With your business, create habits that lead to wealth, build liquidity and be intentional about … [+]
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Has Your Personal Wealth Grown?
Businesses have an insatiable appetite and you’ll never be free if something doesn’t change.
You love your business. It’s your baby. You may even put in double the hours of anyone else on your team and triple the work. This worked really well in the very beginning, because it helped get the wheels turning when it was just you. But as time went on and your company grew, you didn’t. In your personal life, you may be in a worse situation than when you first began. And if you don’t learn to transfer your business wealth to your personal wealth your freedom will be limited.
So many people get caught up in the drive to continually build their business, but this can be to the detriment of personal wealth because many entrepreneurs identify themselves as their business. They become infatuated with the need to continually make a better aesthetic, a better website, increase revenues, get new or better clients, hire more people, etc, etc…
Common Bad Habits
Do you spend money to improve your business?
Of course. But what happens when that spending isn’t measured or becomes something that robs you of personal wealth?
As an entrepreneur myself, I get it. After building an office I found myself spending cash sitting around in accounts on things that didn’t make a difference for the business. More recently, I created “The WealthBook” for example. My team and I created an extensive multimedia program that takes all the expertise of my consulting and the combined knowledge of experts on our team and delivers it in this awesome way to clients who want to build their wealth. But making that program was just like spending money on entertainment for me. Because for me, I consider myself a bit of an artist, and I loved it! And there are many other things about my work I love, like painting a massive process map across the wall of the office. Those things aren’t necessary, they are just things I enjoy. This can be an investment in the business, but also can be a habit of spending without considering how to have wealth outside of the business.
I am not saying to do without these things, but to be mindful and have a plan to capture wealth along the way and pay yourself properly.
When entrepreneurs don’t take a paycheck, it is problematic. Sure, they get benefits as they might expense everything they buy to avoid tax, but they also unintentionally destroy the value of their business and stability in their finances.
This mistake of supplementing lifestyle by expensing everything out of their business is a costly one. This in turn creates bad behavior and the employees look at it and feel like they are just working so the business owner can buy a new car, or go on a nice vacation, because they just write it off through the business rather than having the same reimbursements that they would have their employees do if they were using money from the business.
The Cheapest Labor
Ask yourself this, are you always swooping in to save something in your business? Things you don’t even take a distribution or paycheck for? If so you are the lowest person paid for that job.
I get it.
You are driven by your vision, love taking care of customers and your love for what you have created. You want things to be amazing and efficient. The problem is when your employees aren’t empowered, you become the bottleneck of your business. The business will become weak, as it always depends on only one person to save the day—you!
Your employees don’t progress and miss important milestones as professionals in the business. They know they can always rely on you, the business owner. In the end it’s not dissimilar to the parent who, in an effort to show their child the most love, coddles them too much and ends up spoiling them.
It isn’t sustainable and will only become more and more demanding of your time and effort to run the company essentially alone. You’ll end up burning out.
The Solution: Two Ways To Transfer Wealth
#1 Pay Yourself The Most
If you do anything in your business, make sure that you are the highest paid person, or at least equally paid, compared to what you would pay anyone else to do that job. If you do something for sales, what would you have paid a salesperson? Did you step up to resolve a customer service issue? How can you make sure you are compensated properly? Did you deliver the service someone purchased? Be more expensive than anyone else doing that job in your organization.
#2 Make Your War-Chest
I remember being in NYC supporting one of my clients at their inner circle event. At the end of the day I was about to head to the airport when he asked if I could explain how some of these people could hire my firm. I did and missed my flight. This added substantial income to my firm, yet I had no process to take more pay for myself.
With the hassle of rebooking a flight and getting home a day later, it was the motivation I required to do something different. I met with my CFO and explained that anytime I coach, get involved with sales, or speak on behalf of the organization, I want to be more expensive than anyone else in the firm, therefore creating motivation for them to handle it on their own if they can.
We built an automatic infrastructure that allocated money to a separate account in the business. This became our “war-chest.” This is a fund to handle any unexpected issues or take advantage of opportunities. I was able to fund it by simply creating a process to set aside money when I was doing something outside of my job description.
This money will give you peace of mind and staying power. This also allows your personal wealth to grow without continually taking cash from your business.
Several Things To Remember
- To build personal wealth, create liquidity in your business. This can protect you from lending money during cash crunches to the business.
- Pay yourself first and always. Remember, if you create bad habits of never paying yourself, then the business gets conditioned to it and it stunts its growth.
- Don’t use the business as your personal lifestyle fund. Instead, use the same process as you would to reimburse your employees.
- Take a salary and use distributions to reward yourself as a business owner. This can be tax efficient as it may reduce your self-employment tax as well.
Businesses have insatiable appetites and bad habits will destroy your wealth, leave you susceptible to cash flow crunches and feeling like you are working harder and not getting further ahead.
With your business, create habits that lead to wealth, build liquidity and be intentional about investing in your business and capturing money that lives outside of your business as your personal wealth.