How would you like to someday retire from your business? That is someday build a business that affords you the time and money to enjoy the people and things you like to do outside business? I often talk to entrepreneurs and even though this is something they want, they never take the time to plan for it. They somehow hope that someday they will wake up and have a business big enough they can retire from.
Well, hope is not a strategy! If you will like to get a head start on your planning, be sure to look at our retirement planning template (excel).
We often take things for granted when things in our lives are going well. Just because your business is doing well today, does not mean it will always be that way. If you ever want to retire from your business, you will have to plan: What would happen if:
- You suddenly became ill.
- Or a new competitor got in the market and almost wipes you out
- Or you get too old to work as hard as you used to
- Or some type of regulation that has the potential to destroy your business gets passed
What will happen to you financially, if you could no longer work in your business for whatever reason? These are things you need to think about and plan for. But yet we often take this for granted.
What makes a business an asset that can fund your retirement?
The first thing you will need to do is build a solid business: That is a collection of systems that generates revenue independent of the owner.
If you have just a product or service you will eventually hit the maturity and decline phase. However, a business that has systems in place has the potential to outlive its founder. If you want to build a business that endures, you need to understand systems and how to make the numbers work in your favor.
Systems can be classified into 3 broad categories:
System 1 -A mapping system/overall strategy plan.
System 2 -A financial system: Revenue generation/maximization, cost minimization, building and managing assets, balancing liabilities and equity.
System 3 – Internal business process: complying with legal requirements, managing risks, partnerships and process improvement.
To retire from your business, you will need to create systems so you can walk away from your business and still earn income.
System 1: A mapping system
Have you ever travelled somewhere you have never been without a map or gps system? If you have ever done that, how did you know when you arrived? But yet, it is very amazing to me how many people build businesses without a map of where they want to go.
A mapping system is where you plan to go. If you want to build a business and not just a product or service that provides good revenue for a while, you will need to map out your goals. A way to accomplish this is to use the retirement planning template (excel).
To develop a good concept into an idea you need to have a plan with milestones. These milestones are also known as goals. There are 5 questions you need to ask yourself before you start developing your plan:
- Where are you going?
- What is required to get there?
- What you are willing to do to get there?
- What you have right now that could help you get there?
- What gaps need to be filled to get there?
Defining your goals help you set a clear path because our choices for today become our destination for tomorrow. I think one of the most important things you can do before you start any business is define what is important to you because as you become successful a lot of opportunities are going to come your way which might be in conflict with the goals you initially set for yourself.
We have a whole world out there telling you how to live your life and defining what success should look like for you. The truth is we are all different and my definition of success may not necessarily be yours. We have to be aware that there is a part of us that likes to impress others so it is easy to adopt other people’s philosophy because we think that is the way to impress the world.
The mapping system should be visited regularly as it sets the entire tone of your business.
System 2: A solid financial system
The journey from idea to financial independence is never an easy one. It is filled with lots of uncertainties, difficult decisions, impossible paths, etc. While having a financial system will not prevent adversities from affecting your business, it will give you a more solid anchor in handling the adverse events that come your way.
If you refuse to build a financial system, your business will surely but slowly dissipate. Businesses rarely crumble in a day but slowly and surely overtime, bad decisions eventually catch up: choosing to do nothing is one of the worst decisions you can choose to make. Learn to build systems around your ideas so you can become truly financial independent. Any business that is going to survive the long haul must have a financial system. A financial system affects every area of the business, and works hand in hand with the marketing and operational system.
A solid financial system should include:
- A revenue generation system:
- Cost management
- Asset management (cash, inventory, capital assets, etc)
See this retirement planning excel template for more details
System 3: Internal business process
This is the system that governs the day to day running of the business. It is the vehicle through which the system carries out its purpose. Internal business systems are mostly driven by external forces and as a business owner your choices are to comply, improve or die. As an entrepreneur you face the pressures of meeting consumers’ needs, changes in the economic and legal environment, etc. These external changes force entrepreneurs to continuously improve. You can use this retirement planning template (excel) to optimize your internal processes.
You should have a diversification plan.
No one knows what the future will bring. Your industry might become extinct tomorrow: It might be due to technology or legislative changes. Whatever the change, you need to plan for the what ifs. I know this is sometimes hard to think about, but having investments outside your business is a great way to diversify your risk. Rather than spending your dividends, use it to generate more revenue producing assets. That way if your business asset class collapsed, you will still be okay.
Also within your business, you should have a retirement plan package as part of your compensation. This not only saves you taxes, but provides another way to fund your financial independence at retirement.
Time, and not money is the most precious resource you have. Time once spent can never be repossessed. On the other hand, money spent can always be regained. If you use your time in a way that never invest in your future i.e. in a way that ensures you will never be able to retire from your business, then do not expect something different in return. You reap what you sow. Being too busy in your business to profit from it in the long run makes no sense. Once time passes, you cannot go back and get the gains from all the investments you did not make.
Even if you plan to work forever, (maybe you have no other goals in life), they will come a time where you will be too weak to keep working at the rate you currently do, what will you do then?
Be sure to take a look at this retirement planning template (excel).