We have previously discussed “Owner Dominant” businesses and talked about the strategic intention of the owners to grow and build those businesses.
A lack of this strategic intent, or a lack of size, is the simplest definition of a lifestyle business.
Lifestyle businesses are business operated for lifestyle and personal reasons. In many instances the business owner has built a job not a business, as defined by Michael E Gerber in his best selling book The E-Myth.
The main focus is often on sustaining the owners’ particular lifestyle. In many cases there are no other shareholders, leaving the owners to have more control in the operations of the business.
When some people hear the phrase "lifestyle business" they usually think of small part time endeavours or home based endeavours. While this can be true, some larger businesses were created with the intentions of not growing or selling to investors, but as a foundation for the goals of the owners.
Building a lifestyle is a very valid business strategy. Indeed, HHMC can be classified as a lifestyle business. To repeat, this is a very valid business strategy BUT there are implications when discussing equity value.
Related: Characteristics of a corporate recruitment agency
When viewed by an external potential acquirer, the characteristics of a lifestyle business often stand out. In addition to size, the lack of investment in all aspects of the business and the lack of strategic intent to grow the business are clear.
An acquirer is not going to pay full price for a business that has risks of earning profit in the future, if there are sustainability issues, or issues from a lack of investment such as not responding to industry changes.
However this lifestyle business strategy is very valid, and for many owners, financially rewarding from annual profits.
The advantages to starting a lifestyle business include being able to control most aspects of the business, having a positive cash flow from early in the business’ growth, and being able to pursue personal goals with profits from the business. Most advantages revolve around a common theme, freedom:
HHMC Global provides advisory services to the recruitment and staffing industry and is best known for its work on M&A transactions. HHMC is based in Australia and works with clients globally. To discuss your business future contact Rod Hore or Richard Hayward.