Running a successful business requires incredible amounts of effort, ingenuity, and capital. And when it comes to planning for the future of the business – both with and without the owner – many business owners ask, “What will this cost me?”
Let’s look at the difference between the price of planning, and the costs of shooting from the hip.
Understanding the price of planning
It’s impossible to give a hard price for planning without knowing the nuances of your personal and professional situation. So, let’s recall the three most important goals that planning for a successful future pursues:
- Financial independence
- Leaving the business on your terms (even if those terms include “dying at your desk”)
- Aspirational goals (e.g., creating generational wealth, donating to charity, etc.)
Achieving these goals isn’t something that “just happens.” It requires discipline, candidness, and a team of experts who can create strategies that best pursue those goals within the context of your wants and needs, personally and professionally.
However, I can confidently say that the upfront price of planning is often vastly lower than the price of not planning, for one huge reason.
You know what they say about assumptions ...
One of the hardest hurdles for business owners to overcome is accurately determining how much money they’ll need to achieve these goals. In fact, many owners are shocked to realize that they have a Wealth Gap.
A Wealth Gap is the difference between what you currently have and what you will eventually need to achieve your goals. Many business owners assume they have more than they really do, that their businesses are worth more than they really are, and that they’ll need less than they really will once they inevitably leave their business.
The price of not having enough money for financial independence once you leave your business can be devastating. For instance, you may not have enough to live the life you want or be forced back to work.
Fortunately, the Wealth Gap is one of the first things that planning for a successful future reveals and addresses. Your Master Planning Advisor should ask you candid questions about your goals and then commit to researching what it takes to achieve them. They should then compare what you need and want against what you have, using objective measurements from appropriate experts (e.g., tax professionals, business valuators).
Finally, they should create plans based on facts, rather than assumptions, to help you close any Wealth Gap you have in pursuit of your three overarching goals.
How can I know planning is worth the price?
Planning does indeed cost time and money. However, you should consider a few questions about the alternative of not planning:
- How much would it cost you to base your business’ future on assumptions over facts?
- What would it feel like to have to sell your business for less than maximum value or to someone you’d rather not sell to, just to stay financially solvent?
- Would you rather have more control over your future or hand the reins to fate?
It’s tragically common for business owners to underestimate how challenging planning for a successful future can be. Fortunately, a strong advisor team can take the glut of planning off your plate, which can save you time. A strong advisor team also looks for ways to create plans that are effective and cost-efficient.
How much is success worth?
Consider one final example when asking yourself, “Is this worth it?”
Say that to achieve financial independence, you plan to one day sell your business to a third-party buyer. Successful third-party sales require accurate business valuations.
Hiring a business valuator may cost $10,000 upfront, but it will give you an accurate valuation. Not hiring a valuator means you enter negotiations with little more than a guess about how much your company is worth.
If you think the company is worth $5 million (because that’s what you think you need to retire comfortably), but the most generous buyer’s valuation puts the value at $3 million, you have three options:
- Sell for less than you need for a comfortable retirement
- Pull the company out of the market, which can perpetually devalue your business
- Work for longer than you wanted to, to try to build that value
In any case, the cost to you could be much more than $10,000.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact a lawyer or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Master Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice you need.
Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
