Wealth Creation

Hamish Mexted Asset Protection, Business Strategy & Planning, Increasing Profit

Business owners having an ‘investor attitude’ towards money is often the difference between furthering their short term income and long term wealth, or them taking undue risks and not future proofing their circumstances.

As an investor you’re actively examining what you’ve got (current income and current assets), and how you can change the management of your income and assets to create more income and more assets in the future.

The Problem

Here’s the problem – if you don’t actively manage your current income and current assets, the probability of changing your financial circumstances is really down to luck. Any change is relying on you landing a promotion, fluking a big contract or winning in the property market.

The probability of changing your financial situation is significantly increased if you can deliberately manage your income and assets to build wealth.

Without that deliberate management, you’re unlikely to ever be financially independent from your business or job.

The Question

It’s tempting to say that your level of wealth “will be what it will be”. You might tell yourself that “I’m not that good with money” or that “I’m only scraping by anyway so can’t save anything”. This talks yourself out of taking deliberate actions to change your financial position.

Here’s a few questions to ask yourself:

  1. When was the last time I raised my prices, and when did I last raise them before that?
  2. What is the difference in value of my business if liquidated compared to selling it to a senior staff member?
  3. If I weren’t at work, and someone was hired in my place, would my business maintain its profitability?
  4. Do we spend more as a family during the months when things are good, and then have to scramble when things are tight?

Where to begin

So, let’s leap forward and look at the steps you’d take to build an investor attitude.

Step One: Improve the income of your businesses by highlighting profit drivers
What we’re talking here is making sure you’ve got a true understanding of what drives profit through your sales numerics. It’s looking at the profit you make from every customer, and from every product or revenue stream. The flip side of this is looking at what your distribution and operating costs look like. With this understanding, you’re able to zero-in on leakages in profit.

Step Two: Create true value within your business through your exit plan
The difference between the value of a business sold on-market is (obviously) considerably different to the value when sold during a liquidation. The profit on selling your business is (generally) tax free, often making it the easiest money you’ll ever earn. To maximise this money you need to understand valuation drivers, management succession, employee share plans, market cycle timing and more.

Step Three: Illuminate the blind spots in your business through active governance
It’s all well and good to build wealth, but if it’s not controlled properly then it’s likely to be destroyed. A structured governance model makes for more robust decision-making, and in turn compartmentalises risk making the impact of something going wrong smaller. This formal risk management is often what separates small businesses who grow, from those who don’t.

Step Four: Transfer experience and wealth within your family through future proofed structuring
Statistics show that significant wealth is often destroyed by the time it reaches the third (or sometimes second) generation in a family. Protecting this wealth, whether significant or not, is best achieved through education and a future proofed structure. This structure involves personal financial management, personal wealth monitoring, opportunity cost calculations and more.

Take action

Creating an ‘investor attitude’ doesn’t just happen on its own. It requires you to deliberately change how you look at money and what you do with it. The reward from getting it though is significant – it frees you from your job or business by making you and your family financially independent.

The first step is to look at the true profit drivers of your business. For more on that read here.

If there’s anything you’d like to discuss in more detail, schedule an appointment here.