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Mike had everything lined up perfectly for his exit. His $5.2M distribution company had strong financials, diversified customers, documented systems, and he'd successfully removed himself from daily operations.
During due diligence, the buyer asked to meet with his management team. Mike scheduled the meeting with pride—he'd spent years building what he thought was a solid team.
The meeting lasted 45 minutes. Afterward, the buyer pulled me aside.
"Your client has a great business, but he doesn't have a management team—he has long-tenured employees. There's no one who can actually run this business strategically. I'd be buying a job, not a business. I'm out."
Mike was devastated. His "strong team" had just cost him a $13 million sale.
Here's what he missed: There's a massive difference between having employees and having a management team. Buyers aren't looking for people who execute tasks—they're looking for leaders who can run the business without the owner.
Today, I'm going to show you exactly what buyers want to see in a management team and how to build one—even if you think you can't afford it.
Why Management Depth Multiplies Business Value
A strong management team does three things that directly impact your sale price:
Proves the business is owner-independent: If competent leaders are already running operations, the buyer knows it will continue after closing
Reduces transition risk: Buyers worry less about knowledge loss when multiple people understand the business
Demonstrates scalability: Professional management signals the business can grow beyond current size
THE VALUATION IMPACT:
I've seen businesses with strong management teams command 25-40% higher multiples than comparable businesses without them.
Example:
Business A: $1M EBITDA, owner-dependent → 2.5x multiple = $2.5M
Business B: $1M EBITDA, strong management team → 3.5x multiple = $3.5M
Management team worth: $1,000,000 in sale price
What Buyers Look For in a Management Team
Buyers evaluate management teams across five critical dimensions:
1. Functional Completeness
Are all critical business functions covered by competent leaders?
Operations/Production
Sales/Business Development
Marketing
Finance/Accounting
Human Resources (for larger businesses)
Can these people actually make decisions, or do they just implement the owner's decisions?
What's their spending authority?
Can they hire/fire?
Do they set strategy or just execute?
How much do they run independently?
3. Tenure and Stability
How long have they been with the company, and will they stay after the sale?
Average tenure of management team
Retention history
Succession depth (backups for key people)
Employment agreements in place
4. Capability and Experience
Do they have the skills to not just maintain but grow the business?
Relevant industry experience
Track record of results
Leadership competencies
Problem-solving abilities
5. Post-Sale Commitment
Will they stick around after ownership changes?
Retention agreements
Incentive alignment
Relationship with buyer
Career motivations
The Critical Roles Every Sellable Business Needs
The exact titles vary by industry and size, but here are the functional roles that must be filled:
Role | Responsibilities | When You Need It |
|---|---|---|
General Manager / President / COO | Runs day-to-day operations, makes strategic decisions, manages other managers | Critical for any business over $2M revenue |
Operations Manager | Oversees production/service delivery, quality, efficiency, vendor management | Essential when owner can't be in operations daily |
Sales Manager / VP of Sales | Leads sales team, develops new business, manages key accounts, sets pricing | Required when owner isn't chief salesperson |
Controller / CFO | Manages financials, reporting, budgeting, cash flow, works with accountants | Businesses over $3M revenue; can be part-time/outsourced |
Marketing Manager | Brand management, lead generation, customer acquisition, market positioning | When marketing is a significant growth driver |
HR Manager | Recruiting, onboarding, benefits, compliance, employee relations | Businesses with 25+ employees |
Key Point: The owner should be above the General Manager on the org chart, not in daily operations.
Building Your Management Team: The Practical Roadmap
I hear this objection constantly: "I can't afford a full management team!"
Here's the truth: You can't afford not to have one if you want to sell your business at a premium. But you don't have to hire everyone full-time tomorrow. Here's the staged approach:
Stage 1: Your First Management Hire (Revenue $1-2M)
Position to hire: Operations Manager or General Manager (depending on your business type)
Why this role first: This person removes you from daily operations—the foundation of everything else
How to afford it:
Promote from within (someone already doing 70% of the job)
Start part-time or as a "working manager" (still does hands-on work plus management)
Typical compensation: $60K-$90K depending on market and business size
ROI: Your time freed up should generate 3-5x their cost in new business or improvements
Stage 2: Building the Core Team (Revenue $2-5M)
Positions to add:
Sales Manager (if you're currently the primary salesperson)
Controller or Outsourced CFO (financial management and reporting)
Additional Operations leadership (if operations are complex)
Timing: Add one role every 12-18 months
How to afford it:
Controller/CFO: Start with outsourced/fractional (20-40 hours/month at $100-200/hour)
Sales Manager: Promote top salesperson, compensate with base + commission on team performance
Combined approach: Multiple part-time specialists vs. one full-time generalist
Stage 3: Complete Management Team (Revenue $5M+)
Goal: Full functional coverage with depth
What this looks like:
General Manager/President running the business
Functional heads for all major areas
Succession planning for each key role
Professional development and leadership training
Performance-based compensation tied to results
Total management team cost: Typically 8-12% of revenue
Value created: Often 25-40% higher valuation multiple
The "Promote from Within vs. Hire from Outside" Decision
One of the most critical decisions in building your management team is whether to promote loyal employees or bring in outside talent.
Promoting from Within
Advantages:
Already knows your business, customers, and culture
Proven loyalty and commitment
Less expensive than external hires
Faster onboarding and immediate productivity
Boosts team morale (shows advancement path)
Disadvantages:
May lack management experience or skills
Might not have strategic thinking capabilities
Peer relationships can complicate authority
Limited outside perspective or new ideas
May have reached their ceiling of competence
Best for: Operations, customer-facing roles, technical positions where institutional knowledge is critical
Hiring from Outside
Advantages:
Brings proven management experience
Fresh perspective and new ideas
Professional credentials and track record
Network and industry connections
Can handle growth immediately
Disadvantages:
Expensive (expect 30-50% premium over promoting)
Longer learning curve about your business
Cultural fit uncertainty
May not resonate with existing team
Higher turnover risk in first 2 years
Best for: Senior leadership (GM/President), specialized roles (CFO, Marketing), when internal bench is weak
The Hybrid Approach (Often Best)
Smart owners use a combination:
Promote from within for 2-3 roles where institutional knowledge matters most
Hire externally for 1-2 key positions that require professional management experience
Provide management training for internal promotions to fill skill gaps
Create "apprentice" structures where external hires mentor internal talent
Retention Strategies: Keeping Your Team Through the Sale
Building a great team is only half the battle—you must keep them through the sale and beyond. Here's how:
1. Retention Bonuses (Most Common)
Structure: Key employees receive bonuses tied to staying through specific milestones
Typical arrangement:
50% paid at closing
50% paid 12-24 months post-closing
Amount: 6-12 months of their salary
Who pays: Negotiable—seller, buyer, or shared
Example: Operations Manager making $85K gets:
$42,500 at closing (50% of annual salary)
$42,500 at 12-month anniversary post-closing
Total retention bonus: $85,000
PRO TIP: Structure retention bonuses so they're paid by the buyer post-closing. This accomplishes two things: (1) Doesn't come out of your sale proceeds, and (2) Creates immediate loyalty between your team and the new owner.
2. Equity or Phantom Equity
Structure: Key employees receive small ownership stake or profit-sharing that pays out at sale
Typical arrangement:
2-5% equity split among 2-3 key people
Vests over 3-5 years
Pays out when business sells
Advantages: Aligns incentives, motivates team to increase value, shared success
Disadvantages: Complex legal structure, valuation disagreements, creates co-owners
3. Employment Agreements
Structure: Formal contracts guaranteeing employment terms, compensation, and benefits for specific period
What to include:
Position and responsibilities
Compensation (salary, bonus, benefits)
Term (typically 2-3 years)
Severance if terminated without cause
Non-compete and non-solicitation clauses
Benefit to buyer: Reduces risk that key people leave; provides contractual protection
4. Earnout Participation
Structure: If your deal includes an earnout (additional payment based on future performance), give management team a piece of it
Why it works: Team is motivated to hit earnout targets that also benefit them financially
Typical split: Team gets 10-20% of earnout proceeds, distributed based on role importance
Developing Leadership Skills in Your Team
Even if you have good people in place, they may need development to be ready for buyers' scrutiny. Invest in these areas:
Essential Leadership Training:
Financial Literacy: Understanding P&L, budgets, ROI, key metrics
Enroll in financial management courses
Include them in financial review meetings
Give them budget responsibility with accountability
Strategic Thinking: Moving beyond tactical execution to strategic planning
Involve them in annual planning process
Ask for strategic recommendations, not just status updates
Send them to industry conferences and strategic workshops
Decision-Making: Making sound judgments under uncertainty
Gradually expand their decision authority
Debrief decisions together—what worked, what didn't, why
Create decision frameworks and criteria
People Management: Leading, motivating, and developing others
Management training programs or coaching
Give them direct reports and hold them accountable
Performance management responsibility
Investment: $3,000-$10,000 per person annually for professional development
ROI: Immeasurable—the difference between a sellable and unsellable business
Succession Planning: The Safety Net Buyers Need
Buyers don't just want to know who's running things today—they want to know what happens if those people leave. That's succession planning.
The Succession Planning Process:
Identify critical roles: Which positions, if vacant, would seriously damage the business?
Document institutional knowledge: What does each key person know that others don't?
Identify potential successors: For each critical role, who could step up (even if not ready today)?
Create development plans: What training, experience, or mentoring do successors need?
Cross-train strategically: Ensure multiple people understand each critical function
Test the plan: Have successors shadow key people, take on projects, lead in key person's absence
Document everything: Put succession plan in writing for buyers to review
THE BUYER QUESTION: "What happens if your Operations Manager gets hit by a bus?"
Bad Answer: "Well, we'd be in trouble. She's been with us 15 years and knows everything."
Good Answer: "We have a documented succession plan. Her assistant manager has been cross-trained for two years and could step up within 30 days. We also have all critical processes documented in our operations manual. Here's the succession planning document."
What Buyers Evaluate During Management Meetings
During due diligence, buyers will meet with your management team. Here's what they're assessing:
The Five Questions They're Really Asking:
"Can they run this business without the owner?"
Looking for: Strategic thinking, decision-making capability, confidence
Red flag: Constantly referring to "what the owner thinks" or deferring decisions
"Will they stay after I buy this business?"
Looking for: Enthusiasm about future, career motivations, loyalty indicators
Red flag: Disengagement, concerns about change, job-hunting signals
"Do they really understand the business?"
Looking for: Deep knowledge of operations, customers, financials, markets
Red flag: Surface-level understanding, can't explain trends or challenges
"Can they grow this business?"
Looking for: Growth mindset, ideas for improvement, capability to scale
Red flag: Defensive about current state, no vision for future, "we've always done it this way"
"Will they work well with me?"
Looking for: Cultural fit, communication style, openness to change
Red flag: Resistance to new ideas, poor communication, defensive attitudes
Preparing Your Team for These Meetings:
Brief them on the buyer's background and what they're likely to ask
Conduct practice interviews with tough questions
Remind them to be positive and future-focused
Encourage them to share ideas and enthusiasm
Be clear about retention incentives and their future role
But most importantly: Build a team that's genuinely capable and confident
The Owner's Evolving Role: From Chief Everything to Strategic Leader
As your management team develops, your role must evolve. Here's the progression:
Stage | Owner Role | Management Team Role | Time Investment |
|---|---|---|---|
Startup | Does everything personally | No management team | 60-80 hours/week |
Early Growth | Manages all departments directly | Department heads execute | 50-60 hours/week |
Mature Business | Oversees management team | Management runs departments | 30-40 hours/week |
Sellable Business | Strategic direction only | Management runs business | 10-20 hours/week |
Your target for selling: Stage 4—where the management team truly runs the business and you provide only strategic oversight.
Common Mistakes in Building Management Teams
Mistake #1: Hiring for Skills, Ignoring Cultural Fit
Result: Experienced manager who can't work with your team or culture. High turnover.
Fix: Assess cultural fit as rigorously as skills. Involve team in interview process.
Mistake #2: Promoting Too Fast Without Training
Result: Good employee becomes overwhelmed manager. Peter Principle in action.
Fix: Promote with training plan. Provide mentoring and support during transition.
Result: "Managers" in title only—still asking permission for everything. Buyers see through it.
Fix: Define clear decision authority and actually let them use it.
Mistake #4: Waiting Too Long to Invest
Result: Try to build team 6 months before selling. Team isn't proven, buyers don't trust it.
Fix: Start building management depth 3-5 years before intended exit.
Mistake #5: Ignoring Retention Until Due Diligence
Result: Buyers discover key people have no incentive to stay. Deal dies or price drops.
Fix: Implement retention agreements 12+ months before going to market.
Your Action Items This Week
Draw your current org chart: Who reports to whom? Where are the gaps?
Assess management completeness: Which critical roles are missing or weak?
Evaluate your team's readiness: Could they meet with a buyer today and inspire confidence?
Identify your first management hire: What role would add the most value?
Calculate management team cost: What would a complete team cost as % of revenue?
Plan retention strategy: How will you keep key people through a sale?
Create succession plan outline: Who are the backups for critical roles?
Coming Next: Article #7 – Brand & Legal Infrastructure
Next, we'll cover the often-overlooked elements that can make or break a sale: your brand strength and legal/regulatory cleanliness. You'll learn:
Why a strong brand adds 15-25% to valuation
How to build a brand that's transferable (not dependent on you)
The critical legal documents every business sale requires
How to ensure leases, licenses, and contracts are transferable
Intellectual property protection and documentation
Common legal issues that kill deals at closing
These are the details that often get ignored—until they blow up your deal in the final hour.
Remember: You're not just building a management team for the buyer—you're building the leadership that will run your business while you prepare to exit. Start now, not when you're ready to sell.
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Book Shelf from Brett Vogeler: amazon.com/author/bvogeler
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