05. Your Wealth Gap

As we discussed in the last article, you needed to create your Personal Plan to answer three questions: By when? How much? What will I do? Once you have your plan in hand, you’ve already put yourself ahead of more than 80% of business owners who have never created one for their business and personal future.

Your Personal Plan should state the valuation at which you will need to sell or transfer the business to achieve your wealth goal. Most likely, however, your business isn’t currently worth that target valuation.

We call this disparity between what you need (as defined in your Personal Plan) and your current valuation, the Wealth Gap.

Quite simply, if the total business value needed to meet your goals is $25,000,000 and your current valuation is $14,000,000, you have a Wealth Gap of $11,000,000. So, you will need to improve the business so that it creates at least $11,000,000 in additional wealth for you and your family.

Establishing your current market value is essential for determining your starting point. There are really two types of market valuation: 1) an amount a CPA or valuation expert can place on your business in a detailed report based on standard industry metrics and a cursory review of your business; and 2) the amount a buyer in the real world would actually pay for your business…if anything!!!

You are obviously focused on the 2nd option because you want to be a Value Creator. It’s easy to put a value on a company by applying multiples to earnings, but that doesn’t mean someone would actually buy your company. The truth is that only about 15% of businesses can actually be sold because they can operate independently of the current owner.

Therefore, it is important to view the initial valuation as a placeholder only, not as money in the bank. Most businesses are not transferable to another owner, so they don’t really have value shown in a valuation report.

In our next article, we will dig into why only 15% of companies are salable. We will review a framework you can use to ensure you become a true Value Creator.