How to tell whether a business runs without its owner

In many small companies, the owner is at the center of everything. They take the calls from the biggest customers, price every job, hold the license and know which supplier will rush an order. That's how a lot of good businesses are built, and it isn't a reason to walk away.

It is a reason to look carefully. When the owner leaves, whatever depended on them can leave too, unless it has been handed to someone else first. The useful question isn't whether a company depends on its owner. It's what it depends on them for, and whether that can move to you or your team before they go.

Four kinds of dependence

Kind	What it looks like	What's at risk
Sales	The owner brings in most new work and prices every job	Revenue after the owner leaves
Relationships	Big customers and suppliers deal only with the owner	Whether those customers stay
Licenses	The company works under the owner's personal license	Whether it can legally keep operating
Know-how	Pricing, scheduling, the books and the fixes live in the owner's head	Mistakes and slowdowns in your first year

Most owner-run companies have some of each. What matters is how much, and how hard each will be to move.

Sales and customer relationships

Ask questions that show who actually wins and keeps the work:

• Who brought in the last 20 new customers, and how?
• Who do the 10 largest customers call when something goes wrong?
• Who prepares estimates and bids?
• What happened the last time the owner took two weeks off?

Signs of heavy dependence: the owner's cell phone is the main business number, and customers ask for the owner by name. No one else has ever priced a job, and most new work comes through the owner's personal network.

Ask for a list of the larger customers with the person who looks after each one. If it's the owner's name all the way down, plan on a long introduction period, and on the possibility that some customers won't stay.

Licenses that belong to a person

In many trades and professions, the license belongs to a person, not the company. That can turn the owner's departure from a practical problem into a legal one.

In Florida, a contracting business set up as a company (an HVAC, plumbing or roofing contractor, for example) operates through a qualifying agent: a licensed contractor responsible for supervising its contracting work. If the qualifying agent leaves and was the company's only licensed contractor, the company has 60 days to employ another one. Until it does, it may not do contracting work, though in some cases a temporary certificate lets it finish jobs already under contract (section 489.119, Florida Statutes). If the owner is that person, you need a plan before closing: your own license, a licensed employee who will qualify the company, or a licensed contractor you hire. The HVAC guide shows what this looks like in one trade.

Some professions also limit who may own the business. If you're looking at a licensed profession, check the rules with the state licensing board and an attorney before you get far.

Know-how and systems

The quietest kind of dependence is what the owner knows and does without thinking about it. Signs:

• nothing is written down: no price list, no procedures, no checklist for a new hire;
• the owner does the books, the scheduling, the ordering and the payroll;
• passwords, supplier accounts and the company's phone number are in the owner's personal name;
• the owner is also the best technician, and the one called for every hard job.

One simple exercise helps more than any document. Ask the owner to walk you through a typical week, day by day: what they do, who calls them, which decisions they make. Then ask what happens to each of those tasks when they're away. Owners often enjoy describing their week, and you'll come away with a list of everything you'd need to take over.

It also helps to follow one job from the first phone call to the paid invoice, noting who handles each step.

People who could step up

Dependence is lower when someone else already carries part of the load: an office manager who runs the schedule, a lead technician who takes the hard calls, a salesperson with their own customers. Finding those people, and keeping them through a sale, is a subject of its own; see key employees.

How dependence changes the deal

A company that leans heavily on its owner is riskier to buy, and buyers and lenders generally take that into account. It tends to sell for less than a similar company that runs on its own. That can work in your favor if you have the skills to fill the owner's role.

You can also shape the deal around the risk:

• A longer transition. Pay the seller to stay on for a set period, introducing you to customers and teaching you the work.
• Payments that keep the seller invested. With a seller note, part of the price is still owed after closing, so the seller has a reason to help keep customers. An earnout (a later payment based on how the business does) shares that risk more directly, but it isn't allowed with an SBA 7(a) loan. The SBA does allow the reverse: the seller pays you back part of the price if results fall short. See price versus terms.
• A promise not to compete. If the owner holds the relationships, you'll want an agreement that they won't take those customers elsewhere. See non-compete agreements.

If you're using an SBA loan, ask your lender what its rules allow for the seller staying on after closing before you promise the seller anything.

Plan the handoff before you sign

Turn what you've learned into a written transition plan: every task and relationship the owner holds, who will take it over, and by when. Include joint visits to the largest customers, moving accounts and phone numbers into the company's name, writing down prices and procedures, and settling the license question before closing.

Raise these subjects with respect. Owners are often proud of how much rests on them, and with good reason. "Help me understand how you do this, so your customers are looked after" lands far better than "this company can't run without you."

What to do this week

• For a company you're considering, write down the four kinds of dependence and rate each one low, medium or high.
• Prepare the "typical week" question for your next conversation with an owner.
• If you're looking at a licensed trade, find out from the state licensing board what it would take for you, or someone you'd hire, to qualify the company.
• Draft a one-page transition plan you can fill in for any company: task, current owner, new owner, date.