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Self-Employed vs Small Business Owner

We get a lot of calls from business owners asking, “Can you sell my business?” We need to take a look at each business carefully to assess whether or not we think we might be able to help them sell. One common reason why we might not be able to sell a business is that a self-employed person’s “one man band” business is not usually desirable to buyers. Buyers generally want a more developed business to buy, versus essentially just “buying a job,” but there are of course exceptions to every rule. So, here we will explore the differences in being “self-employed” as opposed to owning and operating a small business. We will also give tips on how a self-employed person can take their business to the next level and make it a more saleable small business. 


What does Self-Employed Look Like?

In a self-employed scenario, the owner of the business carries out the daily operation of the business. There are no other employees, and the owner IS essentially the whole business. If the owner stops working, then the business discontinues and isn’t able to operate on its own. Often in a self-employed situation, the business is based on the owner’s personal relationships and contacts, and without those, the business would cease. This is frequently the case with creative-type self-employed businesses, such as a hair stylist, musician, designer, artist or photographer. Their clientele and business is normally based on who they are and the very specific product that they produce.

The types of self-employed businesses described above are notoriously difficult to sell on the open market and would need to find exactly the right buyer. They are also valued at a much lower industry multiple because a buyer is essentially “buying a job” rather than an organized business. A seller of a self-employed business should prepare themselves to hopefully get 1x seller’s discretionary earnings…that is IF they are able to sell their business. A self-employed person’s book of business or client list would be the most valuable asset, and listings like a bookkeeper, accountant, pool or lawn services would be valuable add-ons to another existing business. Therefore, industries like that would have a better chance of selling if they can be snapped up as a synergistic purchase. 


What does a Desirable Small Business Look Like?

A small business that is going to be much more salable in the long run has trained employees carrying out the daily responsibilities of the business. The current owner focuses more on running the business than they do on working in the business. If the owner stopped working, the business would still continue to operate and generate revenue, thanks to its management structure and/or employees. There are documented processes and procedures in place, and the business has room to grow. Scalability is something that most buyers and investors look for. A new owner wants to be able to jump into running their new business and focus on ways to make it bigger and better. It’s impossible to do that if the owner is performing all of the essential activities of the business on a daily basis. 


Take it Up a Level

We hate to be the bearer of bad news when someone approaches us to sell their business, but the honest truth is that self-employed enterprises have a very small chance of ever selling. So, if you are a self-employed person who wants to eventually sell your business, you need to do some work to elevate your business into a well-oiled machine that a buyer would be interested in. If it’s just you, it’s time to generate enough new business to warrant hiring an employee or two. Grow the business so that you can hire, train, and oversee employees to carry out the daily operations of your business. You might need to invest in some new marketing, do more sales activities, or network more. Let yourself work on growing and improving the size and quality of your business. Make sure that you start with a detailed business plan, and document all of the training that you do with your employees. All processes and procedures of the business should be in writing. Next, you want to make sure you are keeping good books and clean financial records. Buyers want to see books that are very transparent and easy to see exactly what’s going in and where the money is coming out. Running your business like you are going to sell it will always be the most efficient way to do it anyway, so start with the end in mind. 

If you have questions about whether or not your business is salable, we’d be more than happy to see how we can help. Contact us HERE!