Prepare for Your Financial Future by Making a Gingerbread House

Prepare for Your Financial Future by Making a Gingerbread House

If you have watched at least one made for television Christmas movie in your lifetime, you know the hallmark of this genre includes: “A Gingerbread House building contest during a quaint town festival”. The characters – usually an architect who claims their skillset will make them unbeatable and a marketing professional trying to get away from the big city – bake, build and decorate their gingerbread masterpieces over the course of the movie. The size of these houses can vary from a small cottage that sits precariously on a dinner plate to a colossal castle that is large enough to walk through. One thing is for sure, if they do not plan accordingly, their house will never end up how they imagined. And if they do not have enough dough, their house will be a lot smaller than they dreamed. Business owners will face a similar dilemma if they do not plan for their financial future during their exit process.

According to The $10 Trillion Opportunity by EPI founders Richard Jackim and Peter Christman, “A future retiree without a clear picture of potential requirements increases the chances of falling short of vital retirement needs. Some individuals arrive at retirement with cash flow levels that are far less than their pre-retirement annual expenses”. Failing to adequately plan for your financial future after exiting your business will ultimately hinder your ability to have the third act of your life you might have envisioned. “Most business owners make decisions to sell based on assumptions and guesses about what they need when they retire; they simply hope and pray they will net enough from the sale of the business to accomplish their goals”, say Jackim and Christman.

Let’s take our television bakers for example. They go into the Gingerbread House competition hoping to make a two-story Gingerbread House with large windows, a beautiful front door, and a decorative shaker style roof. Unfortunately, they have no idea how much dough to bake to make this extravagant house and simply guess how much will be needed. No surprises here, they guess wrong and instead of the large house of their dreams, they end up with a modest single-story cottage that does not even have a door.

“In the high-stakes process of exiting a business, many business owners forget to check their assumptions, and therefore, do not ensure their long-term financial needs are being addressed. Exit planning is not just about the business issues. The process also must account for the personal welfare and financial security of the company’s owners and their families”, say Jackim and Christman.

Planning for a successful business exit must incorporate what we call a “Master Plan”. A Master Plan considers your business goals, personal goals, and personal financial goals. If your exit plan only takes into account the viability of the business after your exit, your individual needs remain unmet.

Before exiting your business, you must ask yourself the following questions:

  1. How much do I need to net from this sale to accomplish my personal goals for my next act?
  2. What are my retirement goals?
  3. Do I have a detailed summary of my spending and cash flow needs?
  4. Have I determined a post-closing investment strategy?
  5. Have I incorporated my Life Insurance Planning into my exit strategy?

Building a Gingerbread House takes more than just a good recipe. Without planning effectively for the house you want, you have no idea how much dough to make, how much frosting will be needed to secure the walls to the roof, and no clue how many chocolate chips are needed to decorate the structure. Exiting your business, although a considerably more difficult task, requires the same planning. You have no control over your financial future if you do not take the time to plan for it.

Learn more about planning for your financial future by reading The $10 Trillion Opportunity.