Business owners inspire me. I’m lucky to have several successful, smart business owners as clients. When we meet to review their financial plan inevitably I find myself learning something new about how to be a better business owner myself.
It's not just their business acumen that I admire. It's the bravery in the face of the unknown. When you work for a large parent company or a government institution there is a degree of stability and consistency that is not afforded to the small business owner. Entreprenuers have chosen to be modern-day Ponce De Leon's, boldly setting sail for the New World in search of the Fountain of Youth.
Over the years, I've developed a philosophy of how a business owner should see their financial plan, specifically their unique situation when preparing for retirement. It's best explained via metaphor and word pictures.
Imagine in your mind's eye that you, dear business owner, are Ponce De Leon. You've launched your voyage in search of the Fountain of Youth. Your ships drop anchor off the coast of St. Augustine. However, it's not St. Augustine yet. There's no curios shops or bed and breakfasts. No ghost tours and Cuban restaurants. Those small businesses that make St. Augustine so charming are still over almost 300 years in the future.
Instead you find some native peoples and lots of mosquitos. Excited you send out parties looking for the Fountain of Youth. However, after a few forays into scrub oak you realize that your resources are dwindling. You are running out of food.
Hunting and Planting
Luckily, the New World is teeming with game. A few hunting and gathering expeditions and your larder is packed to overflowing. But being a successful explorer takes long term planning. You realize that eventually time spent just hunting will take time and manpower away from your main goal: The Fountain of Youth.
So you take one of your lieutenants and assign them to to till the ground and plant some seeds. Being a leader of men, you lay out your expectations. You're not looking for these seeds to bear fruit tomorrow or next week. It's a long-term strategy for sustainable civilized way of life.
Your lieutenant talks to native experts like Squanto about best practices: what to plant, when to plant and how to plant. He tills the ground, plants the seeds and does whatever a farmer does. Several months later it's time for harvest. Some of the meager first harvest are eaten in a Thanksgiving celebration, some are saved for the winter and some are kept for seeds next season.
As time passes the agricultural strategy is compounding and your lieutenant diversifies and adds variety: vegetables, grains and fruit. Most years, harvest time is slightly larger and more colorful than the last. However, there are years when the harvest is not so good for whatever reason be it plagues of locusts or not enough rain. Them the breaks. You don't deviate because you know that in the long term agriculture will create the basis for your New World civilization. And besides, you are also hunting and gathering at the same time. Your doing both hunting and planting.
Investing: Your Business and the Markets
So how does this long-winded metaphor apply to you as a business owner? Glad you asked.
Hunting is the wealth you build by investing time, talent and treasure into your business. It's your first priority and your most profitable right now. Often times, business owners approach me about investing. In the early stages, when they are still trying to feed their families, I caution them.
Once a young lawyer wanted to put money into a SEP IRA. He liked the idea of reducing his taxes. So I asked him, "If you put $10,000 in a SEP IRA with my guidance you could make 10% in the next twelve months. You could also be down 10%. However, if you spend that same $10,000 on your business and purchase advertising how much could you expect to make?"
A light bulb went off. He could make substantially more, faster. He's an astute lawyer, but he's also a keen business owner. We didn't implement the SEP IRA that year. Instead, he took the funds and built up his client base. Then he added staff. Now he invites me to his annual soiree for clients and colleagues. It's a big shindig, because he has been a successful hunter.
But how long do you want to hunt, business owner? What's your exit plan? Like Ponce De Leon, you've got to plan for the long term. Eventually you'll want to have another strategy that passively feeds you. In our analogy, that’s where planting comes in.
Planting is the wealth you build by investing your treasure over time into your retirement investments. It's not as exhilarating as hunting. In fact, if done right, it should be boring. No farmer plants a seed and then digs it up tomorrow to see how it's progressing. Same with your long-term retirement investment strategy. Sure, your CPA may get excited by the tax savings but compared to your day job, it's slow and steady.
And it may not be your area of expertise. That's why you delegate to your lieutenant. In this analogy that's your financial planner. He or she is focused on one thing: planting. A comprehensive financial planner, in concert with your CPA can help your business now by making sure you are optimizing your insurance (disability, buy-sell, key man, personal liability) as well as your tax status (defined benefits, business retirement plans, etc.). He or she is talking to the native experts and staying abreast of changes in the financial world.
"And" not "Or"
This week, I met with a real estate investor who is building his empire. He was hesitant to plant, when there's so much opportunity in his field of business expertise. I went through the metaphor above and light went on in his head. I conceded that hunting is a priority and exhilirating, but long-term we need to diversify.
The key is to do both hunting and planting. Too many times business owners think about doing one or the other. It's easy to think about quarterly profits and elephant hunting in your business and forget about the long term planting that is financial planning. Combine them and you create your own fountain of retirement. The question is where are you in your business's growth cycle? Are you ready to diversify and delgate to a lieutenant? When you are, click here.