How to Know Your Business Exit Number

What Your Exit Number Actually Is

Your exit number is not your business valuation. It is the specific gross sale price your business needs to clear to fund the post-exit life you want, after transaction costs, taxes, debt payoff, and the lifestyle adjustments that come with not having business income anymore. Most owners pick a number based on what they think their business is worth, then are shocked when 30-35% of that number disappears at close.

The exit number works backward from spending, not forward from valuation. Read more in our deeper guide on how much you need to retire from your business.

The Five Inputs

1. Annual Post-Exit Spending

Track every dollar you spent in the last 12 months. Include the personal items currently running through the business (vehicles, phones, travel, meals). That number — usually higher than owners expect — is your starting baseline.

2. Healthcare Gap to Medicare

If you exit before 65, plan $25,000 to $40,000 per year for couple coverage between exit and Medicare eligibility. If you exit at 58, that is 7 years and roughly $250,000 of cumulative healthcare costs.

3. Tax and Transaction Cost Drag

Plan to keep 60% to 70% of gross sale price after federal LTCG (20%), Net Investment Income Tax (3.8%), state capital gains (0% to 13% by state), and transaction costs (4% to 8%). On a $5M sale, that nets roughly $3.0M to $3.5M.

4. Withdrawal Rate

The 4% rule is a safe baseline for a 30-year retirement. For a 35+ year retirement (exiting before 60), use 3% to 3.5%. The lower the rate, the more invested assets you need.

5. Deal Structure

The number on the LOI is not the cash at close. A "$5M sale" with a $1M earnout and a $500K seller note delivers $3M cash at close, with the rest dependent on future performance and time. Read about how this plays out in what is a letter of intent in a business sale.

Working the Math: An Example

Owner: 60 years old, married, target retirement at 62. Annual spending $200K post-tax (covers all expenses including replacing the business-paid vehicles and phones).

• Spending need: $200K/year × adjustment for healthcare gap (3 years × $35K = $105K front-loaded) plus 20% buffer = roughly $250K/year early, $215K/year after Medicare
• Withdrawal rate: 3.5% (conservative for ~30-year horizon)
• Investable assets needed: $215K ÷ 3.5% = $6.14M
• Net proceeds needed: $6.14M (assuming no other retirement assets; reduce by 401k/IRA balances)
• Gross sale price needed: $6.14M ÷ 0.65 (after 35% tax + transaction drag) = $9.45M
• Adjustment for earnout/seller-note typical structure: Need ~$10.5M gross to clear $9.45M cash-equivalent

That owner's exit number is roughly $10.5M gross. If their business currently values at $7M, they have a $3.5M valuation gap to close before listing.

Comparing Two Owners

Owner A: Spends $120K, exits at 65 (no healthcare gap), has $400K in 401k. Investable need: $3.4M. Exit number: $5.4M gross. A typical service business with $750K SDE clears that at a 7x multiple.

Owner B: Spends $300K, exits at 56 (9-year healthcare gap), has no other retirement assets. Investable need: $9.5M. Exit number: $14.6M gross. That requires a business with $2M+ EBITDA at a 7x multiple — or 5+ years of value-building before listing.

Same headline of "ready to sell" — vastly different exit numbers driven by spending, age, and other assets.

How to Close the Gap

If your current valuation is below your exit number, you have three levers:

• Lift EBITDA by improving margins, raising prices, removing one-time costs.
• Lift the multiple by reducing customer concentration, increasing recurring revenue, hiring a non-owner GM, and cleaning financials. See our breakdown on how valuation multiples work by industry for benchmarks.
• Lower the exit number by reducing target spending, working part-time post-exit, or relocating to a lower-tax state.

Most owners use all three. The most common pattern: 18-36 months of operational work to lift EBITDA by 25%, drive the multiple up by 0.5x-1.0x, and a relocation that drops state tax. That combination can close a $2M-$3M gap without changing lifestyle expectations.

Common Mistakes That Inflate or Deflate the Exit Number

Three errors come up over and over with owners doing this math for the first time. The first is anchoring on top-line revenue instead of EBITDA-driven valuation; a $10M revenue business might only have $1M EBITDA, and at a 5x multiple that is $5M of enterprise value, not $10M. The second is forgetting to subtract business debt from the gross sale price — if your business has a $500K equipment loan and $300K of working capital line drawn, those come off the top before you see a dollar. The third is assuming the entire sale clears as long-term capital gains; an asset sale typically allocates 20-40% of the price to ordinary-income items (depreciation recapture, non-compete, consulting agreements) that get taxed at 35-40% federal instead of 20%, raising the effective tax bite on those buckets.

The fix for all three is honest modeling — preferably with your CPA — before you ever go to market. Owners who pre-model their after-tax proceeds with their advisor close at higher prices because they negotiate structure intelligently, not just price.

Exit Implications

Your exit number is not static. It moves with spending changes, tax law changes, healthcare costs, and your other retirement assets. Re-run the math annually using the YourExitValue retirement readiness model so you know whether you are tracking ahead or behind. The earlier you set the target, the more flexibility you have to hit it. The owners who consistently exit at the right number are the ones who calculated it 5+ years out and worked the gap deliberately.

Before listing, run the readiness check against the six operational signals in our companion post on whether your business is ready to sell. If your exit number is met but the business is not operationally ready, you will leave 20-40% on the table. The two have to align.