I’m an entrepreneur and just so happen to be in the business of providing other entrepreneurs with financial advice. But I don’t typically offer up the usual status quo advice that tells you to do things that aren’t always in alignment with growing your business.
My views originate from my experiences and at times are contrarian to what’s being recommended by the usual tax preparer and other financial advisers, because I am in the trenches running a business just like you. I know what it takes to grow a business, make payroll, deal with IRS notices and manage cash flow.
The truth is that being an entrepreneur can be isolating at times as a result of being wrapped up in the day-to-day of running your business. When you are hyper-focused on your business, it is difficult to also be an expert at managing the profits of the company. You may be great at making money, but once it’s made, what do you do with it?
Thinking differently about your company and how you will use it to build wealth is the key to true financial success.
In this article, I’ll outline five ways you can shift your mindset about money to transform how you define and operate your business and approach your financial decisions. It will help you identify what you really want to achieve: A Self-Managing Company (opens in new tab)®, a term coined by Dan Sullivan of Strategic Coach.
Mind Shift No. 1: Understand that Retirement Savings Plans Don’t ‘Lower’ Your Tax Bill
As a business owner, you are probably time-starved and used to making fast decisions. And you may be tempted to make fast decisions at tax time, especially when your tax preparer suggests that tax-deferred investments are the answer to lower your tax bill and save some money for retirement. Easy enough, right?
This is what I like to call a half-truth. It’s true that you’ll get the deduction for that year’s taxes. But the other half of the story uncovers the problem with the use of SEP IRAs, 401(k)s and other tax-deferred options to “lower” your tax bill. The reality is that you are taking money from your business where you have some level of control and redirecting those dollars into the stock market where you have absolutely no control. The money is tied up until you are 59½ years old and face potentially higher tax liabilities than you previously owed with no access to your cash if it is needed for growing or sustaining your business.
When you own a business, the half-truths you hear from many finance professionals and the mainstream media can at times negatively impact your ability to grow your business and protect your interests. I have found there are other, more productive ways to build wealth outside of your business, beyond the base-level concepts of investing or putting money in an IRA or 401(k).
Mind Shift No. 2: View Your Company Not as Your Job, but as a Tool for Building Your Wealth
If you run a healthy business, you have a long-term strategy. You know what the end-goal is. You think about the business as a whole, rather than focusing on simply the day-to-day tasks.
We’ve all heard the old adage: Work on your business, not in your business. That’s because if you’re working in your business all the time, you’ve only created a job for yourself. The goal is to build systems and develop people to slowly work yourself out of the role you have and allow the business to run on its own. The sooner you shift your mindset to this way of thinking, the sooner you can begin to experience the results.
First, carve out the time in your day to think about your business. Many business owners I talk to don’t do this, because they are buried in the work. Take time to talk to your future self about what you want your life to look like in the future. What would your future self say to you about the decisions and choices you are making? It helps to outline your thinking time, keep a journal of your discoveries, meditate to de-stress, and use the time to reflect on what you are trying to accomplish in the business.
Next, think about your business as a piece of your financial plan. How much time and capital are you investing into the business, and what are you getting out of it? What is your ROI? I’ve found that a business can offer the biggest opportunity to build wealth, and in many cases — depending on your results — it can offer more than what you might get from investing in the market.
Finally, think with the end in mind. At the end of the day, what are you trying to get out of your company? To build wealth through your business, you must identify what will build its value.
Building value revolves around creating a self-managing company, one that runs without you and has a strategy to sustain itself into the future. This allows you to sell it for maximum value, or even create a passive income stream without actually having to work in the business.
Shifting your mindset is important, because you probably didn’t start your business that way. Many business owners don’t, and that’s OK while you’re getting things up and running. But it’s important to remember that what got you started will not get you to the next level and will not build the wealth needed to successfully exit the business.
Mind Shift No. 3: Master Your Cash Flow
I tend to bust a lot of myths when it comes to financial matters, and one of them has to do with cash flow. This is especially important to understand as an entrepreneur. Your cash flow is not there to simply pay your bills. Yes, you must pay your bills of course, but there is more to it than simply making payroll.
Cash flow is a tool to help you build wealth and the value of your company. Healthy cash flow allows for you to control your money, and there are strategies you can explore to help you maximize it.
I recently spoke with a partner of a business who was earning a W-2 salary of $400,000 per year. In working with his CPA, we were able to rework his partnership agreement, removing him as an employee and adding him as a consultant of his own LLC. While this simple strategy reduced his tax liability by $20,000, implementing this strategy was about more than just lowering taxes. This was about cash flow – everything is always about cash flow. By making this little tweak, he increased his cash flow by $1,666 per month.
I’m not a CPA and don’t provide tax advice, but I ask a lot of questions and propose many scenarios for the tax professionals to consider – scenarios that can increase cash flow for business owners. Increasing and optimizing your cash flow should be a top priority for your business.
Mind Shift No. 4: Be Your Own Bank
Companies with cash are able to do many things without having to rely on a bank or other source of funding. In essence, they can be their own bank. Think about it. When you have cash, you can use it to work on your wealth-building strategy. You could buy a company, invest in equipment, hire more people (maybe even a replacement for yourself who can run the company while you collect passive income), buy property, or take advantage of any other opportunity that may come your way.
But there is another way you can be your own bank. Maybe you’ve heard of the concept of “BUILD Banking™,” a cash flow strategy using a specially designed life insurance contract. It’s a strategy that I use personally and with many of my clients who want to have greater control of their cash flow. It frees them from dependence on banks for capital infusions and avoids government red tape when they need to access their money.
For more information about BUILD Banking™, visit www.buildbanking.com (opens in new tab).
This strategy enables business owners to grow assets tax-free and have access to those funds whenever they’re needed. In essence, you’re accessing cash when it is needed while having uninterrupted compounding growth for your future.
Mind Shift No. 5: Understand Your Legal Exposures and Protect Yourself
You likely have some form, or forms, of insurance in place for your business. And you may believe that these policies have you covered. Well, they may, and they may not. The coverage you need goes far beyond liability, even extending into punitive damages.
It’s important to work with an insurance professional who specializes in business coverage to ensure that you have the right type of policies and the proper level of protection for your specific business.
There are also certain types of insurance policies (including the BUILD Banking strategy I’ve described above) that can serve a strategic purpose for your business. It’s common, and valuable, for business owners to have a life insurance contract as part of their succession plan, acting as a funding mechanism for the beneficiary to purchase the deceased owner’s share of the business.
Again, you will want to have a collaborating team of insurance professionals who have expertise in their vertical and who understand your business, your goals and what you are trying to accomplish. It’s also a good idea to include your CPA, attorney and financial planner in on those discussions.
These five financial planning tips and mindset shifts will help you use your business as a tool to start building wealth (or build greater wealth). They may be things you’ve never thought about, or things you’ve considered but haven’t been able to implement. Putting these ideas to work can get you on the path to true business success.
Results may vary. Any descriptions involving life insurance policies and their use as an alternative form of financing or risk management techniques are provided for illustration purposes only, will not apply in all situations, may not be fully indicative of any present or future investments, and may be changed at the discretion of the insurance carrier, General Partner and/or Manager and are not intended to reflect guarantees on securities performance. Benefits and guarantees are based on the claims paying ability of the insurance company.
The terms BUILD Banking™, private banking alternatives or specially designed life insurance contracts (SDLIC) are not meant to insinuate that the issuer is creating a real bank for its clients or communicating that life insurance companies are the same as traditional banking institutions.
This material is educational in nature and should not be deemed as a solicitation of any specific product or service. BUILD Banking™ is offered by Skrobonja Insurance Services LLC only and is not offered by Kalos Capital Inc. nor Kalos Management.
BUILD Banking™ is a DBA of Skrobonja Insurance Services LLC. Skrobonja Insurance Services LLC does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal adviser for such guidance.
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA & SIPC. Advisory services offered only by duly registered individuals through AE Wealth Management (“AEWM”), a registered investment adviser. Skrobonja Financial Group, LLC, Skrobonja Insurance Services, LLC, AEWM and MAS are not affiliated entities. The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax or legal adviser with regard to your individual situation.
Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder and president of a St. Louis, Mo.-based wealth management firm. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently to reach their goals. Brian is the author of three books, and his Common Sense podcast (opens in new tab) was named one of the Top 10 podcasts by Forbes. In 2017, 2019, 2020, 2021 and 2022, Brian was awarded Best Wealth Manager, in 2021 received Best in Business and the Future 50 in 2018 from St. Louis Small Business.
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