What’s Your Wealth Gap—and How Do You Fix It?

By Brad Connors

Most business owners have a pretty solid grasp on what their company is worth. They can quote you the latest valuation, rattle off EBITDA multiples, and tell you how much a competitor might pay to buy them out. But ask those same owners what they need to live confidently after they exit their business, and you’ll often get a blank stare or a vague answer.

This disconnect is more common than you might think. It’s easy to focus on growing your business and assume that, when the time comes, selling your business will take care of your financial future. But is that true? Will your business actually fund the lifestyle you want in retirement—or is there a gap between what you have and what you’ll need?

Let’s break down how to calculate your “wealth gap” and, more importantly, how to close it so you can engineer true financial freedom.

Understanding the Wealth Gap

What Is the Wealth Gap?

Your wealth gap is the difference between the assets you’ll need to fund your desired lifestyle after you exit your business and the assets you currently have (including your business, savings, and investments, minus any debts).

In other words, it’s the shortfall you need to address before you can confidently step away from your company and maintain your standard of living.

Why Most Owners Miss It

Many business owners assume that selling their business will be a golden ticket to retirement. But this assumption can be risky. Market conditions change, deals fall through, and valuations can fluctuate. Even if you get the price you want, taxes and transaction costs can take a significant bite out of your proceeds.

That’s why it’s crucial to calculate your wealth gap now, while you still have time to take action.

The Wealth Gap Formula

Here’s the simple formula I shared at the Mastermind Live Event:

Target Wealth = Annual Income Need ÷ 0.04

This formula is based on the widely accepted “4% rule,” which suggests that if you withdraw 4% of your assets each year in retirement, your money should last for 25 years or more. While not perfect, it’s a practical starting point for most business owners.

Example Calculation

Suppose you’ve determined that you’ll need $250,000 per year to live comfortably after you exit your business.

Target Wealth=$250,0000.04=$6,250,000text{Target Wealth} = frac{$250,000}{0.04} = $6,250,000Target Wealth=0.04$250,000=$6,250,000

So, you’ll need about $6.25 million in assets to retire securely.

Calculating Your Wealth Gap

Now, let’s figure out where you stand today. Add up the value of your business, your personal savings and investments, and subtract any debts.

Wealth Gap = Target Wealth – (Business Value + Savings – Debt)

Sample Scenario

• Target Wealth: $6,250,000

• Business Value: $3,000,000

• Personal Savings: $750,000

• Debt: $0 (for simplicity)

Wealth Gap Calculation:

$6,250,000−($3,000,000+$750,000−$0)=$6,250,000−$3,750,000=$2,500,000text{Wealth Gap} = $6,250,000 – ($3,000,000 + $750,000 – $0) = $6,250,000 – $3,750,000 = $2,500,000

Wealth Gap=$6,250,000−($3,000,000+$750,000−$0)=$6,250,000−$3,750,000=$2,500,000

In this example, you’re $2.5 million short of your goal.

Why Knowing Your Wealth Gap Matters

Identifying your wealth gap early is a game-changer. Here’s why:

• Strategic Growth: You can focus on growing your business value with a clear target in mind, rather than hoping for the best.
• Personal Investments: It encourages you to build wealth outside your company, diversifying your risk and creating multiple income streams.
• Exit Planning: You can rework your exit strategy—timing, deal structure, and even post-exit consulting or part-time work—to bridge the gap.
• Having Confidence: Most importantly, you stop hoping your business will be enough and start engineering your financial freedom.

Knowing your number is just the first step. Here’s how to take action.

Grow Your Business Value Strategically

• Increase Profitability: Focus on boosting margins, cutting unnecessary expenses, and driving top-line growth.
• De-Risk Your Business: Make your company less dependent on you, diversify your customer base, and strengthen recurring revenue.
• Professionalize Operations: Implement systems, processes, and management teams that make your business more attractive to buyers.

Build Personal Investments Outside Your Company

• Max Out Retirement Accounts: Contribute to IRAs, 401(k)s, or other tax-advantaged plans.
• Diversify Investments: Invest in stocks, bonds, real estate, or other vehicles that can grow independently of your business.
• Automate Savings: Set up automatic transfers to investment accounts so you’re consistently building wealth outside your company.

Rework Your Exit Strategy

• Adjust Your Timeline: If you’re not on track, consider delaying your exit to build more value or accumulate more savings.
• Explore Partial Exits: Sell a minority stake now to diversify your assets, or structure an earnout to maximize proceeds.
• Plan for Taxes: Work with advisors to minimize tax liabilities and maximize after-tax proceeds from a sale.

Monitor and Adjust Regularly

• Annual Reviews: Recalculate your wealth gap each year as your business, investments, and lifestyle needs evolve.
• Scenario Planning: Run “what if” scenarios—what if your business sells for less? What if you live longer than expected? Build in buffers for the unexpected.

Common Pitfalls to Avoid

• Overestimating Business Value: Be realistic about what your company is worth, and get a professional valuation if needed.
• Ignoring Taxes and Fees: Remember that transaction costs and taxes can significantly reduce your net proceeds.
• Underestimating Lifestyle Costs: Don’t forget to account for inflation, healthcare, and unexpected expenses in retirement.
• Delaying Action: The earlier you identify and address your wealth gap, the more options you’ll have.

Engineering Your Financial Freedom

The journey from business owner to financially independent retiree isn’t automatic. It requires clarity, planning, and decisive action. By calculating your wealth gap and taking steps to close it, you put yourself in control of your future.

Stop hoping your business will be “enough.” Start engineering your financial freedom—on your terms.

Final Thoughts: Are You Ready to Run Your Numbers?

If you’d like help running your numbers or structuring a plan to close your wealth gap, let’s connect. Together, we can clarify your goals, analyze your current position, and build a roadmap to the confident retirement you deserve.

Disclosure:

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.​