The value (price, if we’re selling) of a business is what a willing buyer and seller agree it to be. However, assuming both parties are informed and rational, the value of most small businesses is calculated by multiplying annual profit times a “multiple.” The multiple is a number that reflects buyer confidence and often falls between one and seven. So, for example, a business with annual profit of $100,000 at a multiple of two would be worth $200,000.
As a business owner, do you have to go to work? If you do, you are trading time for money, and that’s the definition of a job. Business owners should earn distribution checks, not paychecks.
A paycheck is compensation for time spent at work.
A distribution check is compensation for accepting the risk and responsibilities of ownership.
Distributions are a return on investment, which has nothing to do with going to work.
“Are you sitting down?”
It was our new regional salesman, Frank, talking to a customer on the phone.
“I’ve got pricing for you, and I just want to be sure you’re sitting down when I tell you.”
I was in Georgia to find out why Frank was struggling, and it was apparent. The quote was for a small commercial job, but Frank thought $10,000 was a lot of money. It showed.
At the junction of Interstate 80 and Highway 281 in Nebraska, stands a convenience store with a large, well-lit sign. The sign reads “We Have the Best-Looking Cashiers.” Customers judge the offer you put before them, then compare it to your competitors’ offers. If there is no meaningful difference, customers base their buying decisions on price...