5 essential wealth building strategies for entrepreneurs
Though different ideas and inspirations influence entrepreneurship and business ownership, the desire to build wealth is at the heart of it. Here’s how to accomplish that effectively.
The very definition of an entrepreneur is someone who takes on substantial risk, typically financial risk, to nurture an idea that solves a problem or meets a need.
It does not matter what industry you play in or market you target, you are an entrepreneur if you invest in and build up an idea that you expect to earn revenue from.
As an entrepreneur, the core of what you do is centered around building wealth — from the initial investment you make in your idea to the point you turn a profit, and beyond.
Unfortunately, many entrepreneurs forget that this is the essence of their role. We coach many fellow business owners that are talented innovators, creators, marketers and operators. But they are not always as savvy when it comes to money matters.
If you are an entrepreneur then you should not only understand these basic personal finance lessons, you also need to set up and execute the following essential strategies to secure you and your business’ future:
The first step to building wealth is developing a simple business plan that will set you up for success. The goal of the business plan is to set a vision for your business and then list the specific things you need to do to realize that vision.
The business plan shouldn’t be complex, as there is no way you will be able to predict every scenario that ultimately influences your business, but it should be thorough. That’s because this document is your roadmap — it guides your future.
Since building wealth is the core of what you want to achieve, then consider your business plan a high-level manual for how all of the different elements of the business work together to help you earn revenue and do so profitably.
You may be surprised to know that many people start businesses without first thinking through how they intend to consistently earn revenue. From our perspective, this is one of main contributors to the 80% new business failure rate.
One of the most important strategies to set is your business model as it captures your plan for profitability. At minimum your monetization strategy, or business model, should cover:
the products or services you will sell
the target market you will sell to it
the costs associated with selling
If any of these elements haven’t been considered in detail, you will struggle and stagger. Your business will not survive if you haven’t determined how it will be profitable.
As an entrepreneur you need both a business and personal financial plan to effectively manage your earnings and expenses. In the absence of a plan you won’t be aware of what’s coming in or what’s going out, which makes it difficult to build a stable future.
Your business financial plan should include the ongoing creation and review of three key statements:
income statement — a snapshot of your profits and losses
cash flow projection — the liquid money that flows in and out of the business
balance sheet — your assets, liabilities and equity
Before you launch your business you will include a projection of these three statements along with a high-level revenue forecast in the financial section of your business plan. After you launch, you should create these statements based on actual figures so you are always aware of your bottom line.
You can generate these statements using the plethora of accounting software that is available, or you can hire a professional bookkeeping service (we recommend Bench) to do the work for you.
From a personal perspective, your financial plan entails an outline of your short, medium and long-term financial goals along with the specific savings and investment tactics you need in place to reach these objectives.
Two of the greatest threats to financial security for most entrepreneurs is uncertainty and inconsistency. Business is typically volatile, especially in the first five years. Moreover, you don’t have the luxury of employer-managed benefits.
To be smart about building a personal safety net as an entrepreneur, you need a system that is sensitive to the unique challenges you face. We personally use Catch as they’ve built a full-service benefits platform that is specifically designed for non-traditional earners.
Your tax strategy is a critical component of both your business and personal financial health. This is where proper bookkeeping and a smart system for managing your finances, once again, come into play.
From a business perspective, these business bookkeeping tips will make it easier for you to prepare for and file your taxes correctly. That way you uncover the tax deductions you deserve so you can significantly reduce taxes owed.
From a personal perspective, taxes can get tricky as an entrepreneur. Depending on the type of business owner you are and how you take distributions from your company, you may have to remit taxes throughout the year.
This is yet another reason why we use Catch. Once you determine the percentage of your personal earnings to allocate to taxes and how often you must pay them, you can use their simple system to automate withholding.
Though taxes should never be an afterthought, as an entrepreneur you can relieve anxiety and have peace of mind by putting the right systems in place.
Last but certainly not least, an investment strategy is fundamental to your ability to protect and build wealth and financial stability.
From a business perspective, this primarily means being thoughtful about how you re-invest in your business. For example, these investments can include:
hiring new employees
building out your product line
expanding to new markets
allocating more to marketing
securing office space
Whenever you are infusing funds into your business you should ask yourself two questions:
where will I get the funds (loans, savings, etc.) and how do I plan to pay them back?
what is the return on investment (ROI) or potential profit of this cost?
From a personal perspective, we like to break down our investments into three categories and use Catch to help us manage all three:
Health — being an entrepreneur demands a lot from you mentally and physically so it’s critical that you have a means of managing your health and well-being.
Living — it’s become a buzz word, but work-life balance is essential to your well-being which means to take time off
Retiring — of course, one of the most pressing financial concerns is having enough for retirement and deploying a plan that ensures you are on track
Developing a wealth mindset is fundamental to your role as an entrepreneur. To summarize all of the tips, your wealth building plan comes down to:
determining how you will create wealth
paying close attention to your financials
using trusted advisors/systems for support
We’ve recommended two wealth building and financial planning services that we know, use and trust and may receive a small compensation in exchange for referrals. If you need more personalized support inquire about our coaching services.