Is your business supporting your lifestyle… or the other way around?
Most business owners make enough to survive, and not a cent more. This is mostly psychological. They can find the extra money to send their kids to private school… because they have to. If you don’t raise your revenue bar, it’s unlikely to just happen.
Here are five tips to help you increase the financial rewards you get from your business:
1. Give yourself a pay rise
You should be getting a reasonable wage for your work in the business. But I urge you to go one step further and mandate a pay rise for directors every year.
We’ve done this every year at The Practice. In our first year we earned the grand total of $100 a month; that became $100 a week, then $200 a week, and we’ve increased it every year since.
If the thought of funding a wage increase terrifies you, remember that you can always pay it back. But if you don’t at least set the stretch target, you’ll never find the extra revenue.
This is a big part of building a business that doesn’t rely on you. If you were hiring a gun employee, you’d find the cash to pay them what they were worth – so do the same thing for yourself. That way, when you’re ready to step away, the business can accommodate hiring someone far more easily.
2. Be a shareholder
Those of us operating a company can get too caught up in our role working in the business as a director, and forget our ‘shareholder’ hat.
Like any shareholder of a publicly listed company, you should look for two things when assessing your business as a shareholder: asset growth (increase in share price) and return on investment (dividend).
You should be getting a director dividend of profits on top of a market-rate wage. If you’re just drawing a wage from your business, then I’m afraid you’re self-employed.
3. Get a life
Surround yourself with amazing people to the point where the business doesn’t rely on you. Make your workplace attractive and adhesive to top talent, and give them the space to flourish, so you can spend less time on the tools and more time on building a better business – and enjoying life.
For many business owners, their business is their cash cow and super fund rolled into one.
Relying on your business as your retirement fund is fraught with danger. For a start, you miss out on the massive benefits of a documented wealth creation plan. Secondly, someone needs to pay you what (you think) your business is worth, otherwise you’ll be left high and dry. If the business relies too heavily on the owner, it simply won’t be as attractive – and therefore valuable – to potential buyers.
5. The ‘family business’ of your personal finances
As Matt Morrison, my financial adviser and business partner, says in his book Freedom, Lifestyle and Legacy, you should take a business approach to your personal finances.
Most businesses set a budget each year, and have an action plan for the year ahead; why not do the same for your family’s finances?
Matt suggests we focus less on the world economy (which is erratic and overwhelming) and more on our personal economy: the things we can control that directly influence our family’s financial position.
Get Jason’s book at www.jasoncunningham.com.au/book