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The Rise Of The Million Dollar, One-Person Business

220 points by josephby 13y ago

jere 13y ago
>I’m not sure that these are all truly one-person businesses. In my reporting, I often come across firms with a regular team of 7 or 10 people, but only one or two classified as W2 employees and the rest working as contractors. I have to agree, since I find it mind boggling that one-man construction firms are making millions.
- patio11 13y ago
  I have to agree, since I find it mind boggling that one-man construction firms are making millions. That's not that uncommon for a general contractor: you do project management and client relations, sub-contractors hire the people who string wires and swing hammers.
  - jamesjporter 13y ago
    Patrick is right, I know people who are essentially one person companies doing exactly this and they do pretty well for themselves.
- tptacek 13y ago
  These are businesses with sales in the low 7 figures. A 1-person contracting firm netting 1MM/yr would be impressive. Most small construction firms are staffed with 1099s.
  - _delirium 13y ago
    It would be interesting to get some data on typical profit margins among these firms. The few I know have quite low profit margins overall. An uncle of mine until recently ran a distribution business sourcing gift-shop items and selling them to gift shops, which would fall into the $1m-$2.5m-revenue category this article discusses. But his profit margins were typically ~5-10%, so he was basically netting a middle-class salary.
shunter 13y ago
It's interesting that technology businesses didn't appear in any of the top grossing slots. I suspect this could be because they get lumped into professional / scientific.
- skc 13y ago
  Yeah, the only reason I even clicked on the link is because I just assumed the majority would be tech businesses, eg mobile app developers. Guess im guilty of living in a bit of a bubble.
- imjk 13y ago
  Yeah there were a lot of broad categories that I really wish gave more specifics on the types of companies within them.
- prostoalex 13y ago
  Which technology business model scales that way? Back in the days you could probably keep a 1-person business with shareware or packaged software sales, today with SaaS model one would be pushed into hiring support people rather soon.
- snoonan 13y ago
  As a percentage of the US GDP, small tech businesses aren't much of a blip. Just think of all of those real estate brokers and investors, day traders, hair salon owners, construction contractors that churn through 1M annually in revenue. Every small town across the US has a pile of millionaires like this.
yogo 13y ago
> Many institutions in our society are still structured in such a way that W2 employees are considered the norm, and it is hard for even well-off people who are self employed to, for instance, get a mortgage without intense paperwork hassles. It was refreshing to read that. Even for an apartment it's almost foreign to most building managers when you say you are self-employed (they might even have an unwritten rule that this means unemployed lol). Even after showing a good transaction history your chances are still pretty slim, it's almost as if they have never heard about anything other than W2 and pay stubs.
- 6cxs2hd6 13y ago
  Which is ironic since the top category in many of the revenue brackets was "real estate/rental and leasing firms". The building manager might get an old-school W2, but the agent who hooked you two up is likely self-employed.
- crucialfelix 13y ago
  Even worse for me is that my clients have been in the US and I am in Germany. The landlords here would rather give an apartment to somebody who is on welfare. Seriously. I'm considering incorporating and granting myself a EUR salary just so there is a steady pay stub.
  - 6cxs2hd6 13y ago
    From what I've heard about German employment law, wouldn't you need to form a "work council" and fight with yourself? ;)
- liquidcool 13y ago
  I get around this a few ways. If they require it, you can show them your savings account that shows you can pay a year's rent in cash. But maintaining a good credit rating is often good enough. I thought I'd have to show bank records, but instead the property manager said I had a credit rating "like a bank" and that was good enough. But the best advice I can give is to rent from an individual. You get so much more for less, because a lot of private party landlords just need to cover a very low mortgage from 10+ years ago, and getting peace of mind by renting to a professional is a good trade-off for below market rent.
OldSchool 13y ago
In our industry, it's pretty safe to count the one-person cases as outliers (hit app, etc), however I can attest to a number of people consistently pulling down 7-figure NET incomes from privately-owned small businesses without ever involving VC's or other investors. If it's a sustainable pace and you don't become so visible as to be a patent or other legal target you can quietly live very well on that or half that, etc. Bottom line, there are an infinite number of places to end up between being nobody and being a Zuckerberg/Gates/Jobs and really, most of them can provide a good quality of life.
- da02 13y ago
  Are they mostly B2B? Or do they sell directly to retail consumers?
  - hkarthik 13y ago
    Most of the people I know doing this are involved heavily in local commerce. Think real estate, insurance, construction, and skilled labor companies (plumbing, A/C repair, landscaping).
    - joonix 13y ago
      You aren't going to pull down 7 figures on a one-man AC repair business. In that type of business, you are just renting out your time, and nobody is paying $1,000/hr for an AC repairman's time. You can scale it, definitely, and have an army of repairmen working under you and then make tons of money, but then you're no longer talking about a one-man business.
      - larrys 13y ago
        I don't think grandparent comment was meant to imply 1 person business. (You are correct in your math assumptions). I just think they mean "small business funded organically or built from the ground up". Besides "1 person" can also mean "1 person and subcontractors" so where do you draw the line at "1 person" anyway? The only thing I would add though is that many of these businesses were not started by the person running them they were passed to a family member who got something that they could expand upon where the risk had already been taken.
skue 13y ago
Interesting breakdown, though the title is a bit misleading. The numbers do show a 5% annual increase in single person companies making $1MM+ in 2011, but it's difficult to know whether that reflects a true rise without comparing against historical data.
josephby 13y ago
It's interesting that many of these businesses are basically real estate holding companies. I wonder how many of these businesses are just tax-minimization or financing schemes used by larger companies for things like deferred compensation?
- trotsky 13y ago
  From what I understand the main purpose is liability shielding. Each property is run as its own LLC, and management is done via a centralized management company. If a person gets injured on the property, the liability effectively gets capped at the liquidation value of the building.
- samatman 13y ago
  When I hear someone is making a million dollars a year (not 5 million, not half a million) I guess in the following rough order: a) modest real estate holdings: a block of apartment buildings and a couple commercial properties. b) a large, successful construction company. c) operator of roughly a dozen franchise locations. d) is anyone's guess; outlier software firms, well-compensated financiers, CEO maybe. I know this doesn't address your question. Modest landholding is a common way to be in the 99.5.
michaelochurch 13y ago
The details behind the article show a less appealing reality than what we might hope for. Yeoman capitalism hasn't killed off VC-istan just yet. A lot of these $1M/year businesses are for, say, independent real estate brokers. Yes, there are people who get very rich in that game. There are others who fail horribly. I think we're quite a way from a society where talented people can find their way to, if not $1M per year, a reasonable approximation of their actual worth to society. (Fuck, I'd be happy with a regular upper-middle-class income if freed from subordination and its attendant mind-rot.) Let's stop talking about revenues and figures of "$1 million per year" (because there are a variety of context factors-- geography, profit vs. revenue-- that make us question what that really means) and instead talk about growth. This is where it gets interesting. We can look at the growth/risk spectrum between gambler's ruin (take all nonnegative-expectancy risks; thus take over the world economy or die) and non-participation (take no risks; no growth above the risk-free rate-- minus management fees, of course). Most business activity is between those two extremes, but the very middle of that spectrum is underfunded and undersubscribed. If you want to push for 150-percent-annual-growth-or-sudden-death outcomes like a sociopath gambling with others' money, ambitions, careers and dreams, then there are VCs will fund you, your pathological gambling, and (in most cases) your shitty personality cult. (That's the high-risk, high-growth route.) If you want to work for some horrible, authoritarian corporation doing shit-ass-boring mediocre work and growing your salary at 7% per year (mostly, a reward for getting older because you're so disconnected from the real work that no one knows what you're worth) then... good news, that is available too. (That's the low-risk, low-growth route... except the long-term existential risks are pretty disgusting because a career of mediocrity, coupled with age, makes one untouchable. See: what fucking academia does to those who don't make it.) What no one is talking about is the mid-risk/mid-growth range... 20 to 40 percent annual growth with some volatility, but not likely to ruin lives en masse. (You might have a thin year, but your average outcome is strong if you work hard, have the talent, and do the right thing. You just need discipline in your strong years.) The problem is that no one is funding that region of the spectrum. But that's the natural home for technology, research, science, as well as the yeoman capitalism that most of us would find much more rewarding (and scalable, and beneficial to society) than this VC-istan, Hollywood-for-ugly-people, bullshit. You can get jobs at stagnant corporations and jobs (probably not founder jobs, unless you have the connections to partake in Stanford Welfare, but jobs with "equity") in the high-risk VC-istan space. No one seems to have any clue how to fund the mid-risk/mid-growth space, but that's where the future actually lives. See: http://michaelochurch.wordpress.com/2013/03/26/gervais-macleod-17-building-the-future-and-financing-lifestyle-businesses/ http://michaelochurch.wordpress.com/2013/03/26/gervais-macle...
frozenport 13y ago
In the 1980s we had a time when people in finance could bring their companies millions of dollars without creating much palpable value. We certainly have a new bread of Masters of the Universe.
antidaily 13y ago
26,744 had sales between $1 million and $2.49 million (up from 24,945 in 2010) That's really not that many. And not that big of a rise considering the recovering economy.
FollowSteph3 13y ago
This is revenues and NOT profits/ so a real estate holding firm may have high revenues but not large profits because of the mortgage costs ;)
smrtinsert 13y ago
Real estate agents or brokers don't have the double taxation that we do right? Meaning they wouldn't have to pay corp/llc and employee tax?
- encoderer 13y ago
  Neither do "we"? I know the IRS 15-A rules have a carve out for "computer programmers, etc" that limits how such employees can function as 1-person LLC's for the purpose of 1099 employment with a corporation. (That is, the IRS says in such cases we're employees and a 1-man business won't save you from that, so we should be W2'd). But that doesn't affect double taxation? LLCs pass through the tax burden to the individual partner so whether that's RE or software engineering, there won't be double taxation on the partnerships profits. Am I missing something else that affects this?
larrys 13y ago
One thing I will add to the discussion of someone running a 1 man "type" business (which would include both 1 man and 1 man plus some helpers part time, sub contractors, 1099's whatever) is that while the upside is capped the downside is also clipped. If you have a 15 to 40 person business with lots of overhead and you have a few bad years you can lose lots of money. Because of that overhead. But if you are running a small operation out of a small office (or even your house) you might not have a big top end potential but you also aren't going to lose much either. A bad year might mean breaking even or making very little but your probably not going to lose your shirt (at least in 1 or 2 years if you have built up a reserve).
- Spooky23 13y ago
  Not necessarily. Plenty of 1-man "professional services" businesses are functioning as middlemen between big companies, or big companies and government. They have low overhead, but usually have a fixed, immovable deadline for paying their downstream companies. As long as the good times roll and the customers pay in time, life is grand.
tunesmith 13y ago
I think about this a lot - I made the jump from salaried worker to self-employed programmer/freelancer/contractor/consultant (depending on how you look at it). But I'm doing enterprise-level architectural programming. It's not very amenable to productizing, so I'm basically stuck being paid for my time. What that means is that if I want to have a long-term high-security relationship with a couple of key clients, I basically hit a ceiling in hourly rate (a good rate, but slightly below what your general multi-person agency will charge) and I've been at that ceiling for a couple of years now - nowhere close to $250k . It appears the way to transition out is to bump the rate up significantly so it doesn't appear you're trying to compete with agencies - maybe around $200/hour or 6k-8k/week. But the problem with that is that the long-term relationships can go out the window. They only want to bring you in for shorter periods of time, and you have to hustle more. So the marginal benefit isn't awesome. And I really like my clients and I hate hustling, so I stick with where I'm at. This higher rate I've had for the last 2-3 years is nice and all, but practically what it means is that I'm projected to be able to retire at age 65 instead of age 75. It's not a dramatic difference in lifestyle. So instead, I've just been trying to amass a larger emergency fund outside of maxing my retirement savings every year. And then I'll do something with it... what, I don't know. I know, first-world problems, but it seems that now that I finally have a bit of a nest egg, the income-maximizing move would be to use it to invest in one of these other careers the forbes article mentions. But what? Nest egg money isn't really the limiting factor behind a retail operation, it's the actual retail product idea, and I don't really think that way. What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not. So I'm sort of in this state of perpetual mulling. I wonder if I could just find a talented-but-poor subcontractor, get my own general contractor license, and handle all the business and project management parts (which I love) despite knowing nothing about construction.
- greenyoda 13y ago
  The real estate jobs aren't necessarily involved with owning and maintaining properties. They could be one-person real estate agencies.
- simonreed 13y ago
  "What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not." You don't need to do the fixing yourself... My advice would be to read 3+1 Plan book (http://en.wikipedia.org/wiki/The_3%2B1_Plan http://en.wikipedia.org/wiki/The_3%2B1_Plan). You can get it for free in PDF from the author if you sing up for one of his websites.
cityhall 13y ago
These numbers seem pretty misleading. What we're interested in are businesses that are started from scratch and derive their income through their own brand identity. What we're reading about are people who pass their consulting pay through an LLC for accounting reasons, or people who own income generating property through a holding company. This is more about how successful people are structuring their finances than about how people are achieving high incomes in the first place.
mililani 13y ago
My dad started three small businesses on his own over the period of 20 years: a restaurant, an upholstery business, and a long line commercial fishing boat. First, let me just point out that sales (or revenue) does NOT equal profit. I'm pretty sure everyone here knows that. If you count just sales, then the upholstery business marked with inflation would probably be doing $150-200k a year in sales/revenue for a single sole proprietorship. However, count in rent, materials, utilities, etc... my family was probably making about 70k a year in today's dollars. The fishing boat, though, is another story. Although the fishing boat was incorporated as an S-corp with just my dad as the sole owner and 100% owner of stock, he did employ a crew of people. I mean, there was a boat captain, and at any given time, 7 to 8 guys on board. We had fuel expenses, salaries (which were a portion of the catch), food expenses. If you looked strictly at our sales, which I used to do the bookkeeping for, we would easily net 500k to a million a year in today's dollars. After all expenses were paid and done, my dad would make about $100-120k a year on a decent year.
- mercutio2 13y ago
  Since we're using accounting terms-of-art, you almost certainly don't mean that you would "net 500k", you mean gross 500k, right? The popular culture seems to use net to mean "total in the income category", but in accounting it generally means EBITDA, i.e. your dad would gross $1m and net $100k.
  - mililani 13y ago
    Oops, yes, my bad. I meant gross. Geez, even I can't get the terms straight.
    - jwhite 13y ago
      I think we can excuse you, given that the boat was _literally_ netting quite a lot of money... in the form of fish :-)
csomar 13y ago
I see some flaws in this analysis. - Point 1 26,744 had sales between $1 million and $2.49 million (up from 24,945 in 2010) It's a 7% rise, in a year. Those who are in the $100k-$250k range, rose by 6%; not much of a difference. When we talk (or at least from my perspective) about the rise of a group or minority, it means their growth is much faster than the average and they are probably doing some kind of disruption. - Point 2 The author talks about the revenue. The revenue means little. Some solo-entrepreneur are selling their craft. A Software developer working remotely has almost no costs. Some are trading stuff. So their revenues are high, but not really their profit.
mhartl 13y ago
It's nice to see coverage of an exciting trend (of which I'm happy to be a part), but it always cracks me up when financial publications classify companies based on sales rather than profits. Defining a "million dollar company" as a company with a million dollars in annual sales is absurd.
- jsiarto 13y ago
  This. If your company clears one million in yearly sales and spends $980,000 to make that happen--you are running a $20,000 per year company. There is nothing wrong with this, but I hate when these metrics get thrown around without context. There are $1M companies that make less profit than a hot dog cart (which subsequently, in the right location is a damn good business).
  - beat 13y ago
    On the other hand, low-margin businesses are often low-risk, stable businesses. A grocery store has crappy margins, but excellent stability.
  - Axsuul 13y ago
    This is unlikely which is why $!M companies are significant because most likely their margins aren't that low.
- chii 13y ago
  my guess is they don't know the profit reliably?
pageld 13y ago
There isn't anything related to farming on there. Seems odd, especially when they're just talking about revenue and with how much money is in that sector right now. At 6.60 / bushel corn @ 200 bushels per acre, it "only" takes 760 acres of corn to break the $1M revenue barrier. 760 acres isn't necessarily a lot and can be definitely run by one person, especially with some contractor help. It probably has something to do with what's classified as a Non-Employer, but it just seems like it should be there.
deleted 13y ago
[deleted]

220 points by josephby 13y ago

jere 13y ago

>I’m not sure that these are all truly one-person businesses. In my reporting, I often come across firms with a regular team of 7 or 10 people, but only one or two classified as W2 employees and the rest working as contractors. I have to agree, since I find it mind boggling that one-man construction firms are making millions.

patio11 13y ago
I have to agree, since I find it mind boggling that one-man construction firms are making millions. That's not that uncommon for a general contractor: you do project management and client relations, sub-contractors hire the people who string wires and swing hammers.
- jamesjporter 13y ago
  Patrick is right, I know people who are essentially one person companies doing exactly this and they do pretty well for themselves.
tptacek 13y ago
These are businesses with sales in the low 7 figures. A 1-person contracting firm netting 1MM/yr would be impressive. Most small construction firms are staffed with 1099s.
- _delirium 13y ago
  It would be interesting to get some data on typical profit margins among these firms. The few I know have quite low profit margins overall. An uncle of mine until recently ran a distribution business sourcing gift-shop items and selling them to gift shops, which would fall into the $1m-$2.5m-revenue category this article discusses. But his profit margins were typically ~5-10%, so he was basically netting a middle-class salary.

shunter 13y ago

It's interesting that technology businesses didn't appear in any of the top grossing slots. I suspect this could be because they get lumped into professional / scientific.

skc 13y ago
Yeah, the only reason I even clicked on the link is because I just assumed the majority would be tech businesses, eg mobile app developers. Guess im guilty of living in a bit of a bubble.
imjk 13y ago
Yeah there were a lot of broad categories that I really wish gave more specifics on the types of companies within them.
prostoalex 13y ago
Which technology business model scales that way? Back in the days you could probably keep a 1-person business with shareware or packaged software sales, today with SaaS model one would be pushed into hiring support people rather soon.
snoonan 13y ago
As a percentage of the US GDP, small tech businesses aren't much of a blip. Just think of all of those real estate brokers and investors, day traders, hair salon owners, construction contractors that churn through 1M annually in revenue. Every small town across the US has a pile of millionaires like this.

yogo 13y ago

> Many institutions in our society are still structured in such a way that W2 employees are considered the norm, and it is hard for even well-off people who are self employed to, for instance, get a mortgage without intense paperwork hassles. It was refreshing to read that. Even for an apartment it's almost foreign to most building managers when you say you are self-employed (they might even have an unwritten rule that this means unemployed lol). Even after showing a good transaction history your chances are still pretty slim, it's almost as if they have never heard about anything other than W2 and pay stubs.

6cxs2hd6 13y ago
Which is ironic since the top category in many of the revenue brackets was "real estate/rental and leasing firms". The building manager might get an old-school W2, but the agent who hooked you two up is likely self-employed.
crucialfelix 13y ago
Even worse for me is that my clients have been in the US and I am in Germany. The landlords here would rather give an apartment to somebody who is on welfare. Seriously. I'm considering incorporating and granting myself a EUR salary just so there is a steady pay stub.
- 6cxs2hd6 13y ago
  From what I've heard about German employment law, wouldn't you need to form a "work council" and fight with yourself? ;)
liquidcool 13y ago
I get around this a few ways. If they require it, you can show them your savings account that shows you can pay a year's rent in cash. But maintaining a good credit rating is often good enough. I thought I'd have to show bank records, but instead the property manager said I had a credit rating "like a bank" and that was good enough. But the best advice I can give is to rent from an individual. You get so much more for less, because a lot of private party landlords just need to cover a very low mortgage from 10+ years ago, and getting peace of mind by renting to a professional is a good trade-off for below market rent.

OldSchool 13y ago

In our industry, it's pretty safe to count the one-person cases as outliers (hit app, etc), however I can attest to a number of people consistently pulling down 7-figure NET incomes from privately-owned small businesses without ever involving VC's or other investors. If it's a sustainable pace and you don't become so visible as to be a patent or other legal target you can quietly live very well on that or half that, etc. Bottom line, there are an infinite number of places to end up between being nobody and being a Zuckerberg/Gates/Jobs and really, most of them can provide a good quality of life.

da02 13y ago
Are they mostly B2B? Or do they sell directly to retail consumers?
- hkarthik 13y ago
  Most of the people I know doing this are involved heavily in local commerce. Think real estate, insurance, construction, and skilled labor companies (plumbing, A/C repair, landscaping).
  - joonix 13y ago
    You aren't going to pull down 7 figures on a one-man AC repair business. In that type of business, you are just renting out your time, and nobody is paying $1,000/hr for an AC repairman's time. You can scale it, definitely, and have an army of repairmen working under you and then make tons of money, but then you're no longer talking about a one-man business.
    - larrys 13y ago
      I don't think grandparent comment was meant to imply 1 person business. (You are correct in your math assumptions). I just think they mean "small business funded organically or built from the ground up". Besides "1 person" can also mean "1 person and subcontractors" so where do you draw the line at "1 person" anyway? The only thing I would add though is that many of these businesses were not started by the person running them they were passed to a family member who got something that they could expand upon where the risk had already been taken.

skue 13y ago

Interesting breakdown, though the title is a bit misleading. The numbers do show a 5% annual increase in single person companies making $1MM+ in 2011, but it's difficult to know whether that reflects a true rise without comparing against historical data.

josephby 13y ago

It's interesting that many of these businesses are basically real estate holding companies. I wonder how many of these businesses are just tax-minimization or financing schemes used by larger companies for things like deferred compensation?

trotsky 13y ago
From what I understand the main purpose is liability shielding. Each property is run as its own LLC, and management is done via a centralized management company. If a person gets injured on the property, the liability effectively gets capped at the liquidation value of the building.
samatman 13y ago
When I hear someone is making a million dollars a year (not 5 million, not half a million) I guess in the following rough order: a) modest real estate holdings: a block of apartment buildings and a couple commercial properties. b) a large, successful construction company. c) operator of roughly a dozen franchise locations. d) is anyone's guess; outlier software firms, well-compensated financiers, CEO maybe. I know this doesn't address your question. Modest landholding is a common way to be in the 99.5.

michaelochurch 13y ago

The details behind the article show a less appealing reality than what we might hope for. Yeoman capitalism hasn't killed off VC-istan just yet. A lot of these $1M/year businesses are for, say, independent real estate brokers. Yes, there are people who get very rich in that game. There are others who fail horribly. I think we're quite a way from a society where talented people can find their way to, if not $1M per year, a reasonable approximation of their actual worth to society. (Fuck, I'd be happy with a regular upper-middle-class income if freed from subordination and its attendant mind-rot.) Let's stop talking about revenues and figures of "$1 million per year" (because there are a variety of context factors-- geography, profit vs. revenue-- that make us question what that really means) and instead talk about growth. This is where it gets interesting. We can look at the growth/risk spectrum between gambler's ruin (take all nonnegative-expectancy risks; thus take over the world economy or die) and non-participation (take no risks; no growth above the risk-free rate-- minus management fees, of course). Most business activity is between those two extremes, but the very middle of that spectrum is underfunded and undersubscribed. If you want to push for 150-percent-annual-growth-or-sudden-death outcomes like a sociopath gambling with others' money, ambitions, careers and dreams, then there are VCs will fund you, your pathological gambling, and (in most cases) your shitty personality cult. (That's the high-risk, high-growth route.) If you want to work for some horrible, authoritarian corporation doing shit-ass-boring mediocre work and growing your salary at 7% per year (mostly, a reward for getting older because you're so disconnected from the real work that no one knows what you're worth) then... good news, that is available too. (That's the low-risk, low-growth route... except the long-term existential risks are pretty disgusting because a career of mediocrity, coupled with age, makes one untouchable. See: what fucking academia does to those who don't make it.) What no one is talking about is the mid-risk/mid-growth range... 20 to 40 percent annual growth with some volatility, but not likely to ruin lives en masse. (You might have a thin year, but your average outcome is strong if you work hard, have the talent, and do the right thing. You just need discipline in your strong years.) The problem is that no one is funding that region of the spectrum. But that's the natural home for technology, research, science, as well as the yeoman capitalism that most of us would find much more rewarding (and scalable, and beneficial to society) than this VC-istan, Hollywood-for-ugly-people, bullshit. You can get jobs at stagnant corporations and jobs (probably not founder jobs, unless you have the connections to partake in Stanford Welfare, but jobs with "equity") in the high-risk VC-istan space. No one seems to have any clue how to fund the mid-risk/mid-growth space, but that's where the future actually lives. See: http://michaelochurch.wordpress.com/2013/03/26/gervais-macleod-17-building-the-future-and-financing-lifestyle-businesses/ http://michaelochurch.wordpress.com/2013/03/26/gervais-macle...

frozenport 13y ago

In the 1980s we had a time when people in finance could bring their companies millions of dollars without creating much palpable value. We certainly have a new bread of Masters of the Universe.

antidaily 13y ago

26,744 had sales between $1 million and $2.49 million (up from 24,945 in 2010) That's really not that many. And not that big of a rise considering the recovering economy.

FollowSteph3 13y ago

This is revenues and NOT profits/ so a real estate holding firm may have high revenues but not large profits because of the mortgage costs ;)

smrtinsert 13y ago

Real estate agents or brokers don't have the double taxation that we do right? Meaning they wouldn't have to pay corp/llc and employee tax?

encoderer 13y ago
Neither do "we"? I know the IRS 15-A rules have a carve out for "computer programmers, etc" that limits how such employees can function as 1-person LLC's for the purpose of 1099 employment with a corporation. (That is, the IRS says in such cases we're employees and a 1-man business won't save you from that, so we should be W2'd). But that doesn't affect double taxation? LLCs pass through the tax burden to the individual partner so whether that's RE or software engineering, there won't be double taxation on the partnerships profits. Am I missing something else that affects this?

larrys 13y ago

One thing I will add to the discussion of someone running a 1 man "type" business (which would include both 1 man and 1 man plus some helpers part time, sub contractors, 1099's whatever) is that while the upside is capped the downside is also clipped. If you have a 15 to 40 person business with lots of overhead and you have a few bad years you can lose lots of money. Because of that overhead. But if you are running a small operation out of a small office (or even your house) you might not have a big top end potential but you also aren't going to lose much either. A bad year might mean breaking even or making very little but your probably not going to lose your shirt (at least in 1 or 2 years if you have built up a reserve).

Spooky23 13y ago
Not necessarily. Plenty of 1-man "professional services" businesses are functioning as middlemen between big companies, or big companies and government. They have low overhead, but usually have a fixed, immovable deadline for paying their downstream companies. As long as the good times roll and the customers pay in time, life is grand.

tunesmith 13y ago

I think about this a lot - I made the jump from salaried worker to self-employed programmer/freelancer/contractor/consultant (depending on how you look at it). But I'm doing enterprise-level architectural programming. It's not very amenable to productizing, so I'm basically stuck being paid for my time. What that means is that if I want to have a long-term high-security relationship with a couple of key clients, I basically hit a ceiling in hourly rate (a good rate, but slightly below what your general multi-person agency will charge) and I've been at that ceiling for a couple of years now - nowhere close to $250k . It appears the way to transition out is to bump the rate up significantly so it doesn't appear you're trying to compete with agencies - maybe around $200/hour or 6k-8k/week. But the problem with that is that the long-term relationships can go out the window. They only want to bring you in for shorter periods of time, and you have to hustle more. So the marginal benefit isn't awesome. And I really like my clients and I hate hustling, so I stick with where I'm at. This higher rate I've had for the last 2-3 years is nice and all, but practically what it means is that I'm projected to be able to retire at age 65 instead of age 75. It's not a dramatic difference in lifestyle. So instead, I've just been trying to amass a larger emergency fund outside of maxing my retirement savings every year. And then I'll do something with it... what, I don't know. I know, first-world problems, but it seems that now that I finally have a bit of a nest egg, the income-maximizing move would be to use it to invest in one of these other careers the forbes article mentions. But what? Nest egg money isn't really the limiting factor behind a retail operation, it's the actual retail product idea, and I don't really think that way. What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not. So I'm sort of in this state of perpetual mulling. I wonder if I could just find a talented-but-poor subcontractor, get my own general contractor license, and handle all the business and project management parts (which I love) despite knowing nothing about construction.

greenyoda 13y ago
The real estate jobs aren't necessarily involved with owning and maintaining properties. They could be one-person real estate agencies.
simonreed 13y ago
"What's left is real estate, but I'm regularly told I shouldn't even bother if I'm not a fix-it handyman sort, which I'm not." You don't need to do the fixing yourself... My advice would be to read 3+1 Plan book (http://en.wikipedia.org/wiki/The_3%2B1_Plan http://en.wikipedia.org/wiki/The_3%2B1_Plan). You can get it for free in PDF from the author if you sing up for one of his websites.

cityhall 13y ago

These numbers seem pretty misleading. What we're interested in are businesses that are started from scratch and derive their income through their own brand identity. What we're reading about are people who pass their consulting pay through an LLC for accounting reasons, or people who own income generating property through a holding company. This is more about how successful people are structuring their finances than about how people are achieving high incomes in the first place.

mililani 13y ago

My dad started three small businesses on his own over the period of 20 years: a restaurant, an upholstery business, and a long line commercial fishing boat. First, let me just point out that sales (or revenue) does NOT equal profit. I'm pretty sure everyone here knows that. If you count just sales, then the upholstery business marked with inflation would probably be doing $150-200k a year in sales/revenue for a single sole proprietorship. However, count in rent, materials, utilities, etc... my family was probably making about 70k a year in today's dollars. The fishing boat, though, is another story. Although the fishing boat was incorporated as an S-corp with just my dad as the sole owner and 100% owner of stock, he did employ a crew of people. I mean, there was a boat captain, and at any given time, 7 to 8 guys on board. We had fuel expenses, salaries (which were a portion of the catch), food expenses. If you looked strictly at our sales, which I used to do the bookkeeping for, we would easily net 500k to a million a year in today's dollars. After all expenses were paid and done, my dad would make about $100-120k a year on a decent year.

mercutio2 13y ago
Since we're using accounting terms-of-art, you almost certainly don't mean that you would "net 500k", you mean gross 500k, right? The popular culture seems to use net to mean "total in the income category", but in accounting it generally means EBITDA, i.e. your dad would gross $1m and net $100k.
- mililani 13y ago
  Oops, yes, my bad. I meant gross. Geez, even I can't get the terms straight.
  - jwhite 13y ago
    I think we can excuse you, given that the boat was _literally_ netting quite a lot of money... in the form of fish :-)

csomar 13y ago

I see some flaws in this analysis. - Point 1 26,744 had sales between $1 million and $2.49 million (up from 24,945 in 2010) It's a 7% rise, in a year. Those who are in the $100k-$250k range, rose by 6%; not much of a difference. When we talk (or at least from my perspective) about the rise of a group or minority, it means their growth is much faster than the average and they are probably doing some kind of disruption. - Point 2 The author talks about the revenue. The revenue means little. Some solo-entrepreneur are selling their craft. A Software developer working remotely has almost no costs. Some are trading stuff. So their revenues are high, but not really their profit.

mhartl 13y ago

It's nice to see coverage of an exciting trend (of which I'm happy to be a part), but it always cracks me up when financial publications classify companies based on sales rather than profits. Defining a "million dollar company" as a company with a million dollars in annual sales is absurd.

jsiarto 13y ago
This. If your company clears one million in yearly sales and spends $980,000 to make that happen--you are running a $20,000 per year company. There is nothing wrong with this, but I hate when these metrics get thrown around without context. There are $1M companies that make less profit than a hot dog cart (which subsequently, in the right location is a damn good business).
- beat 13y ago
  On the other hand, low-margin businesses are often low-risk, stable businesses. A grocery store has crappy margins, but excellent stability.
- Axsuul 13y ago
  This is unlikely which is why $!M companies are significant because most likely their margins aren't that low.
chii 13y ago
my guess is they don't know the profit reliably?

pageld 13y ago

There isn't anything related to farming on there. Seems odd, especially when they're just talking about revenue and with how much money is in that sector right now. At 6.60 / bushel corn @ 200 bushels per acre, it "only" takes 760 acres of corn to break the $1M revenue barrier. 760 acres isn't necessarily a lot and can be definitely run by one person, especially with some contractor help. It probably has something to do with what's classified as a Non-Employer, but it just seems like it should be there.

deleted 13y ago

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