When you’re starting off in business, your goals are certainly different than when you plan on exiting your business. But the question becomes how do you build within your business to get to your business Position A?
We define Position A as having enough cash outside of the business equal to the value of your business, so that your exit or your retirement is not dependent on your ability to sell the business.
Now, when you’re growing the business and you’re just starting off, it’s important to reinvest the profits back into the business so you could explode the business and grow so it could take care of you and your family.
But reinvesting your profits back into the business creates its own set of problems. According to the Bureau of Economic Analysis, 80 to 90% of a business owners wealth is tied up in the company and that makes their money inaccessible for things like repairing equipment, hiring new personnel, or growing the business.
However, as a business owner, we all have life hopefully outside of the business. You have a family, you have other goals. Maybe you want to send your kids to college, travel the world, retire one day. When all of your money is tied up within the business it makes these other goals very complicated.
And I would argue that the number one stressor that all of us face when it comes to money is not having access to it to do the things we want to do. According to a study by Intuit, 61% of business owners struggle with cash and 69% of business owners sleep less due to cash concerns.
Now, it’s one thing when you’re starting off your business to be stressed about money, but when your business is doing well, your business should be able to also take care of you. And it all comes down to how we’re using our money, how to get to position A so that you’re able to live your life now without financial stress and the health problems that come with stress, but also to know that your business is going to be able to take care of you throughout your entire life.
We recently had the good fortune of helping a client of ours who had been with us for 37 years retire. He had an offer on his business and it was an offer he literally could not refuse. But the great thing was he waited for the best offer. Why? Because he was in Position A. He had enough cash equal to, actually greater than, the value of his business so that his retirement was not predicated on his success of selling the business. His retirement was predicated on the success he had for the past 37 years.
When you’re not dependent on the outcome, you’re able to make clearer, better financial decisions. And the way to get to that position is by taking care of the business in the beginning, but also saving outside of the business so that you’re able to take care of yourself and your family and your financial future.
If you’d like to get to your Position A so that you have enough money saved outside of your business, as well as a thriving business, because too is better than one. Be sure to check out our website at Tier1Capital.com to schedule your free strategy session today.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
