There are two phases an entrepreneur goes through namely wealth creation and wealth preservation. In the wealth creation mode, an entrepreneur is so focused on growing his or her business and so holds all assets in the company. On the other hand, in the wealth preservation mode, the entrepreneur is more concerned about preserving wealth and begins to look outside the company to create a balanced portfolio. This helps the entrepreneur diversify risks. An entrepreneur never knows when a downturn might start downward spiral in the company.

This article focuses on the entrepreneur in the wealth creation mode. In the wealth creation mode an entrepreneur can diversify risks within the business by diversifying the assets that product revenue. In other words, by having multiple streams of income within a business, you are not as adversely affected in bad times.

For a business owner, the business should be a primary source of wealth management. As a business owner, your business is your biggest asset. The balance sheet is the statement that estimates your business worth. Besides the value of your tangible assets, you should know the value of your intangible assets like customer lists and websites. Typically, most people do not include these on the balance sheet but they are real assets that generate real revenue. While you will not include these in financial statements you give outsiders, nonetheless, you should value them for internal purposes. Remember, what gets measured, gets improved. If you know the value of your intangible assets, then you have a more complete picture when determining the value of your business and allocating assets within your business.

As a business owner, you should think of all the ways you can generate income with your given product or service (both passively and actively). By constantly evaluating each income stream carefully, you get ideas on how you can make improvements. For example, intangible assets like customer lists and websites help generate income when implemented with proven system. Keep in mind that the assets alone are not able to generate income but it is the systems around the assets that makes for the difference. Building assets by creating and implementing systems that work is the core principle in building a successful business that allows for financial freedom. The kind of assets you build will determine the sustainability of your business. A business that can create large amount of short term income from assets but cannot sustain the income over the long run cannot be considered a viable business. This is why business need innovation. Innovation is the key to asset creation and continuous growth!

Increase your financial IQ, Attend our next event.