Running a successful business is usually a means to an end, and that end is usually a combination of several personal goals. All these goals need the right financial backing in order to become reality, so exiting your business at the right time and in the right manner is critical for maximizing your profits. In the first installment of this three-part series, we dove into how to ensure your company is ready to transition by examining your business value gaps within performance and growth. In this article, we’ll turn our attention to the second step in achieving business monetization: managing your own personal value gap.
What Is the Personal Value Gap?
Just like your business goals, your personal goals should be achievable and set out in such a way that you know what you want to achieve, when you want to achieve it by, and how you’re going to get there. The personal value gap is similar to the business value gap in that it comprises goals you want to achieve but haven’t yet properly planned for. Managing your personal value gap is about moving your dreams from “maybe, someday” to “definitely by X date.”
Successfully Identifying Your Personal Value Gap
The first step is to identify your personal value gap. In much the same way as owners are encouraged to examine their business value gap, it’s about assessing where you are now and where you want to be. That might involve:
- Forming a detailed inventory of assets and liabilities.
- Making a list of your goals, marking how much capital each needs, and prioritizing them.
- Setting timescales for each goal — when do you want to achieve each one by?
How well do you think you know your personal value gap right now?
Here are four statements. Read them and see which seems closest to where you are now:
- “I already have a detailed personal financial plan and am confident that I will meet my personal goals despite a range of possible outcomes upon exiting my business.”
- “Once I exit my business, I should have enough to cover my personal goals.”
- “I cannot say at this time if the proceeds of my business will finance all my personal goals.”
- “I know that as it stands, I would not be able to achieve my personal goals if I exited my business.”
If you answered 2, 3, or 4, it would be beneficial to seek the assistance of a business and financial advisor to better understand your personal value gap and how to address it.
The Five Buckets of Personal Value
When thinking about how to divide the funds from business monetization for your personal goals, there are five primary buckets that most business owners consider.
Charity
Many business owners are passionate about specific causes. They might be charities that help with research toward specific medical conditions or organizations that do work with animals or conservation. Planning to have money to give to these nonprofits could be one bucket that you want to fill substantially.
Retirement
Retiring from the world of work altogether can be a critical goal for many owners looking to exit their business. Think about what plans you have in store for your retirement. These could be travel, adventures, or something closer to home like running a community initiative. Thinking about how much money you need for these plans is important.
Entrepreneurial
Exiting your business doesn’t mean you have to give up innovating and earning. If you have another project on the back-burner, having the right capital to get it off the ground can be a critical aspect of your personal value gap.
Family Legacy
What do you want to leave behind for your family? Or what do you want to give them right now? Think about property, land, investments; whatever you choose to leave behind, and plan now to avoid the disappointment of not being able to afford your ideal legacy.
Children
It’s no surprise that many business owners want to exit their businesses to gain the funds to support their children in a variety of enterprises. Primarily, this involves money to go toward education and trust funds. But it may also include supporting them in sports or other competitive ventures, or even helping them in their own businesses.
Developing a Personal Financial Plan
Once you have an idea of what your goals are and when you want to achieve them by, you can start developing a personal financial plan. In a way, this is about treating your personal finances with the same level of scrutiny and diligence as you would your business finances, to ensure they’re managed to help you maximize the potential outcomes.
It’s important to use a range of factors to predict the probability of a successful exit, considering economic changes, business growth or decline, and changes in the market. Personal wealth can also be managed to better success by diversification — placing funds in a range of interests for the best possible return.
You don’t have to do all the work of planning out your personal financial plan on your own. Work with a business advisor and a financial advisor to ensure you get to thoroughly enjoy the profits from your business. The Association for Enterprise Growth can help. Contact us today.
Image Credits: Photo by energepic.com from Pexels
