Every small business owner faces a pivotal question: Is your business an asset that can thrive without you or a lifestyle venture tied to your daily efforts?
In various conversations with financial advisors and small business owners, the role of the business in the owner’s financial planning is a common theme. Some view their business as an asset, often considering it part of their retirement plan. The reasoning is simple: the business has been producing cash for the owner.
However, from a buyer’s perspective, the value of the business is often far below what the owner expects. Buyers evaluate businesses differently, focusing on scalability, independence from key players, and future growth potential—factors that may significantly reduce perceived value if the business is too dependent on its owner.
One of the critical questions every business owner needs to ask is: What role does my business play in my life? Through my conversations with financial planners and clients, I’ve noticed two distinct approaches:
The Lifestyle Business: This type provides professional satisfaction, credibility, and income but is closely tied to the owner’s efforts. When the owner stops working, the company stops, too.
The Asset-Based Business: This business is designed to operate independently of the owner. It generates sustainable value, making it attractive to buyers and giving the owner the freedom to retire, change their lifestyle, or pursue a new venture.
If you want your business to transition into an asset, exit planning is essential. It’s not just about selling; it’s about building systems, delegating leadership, and creating a structure that ensures the business thrives without you. Here are two real-life examples that show how this can work:
Regular Business Valuation: A Crucial Metric
In addition to other financial metrics, business owners should regularly assess the value of their business. Knowing its current value allows you to track progress, identify areas that need improvement, and align your business strategy with your long-term personal and financial goals. It also prepares you for opportunities or challenges, such as potential buyers approaching you or shifts in the market that might affect its worth. Regular valuation isn’t just for potential exits—it’s vital to maintaining a healthy, growing business.
Here are two real-life examples that show how transitioning to an asset-based business can create value and opportunity:
Client Story 1: Funding Freedom for a New Venture
A client of mine ran a successful business but wanted to start something new. He dreamed of building a second business but needed funding and time to make it happen.
We worked to ensure his current business could operate without his full-time involvement. He transitioned into a chairman role by creating systems, delegating leadership, and refining processes. The business thrived, giving him the financial means and flexibility to take a well-deserved holiday and launch his next venture without disrupting the first.
Client Story 2: Gradual Retirement and Future Growth for Two Founders
Another example involved two founders who built a successful engineering business that thrived for decades. As they approached retirement, they wanted to sell a significant portion of the company to generate cash while stepping away from daily operations. However, they also wanted to ensure that the business could continue to grow and succeed without them.
Over time, we worked to reduce the company’s reliance on the founders. This involved creating systems, empowering the team, and preparing the business for new leadership. These changes allowed the founders to transition out and positioned the business for future growth. By strengthening the internal structure and leadership, the company could continue thriving, attract new opportunities, and scale under its own momentum.
In the end, the founders were able to enjoy their retirement, secure ongoing financial benefits, and take pride in knowing they left behind a business that was stronger, more resilient, and poised for continued success.
What These Stories Show
In both cases, the key to freedom and flexibility was treating the business as an asset. Whether the goal is funding a new venture, stepping into semi-retirement, or entirely exiting, the process starts with a vision: How do you want your business to serve your life? From there, planning and preparation turn that vision into reality.
Financial advisors are vital in helping business owners create a personal financial plan that aligns with their life goals. As a business coach, I partner with you to ensure the business planning moves you toward an asset view of your business by helping you build systems and processes, define strategies, and strengthen leadership that positions your business for future freedom or a successful exit.
How do you see your business as a lifestyle or an asset? I’d love to hear your thoughts or answer any questions you may have about planning for its future.
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