Business Guidance and Knowledge for the Small Business Entrepreneur
Risk factors are the 10 elements of every business affecting the value of the earnings. Risk factors consist of stability of earnings to market conditions to staff issues; all have a bearing on the final value of the company.
Profit standards for residential contractors vary depending on the type of contractor. In general, the net profit standard for contractors in the upper tier of performance range from 5.8% to as high as 9.6% of sales.
The majority of small businesses are owned by a single individual. An additional pool is family owned or controlled. The balance usually involves friends or relatives that are passive in ownership. These forms of ownership create some interesting shareholder dynamics and if not thought out, can create some legal and financial issues in small business when a life changing event occurs.
For all investors in business, capital is the fronted equity an investor risks in exchange for a return. This return can range from zero to infinity depending on the success of the business. A fair profit is really a function of four different factors.
Vertical integration in business refers to the process of gaining control over more steps of the product production stream. Whenever a business obtains or can greatly influence any one of these steps along the process of producing and selling a product, it is referred to as vertical integration.
A third factor in determining a fair profit percentage is risk. Risk is divided into two types. The first is insurable and the second is uninsurable risks. Insurable risks are mitigated and have very little to no effect on the profit formula due to transferring the risk to a third party known as the insurance underwriter. Uninsurable risks are non-transferable and therefore the profit must be adjusted to compensate for this type of risk.
No other element of the Multiply Discretionary Income Formula has as much weighted value as the historical earnings of the company. Every knowledgeable business entrepreneur, accountant, lawyer, broker, you name them; they look for this information first. There’s a reason for this.
