Readiness Analysis

Financial Reliance on the Business

An earlier survey indicated that 84% of business owners rely on some or most of the proceeds from the sale of their business to fund their retirement. Regardless of the objectives that you have identified to this point, or the desired future disposition of your ownership interest, a completed and updated ‘Financial Needs Analysis’ is a critical part of any exit plan.

Based on your responses, a ‘Financial Needs Analysis’ still needs to be developed, and this should be done sooner than later.

As discussed, completing a personal ‘Financial Needs Analysis’ is an important step in verifying what is the necessary wealth and annual income amount required for your post exit lifestyle. We recommend that a financial advisor be brought in to work collaboratively with exit/transition advisors, to tie in your personal financial planning, and to ensure that your exit objectives and wealth accumulation requirements are aligned.

You have indicated that 30%-70% of your retirement lifestyle will be funded by the expected proceeds received from the business transfer. This score indicates that the expected proceeds from the sale of the business, are somewhat important to meeting your retirement lifestyle needs. It’s good that you are not overly reliant on the business’s sale proceeds to fund your retirement lifestyle needs, however, you still carry some risk with having this percentage of dependency.

To help minimize the associated risk of having the business’s value play such an important part in funding your retirement lifestyle, the exit and transition plan should look to protect and grow the business, to help ensure that the required value is available to you when you decide to exit. This should include careful consideration being given to future economic and industry timing considerations, that could impact the value of your business upon your planned exit.

Additionally, after completing a ‘Financial Needs Analysis’ to determine specifically what percentage of reliance you have on the sale proceeds, with the assistance of an exit/transition advisor, you can develop a personal plan to reduce this specific risk by continuing to create financial liquidity and diversification outside the business.

On our Exit/Transition Readiness Scorecard this would typically be viewed as a YELLOW signal, indicating that there is still some required work to help ensure that your exit and transition from the business will be successful.