(Photo courtesy of Rosell Wealth Management)
The Business Owner’s Path to Financial Independence
As a business owner, you have likely invested decades of blood, sweat, and tears into growing your company. Congratulations on your success! However, you may now find yourself yearning to get out of the stress of the day-to-day and begin the next chapter of your life, start that project you’ve been dreaming up, or spend quality time with your family again (or all of the above!). As you ponder the future, one crucial question might arise: How much can I sell my company for? Better yet, you should be asking: How much do I need to sell my company for? This is where the concept of your freedom number comes into play, and understanding it can be the key to ensure you have the confidence to move forward with selling your business and transition to a life of financial independence.
What Is a Freedom Number?
A freedom number is the amount of money you need to sell your business for to sustain your lifestyle for the rest of your life, without having to work again unless you want to. It’s a personalized figure that is unique to you, based on your desired standard of living, the big goals you have post-business sale, and perhaps your desire to give back to the community or to your family members.
While the concept may sound simple, the path to finding it requires careful consideration of both your gross and net numbers. Gross refers to the total amount you would sell your business for before any deductions (taxes, fees, etc.). Net is the actual amount you take home after taxes, debt repayment, and other costs. Understanding the difference is critical because the gross figure doesn’t necessarily equate to what you’ll have in your pocket after the sale.
Why Is It Important?
Knowing your freedom number provides several key benefits. First, can give you a clear goal when it comes time to sell your business. Without a clear target in mind, it’s easy to under or overestimate what you need to achieve financial independence. By determining your number, it can help you avoid this guesswork and can make more informed decisions during the sale process.
Second, understanding your freedom number helps you assess if your current estimated business value is enough to fund your future lifestyle, or if additional steps need to be taken to grow the business before putting it on the market. This could include boosting profits, streamlining operations, or making the company more attractive to potential buyers.
How Do You Figure It Out?
The process of determining your freedom number requires a thoughtful, strategic approach, and typically it’s something that shouldn’t be done alone. A financial advisor can be essential in helping you assess your financial needs and build a plan that works toward your goal. But not just any financial advisor—ideally, you need someone who is knowledgeable about the nuances of business sales and has expertise in tax mitigation strategies.
The sale of a business can trigger significant tax implications, including capital gains taxes, which can take a large bite out of your net proceeds. A financial advisor who understands tax law and has experience in managing business sales can help you implement strategies to minimize those taxes, such as structuring the sale in a tax-efficient way or using tax-deferred investment strategies. These strategies can significantly impact how much of your freedom number you are able to keep, rather than giving it away to Uncle Sam.
When Is the Right Time to Find Your Freedom Number?
While there’s never a bad time to start planning, the ideal time to get serious about it may be about 3-5 years before you plan to sell your business. This timeline can allow for enough lead time to make any necessary adjustments to your business, financial plans, and tax strategies to meet your target. According to the National Center for Middle Market 2022 study, only 6% of business owners begin the process of preparing for a transition more than 2 years in advance. Don’t be part of the remaining 94%! If you really want to maximize the sale of your business, proactive planning is key so that you can avoid the stress of scrambling to make decisions and end up with a fire sale.
We borrowed the term “freedom number” from Paul Niccum, author of No Regrets and CEO of Paradise Capital. Paul has helped hundreds of business owners successfully transition out of their business and wisely says, “If there’s one thing you need to know about selling a business, it’s that the only sale you’ll truly enjoy is the one that leaves no regrets.” A business sale without regrets is one that is often proactively planned for and done with thoughtful intention about the years ahead.
Making It Count
As we close out one year and move into the next, take the time to prioritize your future. For business owners, the idea of selling and stepping away from your company can feel overwhelming, but having a clear understanding of your freedom number may give you the confidence to make decisions that align with your personal and financial goals. It’s about creating a life of financial independence, where you don’t have to worry about money, but instead, focus on living life on your own terms. You’ve worked so hard to build your company – make it count! Ensure that the next chapter of your life is one of freedom, adventure, and peace of mind.
Rosell Wealth Management is passionate about helping business owners prepare for the sale of their businesses, mitigate taxes during the transaction, and ultimately transition into the retirement lifestyle of their dreams. Call 541-385-8831 to schedule a complimentary meeting with our team to learn more about how you can find your freedom number or visit our website rosellwealthmanagement.com/begin-a-dialogue to start a conversation with one of our Financial Advisors.
The information presented here is for educational purposes only and is not intended to provide specific advice or recommendations. This material is not intended to provide, and should not be relied on for tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated.
Certain individuals at Rosell Wealth Management can offer Investment advisory services offered through Valmark Advisers, Inc. an SEC Registered Investment Advisor an also offer Securities through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. (800) 765-5201. Rosell Wealth Management is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc
