What Is Your Magic Number?

Disclaimer: This article contains information about how you could start planning for an exit and suddenly have so much time and money that you might get bored, or even depressed. Unless of course, you reinvested your wealth and lived your dream.

Do you know your magic number?

I mean, do you imagine what amount of money you would need to receive in order for you to exit your business?

Or do you think about what your business is worth?

And is there a big gap between the two numbers?

What if I told you that you are probably operating your business in a way that makes it worth only a fraction of its potential? And what if I offered you to share how you could more than 10x (possibly a lot more) the valuation of your company in 1-3 years?

If you made it past the disclaimers and you’re still reading…this short fable below illustrates the choices and the fate of two entrepreneurs. In fact, this story is real, except I changed the names, modified the story, and rounded up the numbers to make it easier to follow.

Meet John And Emily.

John and Emily both run professional services firms.

John owns and operates a consulting firm. Emily owns and operates a PR firm.

Both companies are making $1 million in revenue. Both companies are making $100k in net profits (10% EBITDA).

John and Emily are both pretty maxed out in terms of bandwidth. They don’t know how they can grow much further (because their businesses rely on them for most of the stuff that goes on).

John and Emily meet with an investor and mentor (on separate occasions) Let’s call him Tobias.

Tobias shares “the good news and the bad news”.

The bad news is that both companies are more or less worthless. Both John and Emily look troubled when they learn that selling an operator-owned business doing 100k in profits is not not only hard but that the business is worth between 50-200k.

“What? Seriously? I’ve put ten years into this business”, John says and shuts down.

“For real? What can I do to change this?”, Emily wonders.

After some silence, Tobias educates both owners on what valuations are made of, and how both John and Emily could make some changes to make their businesses worth 10-20 times more over 1-3 years (with no magic, voodoo, or heroic feats involved).

John has had enough. He is feeling hurt because he thinks like an artist, not an owner. He is not interested in learning more, and he opts out.

Emily (who thinks like an entrepreneur) wants to learn more and agrees to start working toward making the business exitable, with the help of Tobias and some other experts he brings in (business experts, advisors, accountants, and lawyers).

Fifteen months go by.

John’s business is still worth around 100k.

Emily’s business is valued at $3 million.

Boom. A 30x multiple!

Emily is happy.

John is not.

End of the fable.

—

What did Emily do to make her business worth so much more?

In two words: Leverage and Compounding.

She made a few changes across her whole business system, resulting in revenue growth, combined profit growth, and combined with valuation growth. No part of her business grew by more than 15%. The law of compounding took care of the rest.

You might have heard me talk about The Money Equation?

Here’s the nutshell of a nutshell version: The results in your business come from six types of activities you do. These activities drive revenues and profits, and they are all linked through a cause-and-effect relationship (hence the compounding).

Now let me introduce you to the seventh type of activity, the final piece. It’s the activities you do to drive your?multiple.

Your what?

Your EBITDA multiple.

If you sell at a multiple of 1x, you get 1 year's worth of profits.

If you sell at a multiple of 10, you get paid for 10 years of effort.

There are a few crucial moves you must make to grow your multiple to 5, 10, or even 15 and above.

Exactly this is what we do at our private equity company.

We partnered with some great advisors and experts to create a company that works wonders for business owners who want to create wealth and freedom.

We call it Wonder Equity Partners.

We invest in business owners and their companies to significantly grow their revenues, profits, and ultimately, their valuation. By doing so, the owner(s) can choose either to milk their cash cow or to sell it for a handsome multiple and enjoy the wealth and freedom that comes with it.

My question is…

Are you going to be John, or are you going to be Emily?

You might be sitting on a gold mine, covered in mud.

If your company is making $500-5 million in revenue, we’d love to show you how all of this works.

Book by emailing me at tobias[]thesimplecompany.com

p.s. I’d love to hear your comments and questions below.