Money. Love it or hate it, the reality is that without it, life gets pretty tough. When asked the question of ‘being completely truthful, why did you get into business?’, most business owners will provide a response that has some element of money weaved into it. Whether it be ‘to fund a comfortable lifestyle’ or to ‘provide for my kids education’ or ‘so I can be my own boss and work on my own terms’, money underpins a lot of the motivation behind getting into business.
So, let’s explore the topic of money by looking at the 3 financial benefits EVERY business owner needs to work towards.
Risk has to be rewarded
Business is risky. Period. Any seasoned entrepreneur will tell you that owning a business does not guarantee vast riches. Nor are there any guarantees that the business of today will be around tomorrow. As a result, for those of us brave enough (or as some might say – foolish enough) to risk missing out on all the ‘comforts’ found in the employment/job world, such as the guarantee of a salary… and superannuation…. and holiday leave…. and sick leave…. and lower risk exposure, business must provide something more, a reward worth working those crazy hours for.
Financial Benefit #1
Paying yourself a regular salary (wage, remuneration, moolah, money, cash – call it what you want), the type you would receive if you were to work for someone (you know the one – it includes super, tax is taken out, and is paid regularly into your nominated bank account), must be the first financial benefit that ALL business owners should be constantly striving towards.
Yep. This is the first one. Using the company credit card to fund certain personal purchases, or drawing money out of the business bank account whenever your personal account needs a top up or cash injection does not count. These ‘drawings’ or ‘directors loans’ are not the same as a regular salary. While many business owners run such a model when they first start out, perhaps for the first few years, after a while the transition should be made into a proper salaried role. Even if that salary is low, say $35,000 per annum plus superannuation, the fact that it is regular is a critical step in the right direction, which is to then work towards benefit number 2.
Financial benefit #1 is the immediate reward for your efforts.
Financial Benefit #2
Congratulations. You are paying yourself a regular salary. Now what? Here is where the true benefits of business ownership start kicking in! As business owners, we benefit directly from the success of our business. Any profit generated by our business is money that we can reward ourselves with, either by partially or even fully accessing this profit when the time comes. This profit can have the ability to magnify our financial health, especially when profits are wisely used. Most business owners get the concept of profit, however, tend to only rely on profits for their income, as opposed to drawing a salary and then accessing any profits when the time comes.
Financial benefit #2 is the medium-term reward for your efforts.
Financial Benefit #3
The third benefit is little understood and most often forgotten about until it is too late. Financial benefit #3 is the value that is unlocked when you transition out of the business. This is where you can make some serious money, setting you and your family up for the rest of your lives. Oddly enough, it is this benefit that most business owners forget about until it is too late. Building value into a business takes time, energy, and dedication. Yes, quick wins can be had in 6-12 months, however, to really build and then unlock value, business owners should be focusing on value building activities from the day they start a new business or step into an existing business. The topic of value building is not the purpose of this article. What we wanted to achieve here is to highlight that long-term thinking and strategically taking short- and medium-term actions that build towards long term value goals are an absolute requirement if you want to truly unlock the financial benefits you reap from your business.
Financial benefit #3 is the long-term reward for your efforts.
How do you stack up?
Reflect on your own circumstances. How do you stack up? Are you working towards the regular salary? Are you already paying yourself a salary and are accessing profits? What value does the business have built within it? What actions do you need to take to increase this value?
BOOM! Business Value Builder Program
Built on years of real-world experience, the Benchmark Business Advisory BOOM! Value Builder Program has been designed to help business owners build more valuable businesses. We understand the 3-financial benefits, and we understand how the various levers within a business can be adjusted for the purpose of value building. Read more about our BOOM! Program by clicking here.