TLDR
- A business counts toward your FI number in two ways: the profit it pays you once it runs without you, and the money that lands if you sell it.
- A business that stops when you stop is a job. Only what you save from it counts.
- In one example, a business paying its owner $120,000 a year would land about $350,000 if sold: less than a fifth of that owner’s FI number.
- For many owners, the profit from a business that runs without them is worth more to their date than selling it.
Ask a business owner how they’re getting to financial independence and a lot of them point at the business. It pays well. It’s worth something. It’s the plan.
Then ask them to put it in a FIRE calculator. They can’t. There’s no box for it, so they leave it out or guess. Both are wrong, in opposite directions.
The test: does it run without you?
Your FI number is the pot that pays your spending without you working. A business only belongs in that pot if it also pays you without you working.
If you stop for two months and the profit stops with you, it’s a job, however good. Count what you save from it, the same as a salary. Nothing more.
If it keeps paying you, it counts in one of two ways.
Way one: what it pays you
Say your business makes $200,000 a year for its owner, and you take $120,000 of that out. Your household spends $72,000 a year. At a 4% withdrawal rate, your FI number is $1.8 million.
If the business needs you every week, it’s a job paying $120,000. You save $48,000 a year from it, and your date depends on that.
If it runs without you, its $120,000 covers your $72,000 on its own. On paper you’re already free. In practice, one business is a concentrated, fragile asset. A key person leaves, a competitor opens across the road, a rule changes. Count it, but don’t count it like an index fund.
Way two: what lands if you sell
Same business. A buyer might pay three times the owner’s profit, minus a discount because it still leans on you. Here’s how that might net out:
| Line | Runs about two weeks without you | Runs without you |
|---|---|---|
| Headline price (3× $200,000, less any dependency discount) | $450,000 | $600,000 |
| Cash at close (70%) | $315,000 | $420,000 |
| Earn-out (30%, counted at 50%) | $67,500 | $90,000 |
| Fees (8%) | −$36,000 | −$48,000 |
| What lands, before tax | About $346,500 | About $462,000 |
Against an FI number of $1.8 million, that’s 19% to 26%. The business paying its owner $120,000 a year sells for a fraction of the number it was supposed to fund.
Most owners overcount the sale and undercount the cashflow.
That’s the arithmetic behind something I believe about the endpoint: a business that runs without you, plus assets you own outright, can be worth more to your freedom than a cheque that has to be invested and drawn down. If you do want to sell, here’s how to work out the price you’d need.
Why “savings rate” stops working
An employee has a savings rate: income in, spending out, the rest saved. An owner has profit, what they draw, what they reinvest, and what the business is worth, all moving at once. Reinvesting $50,000 into a second site isn’t spending, and it isn’t saving into an index either.
That’s why the usual FIRE maths breaks somewhere around the point an owner hires their first staff. The six levels of a service business walks through where it breaks, level by level, and what each level does to the date. A business whose only asset is the founder is a job is the short version.
Run your own
Open the calculator and pick “I already own one”. Put in your profit, what you take out, the multiple and how long it runs without you. It shows what a sale would land, and your date whether you walk away or stick it out.
Illustrative numbers, not advice. I’m not a licensed adviser. Valuation, tax and deal structure are questions for the people you pay to answer them.