The Escape Number Problem

[pdrake]

Recently I calculated my escape number at $17,199,840 and my business system target at $215,000 / month.

Now, 40% of my business system target contributes to my money system which is around $84,000 / month.

The problem is that it would take me 11.5 years (including 5% yearly interest) to reach my escape number ($17.2M), this means my business would have to bring in $215,000 per month for 137 months. Businesses don't last forever, so how can I expect my business to consecutively bring me $215k per month for 11.5 years?

If I am being completely financially illiterate or impatient then please do educate me. Any advice is greatly appreciated. Thankyou.

 

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[amp0193]

The problem is that it would take me 11.5 years (including 5% yearly interest) to reach my escape number ($17.2M), this means my business would have to bring in $215,000 per month for 137 months. Businesses don't last forever, so how can I expect my business to consecutively bring me $215k per month for 11.5 years?

Are you still working on growing your business?

Every year you grow the bottom line, shortens the timeline.

I think it's hard to have a business that's flat for a decade (as you said). It's either growing or it's slowly dying.



Also don't forget about equity value. If the numbers you are talking about above are net income, then you could sell your business now for between 2 and 5 million (depending on type of business and many other factors).

If those are revenue numbers though, then it would sell for a lot less, and it's going to take a lot longer than 11 years at current rate...


In any case, the tradeoff for siphoning off profits now, is that it limits your ability to grow, and consequently, equity value. Might be faster to keep all profits in business, grow grow grow, and then sell the business for 17M in a few years. But that comes with increased personal risk.

 

[MTF]

Many people on this forum probably won't agree with me but most people who post here their escape numbers can probably safely divide them by 5-10x and still reach the kind of lifestyle they're after.

Unless they're completely obsessed about material things or status but then no real exit number exists, you'll always want more.

 

[MJ DeMarco]

Recently I calculated my escape number at $17,199,840 and my business system target at $215,000 / month.

Now, 40% of my business system target contributes to my money system which is around $84,000 / month.

The problem is that it would take me 11.5 years (including 5% yearly interest) to reach my escape number ($17.2M), this means my business would have to bring in $215,000 per month for 137 months. Businesses don't last forever, so how can I expect my business to consecutively bring me $215k per month for 11.5 years?

If I am being completely financially illiterate or impatient then please do educate me. Any advice is greatly appreciated. Thankyou.

If you have a business that does this type of money, it is automatically worth millions.

You're missing this part of the entire picture.

If your company earns a net profit of $215,000/mo, your company should be worth $10-$15M -- which on a Net Worth calculation, immediately gets you to your escape number. Sell the company, and it becomes realized -- 11.5 years not required.

 

[wanttogofaster]

Many people on this forum probably won't agree with me but most people who post here their escape numbers can probably safely divide them by 5-10x and still reach the kind of lifestyle they're after.

It looks like he is in the UK.

5, maybe. 10 would not be enough to have a comfortable lifestyle anywhere in the world unless he is 65+.

 

[MTF]

It looks like he is in the UK.

5, maybe. 10 would not be enough to have a comfortable lifestyle anywhere in the world unless he is 65+.

1.7 million wouldn't be enough to have a comfortable lifestyle anywhere in the world?

That was the point of my post: people vastly overestimate it. Of course this won't be enough in the largest, most expensive cities in the world but in lots of countries that makes you one of the richest and it would be really hard to spend that money unless you're completely irresponsible.

For example, in Poland you can get a nice apartment/house for $300-500k at most (there are no crazy property taxes so after that it's just the regular bills). A nice, comfortable car is maybe $50-70k unless you're really into cars. Travel budget per year, unless you're a crazy spender, is maybe $100k a year. After that, you still have well over $1 million and you're probably getting nice investment income off that. I'm not sure how you could spend it easily. Maybe I'm just not materialistic enough or I don't see the expenses generated by having kids (but if you have kids, you likely have a spouse who's also making money).

Even in the US, this dude's net worth is almost exactly $1.7 million and he has a wife and a teenage daughter and they're living a comfortable lifestyle with lots of adventure:

Net Worth - Route to Retire

Hey everyone - I thought this would be worthwhile since I received a lot of good feedback after publishing $1 Million Net Worth... Now What?. I'll

www.routetoretire.com

 

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[pdrake]

If you have a business that does this type of money, it is automatically worth millions.

You're missing this part of the entire picture.

If your company earns a net profit of $215,000/mo, your company should be worth $10-$15M -- which on a Net Worth calculation, immediately gets you to your escape number. Sell the company, and it becomes realized -- 11.5 years not required.

Ah! thankyou for the contribution MJ. Time to find a jar and start my journey to 1,700,000,000 pennies!

 

[wanttogofaster]

1.7 million wouldn't be enough to have a comfortable lifestyle anywhere in the world?

I exaggerated when I said: "anywhere in the world". I meant more like Western countries, considering he is from the UK, and not everyone wants to "retire" in SE Asia or South America. We have been to Malaysia, Colombia, Panama, Mexico, Spain, lots of Caribbean Islands, and other countries mentioned in the Bali thread and I don't see ourselves moving there. Maybe he is in the same boat, and that's why he thinks he needs $17M.

Don't get me wrong, we would love to move and experience other countries. But if I'm going to move my family to a different country, we would have to maintain or improve our standard of living. I like Perth and Brisbane, Australia and my wife loves London, UK (as bad as it may sound, she's been in love with it since before we met), unfortunately, they're not the easiest countries to move to and they're also expensive. But no matter if we stay here in the US, or end up moving to either of those two, I'm sure we would need more than $1.7M. I don't think we would need $17M, but more in the $5M to $10M range. This is to move soon, while we are raising kids, etc., and considering that I cannot be without doing anything, I'm sure I will find something to do and make some money no matter where we go. At 65, I'm sure we would need less than that (without adjusting for inflation), but that's a few decades from now.

I've never been to Poland. Is it easy to move there for someone from the UK? What about the US? In your example, age is important. Assuming he is 30, what happens 5~10 years from now when he wants or needs a new car? that's an extra $80K~$100K he has to withdraw from the portfolio. That $100K travel budget means that he would have to withdraw an extra $40K~$50K a year on top of whatever dividends/investment income he is getting to cover expenses. I don't see that portfolio lasting very long. Yes, he can "work", not everyone wants to sit at the beach all day, every day, that gets boring fast, but ideally he does it because he wants to, not because he has to.

Now, if you told me that he can get that same house and car, and wants/needs to spend $40K~$50K a year or less, which I honestly cannot tell you how far they go in Poland, I agree that it would be doable.

 

[ThomasTLM]

Many people on this forum probably won't agree with me but most people who post here their escape numbers can probably safely divide them by 5-10x and still reach the kind of lifestyle they're after.

Unless they're completely obsessed about material things or status but then no real exit number exists, you'll always want more.

This is something I realized after calculating my escape number. I realized that I totally overestimated the costs of things like my dream home, how much land I would want, healthcare costs for my family, etc.

If I end up selling a business for even a couple million (after taxes), then I'm set.

While it would be totally cool, I don't need a Ferrari in the future.

 

[pdrake]

This is something I realized after calculating my escape number. I realized that I totally overestimated the costs of things like my dream home, how much land I would want, healthcare costs for my family, etc.

If I end up selling a business for even a couple million (after taxes), then I'm set.

While it would be totally cool, I don't need a Ferrari in the future.

Yeah I most definitely have overshot my escape number. For example I had $3000 / month on food for a family of five. I managed to trim it down by nearly $5M and retain a very similar lifestyle without the unnecessary excess. Awesome.

 

[MJ DeMarco]

The intended consequence of building a business with strong cash flow is it simultaneously builds the enterprise value of the company. The latter is how one can reach, and many times, blow by escape numbers quickly.

Also, earned income is taxed at 45%, capital gains, 20% — this also makes the sale of business assets even more logical when confronting these options. (US tax system)

 

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[Jbrow327]

Recently I calculated my escape number at $17,199,840 and my business system target at $215,000 / month.

Now, 40% of my business system target contributes to my money system which is around $84,000 / month.

The problem is that it would take me 11.5 years (including 5% yearly interest) to reach my escape number ($17.2M), this means my business would have to bring in $215,000 per month for 137 months. Businesses don't last forever, so how can I expect my business to consecutively bring me $215k per month for 11.5 years?

If I am being completely financially illiterate or impatient then please do educate me. Any advice is greatly appreciated. Thankyou.

Don't forget your big exit number. That alone could be 10M depending on the type of business you have and the industry multiple.

 

[amp0193]

Also, earned income is taxed at 45%, capital gains, 20% — this also makes the sale of business assets even more logical when confronting these options. (US tax system)

and forming a C-corp and selling it at least 5 years later is 0% tax (up to $10M. Via the QSBS). Assuming you can manage to sell the entity and not just an asset sale. I may be doing this soon.

 

[BarbaricSuccess]

If you have a business that does this type of money, it is automatically worth millions.

You're missing this part of the entire picture.

If your company earns a net profit of $215,000/mo, your company should be worth $10-$15M -- which on a Net Worth calculation, immediately gets you to your escape number. Sell the company, and it becomes realized -- 11.5 years not required.

If someone built such a business and then sold it to nearly reach their escape number; what might be a way to leverage the experience into a legacy income that could continue to monetize the knowledge and experience gained, despite the fact that the business has already been sold?

e.g. would it be worthwhile to package a "lessons learned" type of online course or audio program for sale, after having built an 8 figure business and successfully sold it? Or am I thinking too small / waaayy off base?

Would it be less risky/more lucrative to use some portion of the proceeds from the sale to look towards building a money system instead?

 

[biophase]

If someone built such a business and then sold it to nearly reach their escape number; what might be a way to leverage the experience into a legacy income that could continue to monetize the knowledge and experience gained, despite the fact that the business has already been sold?

e.g. would it be worthwhile to package a "lessons learned" type of online course or audio program for sale, after having built an 8 figure business and successfully sold it? Or am I thinking too small / waaayy off base?

Would it be less risky/more lucrative to use some portion of the proceeds from the sale to look towards building a money system instead?

Someone selling a company for $10m plus is not going to be selling an online course afterwards. Why would a person who just sold their business go start another tiny tiny business?

The $10M is the money system!

Legacy income can come from investing in passive income streams, like stocks, mutual funds, CDs, bonds, real estate, etc..