What’s Your Business Really Worth? Start With the Life You Want After You Sell

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Written by: Becky Krieger, CFP®, CPA

Selling your business can spark mixed emotions, often including a sense of pride paired with anticipation about what's next. When contemplating a sale, many business owners focus primarily on the market value of their company. However, as you consider the road ahead, a more critical question might be: What sale price do you need to sustain your desired lifestyle and goals?

Selling a business is not just a financial transaction; it’s a life transition. The headline number on the purchase agreement may look great, but the net sale proceeds must be sufficient to cover your future living expenses, taxes, and replace the many benefits your business has provided. Otherwise, you could face an unexpected financial shortfall.

Here’s how to reverse-engineer your business sale to align with the post-exit life you want to lead:

1. Define Your Post-Exit Lifestyle and Goals

Clearly articulate your lifestyle expectations after the business sale. Consider the following questions:

  • What will your annual living expenses be once the business income stops?

  • Will you relocate or modify your current living arrangements?

  • Do you anticipate significant travel, buying a second home, or funding education for family members?

  • Do you plan to leave a financial legacy through charitable giving or inheritance?

  • Are new ventures or businesses on your horizon?

Your detailed personal financial plan should encompass:

  • Core living expenses: housing, healthcare, food, insurance

  • Lifestyle enhancements: travel, hobbies, discretionary spending, health and wellness investments

  • Expenses previously paid through your business: health insurance, vehicles, travel, memberships

  • Major one-time costs: home purchases, family events (e.g., weddings)

2. Calculate Net Proceeds

Taxes can substantially reduce your net proceeds, so planning is critical. We work to help business owners understand the impact of capital gains treatment and proactively develop and implement strategies designed to mitigate the impact of these taxes. Customized investment structures and advanced planning techniques can be essential.

3. Factor in Other Income and Assets

Your post-exit financial picture likely involves additional income streams beyond the business sale proceeds. Potential sources include:

  • Real Estate and Rental Income: Owning your business property can generate ongoing rental income post-sale.

  • Active Income: Board positions or consulting engagements.

  • Retirement Plans: Pensions, annuities, and retirement accounts such as 401(k)s.

  • Social Security Benefits

  • Gifts or Inheritances

Subtract these anticipated income sources from your total annual financial needs to identify the remaining gap your business sale proceeds must fill.

4. Determine Your Required Nest Egg

With net proceeds and other income sources accounted for, calculate the asset level needed to sustain your future lifestyle. A common approach is the "4% rule," suggesting, as a rough guide, that you can safely withdraw about 4% annually from your investable assets. Your personal safe withdrawal rate might vary based on your risk tolerance, spending patterns, and legacy goals.

Example:
If you require $300,000 annually after considering other income sources, you would need approximately $7.5 million in investable assets (including business sale proceeds and existing liquid investments). 

Build an Exit on Your Terms

Selling your business isn’t just about maximizing the sale price. It’s about ensuring the outcome aligns with your personal, financial, and emotional objectives. By thoughtfully defining your post-exit lifestyle and future endeavors, carefully planning for taxes, and strategically managing your assets, you can make your business sale not just successful, but transformational.

Related: Sequence, Not Spending, Could Derail Your Retirement: Here’s How To Protect Yourself