Too many business owners operate their businesses in a reactive way. They allow others to control their schedule and time. They don’t think strategically about building cash buffers and paying themselves a fair salary. They also tend to pour available cash back into the business without adequately evaluating whether additional investment will result in sustainable growth. Business owner’s who’ve run a successful business for decades and only have the business, with no other assets, may find themselves in a struggle because the business may or may not be sale-able or could lose value when the owner is no longer involved.
Instead — you should be considering ways you can use your business to grow your overall wealth. Here’s how.
Take Advantage of Flexibility and Multiple Streams of Income
As a business owner, you tend to have more time for deep thinking. When you’re a corporate employee, your time basically expands to fill all the needs of your day to day and you’re focused on accomplishing what other people have asked of you — your metrics, your sales, your tasks, etc.
But when you’re self employed, as the boss, you can give yourself the brain space to do very deep dives on options and opportunities in your business. As a result, business owners are in a better position than employees to diversify their income streams.
We can design our business from the beginning to have multiple income streams built into it so that we’re not fully dependent on one particular product or service.
Business can be fickle and unpredictable. One income stream may not get traction or could dry up, but if you have multiple streams of income you can pivot and turn your attention to another product or service doing better.
At the start of your business development process – it’s a good idea to plan ahead for developing multiple income streams. The streams don’t have to be wildly different. It can be something as simple as creating different products or services that you offer at different price points for different types of clients.
You can use these different product levels to create a funnel for business growth. First you want to figure out how to get your clients in the door (starter package). Then you want to design a product/service to keep them, and another to grow the customer (their stickiness as well as their revenue).
Sometimes we may learn best practices in one product or service line that we can use for another. Sometimes we use certain products as an experiment to see whether something can work. Sometimes we use a new product or service line to practice a new skill we just learned or something we enjoy that we want to do more.
You Can Make Sure to Get Paid What Your Worth
The higher your salary, the more opportunities you have to save and build wealth. When you’re an employee you’re beholden to the annual review cycle, a set pool of bonuses and a set amount available for employee raises (which are unfortunately too often just a cost of living increase, rather than an actual raise). You can work 30% harder in a year as an employee, but you’re not always guaranteed 30% more income. It’s highly variable.
However, as a business owner, you get to set your own pricing and services. You get to set your hours (and compensation per hour worked). You have much more control over your business expenses and how much you ultimately make in profit.
When it’s well thought out, you are more likely to get paid what you’re worth as a business owner than an employee.
Take Advantage of Retirement Saving Incentives
The ability to get paid what you’re worth and save more is just the beginning. There’s also federal incentives through the tax code that allow you to put away a lot more money on a tax-deferred basis when you own a business.
Business owners are eligible to contribute to self employed retirement plans, namely the SEP IRA or Solo 401k.
In 2023, you’re allowed as a self-employed person to contribute up to $66,000 in one year into your solo 401k. This same limit for employees is only $22,500.
Now, in order for you to be able to set aside that much money in your solo 401k you have to be earning a business profit of a little less than $232,000, which will take work. For those who earn less than that, you are still able to put away much more than you would as an employee.
Think about the options you will have by supercharging your retirement: you could save enough to retire early, you could save enough to change to part time work earlier than age 65. You could sell your business and do something different. The more you’re able to save generally provides a lot of options. But the more you save for retirement gives you even more opportunity, because those funds are growing and compounding in the background, tax free.
If you’re always waiting for something else to happen before you invest, you’re missing out on huge opportunities.
Diversify Asset Streams
It’s important to ensure that you think about your business itself as an asset and an investment and treat it as such. Too many businesses are focusing on closing sales and managing their calendar, not on creating something sustainable or valuable if the owner were no longer involved.
Sometimes our business starts out as a hobby. We’re happy to get to do something we love and get paid for it. That’s great, but at some point you should start thinking about it as something that has value on its own. Here are some potential ways to make sure your business has value as an asset.
- One option is to spend time understanding the competitive landscape. Competitors often make good buyers if you eventually want or need to sell your business one day. Spend time learning about what a competitor might want to see in a business they purchase.
- Another idea is to spend time developing recurring revenue streams or long-term clients/customers. These would be streams of income like subscriptions, courses, book, content, etc. that run in the background as a revenue source without much work on the part of the owner.
- It could also be developing a following with your client base that makes them “sticky” i.e. they don’t want to go anywhere else for their product/service (think dentist office or stylist). This represents value that can be evaluated and pitched to a buyer in the future.
- It could also be more nuanced like building a list of followers, your email list, your podcast subscribers, etc. This is valuable to advertisers and the revenue stream associated can be attractive for a buyer.
- It could also be building out intellectual property or technology. These often have value many multiple times over what it cost to create.
You always want to be thinking about delineating all the little components of the business that could be worth something as an asset.
How you diversify your wealth sources is really important because not only do you have to be growing your wealth in the business (i.e. the value of the enterprise as an asset), but outside the business too through savings. Building wealth in this way buys you the option to choose, to change your mind, to pivot, to plan for contingencies. But if 100% of your wealth is tied up in the business that actually has the exact opposite effect and it limits your choices. All your choices will have to be related to the business at that point. You can only get the wealth out of a business when you sell it. Build wealth inside the business as well as outside the business instead.
Create Wealth for Others Too
I bet you’ve never thought about the fact that your business and your success also can have the impact of creating wealth for others too.
Think about how the work you do might contribute to your clients and customers being more successful, more efficient, making more money, and turning that into wealth for their families.
Think about the contractors and employees you hire, the training you offer, the lessons learned that contribute to their growth and their success. The paycheck you provide not only gives them an opportunity to build wealth, the experience of working for you does too.
Think about volunteer efforts you engage in. Think about how meaningful your charitable gift or volunteered time is for the people who benefit from it. That has the potential to create ripple effects for wealth building way beyond you.
Think about the support you provide to your family and your spouse and friends. If you’re not charging enough, taking care of yourself, and building your own wealth you could become a burden to them as opposed to a source of support to them. They benefit when you’re happy and healthy and your business is happy and healthy — your example of wealth building can contribute to them experiencing success and wealth too.
Get excited in the morning to think about the impact you can have. We have so many opportunities as business owners to affect change and support others as well as ourselves.
If you ever have shame or trepidation about how much money you make, think about all the good you do and the impact you have and who relies on you. It’s important to keep that mindset front and center as you’re thinking about ways to build your wealth and grow your wealth as a self employed person.
“You will get all you want in life, if you help enough other people get what they want.” — Zig Ziglar
What do you think, does creating wealth from your business seem doable?