We’ve looked at the profit gap and value gap. Now, let’s turn to the wealth gap.

November 14, 2024

So far, we’ve looked at the profit gap and value gap. Now, let’s turn to the wealth gap. Wealth is, simply, the assets you have acquired to live the lifestyle you want — the reward business owners are, ostensibly, working toward. Your wealth gap is the difference between how much wealth you have today and how much you need to live the third phase of your life.

You’ve acquired an education, built a business… what comes next? This third phase might be traveling, enjoying time with your family, or moving on to another profession, business, or community project. It will look different for everyone and depending on your health, your dreams, and what you want your legacy to be.

One thing is certain: this third phase will require some amount of wealth to make happen. And most business owners have the majority of their wealth (an average of 80%) tied up in their business. It can be a disheartening wake-up call to find out your business is non-transferrable and your hoped-for payday won’t ever come.

Closing your wealth gap might take five years, or it might take 40. For many business owners, that gap never closes at all. Let’s look at what’s involved.

ChuckM@EagleCorporateAdvisors.com

BrianM@EagleCorporateAdvisors.com

(702) 451-3250

The first step, as in the other gaps we’ve discussed, is finding out where you are now. Many owners are surprised to realize how little personal wealth they have built up over the years, as they’ve spent so long thinking of their business as an extension of themselves.

Business owners face a few common obstacles in building personal wealth:

They tend to put money back into their business and think of that money, and the business, as part of their personal wealth.
They perceive more value than is there because the business is not just their financial investment, it’s their sweat equity too.
They believe the business is valuable because they work hard at it — and they work hard at it because they believe it’s valuable.
This psychological cycle can make owners believe they have more wealth than they actually do.
Such overestimation leads to overspending and living a lifestyle beyond what actual profits would provide.

Overestimating the value of a business even comes into play for those few businesses that successfully go to market and get an offer — remember, 80% of businesses that make it to market never sell. For those that do, it can be jarring for owners to see how little net proceeds, after resolving debt and taxes, they will actually realize from the sale.

What is the solution? As the value of your business goes up, you can pull more money out and put it into other baskets to grow your personal wealth. So, while it won’t happen overnight, closing that all-important value gap is the first step in closing the wealth gap.

As business advisors, the Eagle team specializes in helping clients increase their business’s value. As owners approach that third stage of life and become aware of their wealth gap, many feel backed into a corner and see a quick sale as their only option. We don’t want to see anyone take their business to market too soon, for too little. Once the value of your business has grown to the point where you choose a beneficial sale, our work is done. Your focus will move from growing a business to whatever your third stage of life involves. At this point, we direct clients to one of our trusted colleagues who specialize in investing and wealth management.

A trusted advisor can help you close your wealth gap, giving you the gift of choice. Too many business owners never reach the point where they can write their own plan for that third phase of life. Closing the value gap is always our main focus, because a valuable, transferable business will put you in control of what you do and when you do it.

It makes a profound psychological difference to run toward a goal (time for your hobbies, travel, family) rather than away from negative forces (stress, bills, burnout). Call us to schedule a gap analysis to see where your business is right now and discuss where you want to be for that third stage of your life.

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