We know what we want our business to sell for, but we have not calculated the actual net proceeds we need to fund our next chapter. How do we align our personal financial plan with our operational exit runway?

Question

Tyler Smith · Accepted Answer

Too many business owners take their company to market without knowing the exact dollar amount they need to walk away with after taxes, debt payoffs, and transaction fees. This mistake leads to aborted deals or post-sale financial insecurity. To align your personal financial plan with your operational runway, you must work with a qualified wealth manager at least three years before your target exit date. First, calculate your personal cost of living post-sale. Factor in healthcare, travel, inflation, and any new ventures. Your wealth manager will use this data to determine your net proceeds target. Second, convert this net proceeds target into a gross enterprise value. This calculation must account for state and federal taxes, investment banking fees, legal costs, and the payoff of any business debt. Third, use this gross enterprise value to set the operational targets on your V/TO®. If your net proceeds target requires an enterprise value of fifteen million dollars, and your industry typically commands a six times EBITDA multiple, your business must consistently generate two point five million dollars in adjusted EBITDA. This gives your leadership team a concrete financial target to build towards.