In my 20 years in financial services, I have dealt with hundreds of business owners. From solopreneurs, to people running companies with several hundred employees, and everyone in between, there are some consistent problems I see pop up again and again. Let’s take a look at these in this week’s Inside Look at Building Towards Wealth.
They own a job – not a business.
It doesn’t really matter the size of the business, or how much personal financial success somebody has, they’re involved in every key decision & relationship in the business. While this might feel rewarding in the beginning, they eventually grow tired of being chained to their business.
If they’re honest with themselves, they really own a job, and not a business. And if they stopped working, by and large, a lot of what happens inside their business comes to a screeching halt.
Many of us became our own boss to give us the ability to step off the hamster wheel of the typical job. Why would we put ourselves back on that wheel? We have given ourselves a job that is starting to grind on us and not allowing us to take charge of our lives.
All their financial eggs in one basket.
First the business owner gets something off the ground, and then they grow it, and they kind of get stuck in that. They get to where they’re chasing another dollar of revenue chasing another dollar of profit, but If they were to stop, for a lot of people, their income would stop. And the wealth that they have built up to that point often comes crashing down around them as well.
Many owners haven’t been thinking about building an asset, but what they’ve been building is income. If they stop, their income stops and their wealth tumbles without that asset. The business is their single largest asset, and for most business owners, their best asset.
The problem is that they make it their only asset. They keep all their financial eggs in that one basket. When you have your entire financial health dependent on one asset, you have an unnecessary risk that could come crashing down around you.
No plan to exit the business
Everybody will leave their business, either voluntarily or involuntarily.
You probably don’t want to work forever, and even if you do, time is undefeated. You probably won’t be able to work forever, even if you never want to retire.
You need to have a plan in place so that when you leave the business, either of your own volition or not, that it is done in an orderly fashion that maximizes value and gets you the outcome that you want upon exit.
You need to be prepared so that when life happens, your exit will not cause havoc in your life, the lives of your business partners, or your family members and loved ones. Failing to plan is really planning to fail.
You can’t just snap your fingers and create an exit plan overnight. If you want it done, and done well, it can take years.
No understanding of the marketable value of the company.
78 percent of small businesses plan to sell their business, and it will fund 60-100 percent of their income needs, yet most owners do not know the value of their business.
Most business owners I have met are using Country Club valuations when they’re trying to figure out what their business is worth and how it can fund their retirement.
How are you going to do that when you don’t know what the real value of the business is? Just because Mary down the street sold her financial planning business for $5 million does not mean mine is worth that. I may think she has about the same size of business as mine and has similar practices, but that does not make mine worth $5 million.
There are a lot of KPIs and other factors that could change the valuation dramatically. And if you don’t at least have a number that is somewhat grounded in fact, how can you properly plan for the future?
If this is your largest asset and will provide most of your wealth/income at retirement, you need to have a real number.
Over sacrifice family, health & free time.
Business owners are oftentimes over sacrificing and spending most of their time, energy and mental focus in business pursuits.
Burning the candle on both ends only works for so long. Eventually you hit the wall and everything suffers. Work. Health. Relationships. If you’re not careful, you will burn it all to the ground
Many owners I have talked to think that free time is a luxury for when they hit major milestones in the future. But that’s not what successful people do.
Often the reason the business owner is expending all of their energy is because they don’t have a direction. I don’t know a business owner that doesn’t have a lot of energy towards what they’re doing. If you just spray and pray with your efforts, whether in business or in life, without a defined direction, then it’s a lot of wasted energy.
I have seen a lot of business initiatives that take time, effort, and money that go nowhere due to lack of a focused direction.
These are the 5 problems I see popping up all the time for business owners. Would you like to know how you can solve these problems? Then you should go watch the webinar that Greg Maddox, from Cultivate Advisors, and I did on this very topic. You can watch it at on YouTube, and if you’re interested in the complimentary informal business valuation we mentioned, please book a call with me.