Should I quit and get a job? Or should I keep going?
Those were questions that I kept asking myself over two years ago:
(Notable! - I rather be a failed entrepreneur than an average employee that never took a risk)
Each day I concentrated on the fastlane, but while building it, I kept questioning myself in the background.
Below is some of that math.
If you're like I was, and questioning whether you should build a sellable business or get a job, then I strongly recommend you read this thread and study these numbers.
For some of you it makes more sense to build a sellable business. For others, things aren't working out and you'd be better off getting a job at least for now to build capital.
Before going any further, I want to outline a few assumptions. In this thread I'm assuming the following:
Now let's get into the numbers.
I used the following site to calculate post-tax salary: Illinois Income Tax Calculator | SmartAsset.com. You can adjust the calculator based on where you're living. I was living in Chicago when I started, so for the calculations below, I'll assume you're paying a 3.75% state tax.
Here's an example of how the site calculates:
So if you make a salary of "$50,000 per year", you're really making $38,835 per year. If you're making "$100,000 per year", you're really making $70,635.00 (but don't let that stop you from bragging to your friends that you're making 6-figures).
Alright, let's continue onto the formula.
So the question I wanted to answer was:
How much in business income do I have to create in one year to equal salary income?
And here's the formula that I came up with:
Post Tax Salary from a Job = Money you have from a job after paying taxes
Business Income = How much money you make from the business and will be recorded as income when you sell the business.
*2.25 = The multiple on an online business after paying a broker
*1 = The amount of money that you'll make in that one year while creating the business income (even though you're not getting paid a lot, you are getting paid to create the business)
Now having those numbers, we can go onto calculating equivalents and seeing exactly whether you should get a job or build a business.
In this chart I chose annual salaries starting from minimum wage to $250k a year. Then I calculated the post tax salary. Then used the formula above to calculate the business income equivalent, and finally, the "BI Exit Equivalent", which takes into account a 15% capital gains tax rate. The first and last column are most important for you.
BI Exit Equivalent = this is how much money you need to make in your business to be the equivalent of what you'd get from a job.
Ok, so how do you use this chart?
Easy.
-------------------------------------------------------
Let's say you graduate college and now have two options: get a job or build your own business. Your job offer is $55k a year. You want to build your own business but you're concerned because you don't think you could create $55k in income your first year in business.
If you're like most people, you'd give up now. But if you use the chart above, then you're more likely to push forward.
You can start by looking in the "Annual Salary" column for $55,000. Your post tax salary from this job will be $42,015.00. If you want to go the creating a business route, then you have to create $15,209.05 in business income your first year to equal your job.
If you believe that you could create over $15,209.05 in business income your first year then you should go forward with building a business. But if you don't think that you can create an income higher than that, you should strongly consider getting that job. The cashflow from the job will help you later on if you want to want to get back into entrepreneurship.
Now let's justify these numbers.
If you made $15,209.05 in your first year of business, and it's a sellable business, then you can sell the business for 2.25*15,209.05 = $34,220.36. On top of that you've made $15,209.05, so 15,209.05+34,220.36= $49,429.41. Deducting a 15% capital gains that from that 49429.41*.85 = $42,015.00 you end up with the same amount that you would post tax from a job.
-------------------------------------------------------
This is just one of many examples. You can use this chart as you see best fit in order to calculate whether you should quit your business, quit your job, keep going with your business, keep going with your job etc.
In the slowlane, most people think that all these numbers are equivalent, but in the fastlane, these numbers have multipliers and tax implications attached to them.
Keep these numbers in mind and don't get discouraged if what you could have from a job doesn't equal your business income yet.
P.s. Obviously there's certain businesses that aren't sellable like being a freelancer. This chart only applies to businesses that are sellable, so please don't make the mistake of using the chart to justify making $15k a year doing fiverr gigs. You need to read The Millionaire Fastlane again and restructure your life/business so that this chart can work for you. Good luck.
Those were questions that I kept asking myself over two years ago:
(Notable! - I rather be a failed entrepreneur than an average employee that never took a risk)
Each day I concentrated on the fastlane, but while building it, I kept questioning myself in the background.
- "Am I messing up?"
- "Should I quit and get a job?"
- "Am I slowly becoming a loser and don't even realize it?"
Below is some of that math.
If you're like I was, and questioning whether you should build a sellable business or get a job, then I strongly recommend you read this thread and study these numbers.
For some of you it makes more sense to build a sellable business. For others, things aren't working out and you'd be better off getting a job at least for now to build capital.
Before going any further, I want to outline a few assumptions. In this thread I'm assuming the following:
- You're building a business that could be sold (https://www.amazon.com/dp/1591845823/?tag=tff-amazonparser-20)
- You're based in the U.S.
- You're using cash-based accounting, end of the year investing in product or marketing to minimize your tax bill (Publication 334 (2016), Tax Guide for Small Business)
- That your business could be sold at 2.25x annual after the broker fee (http://empireflippers.com/marketplace/)
- That your capital gains tax rate is 15%
Now let's get into the numbers.
I used the following site to calculate post-tax salary: Illinois Income Tax Calculator | SmartAsset.com. You can adjust the calculator based on where you're living. I was living in Chicago when I started, so for the calculations below, I'll assume you're paying a 3.75% state tax.
Here's an example of how the site calculates:
So if you make a salary of "$50,000 per year", you're really making $38,835 per year. If you're making "$100,000 per year", you're really making $70,635.00 (but don't let that stop you from bragging to your friends that you're making 6-figures).
Alright, let's continue onto the formula.
So the question I wanted to answer was:
How much in business income do I have to create in one year to equal salary income?
And here's the formula that I came up with:
Post Tax Salary from a Job = (Business Income)*2.25 + (Business Income)*1
Here's what those numbers mean...
Post Tax Salary from a Job = Money you have from a job after paying taxes
Business Income = How much money you make from the business and will be recorded as income when you sell the business.
*2.25 = The multiple on an online business after paying a broker
*1 = The amount of money that you'll make in that one year while creating the business income (even though you're not getting paid a lot, you are getting paid to create the business)
Now having those numbers, we can go onto calculating equivalents and seeing exactly whether you should get a job or build a business.
In this chart I chose annual salaries starting from minimum wage to $250k a year. Then I calculated the post tax salary. Then used the formula above to calculate the business income equivalent, and finally, the "BI Exit Equivalent", which takes into account a 15% capital gains tax rate. The first and last column are most important for you.
BI Exit Equivalent = this is how much money you need to make in your business to be the equivalent of what you'd get from a job.
Ok, so how do you use this chart?
Easy.
-------------------------------------------------------
Let's say you graduate college and now have two options: get a job or build your own business. Your job offer is $55k a year. You want to build your own business but you're concerned because you don't think you could create $55k in income your first year in business.
If you're like most people, you'd give up now. But if you use the chart above, then you're more likely to push forward.
You can start by looking in the "Annual Salary" column for $55,000. Your post tax salary from this job will be $42,015.00. If you want to go the creating a business route, then you have to create $15,209.05 in business income your first year to equal your job.
If you believe that you could create over $15,209.05 in business income your first year then you should go forward with building a business. But if you don't think that you can create an income higher than that, you should strongly consider getting that job. The cashflow from the job will help you later on if you want to want to get back into entrepreneurship.
Now let's justify these numbers.
If you made $15,209.05 in your first year of business, and it's a sellable business, then you can sell the business for 2.25*15,209.05 = $34,220.36. On top of that you've made $15,209.05, so 15,209.05+34,220.36= $49,429.41. Deducting a 15% capital gains that from that 49429.41*.85 = $42,015.00 you end up with the same amount that you would post tax from a job.
-------------------------------------------------------
This is just one of many examples. You can use this chart as you see best fit in order to calculate whether you should quit your business, quit your job, keep going with your business, keep going with your job etc.
In the slowlane, most people think that all these numbers are equivalent, but in the fastlane, these numbers have multipliers and tax implications attached to them.
Keep these numbers in mind and don't get discouraged if what you could have from a job doesn't equal your business income yet.
P.s. Obviously there's certain businesses that aren't sellable like being a freelancer. This chart only applies to businesses that are sellable, so please don't make the mistake of using the chart to justify making $15k a year doing fiverr gigs. You need to read The Millionaire Fastlane again and restructure your life/business so that this chart can work for you. Good luck.
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