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
• 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
• 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
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
• 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