What I want to talk about is why not all profit is equal and the reason I want to talk about it is because I was watching a really good interview between Patrick Bet David and John Worolo. So, these are like business sale experts and I was watching a few months ago and John Worolo said something really profound which stuck with me and he was giving the audience the story behind a garage that fixed cars, but also had a subscription based element of their service.
And he was giving the story of how that garage was being valued for sale and eventually sold. And what John Worolow said: business was being valued for sale. And what happened was there was a component of the business that was based on people bringing in broken cars or cars that needed servicing, the garage fixing them, and then there was another component of the business where people were on like a subscription and the subscription based service meant that over a period of time the income would come in regularly for this business.
And then they’d know how much work they needed to do when it came to actually providing a value for this business and an offer for this business. The buyer valued the subscription based income at a level of 40 times the income from actually doing one off sales. So what I mean by that is like normally when you buy or sell a business, you take a multiple, you apply to your profits.
So what was happening in this case was a pound generated in profit from the one off sales and one off bits of work that this garage was doing. It was worth one 40th when it came to applying multiple to it of a pound generated in profit from the subscription side of the business. And this is a really important concept because everyone, or maybe not everyone, but if you’re looking at a lot of business publications these days, they’re talking about the importance of actually like having regular income coming into business, having subscriptions and having retainers.
And I just wanted to talk about this specific example that I saw with John Rollo, who’s an expert at selling businesses because he just identifies like the vast difference in wealth that can be created just by having the right kind of income in the right structure to the solution that you provide your customers.
So that’s all just once again, if you like this video, remember to like, share, follow, subscribe, and also go to our website where you can check out all the other great content. That’s great. See you at the next video.