How much is a Lifestyle business worth?

Well, with a few very rare exceptions, zero.

Does this come as a surprise? It might do, if you didn’t realise that you were actually running a lifestyle business.

First of all, let’s start with some clarification. It doesn’t matter what vehicle you use for your business i.e. whether it’s a limited company, a partnership, sole trader etc. No, all that matters is whether or not the lifestyle business itself has any intrinsic value.

This may sound confusing.

Lifestyle can be good

I’ve come across many lifestyle businesses in my time and in at least 50% of cases the owner(s) didn’t know that this was what they were running. Does it matter? Well, yes, it does. Particularly if you’ve been slaving away for years under the assumption that you might one day be able to sell your business and walk away into the sunset and live happily ever after. If that’s the case, you might be in for a surprise.

The thing is about lifestyle businesses though, is that they can be a great thing, if you understand the rules associated with them and if this is what you want. Then, that’s absolutely fine. It’s when owners don’t understand how value is derived or are in denial about value that things start to go wrong.

People who run lifestyle businesses usually do so because they’ve either had enough of typical corporate life and want to do something different, or, they have a passion for something in particular that leads them to cast out on their own with skills that are perhaps scarce or unusual.

This is all perfectly understandable. A typical business of this type has a very low cost-base, few or no employees to look after, and therefore has a limited level of resources (i.e. you) in order to deliver whatever products or services are on offer. And this is where the main differentiation lies between a lifestyle business and a traditional entrepreneurial operation; scale and exposure.

Scale may be challenging

It should be pretty clear by now that lifestyle businesses find it hard to scale. This makes sense, and in many cases it’s by design. If you create specific, made to order saddles, all made with your own personal style and in a specific way, then you’re the only one who can make them. You might charge a significant amount of money for each one, but you can still only make one at a time. A full order book is one saddle.

This may be exactly what you want, and allow you to have a lifestyle that lets you balance life as you wish. You have no interest in scaling your operation (or in the hassles that come with it), and you can work when you choose. Good luck to you. Many people would be envious. This is exactly how a lifestyle business should be.

However, you’d be surprised at the number of people running businesses that they think are designed for growth that are, actually, lifestyle.

A total of One

So, as above, the first tell-tale sign of a lifestyle business is a lack of ability to scale. It doesn’t mean that the business can’t scale, it just means that in its current state it’s much more difficult. The second lifestyle sign is exposure, and by this I mean the following; if we took you out of the business what would be left?

If the answer is ‘not a lot’, then perhaps you can see that this might be a less than attractive scenario for any potential buyer. Even if you’ve created some snazzy intellectual property in your business, the fact that you’re needed to keep it all in check will pretty much amount to the same thing; the business is just too exposed to you.

In the early days of most businesses this is of course almost impossible to avoid. Until a business gets to a certain size and has a certain trajectory the exposure will undoubtedly be there. However, even in this situation a lot of these organisations are actively trying to scale their operations and (most importantly) have a strategy or a clear objective to do so.

Don’t Drift!

Lifestyle businesses that are run by owners who don’t realise what they’re running seem to get to a certain point and then just ‘drift’, and this drifting conditions the business to behave in the same way from that point onwards. A lack of scale, and an exposure to the owners creeps in, and the lifestyle cake is baked.

So, take a fresh look at your business and be honest with yourself about whether it’s a lifestyle business or not. If you’re happy for it to be that way, then good luck! If you’re not, then perhaps it’s time to re-evaluate how to scale it and lessen the exposure in order to create the value that you might have thought was already there.


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