Posted by: patenttranslator | July 3, 2011

Do Freelance Translators Have Equity in Their Business?

Depending on whom you believe, 20 percent to almost a half of the homeowners in the United States are under water, which is a cool new term meaning that the amount that these homeowners owe on their mortgages is more than what their house is worth (from what I have seen on the Internet, the estimates vary from about 20 percent according to Zillow.com to about 48 percent according to Deutsche Bank). A home without equity is just a rental with a debt. A huge debt, in fact, if you take into account also the insurance payments and the real estate taxes, which are much higher in the United States than for instance in most European countries, especially in states that specialize in confiscatory real estate taxes such as Texas, New Jersey or Florida.

Thanks to innovative financial instruments invented recently by the Wall Street, the equity in our house was cut by about 30% in the last 2 years or so, although we knew that the wonderful gains that the papers were happily trumpeting up until 2008 were just what they appeared to be … gains on paper. Luckily, since we bought our present house in 2001, we do have real equity in it, which means that we can still sell it, make a profit and move somewhere else if we want to (with the exception of Texas, New Jersey, or Florida).

Which brings me to the question of this post. Do translators have equity in their business and how can one measure it?

The easiest way to measure the value of anything is to try sell it. How much could you get for your business if you tried to sell it on the free market?

It turns out that some translators may have some or even considerable equity in their business, and some have none.

If the answer is that nobody would pay you anything for your business, then you are under water too as you have zero equity in your business. A temp who works when an agency calls her to work a certain number of hours a week when there is work to be done may think of herself as a business owner, but as she really has no equity in her business, she is hardly a business woman. The placement agency is a business with equity which keeps growing if it is a well run business. The temp, on the other hand, is a temp is a temp. A translator who only works for agencies is in my opinion just a glorified temp. This translator has about as much equity in his or her business as an illegal immigrant lining up in front of 7-Eleven to find a job for a day or two because as far as the agency is concerned, he or she is usually just as highly valued and just as easily replaceable.

I don’t know how much I could get for my business and I don’t intend to sell it, at least not any time soon, but I think that I probably could sell it for some amount, although probably not a lot, at least not at this point, for instance to a translation agency that specializes in patents. The reason why I probably do have some equity in my business is that although I do work for translation agencies, most of my income is generated by work that I do directly for patent law firms.

Just for the heck of it, I listed my business as being for sale about a year ago with an Internet company as it was a free listing. Since I did get a few phone calls from that listing, I have a better idea now what my equity in my business should be.

It is not just translators who may have no equity in their business these days in this economy, which is so nightmarish for many. I was reading a legal blog the other day where young lawyers were describing how they are being used as temps and paid as little as 40 dollars an hour by law firms which then turn around and bill these hours to their clients at 300 dollars an hour. Processing of medical claims, X-ray diagnostics and other services, including legal services, are increasingly being outsourced to third world countries.

Lots of people seem to be interested in outsourcing my work to a third world country too as there were hundreds of visits from people curious about my business in 21 cities in India to my website last month. If you listen closely, you can still hear the giant sucking sound that Ross Perot talked about in the 1992 presidential campaign, except that instead of jobs going south as he put it 19 years ago, they are going to India and China now.

There is nothing wrong with working for a broker without having any equity in your business or any control over anything, really, when you work through a middleman. It still beats being an employee these days because a middleman is much easier to replace than an employer, especially by a translator who wisely works for quite a few translation agencies and chooses them well.

But the fact is, translators who only work through agencies, even those who may be making a pretty good living, don’t really own a business.

They are just temps who have zero equity in their business.

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Responses

  1. Interesting post. One observation: this point comes up in the valuation of investment banks and consultancies, which don’t have much physical capital. The usual answer is that your capital is riding up and down in the elevators: it’s human capital, employees. If you sold your business, some of the value would be your contacts and business relationships, sure, but freelance businesses are difficult to sell because most of the value is you (and some of your clients might refuse to hire the business that replaces you).

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  2. I don’t know much about buying and selling of businesses, but it is clear to me that a translator who has no base of his or her own clients has nothing to sell, except perhaps a website URL such as translation.com.

    But most of the good URLs are at this point probably gone.

    I can imagine that it must be difficult to sell a freelance business.

    But if your rates are high enough, a different translation entity could replace you and continue providing the same services to your existing clients and new clients who will come via recommendations from old clients and via your website since the former freelance owner can be replaced by other freelance translators.

    The most important asset that is being sold in such a case is the client base. If there is no client base, i.e. the translator works only for brokers, there is nothing to sell and the business will die with the freelancer.

    Best regards,

    Steve Vitek

    Like


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