During the exit planning process, a consultant must balance an owner's business, personal, and financial needs. All three of these are equally important for a successful business transition. We refer to these as the "Three Legs of the Stool." Without all three equally balanced, the stool would topple over. According to Walking to Destiny, the Three Legs of the Stool, also called "Master Planning," helps to maximize the value of the business by ensuring the owner is personally and financially prepared to maximize net proceeds and that they have a plan for what they will do next.
When creating your exit plan, you of course will spend a lot of time considering how your exit will impact your business. Christopher Snider shares in Walking to Destiny, "You need to consider things like the direction of the business," when organizing your exit plan. Linda Ruffenach, Founder and Chief Strategist of Execuity LLC, says "the best way to understand the need for building value in an owner's business is to ask them, 'What do you need to do in the beginning to be better prepared down the road? How can your business improve today for you to be successful later?'" Business consultants help spot pain points in businesses that owners may not have noticed or known how to resolve.
Most owners know their business goals and the multiples they would like their business to sell for, but they fail to think about the personal and personal financial impact of exiting their business. According to a recent survey, 27% of business owners have no plan for their life post-business. A business consultant must work alongside the owner to determine where they see themselves in the next act of their life and how much money is needed to meet these goals. The process for exiting is driven by a wealth goal. The wealth goal is motivated by what the business owner wants personally in life, both now and after the sale of their company. Once the advisory team helps the owner establish those goals and their personal purpose, it allows the advisor to establish a wealth goal and identify the Wealth Gap. That Wealth Gap will be filled by the business. This begins a conversation around business planning, what the business is currently worth, and what it could potentially be worth.
An effective exit plan incorporates your business financial needs as well as your personal and personal financial needs. Without a detailed personal plan, many owners feel purposeless and unfulfilled in their life. On the contrary, owners who have a written plan for what they want to do next and have taken the steps to position themselves, have wonderful next acts. Your personal goals should drive the business, not the other way around. Getting in touch with your personal purpose helps build a successful, growing business. But more importantly, understanding your personal purpose ensures that you have a fulfilling life after you exit.
To succeed today and in the future, ensure that you give each of the three legs of the stool equal attention. Begin by determining your personal purpose and identifying your personal financial needs. Use your business to drive income, and ultimately, drive transferable value to create the financial means to reach your personal goals.
The Three Gaps and Three Legs of the Stool in exit planning are necessary components towards growing significant value in your business, whether or not you decide to exit your business now or in the future.
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