Many Business owners think that when they sell their business, the monies they receive will be enough for them to retire. This assumption is a fallacy for most trying to achieve financial freedom.
The Exit Magic Number calculates how much capital a business owner needs to receive from the business between now and the exit to achieve personal financial freedom. In order to calculate the Exit Magic Number a business owner must first determine the net capital needed to support their net lifestyle costs post-exit. The second step requires subtracting from this figure the amount of net capital and available income the business owner expects to have already outside the business at the exit date.
“The more capital you have outside your business by the exit date, the lower the Exit Magic Number result,” noted Falco. “Simply stated, net capital needed minus net capital available equals the Exit Magic Number. The business owner must understand their complete personal financial plan in order to feel comfortable with their specific number. This usually means seeking professional help from a financial planner to help them understand exactly what is needed to retire.”
Lowering the Exit Magic Number also creates more flexibility and control, and easier transitioning to family, key employees or younger partners in the company, if desired. The business owner with a lower number is in a better position to control their exit. By knowing their exit number, business owners can plan better during their business life cycle and make sure that they are using the business to create wealth outside of the business prior to exit.
To listen to Chris Falco discuss exit and life planning strategies for business owners, please visit http://thenala.com/north-american-speaker-series/chris-falco.
About Falco Sult
Falco Sult looks at a business’ needs from a broad perspective by knowing where the company is in the business life cycle at all times and designing a plan accordingly. Falco Sult is a West Coast accounting firm serving clients nationwide. For more information, please call (425) 883-3111, or visit https://www.falcosult.com. The office is located at 16150 NE 85th Street, Suite 203, Redmond, WA 98052.
About the NALA™
The NALA offers small and medium-sized businesses effective ways to reach customers through new media. As a single-agency source, the NALA helps businesses flourish in their local community. The NALA’s mission is to promote a business’ relevant and newsworthy events and achievements, both online and through traditional media. For media inquiries, please call 805.650.6121, ext. 361.