Everyone at the starting line of a marathon knows exactly how far away the finish is. 

26.2 miles.

And because the runners understand the distance in front of them, they’re able to prepare for it—with months of training before the race, with Gatorade and energy gels for the day itself, with friends and family waiting along the course for moral support.

Now imagine lining up at the start of a race believing you’re running a 5k, 3.1 miles, only to find out it’s actually a marathon.

Most business owners thinking about exit planning and retirement are lining up for a marathon they’ve mistaken for a 5K. 

Many business owners consult with an advisor about exiting their business close to retirement. When the financial fantasy of what an owner thinks their business is worth doesn't line up with their financial reality, it might mean having to work with them to reset their expectations.

That’s when the last-minute realization hits, that they’ll have to either:  

  • Stay in the business much longer than anticipated, risking burnout and missing out on much of what they expected from the retirement experience
  • Settle for selling the business for much less than anticipated, risking financial insecurity during their retirement years 

Helping business owner clients prepare to exit their businesses—especially if their goal is to fund retirement with the sale—means understanding where they’re starting from..

Use business valuation to clarify the starting line. You likely already work with your clients to establish a retirement budget with all of their goals in mind—traveling, setting aside money for their grandchildren, purchasing a second home, making sure they have enough saved for healthcare, etc. 

But for clients planning to fund retirement through the sale of their business, an accurate business valuation is a critical starting point. 

Every financial decision you and your clients make begins with understanding what their business is worth today. Once you know the business’s value, you can help them set realistic goals and timelines.

Using BizEquity’s online valuation software, you can determine not only the four critical estimates of value—Asset Sale, Equity, Enterprise and Liquidation—but also 12 industry-specific KPIs that will help you and your client understand the way the market perceives the value of the business, including:

  • Return on equity
  • Inventory turnover
  • Cash flow to revenue
  • Fixed assets turnover

For example, one BizEquity user found that while her client’s overall value was in line with his expectations, his inventory turnover ratio was far underperforming the industry. Using that data, the business owner spent 12 months improving inventory turnover, ultimately increasing what he was able to sell for.

Establish the starting line well in advance. The last thing you want to do is run a business valuation for your clients six months before their desired retirement date—only to find out the business is worth millions less than they estimated. 

When that happens, business owners are stuck with the two undesirable options we mentioned earlier—stay in the business longer to increase its value, or exit with less capital to fund their retirement. At that point, you also have to consider your clients’ emotional state. Six months from retirement is like finishing the last hundred yards of a 5k. Moving that finish line back can make a successful exit feel nearly impossible.

So start the exit planning conversation well in advance—five to eight years before your clients want to retire, according to BEI. Not only does this help business owners get their finances in order, but starting the conversation early—and revisiting it often—also helps alleviate some of the emotional burdens associated with exiting a business.

Helping your clients successfully exit their businesses begins with understanding where they’re starting from. BizEquity’s innovative platform generates accurate, on-demand business valuation reports and critical KPIs in less than 30 minutes. Click here to learn more.