Do you really know your Net Worth if you can't sell your business?
Is your business helping you to achieve your dreams, or a trap that keeps you captive?
Let’s take a look at the WEALTH GAP.
This is your net worth today subtracted from your net worth goal.
The first mistake many business owners make is that they include their business, often overestimating the value, which in turn overestimates their wealth.
Why is that a problem?
Well, if you read the Value tab section, you would have seen that most businesses do not sell. In addition, most business owners vastly overestimate the value of their business.
Let's look at...
John and Jane's Story...
John and Jane live very well, and after selling their business they would like a bit more than 1.4 million dollars per year to maintain their lifestyle.
Currently, they have 10 million. If we assume a reasonable return after all fees and expenses of about 4% per year to live off of (assumes conservative investments for a baby boomer), then we divide the 1.4 million by the 4% and we find out they need around 36 million dollars!
That’s a huge wealth gap!
Most business owner have no idea of their wealth gap or how significant it might be. Fortunately or unfortunately, depending upon their outlook, their best chance of closing this gap is by value accelerating their business, and then selling. Those are pretty big numbers.
Let’s do it again with someone who wants to live off of 200K per year. Take that and divide by 4% and they’ll need 5 million dollars!
If you think you can get a higher return, then of course the net worth number goes down. But be careful! You’re dealing with your and your family’s extended life, so often it pays to be more conservative, especially if older.
Know Your 3 Gaps
