(This is the second of two. In the first, I wrote about passing my CEPA exam and why I want to bring exit-planning analysis down to the size of a small owner. Here's the part where I turn it on myself.)
The standard EPI-approved exit planning strategy begins with a series of assessments, an approach I fully support. You can't manage what you can't measure. But, before I assess anyone else's business I have to have the nerve to run the numbers on my own. Fair is fair, after all.
I started with the Personal Readiness Assessment, which is probably the most universal of the three assessments. It scores eleven things, from whether you've written down a personal plan to whether you know what you'd walk away with, each on a scale of one to six, 1 being you've never thought about it in your life, 2 being you've done something but can't prove it, up to 6 as perfect in every way. 5 is considered best in class for most businesses.
I got a 53%.
Below Average. Not even a C. Embarrassing, but honest, and, because it's a starting point, I'm ok with it being low as it won't be for long. It does mean there's real work in front of me, and I'll do it. But, what may be more useful than knowing my score is knowing precisely how the scores split.
Let's look at the assessment in detail:
- Written personal plan. In theory, this is under development, along with the rest of my life. I gave myself a 2, as most of it's still uncertain and in my head
- Personal financial plan. Decent, as I've been careful about finances most of my life, and mapped everything out in documents. I gave myself a 4, above average.
- Personal estate & tax plan. I know I need one and haven't done a thing about it. 1. Bottom of the barrel.
- Knowledge of net proceeds. This one is a bit odd for me as I don't plan on selling my consultancy, just closing it when I'm 'done'. Still, I know what the metrics are - 4
- Defined post-business income needs. I'm very strong here. I have months of analysis on my budget and spending, using real data. I gave myself a 5 here.
- Dependency on business income. Because of my prior habits and being careful with finances, I'm actually pretty ok here. The real dependencies are elsewhere, like assumptions regarding the wider economy, my IRAs, Social Security, etc. I gave myself a 4 to include those dependencies, but not too bad.
- Knowledge of transition process. I understand the solo close out, but that's about it. I took the CEPA course to learn, but not counting that for this, so I gave myself a 3.
- Established advisory team. I don't currently have a good CPA or a wealth advisor or estate planner, so another 1.
- Contingency plans. I've got good health insurance, and an ok amount of liquidity, but I don't have any of my contingency plans written down, nor do I have a pet trust set up, yet. 2.
- Knowledge of deal structure. Following CEPA, I have more than sufficient knowledge for a solo close out. 4.
- Family awareness. My parents and cats are fully aware, and there are no other stakeholders. 5.
There are a few things to call out here.
First, the side that scored well, I can explain in one word: FIRE. Financial independence, retire early. I've spent years in that world, running my own financial analyses, and it shows in my numbers. I know what I need to live on. I'm not dependent on it for my basic income, my family knows the plan, and I understand my options. When you've spent that long doing the math, those are the questions you've already answered. However, it's not 5s and 6s across the board because of other dependencies. Part of my long-term picture quietly assumes Social Security and Medicare will be there, in roughly the shape they're in now, by the time I reach them. I lean on that assumption more than I probably should, and I know it. And the FIRE math rests on the 4% rule, the idea that you can draw about 4% a year and not run out. In a market as volatile as this one, I've gotten more skeptical of that than I used to be. So even my good scores come with a note in the margin.
Second, the side that scored low was all in one place: the things the textbook says to solve by hiring a professional. No current estate plan. No advisory team. A personal plan that lives in my head. Documents that were last updated when I was serving in Afghanistan for USAID, with a far different outlook on my future life.
And here's where I part ways with the playbook. The framework's answer is engage your advisory team. Retain a CPA, an attorney, a financial planner, a wealth manager, all dedicated to your business or your family enterprise. I'm one person. I'm not doing that, and neither is almost any owner I work with. So I'm not going to hire the full team full time. I'm going to adapt the whole thing down to the size I actually am.
That looks like this:
- The estate plan is the one gap that genuinely needs a professional. You can't build a legal will out of a spreadsheet. So I'll do it, but as a one-time visit to a lawyer for the will, the directives, and a trust for the cats, not a standing relationship I pay for every year.
- The advisory team becomes systems plus expertise by the hour. I'll build the systems that do most of what a team would do, and bring in a professional part-time or just once, only when a specific decision actually needs one. Buy the expertise, don't retain it.
- The insurance and the contingency plan aren't people to hire at all. They're a decision and a document. Finish the insurance, write down the "if I can't work" plan.
- The written personal plan is pure homework. I already know the life I want, cabin, cats, present for it. I just haven't put it on paper.
- The reliance of the score on three separate factors - knowledge of the deal structure, transition process, and even net proceeds don't make sense for me, and likely wouldn't for any solopreneur or consultant. If I roll them into one, general knowledge and possession of an exit plan, however vague at this point, the image becomes cleaner for a smaller business.
This is how I would adapt the Personal Readiness index and its results to my own scale, my own needs, while retaining the value of the analysis itself. It's systems I can own, plus a lawyer's afternoon and the occasional expert hour. That's the whole small-business version, and it's exactly the position my clients are in.
So over the next 90 days, July through September, I'm going to build my way up from that 53%, and I'll show my work. It's the same climb I'm asking them to make.
Marika