I hear a lot of business owners tell me that their strategy for building wealth is their business. Great I say, you must be making heaps of profit… Nope, they tell me that their strategy is to sell their business when they retire and live off that during retirement.
This is a bad strategy! It’s like telling me that you are going to take your life savings to the casino and build your retirement nest egg by betting on the roulette table – a gamble that might work but usually doesn’t.
Why is taking the profit out of your company only when you sell it a bad idea?
Business is high risk – We have all heard the statistics, only 20% of businesses last more than a year, only 20% of those that are left make it to 5 years… and I don’t know how small the percentage of business that start last the 10, 20 or 30 years until you retire …. Not many. So, assuming you can sell it an make money then is a high risk decision.
Most of us are comfortable investing money or time into our business, but have you ever thought about investing in a start up business? High risk to invest in a start up business, most of us wouldn’t. Why are we happy to invest in our own business, it’s because we know all the risks and therefore don’t see them as risky – even though they may be.
You’re not in control – If the global pandemic has taught us one thing it’s that there are external factors that can impact on our business. We could have a very successful Café in the city which has been closed down for a long time, no income but still costs to pay, suddenly that profitable business we had might not even exist through no fault of our own.
What do you do?
Use your business to build wealth all the time. Your business should be paying you a wage that is more than you could get working for someone else … plus it should be paying you profit of between 5 and 15% … yep that how much profit you should be making in your business.
Note that making profit and “reinvesting” into the business is not making profit. You need to draw at least 50% of any profit you make out every quarter.
So, say you own a $1million trade business, you should be paying yourself $150k per year and collecting $100k of profit. If you’re lucky to get $60k a year total from your business then you need help to reorganise your business or you need to get a job where you could earn more with less risk. That is where a business coach can help, just ask.
What do I do with the extra money?
There is a book called the Richest Man in Babylon, this book talks about how if you take a percentage of your income and invest it how you will become rich. So, take that profit and invest it in shares or property. The specifics of where to invest is something you need to discover for yourself and a financial advisor can assist with this – not a business coach.
What do I do now?
If I can leave you with one suggestion it is to build profit into your business and start taking that profit out of your business and investing it. The best book to help you do this is "Profit First" by Mike Michalowicz. His strategies are simple but often hard to implement without support, if you would like to talk about how to implement this strategy into your busienss book a discovery session with me.
This is a bad strategy! It’s like telling me that you are going to take your life savings to the casino and build your retirement nest egg by betting on the roulette table – a gamble that might work but usually doesn’t.
Why is taking the profit out of your company only when you sell it a bad idea?
Business is high risk – We have all heard the statistics, only 20% of businesses last more than a year, only 20% of those that are left make it to 5 years… and I don’t know how small the percentage of business that start last the 10, 20 or 30 years until you retire …. Not many. So, assuming you can sell it an make money then is a high risk decision.
Most of us are comfortable investing money or time into our business, but have you ever thought about investing in a start up business? High risk to invest in a start up business, most of us wouldn’t. Why are we happy to invest in our own business, it’s because we know all the risks and therefore don’t see them as risky – even though they may be.
You’re not in control – If the global pandemic has taught us one thing it’s that there are external factors that can impact on our business. We could have a very successful Café in the city which has been closed down for a long time, no income but still costs to pay, suddenly that profitable business we had might not even exist through no fault of our own.
What do you do?
Use your business to build wealth all the time. Your business should be paying you a wage that is more than you could get working for someone else … plus it should be paying you profit of between 5 and 15% … yep that how much profit you should be making in your business.
Note that making profit and “reinvesting” into the business is not making profit. You need to draw at least 50% of any profit you make out every quarter.
So, say you own a $1million trade business, you should be paying yourself $150k per year and collecting $100k of profit. If you’re lucky to get $60k a year total from your business then you need help to reorganise your business or you need to get a job where you could earn more with less risk. That is where a business coach can help, just ask.
What do I do with the extra money?
There is a book called the Richest Man in Babylon, this book talks about how if you take a percentage of your income and invest it how you will become rich. So, take that profit and invest it in shares or property. The specifics of where to invest is something you need to discover for yourself and a financial advisor can assist with this – not a business coach.
What do I do now?
If I can leave you with one suggestion it is to build profit into your business and start taking that profit out of your business and investing it. The best book to help you do this is "Profit First" by Mike Michalowicz. His strategies are simple but often hard to implement without support, if you would like to talk about how to implement this strategy into your busienss book a discovery session with me.
