For business owners, the decision to exit their company is often one of the most significant moments of their professional and personal lives. Yet many approach this life-altering transition without a clear plan. According to the Exit Planning Institute (EPI), over 75 percent of business owners regret how they handled their exit just one year after the transaction. Why? Because they failed to plan holistically.
To help address this gap, EPI developed a proven framework known as the “Three-Legged Stool” of exit planning. This model emphasizes that a successful exit rests on three equally important pillars: Business valuation (value gap), financial readiness (wealth gap), and personal readiness (the third act plan).
Smart Business spoke with Bob Bove, Wealth Advisor and Certified Exit Planning Advisor at The 4:8 Group, about this model and how it can help business owners maximize value in a transaction.
What is the value gap?
The first leg is understanding what your business is worth today and what it needs to be worth to support your post-exit lifestyle. This difference is known as the value gap.
Too often, owners assume their business is worth more than the market would pay. Worse yet, many don’t know their number at all. A professional valuation isn’t just about a future sale; it’s a tool to drive better decisions today. By identifying what drives value in your industry — such as recurring revenue, transferable processes, or customer concentration — you can begin to close the value gap proactively. Knowing your value also empowers you to assess the timing of your exit.
How might the wealth gap affect a seller post-transaction?
The second leg focuses on your personal finances. Simply put, even if your business is valuable, that doesn’t automatically mean you are financially ready to walk away. The wealth gap refers to the shortfall between what you currently have, including the after-tax proceeds from a potential sale, and what you need to maintain your desired lifestyle.
A comprehensive financial readiness analysis considers multiple factors: your retirement income needs; other assets such as real estate, investments, or pensions; health care costs; tax exposure; and estate plans. Collaborating with financial planners, tax professionals and estate attorneys can help you determine your wealth gap and develop strategies to close it. Otherwise, even a well-timed and profitable sale may result in disappointment — or worse, financial insecurity.
What should sellers consider for life after business?
The final leg of the stool — and often the most overlooked — is personal readiness. What’s next for you after the exit?
Owners spend years, sometimes decades, pouring their energy into building a successful business. When that chapter ends, many struggle with identity loss, lack of purpose or emotional letdown. Having a written plan for your ‘third act’ helps you transition with intention. By aligning your personal goals with your exit strategy, you ensure that you’re aimed to balance financial success with a sense of personal fulfillment.
Each leg of the stool is vital. Without valuation, you won’t know what you’re leaving on the table. Without financial readiness, you risk underestimating what you need. And without personal readiness, you may exit a business only to enter an emotional and psychological void.
Exit planning isn’t a one-time event. It’s a process. It is suggested business owners should begin this journey three to five years before their planned exit to give themselves time to build value, close gaps and design a meaningful future.
Whether you’re a few years out or just beginning to think about your transition, take the time to assess where you stand on each leg of the stool. Surround yourself with trusted advisers who can guide you through this complex, yet deeply rewarding process. Because when it’s time to step away from your business, you deserve to do it on your terms — financially prepared, emotionally ready and with a clear vision for what comes next. ●
INSIGHTS Wealth Management is brought to you by The 4:8 Group.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor and a separate entity from LPL Financial. This information is not intended as tax or legal advice. Please consult a legal or tax professional for information regarding your individual situation.
