Here's Why I Love Equity:
Let's say you're starting a janitorial business.
In the first year you do 40k in revenue and do most of the work yourself. You make a salary of about 30k.
Let's say you're starting a janitorial business.
In the first year you do 40k in revenue and do most of the work yourself. You make a salary of about 30k.
In the second year you do 120k (lots of growth but very possible), you have a few staff so you take home earnings of 60k.
In year three you do 250k in sales, pick up quite a few more employees, with earnings for the year of 75k.
In year three you do 250k in sales, pick up quite a few more employees, with earnings for the year of 75k.
In year four you finally get to 500k and have you first personal year of 100k in earnings.
Year five is BIG and business doubles again. You break a million in revenue and take home a 20% margin for 200k in earnings!!
But wait, there is so much more to this!
Year five is BIG and business doubles again. You break a million in revenue and take home a 20% margin for 200k in earnings!!
But wait, there is so much more to this!
You've been creating value along the way. Lets say the business sells for 2.5x SDE.
At earnings of 200k that's a 500k sale of your business.
Now, I'm simplifying this a bit but between SDE and your sale you created total earnings as an owner of 700k in just five years!!
At earnings of 200k that's a 500k sale of your business.
Now, I'm simplifying this a bit but between SDE and your sale you created total earnings as an owner of 700k in just five years!!
If these seems a little complex check out this very basic excel spreadsheet walking you through what I was talking about: 
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