Here’s a trap that many new business owners fall into: they put themselves last.
Of course I accept that one must make sacrifices in the early months of a business but I’m not talking about that. My point is that you should never lose sight of what your business is expected to do for you. It comes down to 3 things for sure and a fourth for some people.
Your income is half of your lifestyle equation (the other half is the time to enjoy it). Make sure you’ve worked out what this is and don’t let your current situation colour your judgement. Just because you earn £30k now doesn’t mean you don’t have the right to earn £150k at some point in the future.
2) Work Life
This is about how much you want to work and what activities do you want to do when you do work. These are the questions you should ask yourself: –
- How many days/hours do I want to work a week?
- How many weeks holiday do I want?
- When I’m not at work, do I want the business to run without me?
- What activities and responsibilities do I want to do at work?
- This is all about leveraging your strengths and job satisfaction.
- Which would I like to move to somebody else?
Again, don’t let the fact that you’re working 60-hour weeks and taking a week’s holiday each year influence the answers to those questions. What do you want to achieve and by when? Also, the way you organise your business will influence the quality of your lifestyle.
3) End Game
This is mostly about financial security or having the choice to work or not work. It all comes down to a number that some IFAs call the Magic number. It’s a calculation and any financial planner can do it for you.
Given how long you want to work for; how long you expect to be retired and the income you want when you are retired tells you two things. How big your retirement pot needs to be (The Magic Number) and how much you need to invest each year to get it.
Your business must provide this amount of available cash. That’s one of its primary functions.
Oh, and I wouldn’t rely on selling your business to finance your retirement. Statistically that’s probably not going to happen. So, treat a company sale as being the icing on the cake not the cake itself.
This is about the mark you want to make on the world. Some people care about it whilst others do not. There’s no right or wrong answer, it’s a personal decision but if you do want to leave a legacy it’s a very good idea to write it down somewhere and then commit to it.
What does all this mean
Well, if you can define the three or four key drivers we’ve explored above you can then design a business to achieve it. It’s actually easier than you might imagine. In its simplest form just take the profit your firm delivers now, multiply it up to deliver the profit you want and then use the same multiplier to the number of staff you have now.
Add a bit of sales support time and some management time in and halve your contribution and it’s good enough. You’ve sketched out a business that will deliver what you expect from it. Now all you have to do is build it. If you don’t do this you risk having a sudden outburst of surprise, panic, blame and regret at some point in the future.
Remember, when this happens it might be too late to do anything about it. So act now whilst you have time on your side.