Its critical to begin with the end in mind when determining your walk-away number
As Stephen Covey points out in The 7 Habits of Highly Effective People, the very first step in any project is to figure out what outcome you want to achieve. In my experience, business owners are generally very goal-oriented. You started your business and built it by setting goals and doing your very best to meet them. So now that youve decided to sell, youll want to set goals here as well.
The First 3 Steps to Determine Your Walk-Away Number
Three steps are crucial to figure out how much money you want to walk away from the sale with. They are:
- Decide what a successful outcome looks like to you. Does it mean selling for all cash and walking away without worrying how the new owner runs your business? Would you prefer to get some cash but stay on as an employee for a period of time? Whatever it is, spend some time thinking about what you want to get out of the sale. Once you can picture yourself where you want to be, then the rest of the steps begin to happen naturally. So as simple as that may sound, deciding what you want in the end is a critical first step.
- Determine your walk away number. If you decide to sell, youll need to figure out how much money you would like to have when you are done running your business. How much do you need to say, Adios, Im heading for the beach?
- Ask yourself, How will I accumulate this amount of money? Will it be from the excess cash flow from your business each month that you save over time? Or do you plan to get it all in one lump sum when you sell? Will the sale of your business give you enough money so you wont need to get another job? Will the proceeds be enough to supplement other retirement plans you might have? What is your walk-away number?
So lets calculate your walk-away number. This is the figure you decide you must have (or would like to have) from the proceeds of your sale. This figure is the net amount after paying off any business debt, accounts payable, vendors, selling fees and taxes. This net amount can then be invested by you into other financial instruments such as real estate, stocks, bonds or whatever you desire. Ideally, it will function as part of your retirement plan. In some cases, it may be all of the retirement income you have available.