In the first step of The Seven Step Exit Planning Process, you, as an owner, establish three primary exit objectives:
Last month, we established the importance of a professional valuation of your company. However, we did not touch on the resources you may have outside the business. Today, let's look in more detail at that second objective: How much cash will you need from the sale of the company to enjoy a financially secure post-business life? For most owners, this is a great starting point for determining when, or if, they can leave their businesses.
Ron Nee, the fictional owner of the landscaping company, engaged his financial adviser to:
As part of this process, Ron and his advisor reached the critical question whose answer would determine Ron's ability to retire on his terms: What must the value of Ron's business be if Ron is to leave, as he desires, at age 63?
Like Ron, your resources are likely both in the business and outside of it. You need to know the value of both so you can determine if there is a gap between the amount of money you will need in the future and the amount you have today. This gap must be quantified and-to exit successfully -- you must create and implement a plan to close that gap. Most owners retain an experienced financial planner to help with this project.
Ron and his advisor used the following process:
Bottom Line: The gap between what Ron has today and what he needs to retire on his terms is about $2 million. Therefore, Ron must increase the value of his company by at least $2 million if he is to exit on his terms.
This is why Ron needs at least five years to plan and why he must start today.
Many of you can identify with Ron's situation because you face the same challenges. Ron knows what he has to do and he has found the motivation to start the planning and preparation necessary to leave his business on his terms. Have you? How big is your gap?
For Ron, and perhaps for you, five years is a tick away. It's time to get busy.
Contact me for a recommendation about who can help you to determine your business's current value and the gap (if any) between what you have today and what you'll need in order to exit on your terms. We can help you to understand your ultimate objectives and what you must do to reach them. Contact us today if you'd like help getting started.