The Exit Planning Review™ is an opt-in, bi-monthly newsletter published by Business Enterprise Institute, Inc.


This issue is provided to you by Paul Honeycutt,   with Honeycutt, Smith & Associates.

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This article is presented by Paul Honeycutt who is a Registered Representative with/and offers securities through Commonwealth Financial Network, Member FINRA/SIPC.

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Quantify Your Resources
The Ultimate Exit Test

In the previous issue of this series on avoiding procrastination (related to your business exit), we talked about why all owners—whether ready or not to exit—must look carefully at the third of three ownership objectives: How much cash will you need from the sale of the company to enjoy a financially secure post business life?

As you recall, we were following Peter Daniels, the 58-year old owner of Daniels Food Processing, Inc. as he worked with his financial advisor to:

• Set a realistic assumption for a rate of return on his investments;
• Understand life expectancy numbers for both he and his wife; and
• Establish (and agree with this wife on) a post-exit annual income amount.

As part of Peter’s decision-making process, Peter and his advisor reached the point where they needed to know—and this is the crucial factor in being able to retire on your terms: What must the value of Peter’s business be if Peter is to leave, as desired, at age 63? This determination is Goal Three: Quantify Your Resources.

As a business owner your “resources” are both in the business and outside of it. You need to know the value of each so you can then determine if there is a gap between the amount of money you will need in the future and what you have today. This gap must be quantified and you must create and implement a plan to close that gap. Most owners use an experienced financial planner to help with this project.

Peter and his advisor used the following process:

First: Peter and his wife Pam had agreed that they could live on $200,000 per year and would want that level of income for approximately 30 years.

Second: Peter and his advisor, using their agreed-upon estimate of a projected rate of return, calculated that Peter’s non-business investments assets would be worth approximately $500,000 in five years (Peter’s desired exit date).

Third: Peter’s advisor calculated that the amount of investment capital needed to pay Peter and wife $200,000 per year for the duration of their lives (based upon current actuarial tables and assuming a seven percent investment return) beginning five years hence is approximately $3,000,000. Thus the net (after tax) sale proceeds from the sale of the business must be $2,500,000, or between $3,000,000 and $3,500,000 pre-tax.

Fourth: The business is today worth between $1,000,000 and $1,500,000.

Bottom Line: The gap between what Peter has today and what he needs to retire on his terms is about $2,000,000. Peter must increase the value of his company by at least $2,000,000 if he is to exit on his terms.

This is why Peter needs at least five years to plan and why he must start now.

Many of you can identify with Peter’s situation and face the same challenges. But unlike some of our readers, Peter now knows what he has to do and he’s found the motivation to start the planning and preparation necessary to leave his business in style.

For Peter, and perhaps for you, five years is a tick away. It’s time to get busy.

Contact me for a recommendation about who can help you to determine your business’s current value and the gap (if any) between what you have today and what you’ll need in order to exit on your terms.

Exit planning begins when owners understand their ultimate objectives and what they have to do to reach them. Contact us today if you’d like help getting started.

Subsequent issues of The Exit Planning Review™ discuss all aspects of Exit Planning. The provider of this Newsletter (Paul Honeycutt) offers you unbiased information about what you may need to know — How To Run Your Business So You Can Leave It In Style™.