This will be part one of a two part series of posts. This first post will focus on figuring out whether you are operating a lifestyle business (and if that’s what you want). This choice can greatly influence your business strategy, goals, and, ultimately, its value when you’re ready to exit.
What is a Lifestyle Business?
A lifestyle business is built to fulfill the personal needs and goals of the owner, with a focus on providing consistent income, work-life balance, and personal satisfaction. These businesses prioritize stability over aggressive growth and often don’t aim for an eventual sale.
Characteristics of a Lifestyle Business:
- The owner plays an active role in daily operations
- Profits are often reinvested into the owner’s lifestyle rather than used for expansion
- Growth is modest and steady
- The business often depends heavily on the owner’s personal skills, reputation, or brand
Examples include consulting practices, small retail shops, and service-based businesses. While these ventures can offer immense personal fulfillment, they tend to be difficult to sell due to their reliance on the owner.
What is a Sellable Business?
In contrast, a sellable business is designed with the intent of creating transferable value, meaning it can function independently of its owner. These businesses are structured to be appealing to potential buyers.
Characteristics of a Sellable Business:
- It has documented processes and scalable systems.
- It generates consistent and predictable revenue and profits.
- Its value proposition doesn’t depend on the owner’s ongoing involvement.
- The brand and customer base are strong, without being tied to the owner.
Examples include franchises, tech companies, or established manufacturing firms. These businesses focus on increasing value over time and typically have defined exit strategies.
Why Understanding the Difference Matters
Understanding whether your business is a lifestyle or sellable model is crucial, especially for those looking to exit. Here’s why:
Exit Preparation: Buyers are interested in businesses that can run smoothly without the owner’s direct involvement. If your business is dependent on you, it may be harder to sell or command a high sale price. Recognizing this early allows you to transition toward a more sellable model.
Strategic Direction: Lifestyle businesses focus on short-term income and personal satisfaction, while sellable businesses prioritize long-term growth and value creation. Knowing your goal helps you align your strategy with the right focus.
Financial Outcomes: Sellable businesses are often valued at a multiple of their earnings, potentially yielding a significant financial return upon sale. In comparison, lifestyle businesses often have little residual value once the owner exits.
Intangible Capital and Its Role in Selling
A key factor in determining a business’s “sellability” is its Intangible Capital- meaning the non-physical assets that drive a business’s value and are essential for long-term success. These assets—such as intellectual property, brand reputation, and customer loyalty—play a critical role in how buyers perceive value and influence the potential sale price.
Ask yourself – are you operating a Lifestyle business (which is more difficult to sell) or a saleable business. If you are operating the former and want to move to the latter – please watch for our next post. As always – we would love to connect.