What Are The Benefits of Having Your Own Business?
Businesses are the best investments. Young clients will often ask their financial planner what they need to do to secure their financial future. Should they be saving up to buy a home, investing in the stock market or starting their own business?
The best answer is usually to buy or start a business, and then use the extra cash flow to buy a better home. The best investments for most clients are their businesses and their homes, in that order.
Most clients who become wealthy do so by owning businesses. They generate strong cash flows, spend less than they earn, save the difference, then invest in other areas, first the home and then other assets, to build up a significant and diversified asset base.
The leading textbooks in the financial planning field do not touch on investing in one’s own business and instead focus on traditional financial planning products, such as super and insurance products.
However, a business can become a major source of cash, income and wealth. The business is the engine room: this is where it all starts. Therefore, the business deserves special prominence in any discussion about wealth creation, investments and financial plan.
Read more about:
A diversified income source
Most employees get their cheque from one source, their employer.
Most businesses get their cheques from multiple sources, their clients or customers.
The safest and fastest way to create wealth is to build a quality business that does not rely on one client or even one source of income, and which has a market value that others are prepared to pay for.
At best, employment is a precarious occupation. Done properly, setting up and running a business is a low risk and conservative option that protects your clients from the vagaries of the market and opens the door to a much larger income and much faster wealth accumulation.
Larger rewards and returns
We all hear about the latest internet start ups being sold for millions in the Financial News, but every single day in Australia private businesses get sold for multiples of two, three or even four times’ maintainable profits. That’s the equivalent of a return on investment of between 25 per cent and 50 per cent per annum.
To get accustomed to this, just have a look at the businesses for sale pages online, or in the state paper or Australian Financial Review. The business range from medical, to industrial, to book keeping, to take away shops, to franchises, to cookie companies!
There is no better investment. Yes, some businesses are risky. But risk can be managed. A good business with a competent operator almost always produces returns well ahead of any other investment.
Further reading: Businesses for sale look for buyers online - "Not all businesses are sold in boardroom deals" (an AFR article with helpful links)
In their book Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom (Warner Business Books 2000), Robert Kiyosaki and Sharon Lechtor explore the evolution of a business through the four key stages.
These stages are:
- Business and
- Portfolio investment.
Portfolio investment is where the owner is not actively engaged in the business, apart from overseeing it and, in particular, monitoring key performance indicators.
Cashflow Quadrant is recommended reading and is available here on Amazon.
HOW WE SUPPORT CLIENTS
At Aspiire, we have supported business and clients who are looking to finance commercial property assets, through:
- Ensuring Debts and Mortgages are well managed and with good providers
- Ensuring financial affairs are structured effectively
- Assisting in Accounting and Taxation needs with referrals to preferred accountants
- Arrangement and recommendation of SMSF or structures to suit their situation
- Helping clients take an active approach to their investments