If you started your business and run it yourself, or run it with a small group of partners, chances are that you are an operational expert in your industry and you're an indispensible part of the business. But what do you really own? A simple way to determine the amount of real ownership that you have is to answer the question:
If the business were sold tomorrow, how much money would you walk away with?
If you can't walk away because you can't hire someone to do your job for the same salary that you currently draw, then you're not an owner but a worker--plain and simple. No matter what's on paper, the true owners of any business are the parties that appropriate its profits, and who would get the payout if the rights to this profit stream were sold. This is typically investors and lenders.
When determining the valuation of your business, keep in mind that it isn't subjective and it has nothing to do with the specifics of your industry. If the business's annual profit is P, and the prevailing annual interest rate of return on financial capital is R, the current value of the business is P/R. For example, if annual profits are P = $3000, and the interest rate is R = .057, then the value of the business is $52631.
Also, take care not to confuse your pay with profits. Profit is what remains after subtracting all costs, including your salary. A common mistake that small business owners make is to overestimate the profitability of the business, and hence its market value, by counting their own pay as profit rather than as a cost. A good way to avoid this mistake is to remember that the true profit rate is the rate that a new, external owner would be able to withdraw profit after buying the business for cash.
If you are an employee at a typical company, from the point of view of the company the average worth of its employee's work time is $118.1k per year per employee, or $56.64 per hour. As an employee, there isn't much you can do with this information, since your wages aren't derived from a calculation of the value of your work to the company. But if you convey that you know this information, your wage-negotiation power is incrementally improved, since hiring managers may attempt to reduce employees' expectations by claiming that employee time is worth less than it actually is.
Nevertheless, for most employees it's too risky to engage in any direct wage negotiation one-on-one with a hiring manager. It's safer to use collective bargaining with many other employees to increase your negotiation power while also avoiding becoming a target of overt or covert retaliation.
Use the calculator below to find out how much previous human labor your assets represent.
|investor/owner or working class|
See the FAQ for the definition used here to distinguish between the investor class and the working class.