by Elias Makris, Partner

Are you guilty of assuming that the sale of your business will fund your retirement? Wouldn’t it be more prudent to know for sure?

It all starts with identifying the ‘value gap’. That is, the difference between what your business is worth and what you need at the time of its sale. If the shortfall is significant, it could prevent you from selling altogether or if you do sell, you may need to accept a lesser quality of retirement lifestyle. Read on to find out how you can ‘reality check’ your business value and retirement plans.

Determining your business value gap will enable you to prepare a more profitable business for sale by putting in place strategies for eliminating any gap that may exist. 

First, you’ll need a ‘business value gap analysis’.  This is the process of determining your retirement income and assets, the business value (current and future) and strategies to improve business profit and wealth. A business value gap analysis enables you to confidently answer these three key questions:

  1. What does my business value need to be at time of sale?

  2. How many years until I can afford to sell?

  3. What is my future profit target that will provide me a higher business value and my desired standard of living?

If your business value gap analysis reveals a shortfall in business value, then you will need to implement business strategies to improve your profit before you sell. We call it ‘grow before you go’.

For example, improving your average sale per customer will increase sales, gross margin and net profit. Knowing what your business value needs to be means you can calculate your future profit, gross margin and sales targets.

Value gap analysis provides business owners and managers with peace of mind which comes with understanding the direct connection between business value and a future standard of living at retirement.

Our Case Study highlights how the value of a business affects an owner’s future standard of living. It illustrates how a business value gap analysis led to the provision of succession planning advice that enabled the owner to grow and realise business wealth to fund the gap.

To  learn about Rosenfeld Kant’s range of business advisory services, please contact me or your accountant at Rosenfeld Kant today: (02) 9375 1200 or gary@roskant.com.au, raul@roskant.com.au, elias@roskant.com.au

 

View 2017/18 SME Research Report | Take FREE Business Risks Survey

The information (including taxation) contained within this article is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant strongly suggest that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.