We are five years away from a target exit, but we have no idea if our business is actually worth enough to support our lifestyle after we leave. How do we calculate our personal wealth gap today and map it to our business valuation goals?

Question

Tyler Smith · Accepted Answer

Too many business owners work for decades only to sell their company and discover that the net proceeds, after taxes and transaction fees, cannot support their desired lifestyle. To prevent this, you must calculate your net destination number five years before your target exit date. Begin by working with a qualified wealth adviser to estimate your post-exit annual living expenses. Subtract your guaranteed non-business income sources, such as real estate investments or personal portfolios, to identify your annual cash flow deficit. Multiply this deficit by a conservative capitalization rate to determine the net liquid wealth required to fund your lifestyle indefinitely. Next, analyze your current balance sheet to see what portion of this liquid wealth is already secured outside the business. The difference between your total financial target and your non-business net worth is your personal wealth gap. Once you know this gap, you can calculate the required enterprise value of your business. Remember to factor in a heavy discount for federal and state capital gains taxes, investment banking fees, legal costs, and working capital adjustments at closing. Map this required valuation directly back to your V/TO® as your long-term goal. By anchoring your five-year financial target in actual personal needs, you ensure your operational decisions are aligned with your personal freedom goals, removing any guesswork about whether a buyer's offer is truly enough.