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Does Financial Freedom From Your Business Always Seem Like It's Five Years Away?

Posted by Josh Patrick

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For the past several months I’ve been thinking about a few things I see with planning for smaller businesses.  Two groups could plan for you, and I think both kinds miss the point.

What you ask are these two groups?  I’m glad you asked.  They would be the good folks in the exit planning community and the fine people from the financial planning world.

Where does the exit planning community miss the point?

Let’s start with the exit planning community.  These are the folks who will help you plan for the day when you leave your business.

In standard exit planning, there are seven suggested steps.  The problem with this is many of the steps are not really appropriate for a service business of your size.  You see, you can get a valuation for what your business is worth, but the truth is for most of you, your business doesn’t have any real value to a third party.

Of course, there are exceptions to this, but for most, you won’t be getting a ton of cash at closing.  In fact, for most, the amount of cash you get at closing will be much less than 50% of the total sales price.  In my world, you would be taking way too much risk to get this little cash.

Instead, you might want to be thinking about how you can re-organize your business so you can run it past normal retirement age and only work one day a week. 

How about the financial planners

Most financial planners are not experts at how you can leave your business.  They will take the numbers that you provide and do a plan for you based on that information.

This is fine for employees working at a company.  It’s not fine for owners of smaller businesses.  The reason is very simple, you might have a belief about how you’re going to leave your business that is either very risky, will most likely not come true, or both.

Also, there is the issue of you running your life while you own your business on a pre-tax basis.  Once you sell your business, your pre-tax life goes away, and your lifestyle becomes much more expensive.

Why do both of these groups miss the point?

There is expertise required for helping a business owner leave a business.  Financial Planners have little training in this area, and Exit Planners have been trained on strategies for larger companies.  I don’t see many planners specializing in your sized business.

I’m not really quite sure why.  After all, the number of smaller businesses in the US dwarfs the number of larger businesses.  The truth is a successful transition from a smaller business uses different strategies.  Strategies I don’t often see used.

Traditional exit planning is very expensive.

The other issue is that traditional exit planning is very expensive.  If you go to someone who has done exit planning, the exit planner might charge you as much as $25,000 for the plan.  If you go to a Financial Planner, the cost will be much less, but there’s a very good chance the information you get will give you a false positive and getting a false positive in your plan could have devastating results down the road.

The reason I put together the Financial Freedom Project is to cover the holes that I see in both the exit planning and financial planning world.  To me, the Financial Freedom Project covers the shortfalls in both at a much lower cost than a full exit plan.  And, most exit plans don’t help you with a strategy to help you become financially free from your business.

The reason I think this is so important is the smaller businesses have different challenges and need to be thinking about reaching financial freedom differently.  Even if you can sell your business, the chance of the business sale being enough for you to ride off into the sunset being financially free is pretty small.  If you’re not doing some very specific things before you decide to transition to what’s next in your life that transition could be much more difficult than you want.

I don’t want this to happen to you.  I want you to know what you need to do and the earlier you know, the easier it is to accomplish.  That’s my goal with the Financial Freedom Project. 

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Topics: financial freedom project, financial freedom, business owner financial planning

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