Creating a means to an end- Diversifying your nest egg

Business owners have some of the most unique characteristics when it comes to their attitude to risk and developing goals in their business; most understand what decisions need to be made to reach the outcome, understand where things may go wrong and adjust their course to ensure they have the highest likelihood of achieving the final outcome. At the end of the day, this is just business as usual for them and it comes as second nature when they are doing what they do best- running their business. When it comes to diversifying their wealth position and looking to invest personally they can be hesitant to say the least.

Over-capitalizing in a business is a key characteristic for business owners who are primarily in start-up or growth phase as there is a constant battle of being able to generate new revenue streams and in turn, deliver the expected outcome to the client in order to turn a profit. It is common that in these stages most businesses lack the necessary resources and with most problems of this kind, they require money to solve. But at what stage do you draw the line and look at alternative options to grow your asset position for the future?

The key considerations are as follows;

  • Draw a consistent income from your business

There are a lot of business owners who forfeit their own income in an effort to reinvest the revenue from their business to fund future growth and as a result of this fall into the habit of taking ad-hoc drawings to meet lifestyle expenses as required. The first point to consider is, where possible treat yourself as if you were an employee of the business and pay yourself a fair market wage for the work you are doing. This has a number of flow-on benefits which include providing you with the capacity to be able to borrow from the bank to acquire property as they will look at your ability to service a debt and will require a consistent source of income.

  • Don’t discount your retirement savings

For most of us, retirement is too far away to think about and the high level plan for funding future lifestyle comes from the success of your business and the ability for it to provide you with a long term income stream. What most people don’t consider are the tax consequences of income derived from business, both as a salary or for capital gains and how this can affect your projected wealth into the future. Superannuation can provide you with a number of tax benefits both today through claiming contributions as a tax deduction and in retirement through being able to derive tax free income, it is worthwhile considering what part superannuation will play in your overall wealth accumulation.

  • Treat your personal finances like a business- Understand your personal Profit and Loss and Balance Sheet

Like in a business, your capacity to grow is determined by your capacity to use your surplus revenue to invest for the future. Understand your personal cash flow position and ensure you have enough to not only live your life and fund your lifestyle, but have a surplus that can be invested to grow and plan for the future.

  • What am I trying to achieve?

Everyone has both personal and business goals that they are working towards but it is a matter of quantifying what is the ideal timeframe in which you want to achieve them and how do you define a clear path of what needs to be done to get there. Your business and personal goals should be considered separately to each other to allow you to dedicate time and resources to them accordingly. Break your goals down into short, medium and long term and rank them in order of priority to allow you to focus on what is most important first.

Remember, at the end of the day you are the Working Director of your own life and the decisions you make in running it will determine the opportunities you have in the future. Ensure you consider what it is that is most important to you and take time out of your business to plan your own pathway to success.

Written by Jackson Millan- Navigate Financial Group

Jackson is a Strategic Financial Planner and Personal Spending Coach with Navigate Financial Group working with both individuals and SMEs to provide guidance and on-track management towards their financial goals. We care about working with you to achieve your long-term aspirations and guide you to financial security and choice.

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