Profit Gap = The Profit You’re Sacrificing by Not Operating at a Best-in-Class Level                                                = Best-in-Class Profit at Your Level of Sales – Your Actual Profit

Key Points:

• For the purposes of this discussion, profit is best defined as earnings before interest, taxes, depreciation, and amortization (EBITDA)
• To ensure an apples-to-apples analysis, your actual EBITDA should be re-casted or adjusted for
  • Extraordinary or one-time events
  • Discretionary expenses that are tied to the owner
  • Expenses that are currently above or below market rates such as rent, compensation and others

 What good could you do in the business with that extra flow?

Value Gap = The Business Value You’re Sacrificing by Not Operating at a Best-in-Class Level

= Best-in-Class Value if at Your Level of Sales – Your Actual Business Value

Key Points:

• The basis of the Best-in-Class Value begins with the Best-in-Class Profit at Your Level of Sales (determined in the Profit Gap analysis)
• The Best-in-Class multiple is applied to the Best-in-Class Profit
• Your actual value should be based on your actual re-casted or adjusted EBITDA

 How quickly would narrowing your Value Gap close your Wealth Gap?

Wealth Gap = The Additional Wealth You Need to Accumulate to Meet Your Goal
= Your Net Worth Goal – Your Current Actual Net Worth (not including your business)

Key Points:

• For the purposes of this discussion, do not include the value of your business
  • It is not easily converted to cash
  • You may or may not convert it into cash depending on what you decide to
    do with it
• As you consider your net worth goal, identify:
  • What you truly need to live your life the way you would like
  • What you want

How Will You Bridge the Gap?