Every day when you go to work, you focus your energy on making your business a success. But are you putting the same type of effort toward making yourself and your future a success? Let me explain the difference.
Hard work and applying the latest techniques for operating a service and repair business will make it prosper - keep at it and the business will grow. As the years go by, you will soon discover you have invested the better part of your life in your company. Optimistically, it will be worth something substantial someday.
But what about your quality of life? It often suffers as you invest years of your time and energy exclusively in the business.
I think we have opportunities that spring from our service and repair firms to make them more than just businesses. It should certainly be more than a good job. Our companies are a vehicle to get us where we want to go in life - financially in the short term, as well as a way to meet our long-term goals.
I am talking about wealth building. Freedom. The time we want to be with our friends and families and travel where we want to, when we want to. Your business can be a wealth generator, but you must make it work for you, instead of constantly working for it.
The way to transition to building wealth from your business requires three key steps: 1) recognizing that you cannot accomplish all the technical and managerial tasks yourself; 2) putting a system in place that will allow you to manage the business without being “chained” to it for decades; and 3) expanding your horizons to include time and energy spent on investment opportunities.
To accomplish each of these steps, you must become familiar with a concept I discovered many years ago: leverage.
For our purposes, leverage means receiving a return on your time, effort, money invested, expertise, training, and all your other contributions to your business that are greater than the specific time or money you have contributed.
A good example of this concept is purchasing real estate with a mortgage. If you invest $20,000 as a down payment on real estate that costs $200,000, you are entitled to receive the rents from that property, and the depreciation and tax benefits, too.
Should the property increase in value (appreciation) 10 percent in a year, which is not unheard of, that would produce a gain of $20,000 in value. Since you did not have to invest the entire purchase price of $200,000, you had a significant gain on your investment of $20,000. Without counting interest expense and tax benefits, you doubled your investment. That's how leverage works. You can apply the concept in your business and in your plan to build wealth.
Step One - RecognitionOnce you admit that you cannot control every single, minute aspect of your business, you have made progress toward building your wealth. Admittedly, you may be more comfortable keeping your hands on every transaction, every purchase and observing every service call. But it is frustrating to try to monitor and control everything. Micro-managing, as it is sometimes called, doesn't work and takes up all of your valuable time.
If you can't use a “hands-on” approach to running every minor aspect of your company's operation, what is the alternative? The best alternative is to still maintain control of the company's operations, but not have to do it all yourself. The way to do that is through a system.
Step Two - Implementing A SystemIt takes a comprehensive and proven management system that works well for a firm's owner to be comfortable turning responsibility over to those employees entrusted to do the job. But it has to happen.
The secret is to use the right system of management - one that is proven - for it to work. Making one up as you go along is an invitation for miscommunication and inefficiency.
There is nothing sophisticated about a good management system; it just has to be workable. Once we put together the Maio Success System in my business, I knew I could work on wealth building and not just the business. I knew it had paid off when I had 50 trucks in operation - after starting from only one - before I was 30 years old. It was the system, not just me, or I never could have done it.
I had to have marketing, accounting, training and motivational programs, dispatch, phone answering, warehouse/inventory control, and all other functions of management systematically handled.
Once the system was in place, I fine-tuned it a bit and let it run. The result was a business that almost ran itself. It maintained profitability and freed up some of my time. I was able to do the things I liked to do. Before too many years went by, I was enjoying a high six-figure salary and looking for ways to build wealth outside the business.
Even better, when it came time to offer the business for sale, no replacement manager had to be found. There was one already there. No one wants to buy a business that will need a complete management team, new systems or any other delay in transitioning the business to the new owners, or face the risk of a dip in profitability. Setting up a system pays off no matter what your strategy.
Step Three - Expanding HorizonsOnce you recognize the need for and implement quality management systems in your business, you are ready to expand your horizons. That doesn't mean you ignore your business. Never do that. It's time, however, to diversify your accumulated assets.
When you diversify, you spread the risk of having all your money and resources tied up in one investment vehicle. Like having it all tied up in your company or in one stock, for example. When you invest in different areas, you spread the risk of loss, so that if any one investment is reduced in value, you don't suffer significantly. In fact, when one investment goes down - if you are properly diversified - others often go up.
One of my rules has been never to invest in areas I don't know about. Without becoming familiar with an investment, you increase your risk. (Check out the old standard book in investment philosophy, “Richest Man In Babylon.”)
For instance, I am not familiar with futures (corn, soybeans, etc.), so I stay away from those types of investments. One of the easiest ways I have found to leverage rewards from your business - after you have completed the first two steps above - is to buy real estate. It is not wildly speculative and frequently goes up in value. You can add value to it.
We are contractors; we know HVAC and plumbing, painting, electrical, etc. If you are comfortable with improving a rental property, you'll find that you will get a good return on your efforts. Accumulate a few of them (say, one a year) and soon you will be building wealth. Keep them and rent them, or fix and sell them. No matter what you decide, you will be accumulating assets as part of your wealth plan. Plus, you diversify your business assets at the same time.
Technicians also can participate. They have a substantial amount of driving time; there is no reason why they can't learn about diversifying their resources, too. Books and training courses on cassette and CD can help them secure their futures.
Tax StrategiesWhen you accumulate wealth, you can take advantage of some of the incentive tax strategies that our tax laws allow. There are very attractive incentives for owning investment real estate. They allow you to shelter from high taxation the investments that can help you grow your assets.
For example, tax laws permit deductions from your income from real estate depreciation - even though you spent no cash of your own to get the deduction. If you plan properly and study a little, or get a good accountant to help, you can trade investment properties under a provision in the tax laws (Section 1031) where you defer taxes on your real estate. Only after you have disposed of the last piece of property you traded do you owe taxes.
The message that I want you to get is the importance of looking ahead. To have a successful wealth-building strategy, you must assemble a plan. When you start looking beyond your daily business concerns - after implementing a system to operate your business - you will have the opportunity to secure your retirement and wealth.
You run more than a business. You have a wealth-producing vehicle that can provide you with all your retirement needs.