14: Why Income Replacement Value is so Critical for Business Owners with Brian Trzcinski
With the familiar pattern of some form of a global crisis almost every decade, what should business owners be thinking about when it comes to the concept of income replacement of their business before this decade is over? This week on Build Value By Choice Nana is joined by Brian A. Trzcinski, Director of Business Market Development at MassMutual to discuss these critical topics around making sure your exit strategy is not just beneficial for your business, but beneficial for you too.
KEY TAKEAWAYS
Income replacement value is about what the business owner needs the business to be worth in order to maintain the current lifestyle they have built for themselves when they retire.
Income Replacement Value Valuation Method (How much will I need. Take the Personal value you receive in terms of compensation and other benefits and apply a recap value percentage to it, say 3/4/5%). Market Value Valuation method (Earnings * Multiple (Affected by things you can’t control such as: your industry, overall economy & capital markets and some things you can control (8 drivers))). Income replacement is about what the owner needs the business to be worth versus what they think it’s worth.
An Exit Planning Institute survey stated that 70% of businesses never make it to market. Of the 30% that do, only 16% are actually able to be sold. Of up to 250,000 businesses that are going up for sale, only about 15,000 of them are going to sell at the prices that the business owner set out to get at the beginning, all the rest are not going to even make a due diligence, or they’re going to sell with some concessions.
According to the 2018 MassMutual Business Owner Perspectives Study, 10% of businesses say they don’t ever plan to exit. 66% say they don’t know all of the available exit options. 13% of business owners sought business valuation to know if the value is sufficient to fund their retirement. Nearly half of the business owners surveyed don’t think about retirement or can’t imagine ever retiring. 70% have no idea when they will retire.
26% of owners surveyed stated that their source of retirement income will either come from the sale of their business or the income from their business. However, in reality, three out of four business owners have less than $500,000 saved in their retirement accounts. That means business owners are underestimating their financial reliance on the business post-retirement. Many may be forced to rely on the proceeds from the sale of the business or continue to receive income from the business to fund their retirements.
According to the 2017 Exit Planning Institute Survey, 72% of business owners don’t believe their exit will impact their lifestyle.
BEST MOMENTS
‘I knew a business owner who ran expenses through a personal credit card and the rewards earned paid for a family vacation every year’
‘We call this the keep or leave decision’
‘If you’re not thinking about it already you don’t want to wait for the next crisis to come around’
EPISODE RESOURCES
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PODCAST DESCRIPTION
Hosted by Nana Bonsu of Infinite Horizons, this show aims to serve small business owners who want to grow their businesses while reducing their own personal involvement. We do this through a combination of interviews with industry leaders, and host presentations. We are a certified value builder advisors and leverage a statistically proven methodology to help clients such as you scale or transition their business to the next chapter.
We care for our listeners and see their dreams as our own. We aim to foster a community that embraces freedom, generosity, and integrity. This is a show by entrepreneurs and business owners for entrepreneurs and business owners.
ABOUT THE HOST
Nana Bonsu:
“I am an entrepreneur and ex-Corporate Executive who’s applying his experience and knowledge from working in various to pursue my passion of helping small business owners increase their choices in life by leveraging my knowledge and experience, their employees, systems and money. I help small business owners transform their business and increase value through action-oriented education and implementation of strategies and tactics to make their business sellable even if they are not planning on selling. Known for establishing an environment for personal growth and development. My multicultural background equips me with the intuitive understanding of different cultures and how they impact business owners.”
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