We are exactly five years away from our target exit date, and we want to start our runway today. How do we run a valuation gap analysis now to determine exactly how much enterprise value we must add each year to hit our target?

Question

Tyler Smith · Accepted Answer

To run a successful five-year exit runway, you must start by calculating your valuation gap. This is the difference between the current value of your business and the net proceeds you need to fund your post-exit life. Do not guess these numbers. First, secure an objective, third-party baseline valuation. This gives you a realistic starting point. Next, work with your financial advisor to determine your target net number after taxes, fees, and debt payoff. The difference between these two figures is your valuation gap. Once you have this number, break it down into annual milestones. If your gap is five million dollars, you must add an average of one million dollars in enterprise value each year. Translate this annual target into your V/TO. Your three-year picture and one-year plan must directly reflect the strategic moves required to build this value. For example, if increasing enterprise value requires expanding your recurring revenue margins, make that a primary focus of your annual planning. In your quarterly meetings, set specific Rocks that target the operational inefficiencies dragging your margins down. By aligning your weekly Scorecard and quarterly focus with this valuation gap, you turn a distant five-year goal into a highly disciplined, weekly execution plan.