Why You Need to Know Your Number

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In the book, Built to Sell, John Warrillow emphasizes the importance of knowing the specific number that you want to make when you sell your business.  He even stresses that you write the number down and put it into a sealed envelope so when the day comes that you are deciding whether or not to accept an offer, the note will ground you in reality. 

It’s not enough to say, “I want to have enough to retire.”  Or, “I want enough to pay for a new home.”  You need to identify a specific dollar figure you want to get out of your business.  Now, this number might change over time, but having the specific number will help focus your efforts.  It will give you a clear target.

 

Your number needs to be specific

Having a clear target will greatly increase your chances of achieving it.  When embarking on a fitness journey, you start by making a goal, whether that’s losing 10 pounds, or gaining muscle mass.  You do the necessary research, perhaps meet with a personal trainer, and start using your gym membership.  Having your goal in mind will guide your workout routine, diet, and leisure activities. In the same way, knowing the goal in your business will guide how you run your business today.  Even if you aren’t planning on selling for several years, knowing your number will guide the way you run your business today.

 

Your financial plan needs to inform your number

Knowing your exit number also gives you clarity for the next chapter of your life.  As Paul Adams, president of Sound Financial Group says, "Business owners live with the unspoken assumption that they can sell their business for enough to retire… If a business owner hopes to retire as a result of investing the money from the sale, and has a business producing $500,000 of owner income, they must sell that business for north of $15,700,000. Simply said, many find out the math too late and then sell for too little." 

You need to start with a trusted, competent financial advisor that can run through the various scenarios for your financial future.  How long will you live?  Will you work after selling your business?  What are your future financial needs?  Only a comprehensive review of today’s financial reality and your future goals will arm you with the facts you need to see how the sale of your business will impact your financial future.

Don’t be a business owner that realizes the numbers don’t work out too late in the game.  Knowing your math before you get to the negotiation table will help you get what you want to out of the sale of your business.

 

Your number needs to be attainable

After you assess your financial plan and have a sense for the amount you would like to get out of your business, the next step is to know how much your business is worth right now.  Make today the day you learn the value of your business.  (Because we talk to business owners all day long, we know you’re going to have at least 10 reasons you don’t want to/can’t/don’t have time to/won’t/aren’t interested in getting your business valued, but trust us, you need to.  Still not convinced?  Watch our video about why it’s stupid not to value your business.)

Whether the results of the valuation are reassuring or sobering, knowing the current value of your business tells you where you’re at.  With this as your starting point, you can assess if what you want to get out of your business is attainable. 

 

So, what’s your number?

Is it a specific number?  Is it influenced by your plan for your financial future?  Is it attainable? 

If you can confidently say “yes” to those questions, write it down.  Place it in a sealed envelope with a date on it and put it in your safety deposit box.  Place reminders elsewhere – like a sticky note on your bathroom mirror or a small piece of paper in your wallet. 

Get this number ingrained in your mind and start to envision consciously and subconsciously getting to this number.  Reach outside your organization to bring in new ideas.  Focus your organization on what needs to get done to get to your number.  It’s amazing how this action will change you and your business. 

We knew the goal we had envisioned for our company was unattainable if we continued as we did in the first 12 years. We took an honest assessment of where we were, and where we wanted to be, and started to deconstruct and rebuild everything that needed to be changed.
— The Capitalist Alliance Principals