Semi-Absentee Ownership

A business ownership structure in which day-to-day operations are run by a paid manager rather than the owner personally, with the owner involved only periodically.

Example

An owner who visits a landscaping business twice a month while a salaried general manager handles daily operations holds it on a semi-absentee basis.

Important

A genuinely semi-absentee business is priced and compared differently from an owner-operated one, since the earnings are closer to a passive return rather than a wage for the owner's own labour.

Related terms

  • Owner-Operator — A business owner who personally works in the business full time, rather than employing a manager to run day-to-day operations on their behalf.
  • SDE Multiple — The multiple applied to a small business's seller's discretionary earnings to arrive at a purchase price, negotiated based on factors including size, customer concentration, revenue durability and owner dependence.
  • Opportunity cost — What you give up by choosing one use of your money, or time, over the next-best alternative.

Lessons that explain it

  • The multiple is a discount for size, concentration and dependence on one person — There is no exchange setting a price here. The multiple applied to SDE is a negotiated number that moves with customer concentration, revenue durability and how replaceable the owner is - and it sits far below public-market multiples for reasons that have nothing to do with the quality of the business. (11 min)
  • This asset class replaces an income, it does not just diversify a portfolio — Small-business ownership belongs alongside the decision to work rather than alongside a bond allocation - it is concentrated, illiquid and labour-intensive by nature, and pretending otherwise is how it ends up compared against the wrong alternative. (9 min)

All 578 terms in the Investing glossary