Will You Sell Your Business for Enough Money?

The value gap. Most of us have heard of it, but do you really know what it is? In its simplest form, the value gap is the cash difference between your business-funded lifestyle now and your business-free lifestyle after sale. So we really need to ask ourselves the question… how much of our lifestyle that we want to continue doing is funded through the business, and how much would I need in real dollars yearly to fulfill this lifestyle?

These are some of the most important questions to ask yourself as an entrepreneur as you enter into exit planning. If you don’t understand the value gap or haven’t evaluated yours, you are not going to like what your real numbers work out to be at the end of the day. We all leave money on the table; this is your opportunity to avoid that.

Business Lifestyle

Our favorite part of running our businesses tends to be spending time with our clients and jazzing people up about what we do. It’s part ego, sure, but it’s more about the networking and relationship building. We want people to like us because then they’re more likely to give us money. And we also understand how hard it is to get money, so we treat these people really well — we’re thankful and we know where our bread is buttered… literally.

So what do you do to treat these people? Lunches, musicals, golf, football and other interesting activities. Anything that they’ve mentioned they enjoy, you try to treat them to. In some cases, you even keep track of and act on their special dates: birthdays, anniversaries, holidays. To streamline some of these things and lower the upfront cost per event, you buy box seats for the local NHL team. Now every week you can take a client out. Clients like to golf, so you need a membership and clubs.

Whatever it is you’ve been doing both for fun and for your clients and that you’ve been expensing through your business becomes your financial responsibility when you sell your business. Are you prepared for that loss of coverage? Or are you okay with giving up the activity?

Once you’ve figured out just how much you (honestly) expense through your business, you can get a workable number. You can work with the numbers to figure out different scenarios for lump sum payments and yearly allowances. Do those numbers match your expenses and expected lifestyle cost?

While we can never know for sure how much time we have left, it’s important to take your financial advisor’s advice on what age to calculate for. If you’re not using your max life span, you may find yourself in hot water at a time in your life when working isn’t an option.

Retirement Planning

As discussed above, your retirement planning needs to include the amount of money you spend in a year and ensuring your projected income will cover it. Now, if you have figured out how much you will need yearly to sustain the lifestyle you most enjoy and it falls short, you do have a few options. Aside from dropping your Broadway tickets.

We talk a lot about planning, but it really is vital. In this case, we’re talking financial planning. If you haven’t started saving any money in your business, now might be the time to reconsider that strategy. Perhaps you should look at doing some investing yourself in other business. Or you could get into real estate. Whatever you decide to do to change your financial portfolio, the important concept here is diversifying.

Getting a little more variety in your revenue stream is as important for you as it is your business. De-risk your retirement planning by having some external revenue streams; something you’re comfortable with, but which isn’t dependent on your business. So as you get moving on your retirement planning, consider how else you can make your money work for you in case something happened and you didn’t get what you need out of your business.