Why Most Business Owners Fail to Become Absentee Owners

By Oliver Wu
January 2007

If you look at the world of business, you will realize that less than 5% of the business owners ever become absentee owners. Most small business owners become slaves to their business. They don’t run their business; their business runs them. They wake up earlier than their employees do, and they go home later than their employees do. These business owners work extremely hard, and for the amount of hard work, they really deserve to make more money. Unfortunately, they are stuck in the day-to-day operations of the business, working very hard, not making enough money, and getting stressed out by all the employees and customers.

"The reason most people do not become absentee owners is that they don’t know how.”
Why is that? Why is it so hard for people to become absentee owners? It’s not because these business owners are lazy or stupid. The reason most people do not become absentee owners is that they don’t know how. If they simply knew what to do, their lives would change completely.

Most small business owners have never been taught the steps to become an absentee owner. Most people just assume that when they own a business, they will run it day in and day out. That’s why they are so surprised when they meet my business partner, Aaron, who owns 4 businesses and almost never works at any of them.

In order to become an absentee owner, you will need the following education:

1. Business Fundamentals. You need to understand the difference between a healthy business and a malfunctioning business. You need to know what sets absentee owners apart from owner operators. You need to have an exit strategy for your business, and understand how your business fits into the financial picture of you and your family. Is your business getting you ahead financially, or are you running a perpetual treadmill, getting nowhere financially? Absentee owners have a very different mindset of what their role should be as the business owner from owner operators. You need to know how to think about your business, because it affects every business decision you make.

2. Marketing. Most business owners just throw money into advertising, thinking that the more money they put in, the more business they will get. This is totally the wrong way to approach your marketing. First of all, advertising and marketing are not the same. If you think they are the same, you have just limited yourself to using only the most expensive form of marketing. There are lots of ways to bring in more business without spending much money. Absentee owners are very deliberate when it comes to their marketing. They understand the role marketing plays in their business, and they treat it as a priority. They understand who they should market to, how much money they should spend, and how to evaluate the effectiveness of their marketing. Most business owners only use one way to bring in more business, while absentee owners utilize all three ways. To become an absentee owner, you will need to understand marketing inside and out.

3. Employees. Dealing with employees is probably one of the biggest headaches for most small business owners. As it turns out, absentee owners have a completely different attitude towards employees than owner operators do. To be an absentee owner, you need to know what kind of employees to hire, how to interview them, how much to pay them, what benefits to give, how to train them, how to motivate them, how to design incentive programs, what kind of bonuses to give, how to handle conflicts, how to fire them, how to tell if you are overstaffed or understaffed, how to set your expectation level, and what kind of boss you should be. Many owner operators are afraid that their employees won’t run their business right if they become absentee owners. If you handle your employees correctly, you won’t have to worry about this problem.

4. Operations. How do you deal with customer complaints? Is the customer always right? What payment methods should you accept? Should you take American Express? What should your business hours be? What legal entity should you operate your business in? What is your accounts receivables policy? How should you sell jobs to customers? What should you do when customers take you to court? How should you collect money from the customers that don’t pay? How many times does your phone ring before you pick up the phone? How many phone lines do you have? What kind of computer infrastructure do you have? What kind of tools should you provide your employees? How organized are you? How do you pay your taxes? How efficient is your work flow? Can your business provide consistent and high-quality service no matter how busy you are, or which employee is working that day? These are all questions that need to be addressed before you can become an absentee owner.

5. Finance. Most small business owners have no clue when it comes to reading company financials. In fact, many business owners don’t even keep good books. How can you know where you stand financially, and how you can improve your business if you don’t keep good books? In order to monitor your business as an absentee owner, you need to know how to read financial statements. The numbers don’t lie. The numbers tell you what’s going on in your business. How comfortable are you at reading profit and loss statements? What about the balance sheet? What about the statement of cash flows? Do you know what your profit margin should be? What about your gross margin? How much should you charge your customers? Do you have a reserve account set up? How do you evaluate the return on investment on a major purchase? Do you know your company’s efficiency measures? What is your breakeven point? Do you have too many income sources, or not enough? Knowing how to read the numbers allows you to see any warning signs early so you can catch them and fix them. As an absentee owner, your ability to read the numbers can mean the difference between being in control of your business and not having a clue once you step away from working in your business everyday.

6. Absentee Owner Management. Once you have the previous five elements in place, you now need to learn how to manage your business as an absentee owner. How long does it take for you to become an absentee owner? How do you hire a good manager? How do you keep a good manager? What decisions should you make personally, and what should you delegate to your manager? As an absentee owner, how much time should you spend working on your business? How should you think about your competitors? Do you have a team of business advisors in place? How do you monitor your business as an absentee owner? Do you know the common mistakes people make? How do you transition into an absentee owner? What are you going to do once you step away from your business? Believe it or not, what you plan to do once you step away from your business affects how you are going to become an absentee owner. All of these are questions that need to be addressed to ensure that you become an absentee owner smoothly and successfully.

In summary, you need education in business fundamentals, marketing, employees, operations, finance, and absentee owner management if you want to become an absentee owner of a very profitable business. If any one of these components is missing or not working properly, your chances of becoming a profitable absentee business owner will be greatly reduced.

For more information on how you can become the absentee owner of a profitable business, check out our consulting program.

Return to Articles Library