An earlier post was titled "Meaningful Planning Requires Accurate Data" and stressed the importance of an accurate valuation of your business in planning a successful exit. Once you have that number you will need to subtract it, along with the value of all other resources available to you today, from the resources you will need to achieve your goals.
For example, let's say that your current personal financial plan, that includes all of your future goals, indicates you will need $5,000,000 to do all you want to do after you leave the business. If the current value of your business is $2,500,000 and the value of all other assets is $1,000,000, then you have an "asset gap" of $1,500,000 ($5 mill - $3.5 mill = $1.5 mill).
The reasons for ensuring an accurate gap analysis include:
- Provides you with a starting point and an end point needed for achieving your goals.
- Serves as motivation for you to design and implement a plan to "close the gap" and increase the value of the business.
- Where there is not an asset gap, you're afforded opportunities to increase goals, or possibly leave sooner than you were originally planning to.
- An accurate gap analysis provides a more realistic view of your situation and how much still needs to happen, or doesn't need to happen, for you to accomplish your goals.
Steps to take for an accurate GAP Analysis:
- Clarify your owner-based post-exit goals and objectives.
- Arrange for an accurate and objective Estimate of Business Value.
- Arrange for Financial Needs Analysis, based on your goals and objectives and using current and accurate quantitative data (business and personal resources).
- If there is an asset gap, conduct a thorough assessment of your business value drivers, and create a plan to close the gap.
If you need assistance, our firm can help you with all aspects of a GAP Analysis. You may be surprised to hear that typically the most challenging, time-consuming, yet rewarding aspect of performing a GAP Analysis is establishing your post-exit goals and objectives.