Building a Business Versus Building Wealth
I’ve found that many women love the idea of running their own business and embrace becoming self-employed. Whether by starting in party plan sales, working from the home computer, taking on a franchise or helping others in small business; most love the idea of flexibility and family time opportunities that small business represents. There’s also the thought that maybe sale of the business down the track can help pay off debt or even assist with retirement funding.
That said, the market for small businesses has been hardly ideal in the past few years and some are struggling more than ever. Many are still just closing the doors and walking away, amidst much debt and heartbreak.
The reasons for the lacklustre market may be due to external forces:
* Weak economic conditions mean some businesses are earning less so not enough money is coming in
* Tighter lending standards reduces the pool of eligible buyers so it's much harder to find a buyer for the business; and
* Qualified buyers may be waiting for a stronger economy before assuming more risk so there's a better chance they'll make money by buying the business.
In other words, efforts to build a successful business may not always translate to an increase in your own personal wealth.
One way that may help insulate your personal financial situation from the fluctuating small-business market is by investing outside your company.
Many pour all their profits back into their own company, but external investing can have some important benefits. For example, if you were forced to sell unexpectedly, (perhaps due to illness or relationship changes) your post-business lifestyle wouldn’t the depend 100% on the final price of sale. You might also be better able to withstand low offers if you are in a position to wait for the right buyer.
Eggs and Baskets
Think of it as diversification. We’ve all heard ‘don’t put all your eggs in one basket’ and allocating too much personal wealth to one company, even if it is your ‘baby’ can be a risky proposition. Diversification, or spreading the risk, does not eliminate the possibility of investment loss; however it is a great way to help manage risk.
It’s natural to want to believe that all the love, effort and dedication you pour into your business will help increase the selling price, but there’s always the risk that it won’t. So try and take your ‘owner’s’ hat off and look from the outside in, to see all possibilities and spread the risk and make money from other sources.