Financial independence: Know your number

As a business owner, you are likely an expert at tracking your company’s metrics. You know your revenue, your profit margins, and your year-over-year growth. But there is one metric that many successful entrepreneurs overlook, and it is perhaps the most important one of all: your number.

"Your number" is the amount of liquid wealth you need, independent of your business, to maintain your current lifestyle for the rest of your life.

Knowing this number isn’t just about retirement planning; it is about freedom. It is the point where working becomes a choice rather than a necessity.

The wealth gap

Most business owners keep the majority of their net worth tied up in their business. It makes sense; you control the asset, and you know how to grow it. However, this creates a unique risk. If your business is your retirement plan, your financial security is entirely dependent on a successful future exit at a specific valuation.

We often see a "wealth gap" among owners, which is the difference between the resources they currently have outside the business and the amount they actually need to support their post-exit life.

Bridging this gap requires a shift in mindset. It means moving from building business value to harvesting personal wealth.

How to calculate your number

Determining your number requires more than a rough guess. It involves a deep dive into three specific areas:

1. Your burn rate (lifestyle cost)

What does it actually cost to be you? This isn't just your mortgage and groceries. It includes travel, hobbies, healthcare, family support, and the inflation-adjusted cost of living for the next 30+ years. Many owners run personal expenses through the business, which can mask the true cost of their lifestyle once those business perks disappear.

2. Your liquid assets

What do you have saved outside of the company? This includes IRAs, brokerage accounts, real estate (unrelated to the business), and cash. This is your "freedom capital."

3. The gap

Subtract your projected lifetime needs from your current liquid assets. The remainder is your gap. This is the amount that your business exit must cover (after taxes and fees) to ensure you don't outlive your money.

Why "harvesting" matters

Once you know your number, you can stop flying blind. You might realize that you don't need to sell your business for $20 million to be secure; maybe $10 million is your number. This knowledge changes your strategy. It might allow you to exit sooner, take fewer risks, or choose an internal succession plan over a third-party sale.

Conversely, you might discover that your current trajectory won't hit your number. This gives you the runway to make changes now—improving profitability, reducing customer concentration, or retaining key management—to drive up your valuation before you go to market.

Clarity brings confidence

Life doesn't move in straight lines. Markets shift, and industries are disrupted. If you don't know your number, you are making life-altering decisions based on assumptions.

At Discovery Point Wealth Advisors, we help business owners calculate their number and build a strategy to reach it. We don't just look at your business or your portfolio in isolation; we look at how they interact to serve your life goals.

Do you know your number? If not, let’s sit down and calculate it together.