It IS About the Money – Part 2: What is Your Personal ROI?

This is the second part of a three part series on the importance of wealth building as it relates to planning for exiting your business. You can read the first part, It Is About The Money, here .

What Is Your Return on Investment Goals?
I ask this of my clients regularly when I start working with them. Usually I get blank stares. It’s not part of their equation. They work hard, pay themselves as much as they can – hopefully a nice amount, and they sell their businesses. Everything turns out fine.


If you want it to turn out fine, you have to establish some parameters and build them into your overall business model. I have written about this numerous times (See my White Paper, “Succession Planning: Getting Started” and my book “Shortcut to Security” ) but here is a simple process for establishing a personal financial return on investment component for your business planning.

Estimate when you think you would want to not have to depend on working to provide for your lifestyle. (I.E. When do you want to stop working and go live on that island in Tahiti?)

  1. Quantify what it costs annually to support that lifestyle (a simple budgeting process)
  1. Subtract from that amount any contributions you might get from third party sources (such as social security, pensions that might be payable to a spouse, etc.)
  1. The balance is the amount you will need to fund to maintain your lifestyle.
  1. Estimate how much capital you need to accumulate to support this lifestyle (I strongly recommend getting professional personal financial planning). For a start divide your lifestyle budget by 5% and you’ll get a beginning rule of thumb estimate
  1. Subtract other financial assets you own (retirement accounts, income earning real estate, marketable securities) from the amount calculated in 4.
  1. The balance remaining is your “return on investment” target.

How does that number strike you? Managable? Horrifying? If you’ve done something like this before, how did you come up with your return on investment goals? How does this knowledge change your outlook on your current business plan?

Now that you have your target set, it’s time to figure out how your goals align with the goals you’ve set for your business – and what you can realistically achieve. In part 3, I’ll share a case study on how to bring everything together.


Tagged with: ,
Posted in Blog, Retirement