A Wealth Building Recipe for Small Business Owners and Entrepreneurs
By Billy R. Williams, Ph.D.
President, Williams Family Investment Group and Inspire a Nation Business Mentoring - www.inspireanation.org
The recipe I am about to explain is simple enough that most people can at least put some of it in place and start increasing their small business owner wealth.
1-cup of a Product that Benefits a lot of People
1-cup of Profitability
1-cup of Good Accounting Practices
2-cups of Marketing and Prospecting
3-cups of Savings and Investment Plan
Industry thought leaders rarely talk about the motivations behind being in business, but today I want to discuss the exact reason most entrepreneurs become entrepreneurs in the first place, to build wealth.
Wealth means owning an asset that consistently grows in value, and that you can one day sell at that increased value, or leverage the value to acquire more assets and wealth.
I am going to give you one of the recipes you can use to build wealth.
There are many ways to prepare a meal and a multitude of ingredients that you can use, and just like preparing a meal, there are various techniques you can use to build wealth.
Small Business Owner Wealth Recipe
1. The first ingredient is Passion.
Build your business around something you are passionate about and you will never feel bored or disinterested in your business. Even if you can’t modify your product, you can target a niche or group that is in-line with your passion. For example, an insurance agent that is passionate about fishing could target boat owners or people with homes on the lake.
2. The second ingredient is a product or service that benefits a lot of people, or, a specific niche that can purchase enough to make your business profitable.
Your product or service has to add value to people’s lives or you are just selling snake oil. If your product doesn’t lend itself to a large audience, you must have a niche or demographic that is willing and capable of spending the amount of money necessary for you to operate a profitable business. Including an influential network of professionals that can refer your target prospect can make this part of the recipe much easier to prepare.
3. The next ingredient in the recipe if profitability
If you spend more money on the cost of delivering goods and services and labor than you make when you sell your product or service, it will be impossible for you to build wealth. This ingredient should have a supporting ingredient called “Accounting Practices”. Good accounting practices will allow you to track the profitability of your business and make good financial decisions that will keep your wealth building goals cooking along. Good accounting practices will track labor cost, cost of goods and services, operating cost, taxes, and a few other things. At Inspire a Nation Business Mentoring (@Inspire a Nation Business Mentoring) www.inspireanation.org, we recommend that you hire an accountant or an accounting firm as soon as financially possible. A good accountant is a part of your wealth building recipe.
4. Next, take your passion, products, services you sell, profitability and accounting practices, and mix them with consistent, repeatable, reproducible processes, conversations, operations, and technology.
Consistency is the key to reproducing any great dish. If you constantly throw new flavors and ingredients into the mix, no one knows what to expect when they bite into the meal. Sometimes it will be good and sometimes it will taste like crap. This inconsistency will cause people to avoid the meal.
Lack of consistent processes, conversations, technology, and accountability tools will not only cause people to not take a chance on you, they will tell other people to not take a chance on you either by giving you negative online and offline reviews. If you are afraid to ask your customers to write an online review because you are afraid of what they might say . . . your processes and accountability suck, and building wealth will be virtually impossible.
5. Next, increase the heat by hiring employees with the skill sets you need to reproduce your passion, processes, and actions.
You will rarely if ever find employees that share your passion, but if you properly train them and hold them accountable for mimicking the processes and operations that happen within your business, the customer will have an above average experience when dealing with your employees. Consistent training and accountability will establish a business culture that will enhance your wealth-building goals.
6. While all of the ingredients mentioned above are simmering, you will need to grab another pot for the next ingredients: Marketing and Prospecting.
Without marketing and prospecting, like bread that never rises, your wealth building recipe will fall flat. At Inspire a Nation Business Mentoring (@Inspire a Nation Business Mentoring) www.inspireanation.org, we recommend that you start your marketing and prospecting with local search result marketing (SRM) and search engine optimization (SEO) of your website, landing pages, blogs, social networking profiles, etc. If you don’t know what you are doing, pay a 3rd party that does know what they are doing to handle this part of the meal. It is the same principle as having different types of chefs in a professional kitchen.
The marketing messages that explain your products and services should be simple and direct to the point. If you can’t quickly and effectively explain to a prospect how not having your product or service can be a detriment in certain situations, and exactly how having your product or service will add value in other situations, why would you expect someone to want to buy it?
The special ingredients that go into the marketing and prospecting pot are referral partners and testimonials. These low cost, high flavor ingredients will spice up your wealth building recipe beyond your wildest expectations, and you can never add too much of them to the recipe.
Your marketing and prospecting are much more effective when you are collecting contact data from interested prospects. Sub ingredients like web forms, conference calls, product hotlines, webinars, and more, are low cost and easy to add to the overall recipe. (Check out an Inspire a Nation Business Mentoring (@Inspire a Nation Business Mentoring) www.inspireanation.org, membership to learn many low costs, high ROI, easy to implement ways of marketing your insurance agency or small business)
7. The final part of the recipe will be poured liberally over the entire dish. It is a good savings and investment plan.
Let’s first look at the savings plan part of the dish. Your savings plan should follow a 20/10/70 savings order. 20% of your business net income (after taxes) should go into a savings account. The money in this account should not be easily accessible.
At Inspire a Nation Business Mentoring (@Inspire a Nation Business Mentoring) www.inspireanation.org, we recommend that you do not have a debit card associated with your business savings account. A debit card makes it too easy and convenient to pull money out of the account.
The 20% can go into a business or personal savings account. (Yes, it will count as income if you put it in a personal account) Your initial goal is to be able to cover one year of living expenses. Again, do not make it easy to access this money. The funds in this account will be there in case of emergency, or, to take advantage of an opportunity such as acquiring a competitor, or purchasing assets that increase business value and wealth.
The 10% will go to charitable endeavors such as religious focused organizations or local not-for-profit groups. I know you are saying why wouldn’t I just add that money to my savings or my operating expenses? There are two primary reasons: first, it allows you to keep a mental and emotional connection to helping others. Remember earlier I said your product or service should benefit a lot of people? It is important that you donate the money to an organization where you can immediately see your contributions working, such as the Salvation Army, Red Cross, local religious organization, or youth sports team. If you don’t see the immediate benefit of your donation, you will quickly stop donating.
Another awesome way to help the community while also branding your business is to sponsor a scholarship. By setting aside a measly 10% each pay period for charity, you can make a big difference in not only an individual’s life but your community as a whole. Not to mention the accolades and branding benefit within the community. Offering a quarterly scholarship to a deserving student or family will change lives.
The second reason that you give to charity is that it helps to teach you the discipline of living below your income. You can’t build wealth if you are spending 100% or more of every dollar you make.
I am a Christian so my 10% goes to tithes. I can promise you I see a huge ROI, and because of the church I attend, I see my money at work within the community. Whatever organization or group you consistently donate to, you will see benefits to your business by way of social currency, increased referrals, and increased business and individual branding.
The Remaining 70%
The main question that I get about this plan is “How do I run my business and pay my personal bills with 70%?” The answer is simple: run your business efficiently, keep unnecessary cost to a minimum, don’t have employees that don’t cover the cost of their employment. If they are following your processes and you are holding them accountable, they should be an asset, not a liability.
If your employees are a liability, you have given them bad processes to follow, or you are a poor leader and not holding them accountable for the processes that will help you build wealth. I know that sounds harsh, but that is the reality. If you are a bad or weak business leader, building wealth in your business will be nearly impossible.
Personally, you must live within your means. The amount of money you bring into the house is a product of how you are running your business. If you want more money to spend, run a better business operation. Until you start to generate more business income you will have to keep your personal bills and expenses to a minimum.
You will have to use Netflix instead of packing the family up and going out for a $150.00 movie night. You will have to prepare your meals at home instead of spending $20 or $30 bucks a day at McDonalds and Starbucks, and you will have to keep revolving debt like credit and store cards to a minimum.
When I first started my business, I lived in a two bedroom townhouse for 3 years, even though on paper I could have afforded to buy a house. We waited and saved until we could comfortably get the house we wanted.
That is not to say I followed this plan to a T. In fact, I am writing this piece because I was reflecting with one of my mentees about the mistakes I have made about business and finances. The price we pay to gain wisdom and experience should be a cost you don’t have to pay. Always remove your ego and arrogance and listen to people that have walked the road you are heading down.
There is a lot more that I could write but I will end it here. Even if you take one thing away from this article and start applying it to your business and life, you will see a benefit.
Are you a small business that needs help and mentoring guidance? Check out Inspire a Nation Business Mentoring at www.inspireanation.org, or seek guidance one of your industry's thought leaders.