As the owner of a startup business, you’re going to start out spending working capital—money you’ve set aside to live on and run your business with until it becomes profitable. In time, you can expect to reach a point where your business breaks even, when you’ll have more cash coming in than going out. When that happens, the business becomes self-sustaining.
As the owner of that self-sustaining enterprise, you will have the freedom to decide how to spend the cash flow from your business. You may use profits to pay down debt or reinvest in the business for expansion or improvement. You may put away money for your retirement. You may pay yourself a salary. You may take a draw on your profits as a reward for your hard work.
Typically, a franchisee starts out paying his or herself a small salary, but as the business takes off, that salary can grow to replace corporate income. But there’s another factor at work here that sets the business owner apart. As the business becomes profitable and pays the owner, it becomes not just a source of income, but a valuable asset in its own right.
Consider this chart that demonstrates one possible hypothetical combination of parallel paths for the investor who stays in a corporate job vs. one who invests in his or her own business:
FACTORING IN THE VALUE OF YOUR BUSINESS
EXECUTIVE SALARY vs. FRANCHISE OWNERSHIP
Year 1 $75,000 Salary $0 Salary
Year 2 $78,000 Salary $45,000 Salary
Year 3 $81,000 Salary $75,000 Salary
Year 4 $84,000 Salary $95,000 Salary
Year 5 $87,000 Salary $115,000 Salary
5 Year Salary Total: $405,000 $330,000
5 Year Asset Check: $0 asset value of job $400,000 asset value of franchise
Total Value $405,000 $730,000
After five years of hard work in the corporate world, our executive has made a steady salary with regular raises. The franchise owner, on the other hand, sacrificed salary early on to build his business. But as the years pass, the balance sheets for these two individuals move in very different directions, with the biggest difference visible in that bottom line. The business has become much more than a job—it’s become a source not just of income, but of income security. And if you are the owner of that business, no one can come in to your office one day and say, “I’m sorry. You’re not the guy anymore.”
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