How to Get Rich in 3 (Really Difficult) Steps

Becoming wealthy may not be your primary goal, but if it is, there is a reasonably predictable way to get rich in America.

Step 1: Ignore Your Parents

Parents around the world typically encourage their kids to get educated so they can get a ‘good job.’ This may mean becoming a doctor or lawyer, although neither tends to be a path to significant wealth. High-paying professions provide an excellent income stream, but two insidious forces undermine the professional's ability to create significant wealth: tax and spending.

Tax

It is difficult to become wealthy on the basis of a salary alone. Since income is taxed at the highest possible rate, you're left with not much more than 50 cents on the dollar.

Spending

The other problem with having a high income is that it creates a ‘wealth effect’ that triggers spending. Thomas J. Stanley, the famous author of the research-driven classic The Millionaire Next Door, points out that some professionals—in particular, lawyers—spend a large portion of their income to give the impression that they are successful, in part because they do not enjoy much social status from their job. In other words, when you earn $500,000 a year, you buy a Range Rover or send your kids to an elite private school at least in part because you want people to think you are wealthy.

Step 2: Start Something

Most wealth in America is created through owning a business. Recently, Mass Mutual looked at the proportion of business owners that make up a number of wealth cohorts. They found that 17 percent of people with between $100,000 and $500,000 to invest were business owners.

Keep in mind that there are about 8 million employer-based companies in the United States, meaning that the incidence rate of business ownership (the natural rate at which you find business owners in the general population) is about three percent. Said another way, if you grabbed 100 people walking down the street, on average three of them would be business owners. On the other hand, if you took a random sample of 100 people with investable assets of between $100,000 and $500,000, 17 of them would be business owners, meaning you're over five times more likely to find a business owner in the $100,000 to $500,000 wealth segment than you are to find an employee in the same segment.

The trend becomes more pronounced the higher up the wealth ladder you go. If you look at wealthy investors with between $500,000 and $1,000,000 in investable assets, you'll see that the proportion of business owners in this segment goes up dramatically—to27 percent.

The Very Rich

Among investors with between $1 million and $10 million in investable assets, the proportion of business owners jumps to 52 percent. As for those investors with $10 million to $50 million sloshing around in their bank account, 67 percent are business owners; and for investors with $50 million dollars or more in investable assets, 86 percent are business owners.

Simply put, if you meet someone who is very rich, it's highly likely they are (or were) a business owner.

Step 3: Get Liquid

The next step for you as a business owner is to focus on improving the value of your business so that you can sell it for a premium. Just being a successful entrepreneur is typically not enough to become rich. You have to find a way to take the equity you have locked up in your business and turn it into liquid assets. When it comes to selling your business, the three most common options are:

·         Acquisition: This is the headline-popping way some entrepreneurs choose to trade their shares for cash. When Facebook acquired WhatsApp for $19 billion, founders Brian Action and Jan Koum got very rich.

·         Re-capitalization: A minority or majority "re-cap" occurs when you sell a stake in your company (often to a private equity firm) yet continue to run your business as both a manager and part owner, with a chunk of your wealth in liquid assets outside of your business.

·         Management Buyout: In an MBO, you invite your management team (or a family member) to buy you out over time, usually with a mixture of some cash from the profits of your business as well as debt that the managers take on. There are other, less common ways to turn your equity into cash (e.g., an IPO), but the key is turning the illiquid wealth in your business into diversified liquid wealth. The best part about selling a business is that the wealth created is taxed at a very low rate compared to employment income, so you get to keep most of what you make.

You might argue it is better to keep all of your wealth tied up in your business as it grows, but that can be a risky proposition—just ask Lululemon's Chip Wilson or BlackBerry's cofounder Mike Lazaridis. If you keep your money locked up in your business, it also means you may not be able to enjoy the benefits of wealth. You can't use illiquid stock in a private company to buy an around-the-world plane ticket or a ski chalet in Aspen. You actually have to get liquid first.

There are many good reasons to build a business; and for you, wealth creation may not be as important as making an amazing product or leading a great team. But if money is what you're after, there is no better way to get rich than to start and sell a successful business.

In creating a more valuable business, it is always the little things that get the big results. Our Business Health Check will give you invaluable insights into the many areas of your business that if tweaked will increase the value of your business.  By completing the Business Health Check, you will receive a Free Report based on your answers, prepared by our team of highly skilled Business Coaches.  CLICK HERE to take your Business Health Check Now

Steve Goranson has owned and operated the Northeast Florida of ActionCOACH since 2014. ActionCOACH is the World's #1 Coaching franchise with of 1000 offices in 50 different countries.  They coach over 15,000 business each week.

ActionCOACH Steve Goranson's commitment is to assist small business owners, to spend less time working "in" their business and more time working "on" their business so they can build a more valuable and sellable business. In the end, you’ll be spending less total time working, will be making more money and will have truly created the company and team you always dreamed of. In addition we will help you put the FUN back in your business and your life.

Steve's clients are feeling happy because they are focused on their goals, they're feeling more successful because they are reaching their goals, and they are feeling more free because their businesses are starting to work harder than do. 

4 Keys to Increased Profits & Cash Flow

Every business I speak with wants to increase sales in their business.  Who wouldn’t?  

But increased sales is not necessary for the goal.  We don’t really want more sales, what we really want is more profit, right?  Well not necessarily, because you can’t really do anything with profit.  Profit is just a theory.  The question is how we turn profits into cash. 

To help us understand how to increase our profits and cash flow we must first understand the 4 M’s; Management, Money, Marketing, & Merchandise.

Management:  Properly run companies can sustain profitability over the long run because they are organized and cut wasteful spending.  When business is good the average company doesn’t seem to care where the wastes are in the business because there is enough cash to cover up the waste.  Properly run companies understand that investing in properly trained teams will lead to increased profits and cash flow.  A team who is aligned to company goals and that understands how their specific role and task leads into the company’s “big picture”, will be more effective and efficient.  Since they are aligned to the company’s goals they will be able to recommend ways for the company to be more effective and efficient.

Money:  Money management is a key to all successful business.  That’s both money coming in and out.  The two biggest bottlenecks that prevent profits from turning into cash are inventory and accounts receivables.  Properly run companies are always managing their vendors, looking for better ways to order more efficiently and ways they can negotiate better terms.  Most AR problems arise because issues aren’t addressed until they turn into problems.  Make sure your clients understand and are clear on your payment terms.  Don’t be afraid to ask for your money.  If you don’t, someone will be getting paid before you. 

Marketing:  Even in a tough economy people are spending money on your product or service.  The purpose of your marketing is to help you get your “unfair” share of the dollars being spent.  To do this you have to be very clear on what your clients want and how your product or service can help them achieve that.  Marketing is not just advertising, it’s all about understanding your whole sales process, which turns a lead into a customer that comes back again and again.  By understanding each step of the sales process from lead generation to repeat customer, you can quickly identify the bottlenecks and implement strategies to move them to the next step.

Merchandise:  If sales are down, you need to see if people are using your product in the same way as before.  In the past, people might have been using your product or service out of ego, price, or having a particular item, that might not be the case now.  Maybe now your product or service could be used in a different way that your customer hasn’t even thought of.   Successful companies are always asking themselves why people are buying their product or service.  Additionally, make sure your team understands which products are your most profitable.  Just adding some extra attention to your most profitable items can easily increase your overall profit margins.

In creating a more valuable business, it is always the little things that get the big results. Our Business Health Check will give you invaluable insights into the many areas of your business that if tweaked will increase the value of your business.

By completing the Business Health Check, you will receive a Free Report based on your answers, prepared by our team of highly skilled Business Coaches.  CLICK HERE to take your Business Health Check Now

Business Advice: Subscribers Make Your Company More Valuable

Why are Amazon, Apple and many of the most promising Silicon Valley start-ups leveraging a subscription business model?

Subscribers not only provide steady revenue; they make your company more valuable in the eyes of an acquirer. In a traditional business, customers buy your product or service once and may or may not choose to buy again; but in a subscription business, you have "automatic” customers who have agreed to purchase from you on an ongoing basis.

There are at least nine subscription models that can be leveraged by businesses ranging from service companies to market research firms to manufacturing concerns.

Recurring Revenue

Recurring revenue—the hallmark of a subscription business—is attractive to acquirers and makes your business more valuable when it’s time to sell. How much more valuable? To answer that, one has to first look at how your business will be valued without a subscription offering.

The most common methodology used to value a small to midsize business is discounted cash flow. This methodology forecasts your future stream of profits and then discounts it back to what your future profit is worth to an investor in today's dollars, given the time value of money. This investment theory may sound like MBA talk, but discounted cash flow valuation is something you have likely applied in your personal life without knowing it. 

For example, what would you pay today for an investment that you hope will be worth $100 one year from now? You would likely "discount" the $100 by your expectation for a return on investment. If you expect to earn a 7 percent return on your money each year, you'd pay $93.46 ($100 divided by 1.07) today for an investment you expect to be worth $100 in 12 months.

Using the discounted cash flow valuation methodology, the more profit the acquirer expects your company to make in the future—and the more reliable your estimates—the more your company is worth. Therefore, to improve the value of a traditional business, the two most important levers you have are: 1) how much profit you expect to make in the future; and 2) the reliability of those estimates.

At SellabilityScore.com, one can see the effect of this valuation methodology. Since 2012, this methodology has been used to track the offers received by business owners who have completed the Sellability questionnaire. During that time, the average business with at least $3 million in revenue has been offered 4.6 times its pretax profit. Therefore, a traditional business churning out 10 percent of pretax profit on $5 million in revenue can reasonably expect to be worth around $2,300,000 ($5,000,000 x 10 percent x 4.6).

Then compare the value of a traditional company with the value of a subscription business. When an acquirer looks at a healthy subscription company, she sees an annuity stream of revenue throwing off years of profit into the future. This predictable stream of future profit means she is willing to pay a significant premium over what she would pay for a traditional company. How much of a premium depends on the industry, and some of the biggest premiums today go to companies in the software industry.

Subscription-based Software Companies

To understand what is going on in the valuation of subscription-based software companies, look at Dmitry Buterin. Buterin runs a subscription software company called Wild Apricot. He has also formed one of the world's first mastermind groups of small and midsize subscription company founders, and each month the group meets to discuss strategies for running a subscription business.

Members of the group were constantly raising money or being courted by investors, so the topic of valuation came up a lot in their conversations. Buterin found that the consensus valuation range being offered to member companies was between 24 and 60 times monthly recurring revenue (MRR), which is equivalent to two to five times annual recurring revenue (ARR).

One way to validate Buterin's numbers is to check with another guru from the world of subscription-based software companies. Zane Tarence is a partner with Birmingham, Alabama-based Founders Investment Banking, a company that specializes in selling software companies that use the subscription business model. Tarence estimates the valuation ranges he sees as belonging in one of three buckets:

24-48 x MRR (2-4 x ARR)
These are typically very small software companies with less than $5 million in recurring annual revenue. Companies in this first bucket are usually growing modestly, with subscription cancellation rates (i.e., "churn") in the area of 2-4 percent per month.

48-72 x MRR (4-6 x ARR)
These are larger software companies with recurring revenue of at least $5 million annually, which they are growing at the rate of 25-50 percent per year. Their net churn is typically below 1.5 percent per month.

72-96 x MRR (6-8 x ARR)
These are the rare, fast-growth software companies that are growing more than 50 percent per year, with at least $5 million in annual revenue and net churn below 1 percent per month. These companies usually offer a solution (typically an industry-specific one) that their customers need to use to get their jobs done.

The software business is an extreme example of the benefits of subscription revenue, but no matter what industry you're in, your company will likely command a premium if it enjoys recurring revenue.

From Alarm Systems to Prescriptions to Mosquitoes

For example, security businesses that monitor alarm systems and charge a recurring monthly monitoring fee to do so are worth about twice as much as security businesses that just do system installations. 

Retail pharmacies with a large pool of prescriptions for drugs that people take every day, like Lipitor and Lozol, command a premium over a traditional retailer because customers re-up their pills on a regular basis, creating a recurring revenue stream for the pharmacist.

Even tiny companies are worth more if they have subscription revenue. When my colleagues over at the Sellability Score analyzed very small businesses with less than $500,000 in sales, they found that the average offer these small businesses attract is 2.6 times pretax profit.

Compare that to the average Mosquito Squad franchise. Mosquito Squad is a Richmond, Virginia-based company that offers to keep bugs off your patio by spraying your backyard regularly with a proprietary chemical recipe approved by the Environmental Protection Agency. Mosquito Squad franchisees target affluent home owners with an average home value north of $500,000 who entertain in their backyard and don't want to be bothered by mosquitoes. Mosquito Squad operates on a subscription basis. You subscribe to a season of spraying, which includes 8 to 12 sprays, depending on how buggy it is where you live.

Mosquito Squad is a franchise business, and the impact of its recurring revenue model on its valuation is remarkable. According to Scott Zide, the president of Mosquito Squad's parent company, Outdoor Living Brands, Mosquito Squad franchises that changed hands over the most recent five-year period had revenue of $463,223 and sold for 3.7 times their pretax profit. That's a 42 percent premium over the traditional value of a company with less than $500,000 in sales, and it’s because Mosquito Squad operates on a recurring subscription model and 73 percent of its annual spraying contracts renew each year.

A newer player in this market with a franchise here in Jacksonville is Mosquito Joe who also has proprietary chemical recipe approved by the Environmental Protection Agency.  They target target home owners with household income of $75,000 and higher who entertain in their backyard and don.t want to be bothered my mosquitoes, ticks and fleas. Mosquito Joe is also subscription based but does not require a contract and guarantees that the product will work. 

The impact of its recurring revenue model on its valuation is also remarkable.  According to Kevin Wilson, the president of Mosquito Joe, franchises should sell at 1.2 times its annual revenue. Mosquito Joe is one of the fastest growing franchises and a leader in the pest control industry. 

Whether you plan to build a subscription-based software application or the simplest personal services business, having recurring revenue will boost the value of your most important asset.

In business, it is always the little things that get the big results. Our Business Health Check will give you invaluable insights into the many areas of your business. By completing the Business Health Check, you will receive a Free Report based on your answers. 

Business Advice: Be an agent of change

A man walks into a psychiatrist’s office.  “Doc, every time I see nickels, dimes, and quarters, I have a panic attack!  What can the problem be?

“Oh that’s easy” the doctor answers. “You’re just afraid of change”.

How many of us go through life virtually paralyzed because we are afraid of change, to try something new or different.

This fear keeps us from expanding our growth, knowledge, and success and limits our lot in life.

To break out of this cycle of fear we need to understand what fear really is.

Here’s two explanations of what fear really stands for;

False

Expectations

Appearing

Real

So how do we change or how can we be a change agent for others?

If someone is satisfied with their lives, will they change?  No, because they are satisfied.

If someone is unfit, overweight, or unhealthy, but they are satisfied with that, they are still unlikely to change.

Many of us have the ability to change the instant we become unhappy with our lives.

Others of us have to wait for a stroke or another disaster before we realize the need to change.

We see that there are two ends of the scale.  Some wait until the end and some change right at the beginning and some change just for the sake of change. Somewhere in there, there is a happy medium for you.

There is a simple formula that will allow us to understand the process of change and what we can do to affect positive changes in ourselves and in others.

(D x V) +FS > R

The “R” stands for resistance.  To overcome the resistance to change, what needs to be greater?  What can tip the scale to overcome our fear of change?  Let’s take a closer look.

The “D” in the formula stands for Dissatisfaction. Before you can change you have to have a level of dissatisfaction…

What builds dissatisfaction more than anything else?  “V” for Vision.

Let’s say that you are a kid living in an impoverished neighborhood. You don’t know any better life than that.  Are you dissatisfied with your life?  Not necessarily, you may be satisfied because you don’t know any better.

Why is it that when you are in business you need to consistently improve your business education?

Why do people hire a business coach or have a mentor, to help push them thru their comfort zone and to help them grow their vision.  They need help to look at what their next level is supposed to be.

Dissatisfaction takes a belief that there is something else out there.

One of the things I do as a business coach is to help my clients feel a level of dissatisfaction or discomfort, if they don’t do the work required to change.  Without a coach or a mentor you stay in your comfort zone because people don’t like feeling dissatisfied.  Dissatisfaction comes first but then we have to have vision and a belief that the vision is possible.

Those kids living in the impoverished neighborhoods can watch television and they can see other places in the world, but most have no belief that a different life is possible for them.  However, some do get a belief that it is possible.  Some of you reading this article are where you are today, because of the vision and the belief you had of a better life.  You believed it was possible.  That is why you have worked to make a better life for yourself.

My question is, how do we raise the dissatisfaction level for where you are now and how do we raise the vision of where you want to go?  Most of us are not experiencing change.

One of the fastest ways that I have found to raise people’s dissatisfaction is by having them write a check into their own investment accounts at the first of the month.  This check is from your business into your own investment or profit account.  An investment or profit account is an account that you can’t get direct access to.  If you take out $10,000, $5,000, $1,000 or even $100 a month, you then have little or no money left to pay the bills.

Is there going to be a level of dissatisfaction going on?  Absolutely!  How much harder are you going to work to pay off your creditor that calls you every day?  You have to create a vacuum that needs to be filled.  You have to start stretching yourself and expanding out of your comfort zones.

The next step of the equation is “FS” which stands for First Steps.

We have dissatisfaction, we’ve created a vision of what we want, but we don’t know how to start.

This is where a mentor or a coach can help.

Don’t look at eating the whole elephant all at once, just take it on one bite at a time.  Lee Iaacoca, states that the discipline of writing something down is the first step toward making it happen.  Take the time to write out your plan and break it into bite size chunks and get into Action.

By doing so, you will begin to break through the barriers in your life and stretch your comfort zone to reach a level of success you’ve only dreamed of.  Use this formula not only to help facilitate change in your life but to be an agent of change in the life of others.  Help them to understand and qualify their dissatisfaction, help them to build their vision what they want to achieve, and finally give them the first steps to move toward that goal.

By following this simple formula you can truly become an agent of change in your life as well as the life of others.

In business, it is always the little things that get the big results. Our Business Health Check will give you invaluable insights into the many areas of your business. By completing our Business Health Check, you will receive a Free Report based on your answers, prepared by our team of highly skilled Business Coaches.

CLICK HERE to take your Business Health Check

Business Advice: The #1 Task Business owners Should Stop Doing to Increase the Value of their Business

A study of 14,000 businesses reveals how you should not be spending your time.

In an analysis of more than 14,000 businesses, a new study finds the most valuable companies take a some what different approach to the business owner doing the selling.  So who does the selling in your business?  

My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the months when you leave the selling to others.

That makes sense because you’re likely the most passionate advocate for your business. You have the most industry knowledge and the widest network of industry connections.

If your goal is to maximize your company’s profit at all costs, you may have come to the conclusion that you should spend most of your time out of the office selling, and leave the dirty work of operating your businesses to your underlings.

However, if your goal is to build a valuable company—one you can sell down the road—
....you can’t be your company’s number one salesperson.

In fact, the less you know your customers personally, the more valuable your business.  Now isn't that interesting?

The Proof: A Study of 14,000 Businesses

Sellability Score just finished analyzed our pool of their users for the quarter ending December 31.  We offer The Sellability Score questionnaire as the first of twelve steps in The Value Builder System, a statistically proven methodology for increasing the value of a business. (Click Here for your Score)

We asked 14,000 business owners if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. We then compared the offer made to the following question:

Which of the following best describes your personal relationship with your company's customers?

•  I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
• I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
• I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
• I don’t know my customers personally and rarely get involved in serving an individual customer.

2.93 vs. 4.49 Times

The average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit.

However, when we isolated just those businesses where the owner does not know his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49.

Companies where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.

When Value Is the Enemy of Profit

Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit. 

If all you wanted was a fat bottom line, you likely wouldn't invest in upgrading your website or spend much time thinking about the squishy business of company culture.

How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your company in the long run.

How Healthy is Your Business?  Take the Business Health Check and Find Out TAKE TEST

Recession-Proof Your Business

Though we are not out of the woods yet, it does seem that the business climate is slowly changing due to the natural cycle of business.  It's been a rough 4-5 years for a lot of businesses.

Why some businesses thrive while others implode during an economic recession remains a puzzle to many business-owning entrepreneurs.  Not all businesses must suffer during a down business cycle.

An overwhelming majority of my clients not only survived the downturn but thrived as well.  In fact when one of my clients introduces me all the partners say if it wasn't for Steve we'd be out of business like a lot of our competitors.

What separates successful businesses from those that fail during those down cycles? 

They have planned for the future and have contingencies to confront whatever challenges arise.  They organize themselves are uniquely different and healthier approach to business.

An economic downturn can be overly challenging and devastating if you don’t put it into the proper perspective.  A business cycle very closely resembles that of the natural cycles of Spring, Summer, Fall, and Winter.  Let think of a farmer, in the spring he is planting his crop getting ready for a harvest.  In the summer, his crop is growing and begins to harvest his crop.  In the fall he is preparing for the winter that waits ahead. 

Let’s compare my analogy to the business cycle.  In the spring you need to cultivating business getting ready for the growth of summer.  In the summer you are feel great business is great but you understand that fall and winter are ahead so you need to plan.  You need to start paying down debt and save cash for when things slow down.  In the fall you need to begin to get ready for winter.  You need to start cutting the fat.  In the winter we a in survival mode but we begin planning for the spring that is just around the corner.

In the winter you need to look for opportunities to grow.  It’s a fact that during down economic times is when the true entrepreneurs begin to create their wealth.  Down economic times are times in which you can gain market share over the competition.  It’s a great time to grow through acquisition by buy up poorly managed competitors.

Currently we seem to be coming out of an economic winter, a serve one for that matter.  If you did not prepare, how can you survive and get yourself in a position to take advantage of the next business cycle? 

Jack Canfield in his book Success Principles states a simple formula for success that can help us over come this winter business cycle.  E + R = O - Event + our Response = Outcome.  We all have a goal, an expected outcome but some event always seems to come our way to make us lose focus and advert our attention.  That because our response gets refocused on reacting to the event instead of focusing on our desired out come.

ActionCOACH founder Brad Sugars, outlines 5 Steps to how to focus on looking for the opportunities available instead complaining about how bad the economy is.

Step 1 – Get you Mind Set right

If you are focusing on the negative all you will ever see is the negative.  Look for the positive, look for the opportunities that are available.

Step 2 – Set New Goals

The playing field has changed.  You need to reassess where you business is and where you want to go.  Will your current goals still realistically get you to your final destination? Or, do you need to revise your short term goals and strategies?

Step 3 – Get Around the Right People

You need to surround yourself with positive people who share your vision for success. Do you have the right people working with you?  Do they have the skills and the will to help you navigate your business during difficult times?  What about your business associates?  Are they bringing you up or taking you down? 

Step 4 – Create Quite Time to Think of New Ideas

It’s hard to stay focused during turbulent times.  You need to create quiet time each day to focus on your goals to help your mind to focus on what you need to do to get there. 

Step 5 – Planning

It all starts with a plan.  When you have a plan you can now determine what do I need to do or learn to achieve my goals. 

Did your business survive this far because you rode the wave of a good economy or because you have a well run business?  

If you are not sure, not our quick BusinessHealth Check and receive a free report prepared by our team that will give you valuable insights into your business.  www.bizhealth-check.com