Becoming millionaire is everyone’s dream. But instead of just wanting to be millionaire do you know the exceptional things that requires to acquire wealth? These are the things that all rich people know but poor and middleclass doesn’t.
In a survey of 3,000 pentamillionaires ($5 million net worth) the Harrison Group reported that almost all pentamillionaires made their fortunes in a big lump sum after a period of years. Worth repeating: a big lump sum, not by saving 10% of their paycheck for 40 years.”
The primary wealth accelerant of the rich people comes down to one concept: Appreciable and controllable assets, or “Asset Value.” Asset value is simply the worth of any property you own that has marketplace value. Poor and Rich have two antagonistic views of the word “assets.” Poor and Middle-class people buy and sell depreciating assets that decline in value over time. Cars, boats, electronics, designer clothes, and sparkly bling to impress that newly divorced woman in the adjacent cubicle.—these are all assets that lose value the moment your credit card is charged.
Contrary to this, Rich people buy and sell appreciating assets: businesses, brands, cash flows, notes, intellectual property, licenses, inventions, patents, and real estate. The power of “Asset Value” lies in your ability to control the variable in a virtually limitless fashion.
Just take the following hypothetical example.
Twenty-four-year-old Sophia Miller quits her job to become a roving computer technician, eradicating viruses and cleaning computers. At first, her business operates in the local metropolitan area, but growth forces her to hire additional technicians. Her growth to additional cities is explosive and driven by demand. In a few years, Sheila owns a company that operates in 27 states. She moves from a technician to a facilitator of the system, and her company enjoys an impressive $2.9 million profit. After enjoying the profits (and saving most of it), she sells her company for $24 million to a large computer manufacturer. She built an asset from nothing to something. The asset was her system, and now with a $30 million nest egg, she never has to work again.
How did she know the exact value of her company before selling it?
With a simple formula
Asset Value = (Net Profit) X (Industry Multiplier)
industry multiplier is the metric used to identify the valuation of the company in the market place.
Stocks trading on the public markets define the multiplier for each respective company by the price-to-earnings ratio, or PE. If a company’s stock trades at 10 times PE, investors are purchasing that company at a multiple of 10 times. Price-to-earnings is relevant regardless of whether your company is a small private company or a large publicly traded company: The valuation of your company is predicated on the subjective PE for your particular industry.
If you have an asset that has sustainable profits, an industry multiplier governed by prevailing market conditions determines the valuation of that asset. Other people or companies will buy that asset based on the asset’s net profit multiplied by the industry multiplier.
For example, if you own a manufacturing company that nets $100,000 and the average multiplier for your industry is 6, your asset value is worth $600,000.
That’s 6 times, or 600%
Where can you get a return of 600% in today’s financial market? Are there any mutual funds paying 600%? Forget about today, how about ever?
For every dollar you earn, the value of your company would increase by a factor of 6, or $6. If your net profit increased $500,000 for the year, your company’s valuation will increase by $3 million.
Below is a list of average multipliers per respective industry.
|Advertising & Marketing||11.10|
|Advanced Medical Equipment & Technology||24.81|
|Aerospace & Defence||14.69|
|Airport Operators & Services||8.16|
|Apparel & Accessories||12.58|
|Apparel & Accessories Retailers||10.30|
|Appliances, Tools & Housewares||10.36|
|Auto & Truck Manufacturers||9.81|
|Auto Vehicles, Parts & Service Retailers||12.09|
|Auto, Truck & Motorcycle Parts||7.08|
|Biotechnology & Medical Research||16.03|
|Business Support Services||10.03|
|Commercial Educational Services||15.17|
|Health, Safety & Fire Protection Equipment||9.29|
|Industrial Equipment Rental||9.73|
|Maintenance & Repair Services||9.73|
|Management Consulting Services||9.73|
|Office Equipment & Supplies Rental||9.73|
|Pest Control Services||9.73|
|Casinos & Gaming||12.39|
|Commercial Printing Services||10.07|
|Computer & Electronics Retailers||10.30|
|Construction & Engineering||8.22|
|Distillers & Wineries||15.54|
|Electronic Equipment & Parts||10.36|
|Agriculture Support Services||13.81|
|Coffee, Tea & Cocoa Farming||13.81|
|Vegetable, Fruit & Nut Farming||13.81|
|Beer, Wine & Liquor Stores||9.47|
|Ground Freight & Logistics||8.84|
|Healthcare Facilities & Services||12.00|
|Hotels, Motels & Cruise Lines||12.39|
|Investment Banking & Brokerage Services||20.56|
|Iron & Steel||5.92|
|IT Services & Consulting||11.79|
|Gyms, Fitness and Spa Centres||13.36|
|Marine Freight & Logistics||9.58|
|Medical Equipment, Supplies & Distribution||21.35|
|Content & website Management Services||19.63|
|E-commerce & Marketplace Services||19.63|
|Internet Security & Transactions Services||19.63|
|Oil & Gas Refining and Marketing||12.80|
|Social Media & Networking||19.63|
|Passenger Transportation, Ground & Sea||10.47|
|Consumer Goods Rental||9.73|
|Consumer Repair Services||9.73|
|General Education Services||15.17|
|Personal Care Services||9.73|
|Personal Legal Services||9.73|
|Phones & Handheld Devices||13.09|
|Property & Casualty Insurance||10.56|
|Real Estate Rental, Development & Operations||9.45|
|Real Estate Services||17.02|
|Renewable Energy Equipment & Services||11.57|
|Restaurants & Bars||14.99|
|Semiconductor Equipment & Testing||17.31|
|Specialty Mining & Metals||7.57|
|Textiles & Leather Goods||12.58|
|Tires & Rubber Products||6.63|
|Toys & Children’s Products||13.36|
|Water & Related Utilities||12.47|
|Wireless Telecommunications Services||6.81|
How to use Industry Multiplier to accelerate your wealth?
Suppose you’re a disgusted engineer employed by a multinational corporation. You’ve been employed for three years and diligently save 10% of your paycheck and invest it into a mutual fund earning an average of 8% a year. Your return on investment is 8%.
Now suppose you quit your job and take your three years of experience and setoff to create a company manufacturing medical equipments. You estimate that your total market (potential buyers) for your medical products is 16 million. According to our chart above, the average multiple for the “medical equipments” industry is over 21. This means within your scope of wealth acceleration, you can accelerate wealth at a FACTOR of 21 or 2,100%. Your return on investment is 2,100%.
Let’s extend this example further. For the next six years, you grow this company to the point that its net income is $1.2 million per year. This means you now earn $100,000 per month (your net profit) AND your company (the asset) is now worth of $25.2 million based on the average multiple.($1.2 M X 21) You could continue to grow the business (grow wealth via asset value) and cash flow (grow income) or seek to liquidate (sell asset value)to realize wealth acceleration.
Now contrast to this Your return on investment options if you stay as an employed engineer:
1. Raise your ‘intrinsic value’ and HOPE the boss gives you a pay raise.
2. HOPE the company doesn’t lay you off, so you can continue receiving your income.
3. Save 10% of your paycheck in a mutual fund and HOPE for an 8% return for the next 40 years.
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