Investing In Your Own Business: No Always The Best Strategy
Investing In Your Own Business: No Always The Best Strategy
As we continue to dive deeper into the society of investing, I desire to talk about an investment strategy that you as a business owner may not have experienced. Because I'm a business strategist, you'd be shocked to learn that I suggest not investing in your business; at least not yet. While this may seem different, you should invest in assets that are outside of your business. Join me as I describe why investing in your personal business may not always be the best
long-term tactics.
My First Experience With Big-Box Investment Firms
When I first began in the business world, my brother and I were running a very auspicious landscape business. I was 18 years old and had an annual income of over 100,000. Looking back, this could be the start of hate of corporate Wall Street. You see, I have decided that I want to take some of my hard-earned money and invest it in the stock market, so I went to a broker in a large financial planning firm. I'm eighteen years old here, running my own business, and making more money than 90% of kids my age, and this broker looks at me and says, "Come back to me when you're more successful. ۔ "
As my father used to say, " that roughened my hyde." You see, most of these types of corporate Wall Street do not understand business. They don't find that you and I can make the most profit, - most of the time - in proportionate time, keeping these funds in our business by investing in stocks. And since that's the case, why keep investing outside of our business?
Invest In Outside Assets
As a business owner, chances are you don't want the idea of trusting an investor just to give you your cash and trust them to handle it properly. Just because they are professionals working in that particular market doesn't necessarily mean they know what is best for you and your business. However, there are many reasons to invest outside of our business but I would like to take a look at the statistics related to closing or selling a business.
First, there are three main market segments you will find in the business. The majority of businesses live in the micro-market. These are businesses with an annual income of 5 5 million or less. Next, we have businesses that produce $5MM to $100MM and they form the middle market. After all, we have the upper market where the industry giants - McDonald's, Apple, Coca-Cola, etc. live. Companies in the top market earn revenue of $ 100 million or more.
By Numbers
According to the Exit Planning Institute, 80% of companies will never sell. This indicates that for every ten people who read it, just two of them will be able to sell their business. Now, the relevant part of this statistic is that the net worth of business owners is tied to their business. So, when it comes time to retire, eight out of ten business owners lose 80% of their value.
If you're thinking, "It's a good thing, perhaps this number is stuck because lots of business owners don't desire to sell their business. But, out of 351,000 middle-market businesses, 250,000 - About 75% - will strive to sell by the year 2030. Furthermore, it is expected that out of this 250,000, only 25,000 will be considered ready for the market when they do so.
As we continue to follow this thread, the picture grows even bigger. Out of 25,000, only 15,000 will be sold. Half of the companies that sell do so without any concessions. Therefore, only 3 business owners will sell the Ultimate Sale in the next eleven years.
What Does This Mean For Us?
Looking at the numbers, it's clear that many of us will be unable to sell our businesses when we want to get out. Of course, there are many ways we can increase the value of our business and make it more attractive to investors and potential buyers, but we also need to prepare ourselves for this possibility. That our companies will not sell. Does that mean we shouldn't focus on increasing the value of our business? No. There are benefits and merits to increasing the value of a company regardless of whether your business will sell or not. So, what do we do to prepare for a future that doesn't go according to our best plans?
When we started this article, I asked why business owners invest in assets outside of their business. The answer is that we need a plan B. We have to eliminate every threat in our path. Therefore, we need to make a backup plan. Look, I'm speaking from experience. I have owned and sold three businesses in my life. I currently have three businesses and am working on opening a fourth. If I didn't keep this plan B and all my businesses failed, I would be like many business owners who have come before me. I would be broken and disappointed.
These are the owners who become slaves in their business. They don't spend time with their families and they just exist instead of living their lives. I don't know about you, but I don't want that for myself and my family. I don't want this for my business or the team I have gathered to run. Because of this, we must invest in assets outside of our business. We don't want to put all our eggs in one basket.
Collecting Eggs
We have plenty of chickens on our farm and I promised my dear wife, Emily, that I would make a new chicken coop for us. So, I'm slow, but of course, I put this couplet together. However, we still have to collect eggs in the meantime. It was not uncommon for us to have 60 eggs a day during the summer. As a result, I have assigned my son, Yehud, to collect eggs every day.
Recently, while collecting eggs, the Jews turned over the water hose, and all the eggs they had just collected were scattered. This was a valuable lesson for the Jews. He decided not to put all your eggs in one basket. In terms of investment, we call it diversification. This is a rule that applies to our cash, our shares, our business, and our assets.
We need a safety net of diversity so that business owners, don't have all our eggs in one basket. The last thing we want is to travel more than a water hose and see when our eggs fall to the ground and give us nothing to eat. This may sound dramatic, but if you think about it, our businesses are putting food on our table. If that business stopped suddenly, we would find ourselves in a terrible situation.
An Important Concession Tax
So far, we understand the need to protect ourselves through diversity. So, I will leave you with this last thought and example. We can do things with investments that are outside of our business that we can't do otherwise. Think about it. By investing a portion of our profits in retirement accounts, we can spend most of our taxes heavily to reduce our tax burden.
Suppose you are in the 27% tax bracket. If you put funds in your retirement accounts and pay yourself first, you effectively remove the funds that you have invested with a 27% tax burden. By eliminating the most tax-paying funds, we can go into the 15% bracket. In particular, you can reduce the tax burden on funds that you do not have in your retirement accounts, including 12% or more. I have found that tax cuts with a reasonable investment provide an immediate ROI of 30% -70 of just because of the tax effect. It is very rare to see this kind of return on investment just by putting funds into your business.
Life is hard, life is good, and life can be frustrating. You don't have to have money. Let's at least make our lives easier financially.
You can choose the best strategy by contacting your Greystone-uk experts. And also get the most out of the investment segment with our finance for business owners.