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Equity Partner vs Exec: Worth Buying In?
u/top4senior · Joined Nov 2024
Explore the financial side of advancing to equity partner versus executive roles. This chart offers a clear comparison for senior accountants weighing net worth
Last update Nov 2024
- Scenario 1: Net Worth: Equity over Exec
This chart shows net worth growth for the equity partner over the executive path. Watch for when the curve rises above zero, indicating the equity path’s advantage as it outpaces the executive path in net worth over time.
Age
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Your current age to calculate the time horizon for growth and returns on the equity investment path versus the executive career path.
A =
The initial investment needed to become an equity partner, typically financed through a loan with specific terms and interest rates.
B =
Estimated annual growth rate of the firm’s value, affecting the appreciation of your equity stake over time.
C =
The expected annual income from your equity partnership, based on the firm’s profit performance and your ownership stake.
D =
Estimated annual costs for tax, accounting, and other deductible expenses unique to the equity partnership, including self-employment tax treatments and compliance overhead.
E =
The annual interest rate on the loan taken to finance the equity buy-in, affecting repayment costs over the loan term.
F =
Duration during which only loan interest is paid, allowing cash flow flexibility before full loan repayment begins.
G =
Length of time to repay the loan principal and interest after the interest-only period ends, typically over several years.
H =
Annual base salary for the executive role, offering stable income in contrast to the variable earnings from an equity partnership.
I =
Estimated cash value of benefits (health, retirement, perks) provided to executives, boosting overall compensation beyond salary.
J =
Performance-based annual bonus for the executive role, often contingent on meeting personal or firm-wide objectives.
K =
The yearly percentage increase in base salary, reflecting promotions or regular compensation adjustments for executives.
L =
Target age for retirement, helping estimate total earnings and returns over the years until you exit your career path.
M =
Marginal tax rate applied to ordinary income from salary, bonuses, and profit share, impacting net take-home pay.
N =
Tax rate on capital gains, which affects any gains on the equity buy-in if the firm’s value appreciates over time. Include 3.8% NIIT if applicable.
O =
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- AmountAny single amount ($).
- Cash FlowRent, insurance premium, salary, ...
- Current AssetReal estate, commodity, bonds, ...
- Installment LoanMortgage, car loan, ...
- PercentageAny percentage value (%).
- Years / MonthsAny time horizon.
- Age (already added)Show "Age" instead of "# Years from Now."
- Retirement Age (already added))Enable "Investment Return After Retirement."
Time Value Assumptions
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How is Cash Value calculated?
This calculation compares net worth for equity partner and executive paths, factoring in unique self-employment costs like Social Security and Medicare taxes, along with deductible expenses, loan terms, profit share, and salary growth.
Decisions / Expectations
(Expressions are evaluated at Year 0 only.)
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Calculations
(Expressions are evaluated at every year.)
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- Buy AssetBuy an asset growing at its own rate.
- Take Installment LoanTake a mortgage, loan, etc.
- InvestReceive/Spend a lump sum.
- Expect to InvestExpect to receive/spend a lump sum.
- Expect Monthly Cash FlowExpect to receive/spend cash monthly.
- Expect Yearly Cash FlowExpect to receive/spend cash yearly.
- Define Variable (Numerical)Calculate an intermediate value.