What is the Wealth Gap?

The Wealth Gap turns a future goal into a measurable number, taking a business owner’s wealth goal and subtracting their current net worth, not including the business.

This makes it crucial in kickstarting owner action within the Value Acceleration Methodology™ (VAM). It also plays a key role in the toolkit of a Certified Exit Planning Advisor (CEPA®) by showing business owners why creating and driving value in their business is so important for their eventual exit.

For many owners, the Wealth Gap uncovers a hidden issue: their business isn’t creating enough value to support their desired future. In conjunction with the Profit and Value Gaps, it shows advisors where to begin assisting the business owner as they move toward a successful and significant exit.

How to Calculate the Wealth Gap

In Walking to Destiny, Exit Planning Institute® (EPI) Chairman Christopher Snider gives an example of what a real owner’s Wealth Gap might look like, and why it’s so important.

“If your Wealth Goal was $25 million, and you had $2 million of personal financial assets, not including your business value, you would have a Wealth Gap of $23 million ($25 million less $2 million),” he writes. “Why is this significant? Because usually the only way to close your Wealth Gap and achieve your Wealth Goal is by unlocking the wealth trapped in your business.”

Once an owner understands their Wealth Gap, they can start making more intentional choices about their business. That is done with the help of a CEPA by strengthening the Four Intangible Capitals – Customer, Human, Social, and Structural.

By building up these Intangible Capitals, the business owner can close their Wealth Gap by increasing enterprise value and reducing risk. As Christopher puts it in Walking to Destiny, this is the only way for a business owner to close their Wealth Gap.

“It is almost impossible to save your way to closing your Wealth Gap,” Christopher says. “Most owners simply do not have enough wealth outside the business to accomplish that. Building and harvesting the wealth locked in your business is usually the only way to close the Wealth Gap and achieve your goal.”

How the Wealth Gap Spurs Personal Planning

The Wealth Gap also encourages owners to think beyond their business and about what they want to do post-exit. They may need to build more liquid assets, revisit their estate plan, or talk with advisors about whether their exit timeline aligns with their financial goals.

In Walking to Destiny, Christopher explains why the Wealth Gap is crucial to driving owner action, especially in the personal leg of the stool.

“Your Wealth Goal should reflect how much money you need to accomplish your Personal Plan without the income from the business,” he says. “This is one reason it is imperative you have a written Personal Plan for what comes next after you exit. It is simply impossible to do appropriate financial, estate, and tax planning if you do not have a written plan for what you will do after you exit your business.”

Learn More About the Three Exit Planning Gaps in Walking to Destiny

The Wealth Gap is only one part of the work that CEPAs do alongside business owners in the Value Acceleration Methodology. Together with the Profit and Value Gaps, business owners can get a better understanding of why their personal goals, financial readiness, and business value must align before an exit.

Purchase Walking to Destiny using the form below to gain a clearer picture of what it means to be truly ready for exit.