There are a couple key factors which play into your company being worth money.
- Assets
- Profit
Assets are simple, what does the business have that are worth money if you sold them. Office furniture/supplies, vehicles, heavy equipment, tools, etc. To understand the value of your assets, it would be what you could sell them for at fair market value in their current condition. So, what would someone pay for your used vehicle, that is how you value your assets.
Next and the more complicated part, is your profit. Typically with a million dollar company, you have a multiple of 2.5 times. This means if you make $100k a year in profit, your business is worth $250k dollars at sale, including assets. So, if we want a million dollar company, we need a business with profit of $400k a year. Meaning, after all wages and expenses have been paid out, the businesses bottom line is $400k, NOT $400k in sales.
So, we have our assets and we have our profits, there is another key component we need to have a business valuation and a business worth selling. The business has to be able to operate with you not there. If you are the business, the business only runs if you are there, you do not have a business worth selling. You have assets for valuation but you do not have a sellable business based on profit. So, you need systems, processes, and people. You need systems and processes so people can operate the business while you are away.
You can still play and integral role in your company. For example, you can be the marketing manager but you better have someone marketing who can market while you’re away. The marketer should also have the systems and processes on how they are supposed to market to your customers. As well as, you should have your job duties and descriptions laid out, so someone looking at your company can put someone into the role you are working in. Also, make sure your salary is what an average marketing manager would be getting paid.
Recap on how you make a Million Dollar company, which could be worth selling
- $400k in yearly profit
- Have a business that is self running
It is that simple, it may not be easy, but it is simple.
If you want to build a company, breakdown what you would need to do to have a company worth selling.
Your life Tutor
-Shaun Tutor
Tutors of Life 