, business owner, and transaction advisor. He is the Founder and President of Mastery Partners, Founder of the Business Transitions Summit, and Founding Partner of NorthStar Mergers & Acquisitions. Tom has participated in more than 100 business transactions and helps business owners build companies that are more valuable, more transferable, and ready for whatever comes next.