Some people create a new business so that they can do what they love to do and/or what they are really good at doing. They think they can make a business out of their talent. The new business owner may not realize that there is much more to creating a business than just doing the technical work. Financials, marketing, ordering, collecting, etc. are all additional tasks to just doing the work. Is this a business that is building equity or are they just creating a job that looks like a business?
The goal according to Mr. Gerber is to build a business that has equity. This equity comes from cash flow, not the kind of equity one gets from buying a building and paying off the note. A business, that has cash flow, can be valued as a cash flow stream. That cash flow stream translates into equity when it is multiplied to figure the value of the business. A business with cash flow sufficient to pay the owner's salary plus pay additional profits becomes a saleable asset.
How much is business equity worth? A business pays its owner a salary of $150,000 per year plus has net profits at end of year of another $250,000, for that year, is worth $400,000 to the owner. But what will someone pay to buy the business from the owner. At a multiple of 3 to 5 times earnings, assuming continuing income at that level, this business would be worth $1,200,000 to $2,000,000. If the multiple were higher, the business value goes up. The normal range for most business will be within the 3 to 5 range.
The decision to sell is a big one. The business is worth $400,000 in before tax cash flow to the owner. The owner, of course, will have to pay income taxes at ordinary income rates at least of 35%, so the owner could net about $260,000. The real value to the owner, while still working in the business, is $260,000 per year.
Compare to the sale of the business. Assume that the sale was at a five times multiple, then a sales price of $2,000,000. The business has been owned for more than a year so the proceeds will be taxed at long term capital gains rate, which is at this time, 15%. The owner will pay $300,000 in taxes with a net of $1,700,000. This net is about seven times the annual after tax value of $260,000.
The point of selling is to free up the equity. If the net equity of $1,700,000 were invested at 5%, the interest earnings would be $85,000 per year, before taxes. The seller of the business is trading $260,000 per year for less than $85,000 per year.
Most sellers focus on the gross amount of the sale, $2,000,000, in evaluating the transaction. The important issue is not the gross amount but the comparison of the cash flow before and after. There are other factors to consider: need for retirement, desire to use the equity to buy another business, desire to escape the business regimen, etc. The desire to build equity is not the only reason to create a business. If a business is properly created using the six systems for proper planning, the business also is a cash flow machine. The cash flow of the business may very likely exceed the potential reinvestment value (cash flow) of the sales proceeds. The seller needs to look at all aspects of the decision to sell.
The Music on hold, message on hold and phone messages facilities provided by the On Hold advertising are useful for a majority of the businessmen across the globe. Now you can entertain and sell your business easily with the help of the facilities provide by the On Hold Advertising. Most of the businessmen spend a lot of their money on an assortment of advertising procedures. But with the help of the On Hold Advertising, now you can do your company's advertisement easily and that too at reasonable and economical rates. If you are very cost conscious person, then the On Hold Advertising is the best choice for you.
The first impression of the Advertising is very impressive. Their professional approach has made them more and more popular these days. You can achieve all the goals of your company with the aid of the packages served by the On Hold advertising. When customers will listen to your music on hold or messages on hold or phone messages, they will simply love the enthusiastic voice and the music. The combination will definitely ooze the mood of the listener. This would help you to cross sell your products. Now you can keep your current and potential customers on hold and this is thousand times better than the irritating silence that was experienced by them in the yester years.
A phone message, and messages on hold makes a lot of difference for your business. It would definitely save you from getting embarrassed for keeping your customers and other business associates on the awful silent spaces. Instead of the disgusting silence, your callers can hear an informative, punchy and professional message series that are prepared by the On Hold advertising company. Your clients would also give you good feedback. They can learn more about your enterprise while they are on hold and this proves to be very beneficial for the growth and expansion of your business.
In the present day and times, it is important for almost all the business organizations to give a professional impression to their prospective clients and the on hold messages are very helpful to do that. They inform the clients about the details of your company in a form of voices and music and the messages prove to be very useful if uttered in a very proficient manner. It is definitely the best marketing strategy of your products range as you are able to inform and educate your clients and even up sell your slower selling products to the callers.
Both James Montgomery & Jessica Thomson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
James Montgomery has sinced written about articles on various topics from Motorola Cell Phone, Finances and Mortgage. Jim Montgomery is a successful business owner, author, and law firm owner in San Antonio, Texas. He helps people buy and sell businesses plus develop exit strategies through their own business to get what they want from life. For detailed free information. James Montgomery's top article generates over 12100 views. to your Favourites.
Jessica Thomson has sinced written about articles on various topics from Personal Desktop, Gifts for loved ones and Shopping. For more insights and further information about visit our site. Jessica Thomson's top article generates over 1220000 views. to your Favourites.