The way your business is organised may suit your working style now, but some structures can make it harder to hand over to a new owner and can even lose you money on a sale.
You may have a clearly defined organisational structure or you may have one that has developed naturally as the business grew. Either way, if you’re thinking about selling, it’s a good idea to consider how efficiently things work and what shape your business takes.
Hub and spoke
A hub and spoke business structure places you in the centre, with everyone else reporting directly to you and relying on you to make decisions. As business owner, you are the hub that holds the business together so you probably have a huge workload. In this structure, you will be in constant contact with your employees and clients. You might be the only person who knows how certain things are done.
While this business structure gives you the most control over your business, it also means that nothing can get done without you. It is difficult to step away or enjoy a long holiday. Business growth will also be limited because there is only so much time available each day.
When a buyer comes to look at your business, they will see this as a problem. They may like your business and want to buy it, but their fear will be that sales and customers will not return after you sell up.
In the best case scenario, they will buy your business and you will need to continue working (for them) for a number of years until the risk of losing customers has been effectively managed.
In the worst case scenario, they simply won’t make you an offer for your business, considering that the effort required to change the business structure too great for the rewards.
In a traditional, hierarchical business structure, the person at the top of the tree delegates some of their responsibilities to the next tier of managers, department heads, or senior employees. Each of these will in turn interact with the following tier of employees.
This structure means you don’t have to make all the decisions yourself and you can rely on managers with specialist knowledge. You don’t have to know exactly how everything works as long as you have someone on the team who can take charge of that part of the business. It is necessary that you delegate and train your teams effectively. Abdicating responsibility without training and empowering your team is a recipe for disaster in itself.
A hierarchical business structure can enable more growth as responsibilities are divided between different groups and levels. You can add on new teams as the business changes. You will also be able to focus on the parts of the business that need you most while your team manages the areas they know best.
When a potential buyer looks at your business, they will be able to see you, as business owner, have already passed on the majority of your customer and supplier relationships to your team. The risk of customers leaving or sales dropping as a result of a change of ownership are minimised as a result.
Minimising this risk of reduced sales makes the business more attractive to a buyer. They are more likely to make you an offer and that offer is more likely to be one which is acceptable to you.
A matrix structure is similar to a hierarchical business, but it allows for more flexible links between the different parts. Employees whose roles bridge different departments might report to multiple managers.
The matrix structure also allows for horizontal links between teams or individuals. Rather than having to go through their managers, employees in different groups will be able to work with each other directly.
The matrix business structure is the most efficient and flexible option so it can be ideal for fast-paced sectors and businesses that include a variety of different roles and activities. However, it does put more responsibility in the hands of employees so it is vital that clear procedures are in place to ensure information is shared with everyone who needs it.
The matrix structure is not for everyone. You have to have trust in your team, empower them, and lean from any issues which arise. If a blame culture exists, this structure won’t work.
For investment buyers who are looking to take a strategic role post purchase but not get involved in the day to day running of a business, this structure can be appealing.
Which business structure is better?
The best organisational structure for a business depends on its size and your plans for the future.
Many small businesses begin with a hub and spoke model, with one person making all the decisions and doing most of the work themselves. However, effectively delegating some of these decisions and duties to other people enables growth and allows more flexibility as the business changes.
Moving away from the hub and spoke model can also make your business more saleable. If the business is too dependent on you, it devalues it in the eyes of a buyer.
Get your structure right before you need to sell
If you bring your business to market hoping to get top dollar but haven’t done the work to get your structure right, you are giving away value. But trying to implement major changes to your business structure can be difficult and they won’t happen overnight.
Give yourself time to make these changes. Your business value will be higher and your business sale will be smoother if you do. You will also have more engaged employees if you involve them and trust them in your entire business operation.
Company structure is one of the 8 key drivers of business value
Under the name of Hub & Spoke, your company structure is one of the 8 key drivers of business value. To find how your business measures up in this and against the other business value drivers, take your own confidential Value Builder Score.