By Thomas J. Perrone, CLU, CIC (Excepts from John Brown’s “The Definitive Guide To Addressing The Asset Gap. (Thank you John)
Why the number in your head may have nothing to do with the number you actually need — and how to find out before it’s too late to fix.
The Asset Gap: The Silent Threat to Your Exit Plan
Most business owners believe they know two numbers cold: what their business is worth, and what they’ll need to live on once they sell it. Those two beliefs quietly shape every decision an owner makes about timing an exit, negotiating a deal, and walking away with peace of mind. The uncomfortable truth is that for the vast majority of owners, at least one of those numbers is wrong — and the gap between belief and reality has a name: the Asset Gap.
What Is an Asset Gap, Really?
The Asset Gap is simply the difference between what a business owner currently has and what that owner actually needs to exit the business on his or her own terms. It sounds like a straightforward math problem. In practice, almost no owner has done the math.
Every real Gap Analysis asks five questions:
- Is your financial security goal accurate, or unrealistically low?
- Have you accurately quantified the resources available to you today?
- Do you have an Asset Gap — a shortfall between what you have and what you need?
- How big is that gap?
- What must you do to close it?
Here is the number that should stop every owner in their tracks: only 18% of business owners have ever discussed their exit with an Exit Planning Advisor. The other 82% are running their most important financial decision on assumptions, sentiment, and hope — often until it is too late to do anything about it.
The Misperception Spell
John H. Brown, founder of the Business Enterprise Institute, gave this problem a name: the Misperception Spell. It describes what happens when the information an owner is using to plan an exit is vastly different from the facts. Six assumptions feed the spell most often:
- The amount of income they’ll need after they exit
- How long they and their spouse will live
- The rate of return they expect on invested assets
- The value they assign to their company
- The growth rate they predict for value and cash flow
- The net proceeds they expect from a sale
The Misperception Spell isn’t a character flaw — it’s just what happens when nobody has run the numbers.
Francis: A Gap Analysis in Action
Consider Francis, a business owner who was confident he had no Asset Gap at all. When his numbers were finally tested against the facts, the picture changed dramatically.
| What Francis Tracked | His Assumption | The Facts (After Gap Analysis) |
| Business value | $1.5 million | $1 million (appraised, pre-tax) |
| Post-exit income needed | $120,000 / year | $200,000 / year (pre-tax) |
| Years of retirement funded | 25 years | 33 years (life expectancy) |
| Withdrawal / return rate | 7% | 4% |
| Investable assets needed | ~$2 million | $4.5–5 million |
The result: a real Asset Gap of $2 to $3 million — not the $0 gap Francis believed he had. Every one of his assumptions was reasonable. Every one of them was also incomplete or optimistic in a way that, left unchecked, would have surfaced only after he could no longer fix it.
The Asset Gap as a Map
Every client’s journey toward a successful exit has four elements, and they answer four simple questions: Where are you? Where are you going? What’s the distance? How do you get there?
- A Starting Point — business value (after tax), non-business investments, and expected Social Security.
- A Destination — the investable assets needed, based on life expectancy and spending needs.
- The Distance — the dollar gap between what an owner has today and what the goal requires.
- The Map — a step-by-step plan, built with the owner’s Advisor Team, to close the gap by the exit date.
A Small Investment Buys Real Facts
Francis’s full Gap Analysis — a business appraisal, a CPA review, and a financial planning assessment — cost him $5,000. Professional valuations of this kind typically run $5,000 to $10,000: a modest price next to the cost of building an entire Exit Plan on guesses.
A real Gap Analysis pays off in five ways. It:
- Clears misperceptions before they sabotage the Exit Plan
- Keeps owners in control of their business and their timeline
- Replaces assumptions with facts the whole Advisor Team can use
- Puts the upfront cost in context against the far greater cost of guessing wrong
- Motivates owners to act sooner, while there is still time to close the gap
Be the Exception
Most owners discover the true size of their Asset Gap only when they are ready to exit — the one moment when it is hardest, and sometimes impossible, to do anything about it. You do not have to be one of them.
Review the five Gap Analysis questions early, and revisit them often. Replace sentiment and hope with facts from a real Advisor Team. Give yourself the best chance to exit when you want, for the money you need, to the person you choose.
Ready to Find Your Number?
If you have never had your own Asset Gap quantified, now is the time — not the year you plan to walk away. Take the three-minute Business Owner Viewpoint Survey to get your own “Where You Are” report, or reach out directly to start a conversation about your Gap Analysis.
Thomas J. Perrone, CLU, CIC
President & Founder, New England Consulting Group of Guilford, Inc.
203.530.6615 | tperrone@necgginc.com
Source contribution: John Brown and the Business Enterprise Institute, Exit Planning Series.
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