I explained to Scott [AJC: not the same Scott who helped us build our Perpetual Money Machine, most of last week; this Scott is one of our 7 Millionaires … In Training!] that his “zero to $10 Million in10 years” financial rocket ship would need to be powered by a potent kind of fuel: one that can deliver a 67% compound annual growth rate …
… and, that kind of growth usually only comes from one place: starting your own business.
Yep … super-growth is the just reward for the entrepreneurial mind set.
But, most won’t even start because super-high growth means assuming more risk; and, many who do take this path fail miserably … or, miss their target completely.
Still, a $10 Mill. / 10 year target – or even a $7 mill. / 7years target – can probably only be achieved with your own business … one that you start yourself so that you can minimize capital (if you buy a business, you are paying precious capital to somebody else, and usually they are selling because the growth rate isn’t stellar).
But, how big does that business need to be?
Well, if you don’t have a target, most people are happy if their business can bring in a decent ‘salary’ …
… but, that’s not enough for you. Because now you have a Life’s Purpose and that needs a certain Number to ‘fuel’ it!
For anybody in business, or aspiring to be in business, here are the steps that will tell you how big your business needs to be:
1. Get a handle on your Life’s Purpose: I’ve already laid out a step-by-step process that will only take a few days to think through (but, will change the way you think about money).
2. Derive your Number / Date combo.: Understanding your Life’s Purpose will tell you are awful lot about how much money you need to generate (Your Number) and by when (Your Date).
3. Set the future sale price of your business: The chances are, your ‘nest egg’ (i.e. your Number) will only come from one place – from selling your business (you might decide to keep it, but let’s assume that the end goal is to sell it, for now). So, let’s assume that you have to sell your business for at least the amount of Your Number (you can subtract any houses or other assets that you are sure that you will have by then).
4. Set your end profit target: Most businesses sell for 3 to 5 times their earnings after tax; professional practices often sell for 0.75 to 1.5 times their annual billings/fees … just check with an accountant and reputable business broker how similar businesses in your area are typically valued (they will usually also tell you to value your inventory, if you carry any … you can probably ignore that for now).
So, it’s simple to work backwards from your Number (hence required business sale price) to see how big your business needs to be in terms of earnings (i.e. net profit) or fees/revenue. Just a rough calc. will be plenty to …
… scare the pants off you!
I’ve said before that understanding my Life’s Purpose was the most profound thing that I ever did … and, I was talking pure finances when I said that – not visualization, self-actualization, or any kind of pop-psychology mumbo jumbo!
You see, when I did this exercise in 1998, I had two small businesses that just managed to break-even (after paying me a nominal salary) after a number of years of operation.
When I suddenly realized that I had just 5 years to turn the loss-making two businesses combined that I already owned for better or (mainly) worse, into a $1.5 million per year net profit powerhouse, I immediately started to look at the businesses very differently …
… and, that’s what suddenly took me on a global hunt for expansion possibilities, resulting in joint ventures in three countries, including the USA, growing my portfolio from 2 loss-making businesses to 5 profitable businesses in less than the 5 years that I allowed myself.
It also sparked the search for an investment portfolio (centered largely on real-estate, at the time) that actually got me to my target even without needing to sell my businesses … that just became the cream on top 😉
There’s no way any of this would have occurred without the spur [AJC: more a kick up the … ] that truly understanding the financial implications of my Life’s Purpose gave me.
Now that you know how … go and do it, too!