How do we align our personal wealth targets with our enterprise valuation targets five years from now so we do not end up with a post-exit lifestyle gap?

Question

Tyler Smith · Accepted Answer

Many business owners focus entirely on the enterprise valuation of their company without calculating the actual net proceeds they need to fund their next chapter. This mismatch leads to failed deals because the seller realizes too late that the post-tax, post-fee cash will not sustain their lifestyle. To avoid this gap five years out, you must start with personal financial planning before you touch your business financials. Determine your net exit number. This is the exact amount of cash that must land in your bank account after taxes, investment banking fees, legal bills, and debt payoff to support your desired lifestyle. Once you have that number, work backward to determine the required enterprise valuation. If you need ten million dollars net, and your tax and fee burden is forty percent, your business must sell for at least seventeen million dollars. Next, look at your current valuation based on your industry EBITDA multiples. If your current value is eight million, you have a nine million dollar gap to close over the next five years. Use your V/TO® to map out the growth, margin improvements, and structural changes required to hit that seventeen million dollar mark. Bring this target to your annual planning sessions. By treating your personal wealth target as the ultimate driver of your long-term business goals, you ensure that your exit strategy is built on reality rather than hope.