then i guess it just boils down in to differentiating what kind of work you want to do as an owner. I guess “more money, more problems” would be a bit too cliche’, but to gross a mil and still only see… what was it 50k-150k as the owner and not be in the field, or do 400k a year, work a bit harder labor wise and still see close to the same… i guess the ladder would probably be an easier goal to obtain then the mil gross for most here on the forum. more “work”, more $.
no like button next to your post for some reason [MENTION=1377]Bruce[/MENTION]
but i love it
Plus the million dollar company would obviously be worth more if you ever wanted sell it.
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If I was “clipped” at 50k, I might feel like I’d rather have a j-o-b at a “fixed” 40 hour work week.
running a mil co is still prob gonna take 50,60,70+ hours a week of owners time to keep all the wheels turning
running a mil $ co sounds more appealing if the owner finds himself with a personal income (on his personal taxes line item 30) of 150-200k, but it would probably be more around 100k and that might even be dipping into the pretax profit at that point
the ones at a mil seem to need to need to hit another benchmark after that to achieve what they thought they were expecting
a good way to see if the wheels can work to meet one’s objectives and operate at the ideal simple numbers strategy, would be to create a budget and take out the 15% pretax profit off the top.
NOW, what does the budget need to be at 850k? Can it work? Is it practical and balanced?
But I suppose if one started out solo with that method they would really have things dialed in all the way to “the end” of the growth arc.
From SImpel Numbers webinar, Greg said that pretax profit is for wealth building, so when one puts the companies pretax profit back in the business they are really investing in themselves/their business as a “wealth vehicle”, rather than wealth building by taking that 15% and buying real estate or similar. From Greg’s standpoint on that, one can see that spending that pre tax profit is serious business to evaluate and decide and not something to be taken as “income” or a draw etc. That webinar was fascinating hearing it the way he presented it.
Look at all the real estate WCR is accumulating just to this point.
Good job Chris
thanks Dave
I love this topic and similar and hearing what everyone has to add
definitely, since it could appeal to more buyers.
Selling is whole other deal though for sure. Alot of folks out there with any kind of business set up autonomously but slim pickings on buyers.
Pest control is different, ages ago I kept running into an independent pest control owner who was growing, his strategy from the start was to build the biz as big as he could and when ready to retire (not meaning 62, just retire from biz) would sell to one of the nationals.
wow, the nationals are ready buyers licking their chops waiting to buy your stuff! Amazing. Now there’s a plan for sure.
Maybe someday that’s how Fi*h will operate? . . . Since they already “own” their franchisee’s accounts
I probably could have laid this out like Simple Numbers style and broken down a little more too:
Revenue
Pre Tax Profit @ 15%
Direct Labor Cost (wages field production)
Facilities
Payroll taxes and benefits
Admin
Admin Salaries
Marketing
Marketing Salaries
Operations
Owner Salary
not to derail the train of this great thread, but when selling your company, doesn’t it basically boil down to if you have contracts signed with your “customers”. Again, i don’t mean to throw this in a totally different direction, but a company that does mainly commercial, for conversations sake, is much more valuable to a buyer/lender when contracts are in place. i think it would be very difficult to get anything close to what you think your mil gross per year resi only(or primarily resi) company is worth.
Example: i own a company that grosses a mil a year(no i don’t, all just an example). My company has been open for lets say 5 years. Repeat business is great, constant growth of x ( 30% at least per year to get to a mil in 5 years?), i have 2-4 vehicles, 4-6 employees, all the equipment you could ever want, everything that you would need to gross a mil a year, etc.
To me if i wanted to sell, i would want close to 300k for my mil a year gross company, and i would never get it. What i think is true in selling any service based business is that without contracts, all of this stuff mentioned is pointless. We have value in our equipment, but not much. vehicles suck, worst investment ever. Our " Good Will" is really the only thing of value. Good example is in the nightlife industry. You can own a club/bar thats been open for 10 years, and every Friday night you know no matter who owns the place, 250 people will show up, so when a guy buys the bar/club from the previous owner, the majority of his $ is going towards the “good will” of the previous owner. Same concept for selling your window cleaning company
definition here of good will - Goodwill Definition | Investopedia .
All right, you guys got me, I dug up that bizminer report for wc biz’ over a mil, it doesn’t break it down in a way that can be put in the simple numbers format, but here’s the data and the way it’s laid out it doesn’t total up here either, but its the best I can put up quickly for now:
2,833,333 Revenue
1,196,517 Direct Labor (may include other costs of providing service)
154,417 Officer’s Compensation (5.45% of revenue)
328,100 Other wages/salaries
76,783 Rent
108,233 Taxes Paid
22,383 Advertising (.8%)
35,983 Benefits/Pensions
30,883 Repairs
15,867 Bad Debt
280,217 Sales, general and Administrative (includes admin wages)
112,200 depreciation
16,433 interest expense
465,233 pre tax net profit (16.4%)
158,179 Income Tax
307,054 after tax net profit (10.83%)
also of note:
Cash in bank: 193,404
Receivables: 200,655
Inventory: 37,517
Other assets: 66,857
accounts payable: 138,182
loans payable: 94,510
other liabilities: 83,381
long term liabilities: 242,219
net worth: 284,796 (10% of revenue)
looking at a column for 2008 (the above is 2006) in the crash economy, pre tax profit plummeted to 354,802 (12.84%) on similar revenue of 2,761,111
after tax profit was 231,436 (8.38%)
so from this report, in 2006, it takes 2.8 mil to have a salary of 155k and a healthy pretax profit which one can siphon off for a high living lifestyle and consume it (fun!), or use it for investing.
Will one choose their business as the best investment to put their money, thus the term reinvest in the business makes sense from this standpoint, or something else?
So actually the ideal is for one to want to set up their business to be a worthwhile investment. A business worth investing in, even from an outsider’s point of view. right?
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Ahh but the more you grow the harder it is to sell… The pool of people who could afford to buy it shrinks with every growth step you take.
I believe this to be pretty accurate.
you and your outside office with work/life separation . . . :rolleyes: lol
looking forward to your input!
Like you sort of mentioned Bruce as “real estate”, a lot of stuff needs to get rolled back into business expenses to avoid taxation on that Mil. So for example my Work Truck Jeep Wrangler is a lot newer and nicer than my personal Jeep Wrangler. So as a business owner we may not take home as much taxed income as a Walmart store manager, but we get to write off the things he has to spend his post tax income on. So people have to step back a little and take the “ego” out of the “salary” and see what they really have at the end of the year. I learned along time ago from a drywall contractor, you will never make/save a lot of money, but you can have some really nice things (one of his being a drag race boat for advertising)
We also have to remember the ratio of really big companies CEOs, or an easier for me to make up numbers on, movie actors. They shot some of Lone Ranger here this summer, reports/rumors are that Johnny Depp is getting 40mil, but the budget is 250mil, so he is still only getting 16% of budget. As business grows bigger the internals to the machine grow exponentially bigger also. (and I guess technically Johnny would be working in the field in my budget comparison to pull his 16%)
Crabtree in simple numbers does not advocate spending money unnecessarily in order to avoid taxation.
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so to recap, from bizminer and Chris’s affirmation, one can expect to see about 50k of personal income per mil
interesting
but after all, once front lines are covered at 1 mil, infrastructure needs are probably increasing in a leap frog fashion where middle mgmt/backups and assistant mgrs start being needed so on to 3 mil to balance that out! Then at 3 mil one needs . . . and so on and so on
That seems like a lot of work for 50k however I would imagine to go from 1 million to 3 million or above is exponentially easier with said systems and people in place.
From his website, “Greg is an avid golfer and enjoys playing historic golf courses whenever his travel plans permit.” I’m sure none of those are near his business trip conference sites either:rolleyes:
Not necessarily, it’s just like explaining to new employees how commission works. There are caps to percentages, you can only fine tune so many things. Then you have to start multiplying the process instead, but you have to receive smaller percentages of those processes to keep them running. You get smaller pieces of the individual percentages (crews) but on a more repetitive basis (lots of crews) which requires multiple infrastructure people to manage the machine of crews therefore diluting down your percentage of each crew. But yes by then you have probably figured out how to efficiently assemble the system, you just have to know what markets you can successfully duplicate your system in to speed up the growth process.
Not sure what your point is…
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