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I work with many family business owners that are passionate about what they do.  They work to carry on a business that was built by family – by parents, grandparents, even great-grandparents and beyond.  These family business owners are so busy providing for their employees, for their communities, for the next generation, that they often ignore their own financial future.

When you boil it down to its true essence, a business is a means to build wealth. And what are we supposed to do with that wealth?  Ideally it is to be used to fund our retirement, philanthropic desires, and future plans.  In reality, unfortunately, many business owners work so hard in their businesses, and never take the time to:

Develop a personal financial plan that outlines how they will exist with their current lifestyle without owning or working in the business
Determine a process to take some of their equity in the business OUT of the business, rather than continually reinvesting it all in the business
Consider how much they use their businesses as their personal piggy banks
All of the items in the list above can be managed and developed by working with a wealth manager to determine what we call your “personal financial gap.”  Here’s where the simple math comes into the picture:

[Current Business Value (EBIDTA x multiple)]


[CURRENT lifestyle How much you need to live (required + discretionary + gifting/charity)]


[ The Business Growth required for the owner’s desired exit ]

This simple Financial GAP Calculation will uncover 3 possible realities:

– The business value is lower than needed or is unknown

– The owner’s lifestyle is not sustainable without the business

– How big the Financial Gap between Business Value and Lifestyle truly is

Let’s break down this equation and where these numbers come from:.

First number… Business valuation.  Ideally, an outside business valuation specialist will be used to research and give an estimated value of the business.  One of the ways business value can be  estimated is by using EBIDTA (Earning Before Interest, Depreciation, Taxes and Amortization) x Multiple. This needs to be based on the reality of the marketplace and transferability of the business, not the emotional value to the owner.

Second… Lifestyle Number.  Envision a triangle with 3 layers. At the base and widest section is required funds, the middle layer is discretionary funds, and the last sections at the top is gifting and charitable giving.

Required funds pay for required monthly expenses, like mortgage or rent, vehicles, utilities, insurances, healthcare premiums,         medical expenses, and food. If you don’t pay for them, you’re not going to have them. And remember you won’t always have           the business to fund them.

Discretionary funds are needed to pay for the “fun things”.  Fun things are wants and desires, not needs – like vacations,                hobbies, and dining out.

Gifting and charity funds is the last part of the pyramid. Meaningful donations to charity and gifting to grandchildren or alma             maters live here.

Third… Financial Gap Number. Once we know both the business value number and the lifestyle number, we can uncover the financial gap amount.  The size of this gap – between the wealth locked in the business and the post-transition lifestyle the owner desires to maintain – will provide the foundation for creating the plan to fuel the growth needed to fill the gap.

It’s simple math. Yet, it’s a calculation that many business owners simply do not take the appropriate time to do.

Don’t gamble with your legacy. Get a clear picture of your Financial Gap now, while you have the time and energy to change the equation.

You can also take this business readiness assessment to determine where you need to focus for increasing that multiple.



Cheryl Doll profile picture
Cheryl Doll

Cheryl has spent over 20 years in higher education, wearing many different hats, including faculty development, teaching, and strategic planning. Over the last five years, she developed her passion in helping community colleges create strategic goals and building future leaders within the academy. She then saw a need for this type of work outside of higher education, specifically in family businesses, the businesses that support much of the economy in and around the Lehigh Valley.

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