Today’s newsletter is written for the privately-held business owner who is interested in achieving and / or confirming that they have achieved financial independence from the income and benefits of their business.  Because so many owners are dependent upon the income from their business to meet their personal lifestyle needs, the following two (2) questions will help you determine your ‘financial readiness’ for a business exit.  Further, these questions should start you on the path of truly considering how independent you are from your business.  It is the intention of this newsletter to assist you in being better prepared, financially speaking, for what may one day be the largest transaction of your life.

Personal Financial Independence

Many owners may dream of moving on from their business one day with the thought that the value in the business will be harvested by a future owner paying them what it is worth.  However, sadly, many owners will not reach this goal.  Those owners’ failure to reach the goal is not usually a function of the business being valued too low for them to sell – that is usually a outcome, but not a symptom of the problem.  In fact, the problem is a lack of planning and a failure for owners to see their business as an investment.

Reaching personal financial independence means that an owner can live without the income and profits of their business.  In other words, if your business was no longer able to fund your lifestyle, would you be able to pay all of your bills and live in the manner to which you have grown accustomed?

The following questions should help you get focused on what you may need to achieve to reach this enviable state as a business owner.

Financial Readiness Question #1:

Is the Value of My Business Less Than 50% of My Total Net Worth?

This first financial readiness question goes right to the heart of the matter for most owners – the fact that a privately-held business is, in most cases, the largest and most valuable asset for an owner.  If your business is less than ½ of your net worth, then it most likely means that you have substantial savings and/or income sources outside of your business to support your lifestyle.  If you fall into this minority of cases then you are likely in solid shape in terms of your ‘financial readiness’ for an exit.  However, if your business is more than 50% of your net worth, then you are in the majority of owners who are dependent upon the value that is trapped in their business, plus the annual income, to meet their personal financial goals.

A more subtle nuance to this question is the fact that in order for an owner to answer this question, it would mean that the owner knows both their total net worth and, equally as important, the owner also knows the value of their business.  Since most owners do not know what their business is worth, it is not only difficult for them to know how important the business is to them but it is also very difficult for those owners to make a plan to address this concentration of wealth.

So, if you can answer the first financial readiness question you are already heading in the right direction, regardless of the percentage of your total net worth that your business represents.

Financial Readiness Question #2:

Do I Have Qualified Professional Advisors in my Life that I Allow to Provide Me with Significant Assistance in Developing my Financial Future?

This is an important ‘financial readiness’ question for owners to answer as it generally is the case that owners who have solid financial plans also have solid financial advisors who help them design and execute on those plan.  The reason that this correlation is so high is because an owner who allows a financial advisor to guide them in the direction of preparing them for the future exhibits the traits of both an individual who appreciates and respects advisors, at least to the point of seeking and following their guidance.  Another reason that well prepared owners tend to have good advisors is because successful owners are often busy running their businesses and not focusing on their personal assets and planning.  These owners know what they do well, i.e. run and grow their businesses, and they recruit and delegate effectively to others to help with areas such as personal financial planning.

The reason that this is such an important exit planning / financial readiness question is because an exit planning process is highly complex and is most often accompanied by the guidance of a trusted advisor.  Therefore, owners who do not give trust to others as well as those who insist on doing things themselves, tend to struggle, overall, with the exit planning process.

Allowing other experienced advisors to assist you with your exit is nearly a requirement in order for the planning and the execution to go well.  By and large, owners who think this way also have solid advisors guiding other parts of their lives.

Concluding Thoughts

Below is a link to a 10 minute, 20 question online assessment that can assist you in determining your financial and mental readiness for your exit. There is no fee to take the assessment and your answers are sent immediately to your e-mail and kept completely confidential.

As a business owner who may be thinking through the eventual exit from their business, this complimentary online assessment may be the ideal starting point. And, after receiving your Business Exit Readiness Index™ Owner’s report, you may want to take a follow up meeting to discuss your answers further and gain more clarity on how you will have a successful exit in the future.

Click Here to Start Your BERI Assessment!


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