Three numbers every business owner should know and manage to meet their goals.

I am not talking about the three key numbers you need to track in your business; sales, profits, and cash.
I am talking about managing your value, so that your can reach your personal goals.

These are the most critical three numbers, and a way to think about them.


What good could you do in the business with that extra flow?

Profit Gap = The Profit You’re Sacrificing by Not Operating at
a Best-in-Class Level
= Best-in-Class Profit at Your Level of Sales – Your Actual Profit
Key Points:
• For the purposes of this discussion, profit is best defined as earnings before
interest, taxes, depreciation, and amortization (EBITDA)
• To ensure an apples-to-apples analysis, your actual EBITDA should be
re-casted or adjusted for
o Extraordinary or one-time events
o Discretionary expenses that are tied to the owner
o Expenses that are currently above or below market rates such as rent,
compensation and others

How quickly would narrowing your Value Gap close your Wealth Gap?

Value Gap = The Business Value You’re Sacrificing by Not
Operating at a Best-in-Class Level
= Best-in-Class Value if at Your Level of Sales – Your Actual Business Value
Key Points:
• The basis of the Best-in-Class Value begins with the Best-in-Class Profit at
Your Level of Sales (determined in the Profit Gap analysis)
• The Best-in-Class multiple is applied to the Best-in-Class Profit
• Your actual value should be based on your actual re-casted or adjusted
EBITDA

How Will You Bridge the Gap?

Wealth Gap = The Additional Wealth You Need to Accumulate
to Meet Your Goal
= Your Net Worth Goal – Your Current Actual Net Worth (not including your
business)
Key Points:
• For the purposes of this discussion, do not include the value of your business
o It is not easily converted to cash
o You may or may not convert it into cash depending on what you decide to
do with it
• As you consider your net worth goal, identify:
o What you truly need to live your life the way you would like
o What you want


Daniel L. Bishop CFP© CEPA©

Daniel L. Bishop is a Advice-Only Comprehensive Financial Planner that has experience in education funding from cradle to career: His deep expertise is in optimizing Late Stage College Funding into a Master Financial Plan for people with complicated situations, like business owners who are nearing retirement and need to prepare for a business exit on their own terms. He founded Black Swan Advisors LLC in 2016, so that he could pursue his passion of real, honest, financial planning advice for families. He loves working virtually with clients across the Heartland of America. Daniel and his wife modernized a century-old, lakefront farm house in southern Illinois. After work, you can often find tpaying with their 2 kids, preferably in the water.