Wealth is used to describe an abundance of a desirable thing. It could be friendship, love, money, access to a foodstuff and so on.
From the context of a #businessowner, what does wealth mean and how do you create it?
Before we begin, think about money as water
You are simply the custodian of it for a period. When you make it, you either store it or use it. Stored water eventually evaporates or stagnates. Used money is either wasted or generates more value for you.
In this context, a business should be built as a perennial spring. Well designed and built, it should produce water consistently. You use of that water should be well considered. Fertilise and feed productive lands that bear fruit. Bad investment decisions see the money made lost like watering barren soil with old seed.
Money in a business takes two forms:
Money in a business is used to sustain and grow a business. the money made needs to cover all your expenses. Thereafter, you pay yourself a salary to sustain yourself and your family. Any money left is profit and should come to you as dividends or be used to make investments in the business that will accelerate money making. This free cash can also be used to deepen the value of the business to generate future money. This happens by increasing the value of the business’s equity.
Equity or capital
Equity holds the promise of money. It resides in the value of the business should you decide to sell the business. Built right, a business can be sold and for a premium value to generate a capital gain. This will be the difference between the cost of your initial investment in establishing the business and the sales price achieved.
As a business owner, you can build a business to either make money or grow equity or both. To get this right, you need to build your business into an Asset of Value. This is a business that has the following criteria:
- It has a good strategy that sets it apart from competitors
- It generates steady, reliable sales
- It has a well organised delivery capability
- Its people are purposeful and motivated
- Banks and funders love it
- It’s saleable at a premium price on a clean transaction
Building your business into an Asset of Value will see revenue grow at a higher rate than your costs. This gap generates the free cash to make money in the business.
GROW YOUR MONEY
With money made, you need to now make it work for you by growing it.
You can grow it in your business. by making smart investment choices, you can amplify and accelerate the rate at which your business turns that money made into more money made. This might mean an investment into plant and equipment, people and software etc. Many business owners make their biggest mistakes here. Knowing how to invest in your own business is not as easy as it sounds. Alternatively, you can invest outside of your business into stocks, bonds, shares and other assets. In all cases, these investments must money for you either by generating more revenue in your business with little cost, dividends in shares that you have invested in and other capital appreciating assets.
PROTECT YOUR MONEY
Get smart with insurance and tax management. Insurance, as annoying as it can be, protects you from probable and improbable risks. There must be little worse that having, for example your fleet of trucks written off in a fire without insurance to fund the replacement fleet. It will set you back years if not permanently. Also, some investment products serve to protect money drains like tax. You can legally manage your tax rate down on a personal level by investing in retirement annuities for example.
Wealthy people did not get there in a single generation. Nor did they get there through one activity. Sure, we read about some business people who cracked it and got lucky in a single generation, but they are, by far, the exception. Strategy and habit are what builds wealth. Strategy means being clear on how to make, grow and protect your money. Habit is doing and behaving in this way over time.
Work with us to help get your business into a money making, growing asset. We call it an Asset of Value and we are expert at working with you to build your business into one!