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Owners of small to medium sized businesses often find it hard to delegate management tasks. This is especially true of founders of the business.

Here is a critical truth: to the extent you are engaged in management of the business, you are decreasing the value a buyer will pay for the business. A buyer wants a business that runs itself, not one that depends entirely on you and other owners. Full delegation of management responsibilities is not just a way to reduce your stress; it’s part of Prior Diligence, a strategic move to unlock the maximum value of your business through a successful sale.

How can you implement delegation of management? It requires a structured, multi-step approach that shifts responsibilities from you, the owner, to your capable business team.

The first step is to audit what management work is done by owners over a period – perhaps a week, or even for a month. Identify the tasks that are urgent but not important – repetitive, non-strategic tasks such as routine administrative work, scheduling, or data entry. Also identify the important but not urgent tasks – strategic planning, monitoring of operations, and leadership activities – which are ownership tasks.

Review the personnel available for delegation in terms of willingness to accept additional work, current skills, and potential for growth.

Initially delegate urgent but not important tasks to the right individuals to successfully accomplish the tasks. The delegation must be a clear communication of the task and the expectation of performance. If the task is not described clearly, the performance may not meet the expectation of the delegator. On the other hand, if the performance desired is not clearly defined, it will be difficult to recognize the success of the accomplished task. The description of the delegated task should include quality standards, non-negotiable details of desired procedure, the action that defines accomplishment, and the specific time for completion. To avoid micromanaging or hovering, set regular milestones with specific metric standards that will indicate progress and be instances of mutual communication to prevent misunderstandings or failure to complete the task on time.

Ensure the person receiving the delegation communication has the necessary authority (access to systems, permission to spend up to a certain amount, and decision-making power) and resources (tools, budget, and training) to complete the task without needing to constantly revert to you. If the task is new to the person receiving the delegated task, provide coaching or written procedural instructions as to how to accomplish the task.

Where there are problems, the communication protocol should require the delegated party to offer a proposed solution to the problem presented.

The delegation process is not complete until the task is finished and reviewed. Once the task is finished, meet with the employee and provide feedback. Praise effort and recognize accomplishment. Provide constructive guidance on what could be done to improve performance and accomplishment in terms of the specific task delegated and the goals of the business plan. Ask for feedback from the party having accomplished the delegated task to help you improve your delegation process.

Utilize the success of this task accomplishment to build confidence and trust for both the delegating party and the party accomplishing the delegated task. As the individual demonstrates competence, gradually increase the complexity and scope of the tasks you delegate to the employee, transitioning from delegating a single task that is urgent but not important to delegation of an important function (for example, from running one report to being responsible for the entire monthly reporting process).

The steps to implementing effective delegation of management tasks from a business owner to an employee of the business are: audit the tasks completed by an owner in a period, identify the tasks into two categories – urgent but not important and important but not urgent, review the personnel to receive delegated tasks for skills to accomplish the task and willingness to accept the delegation, delegate an urgent but not important task with clear communication, establish milestones to measure progress and signify times for communication, recognize accomplishment of the task with feedback recognizing effort as well as accomplishment, and receive feedback on your delegation process.

You can be the owner who successfully delegates managerial responsibility to employees and thereby increases the probability of utilizing the Prior Diligence strategy and Dynamic Planning to receive the maximum value from your business interest. Complete information on the Prior Diligence strategy and Dynamic Planning is available at the Owning a Business Substack (rickriebesell.substack.com).

Owners of small to medium sized businesses want to realize the maximum value for their business interests. There are many risks preventing realizing maximum value for a business interest – most can be avoided by the implementation of an owner agreement.

Where an owner does not hold a controlling interest, there is the risk that the owner will not have control over the outcome of certain business transactions that may diminish or terminate the owner’s interest.

There is an increased risk of misunderstandings and conflicts. Where there is no written owner agreement, there are no defined rules for how the business should be run, how decisions are made, how profits are distributed, or how disputes are resolved.

The risk of failing to secure a loan or investment is increased. Banks and investors often want to see a comprehensive owner agreement.

What happens if one owner wants to leave, retires, becomes disabled, or passes away? The termination of an owner’s interest can happen through involuntary circumstances, such as death or disability, or through voluntary withdrawal for personal, family, or other reasons. Without an owner agreement containing buy-sell provisions, the risk of the remaining owners being forced into business with an uninterested or inexperienced third party (such as a spouse or child) is increased. Also, the risk of the business being forced into a costly and time-consuming dissolution process is increased.

Most businesses do not have an owner agreement among the owners because it is difficult to negotiate and implement an owner agreement among the owners of a closely-held business. Often the subject matter is difficult to discuss, and the pressures of operating an owner-managed business make it difficult to find the time needed to accomplish this task. The benefit of implementing an owner agreement for the owners of a small to medium-sized business is that for each owner the risk of not realizing the maximum value for the owner’s business interest is greatly reduced. This makes implementing an owner agreement worthwhile.

As with most complex and difficult tasks, it is best to use a segmented approach and address the various issues one at a time.

The issues that must be discussed and decided upon can be generally described. The business entity type of the business should be understood and described in terms of liability and tax consequences for each owner. The group of individuals or entities that own the business should be defined and appropriate restrictions should be put in place. The governance of the business, including who will make policy and who will be the chief executive, should be clearly specified. The events (triggers) that will cause one or more owners to transfer interests in the business should be defined. The procedure of the transaction occurring after each type of trigger, including funding and payment, should be provided for in detail. For each transaction, the determination process of the price of the transferred interest should be clear. If the business will act as a buyer in certain procedures, then the means of the business accumulating the funds for the transaction should be provided for in detail. A dispute resolution process should be described. The final task is the consolidation of the decisions into one coherent written document.

There should be a meeting of the owners and appropriate stakeholders to discuss each one of these general issues. For each issue there should be a separate meeting. The meetings should be held at regular intervals. The decisions resulting from the meeting discussions must be documented in writing. Where issues are technical or outside resources would be helpful, they should be utilized. The documented decisions resulting from these discussions, consolidated into one coherent document, will constitute a succession plan for the business.

The succession plan is the basis for the drafting of the owner agreement, a written document. Even though this is a written plan to which the owners have agreed, each owner must have separate counsel to review and advise each owner concerning the written owner agreement.

With an owner agreement in place there will be an agreed-upon rulebook for operating the business. This will prevent disagreements and help keep focus on business success. Moreover, the business will be protected from unexpected events ensuing a smooth transition if an owner leaves the business.

The owner agreement is a way to document the strategy of the owners to realize maximum value from their business interests. This is the Prior Diligence Strategy accomplished through Dynamic Planning. These concepts are explained in detail at the Owning a Business Substack at rickriebesell.substack.com.

One in four private sector U.S. businesses fail within their first year of operation. After five years, almost half (48%) have failed. After ten years, the failure rate is 65.3%. (According to data from the U.S. Bureau of Labor Statistics.)
Generally, businesses fail when they run out of cash. Cash flow is a metric indicating how money is coming in and being spent in a business. Marketing decisions influence how much cash comes into the business. Operations and growth decisions control how the money is spent. Good decisions made about cash flow will prevent business failure.
Small to medium sized businesses are often founded by someone with a good idea or skills that the marketplace demands at a point in time. Over time one person rarely possesses the knowledge and time to make all decisions concerning marketing, operations, growth, and changing business conditions. To make good decisions and prevent failure, there must be an owners’ strategy setting goals and actions taken by all elements of the business to accomplish those goals. Where the strategy changes or business conditions change, decisions affecting cash flow must be made by using the resources of the entire group constituting the business. The procedure of making decisions should be a group decision making process.
When decisions are written down, they constitute a plan. A business plan documents decisions about cash flow and establishes an operating budget for the business. As marketing, operations, and ownership changes, decisions made by the group decision-making process should be documented to all elements of the business as a part of or a revision of the business plan. This makes the planning dynamic.
Most small to medium sized businesses do not have a written business plan. This is the primary reason for the high failure rate. Business owners have a difficult time instituting a group decision-making process. Many owners plan by looking in the mirror and making decisions without the knowledge available in all elements of the business. Owners make strategy decisions and do not document those decisions. Where there is no business plan, goals are not articulated, and operating decisions are made without understanding the owner’s strategy.
Given the failure rate, it helps to focus on success. What is success for business owners? Most owners would be very happy to sell the business for maximum value in three years.
The Prior Diligence strategy and Dynamic Planning process provide owners with a methodology of accomplishing a sale of the business for maximum value in three years. Implementing a Prior Diligence strategy and accomplishing Dynamic Planning involves installing a working decision-making process in the business, documenting the owners’ strategy, establishing goals, and articulating the actions to be taken to reach those goals. All of this is described in detail in the Owning a Business substack at rickriebesell.substack.com.
The best way to avoid business failure is to adopt the Prior Diligence strategy and implement Dynamic Planning with the goal of selling the business for maximum value in three years.