Let us ask you a question, are you building a business… or just building?
We want to share with you an important financial strategy that you need to implement into your business in order to build wealth and sustain growth.
Too many builders we speak to spend everything they earn on living expenses with nothing left over for wealth creation or reinvestment in their business.
According to a report by the HSBC, the average Australian's combined investments and retirement savings will run dry within just 10 years of finishing work.
And with life expectancy already at 85, that means they’ll need to continue working until they are 75 years old.
Are you ready to continue working until you are 75?
What happens if you can’t work?
Are you planning to be financially independent at retirement or will you be relying on the government?
To become financially independent you need a plan. Because a failure to plan, is a plan to fail.
So let's start with a plan for reinvestment of profits back into your business.
How much you reinvest depends on your market and your growth plans, but as a guide, you should be looking to generate at least 5% to 10% in net profit from a building company.
Net profit is the amount left over after your drawings and any dividends that may have been paid to the shareholders. It’s the bit that stays in the company to fuel future growth.
Once you have a budget and a plan that is generating net profit, you’ll also have a figure for your own drawings.
What we're going to tell you next will go against everything your Accountant tells you, so you need to make a decision. When it comes to growing a business, who are you going to listen to?
You’re still here, that’s good :-)
Do not be tempted to pay yourself well in good times and poorly in bad times.
You need to draw a regular wage from your business every month, or week. It does not matter what your Accountant has told you, if you do not do this you will never build a successful sustainable business.
What’s more, your regular wage must be enough to cover all living expenses and taxes. If you are unable to do this and still make a net profit in your business, you need to change your plan by either increasing sales, increasing margins or reducing expenses.
When you draw a regular wage, you’ll make better business decisions.
Feast and famine lead to poor decision making in a business. When you are desperate for sales or cashflow, you’ll end up either compromising your margins or taking on highly demanding clients… or maybe even both!
Leaving excess profits in a company during good times builds up reserves that will take you through the bad times.
And when your net profit exceeds your business needs, you can start increasing your income to a level that reflects your position as the boss of a successful company. Be sure to pay yourself market rates but don’t be tempted to waste your wealth on luxuries. Instead, ensure you invest 30% of your income into wealth creation.
Now we are not a Financial Advisors and we don’t know your personal circumstances, but we know one thing...you are an entrepreneur in an industry that collapses every eight years or so. Therefore, you not only need a long term wealth creation strategy, you also need a short term safety net.
So, the first thing to do before you invest in property, shares or even growing your own business, is to hold one year's living expenses in cash.
Whatever happens, you are an entrepreneur.
You can start another business, even if it’s outside of the building industry. You can do it! Believe us, you can, even if you don’t believe in yourself, we believe in you.
But you can’t do it if you are drowning in debt. So make sure you always have one year's living expenses on hand, so that whatever else happens, you have 12 months to get your life back on track.
After that, you should start looking at investments outside of having cash in the bank. We’ll leave it up to you to seek some personal advice that relates to your own circumstances.
If you have a desire to grow your building company and to begin your wealth creation, click on the link below to watch the demo where you'll be able to take a look inside the Association Of Professional Builders Members Area.