As a new year approaches my thoughts often turn to how I can take my family business to the next level. Financial issues come to mind as we work on our business and family budgets for the new year. I’m sure that many of you do the same. I don’t know if it’s the turning of the calendar or the fact that, here in the northern hemisphere, the days will soon be getting longer that inspires us to reconsider our goals for the future and look back on where we’ve been.
So what do we need to look at in determining where we’ve been and, more importantly, where we are right now? Your family business is likely your largest asset and your primary source of income. You and your family depend on the business to fund your current lifestyle and build wealth for the future. Your business should be paying you and family members who work in your business a competitive salary and fringe benefits. Family members and owners should not be expected to work at below-market rates.
But that’s not where it ends. The owner or owners of the business should be compensated for their investment in the company as well; in the form of dividends or other owner distributions. This is how owners are compensated for the investment of their Capital. The income stream from ownership should be compared with other investments to ensure that it provides an adequate return on investment. These payments should be made in addition to paying salaries and benefits. The business should also make enough profit to fund future growth. Without internal capital, external capital can be hard to come by and financial resources are needed for funding growth.
Here’s what’s scary to me. I personally know family businesses that are having financial troubles. They find it hard to meet payroll and pay other bills. Nothing is left at the end of the month or the end of the year. Why do they accept this outcome year-after-year? Perhaps they hope “outside circumstances” will change and “things” will get better. For most of these family businesses, “external circumstances” must be dealt with, but are not the primary cause of poor financial returns.
Business owners need to understand that, in most instances, nothing will change the financial results of their business until the business changes. The owners created the business. They are responsible for changing the business so that it produces the necessary income to produce financial freedom. No one else will do it, no one else can do it. The business is what its owners make of it. There are many who can help you change your business. We can help you change your business. But, first, you must understand that the commitment to change your business has to come from you!
What we’re talking about here is financial freedom. I believe that every business owner should set a “next level” goal of recreating their business so that it provides them with financial freedom. Why would you own a business if it doesn’t serve the financial freedom of you and your family? All business owners make huge sacrifices to build their businesses. Why settle for anything less than financial freedom?
I believe in taking baby steps. For 2014 think about the steps you can take in your business to create financial freedom for you and your family. Is there money left over at the end of the year? Are employees, vendors and owners fully-compensated in a timely manner. Are you building the value of your business for its eventual sale? Remember, you will sell your business. Every business eventually sells. In the meantime, the current owner or owners are buying the business – that’s you!
Once you’ve thought it through, set goals for your financial freedom – those you plan to achieve in one year, two years and five years. It’s your life, your family, your business. Create a business that meets your financial needs. You can do it, I know you can. But wait, there’s more. Tune in tomorrow for more thoughts on freedom – personal freedom.