Everywhere I look, I see business gurus telling entrepreneurs how to ‘scale up’, ‘grow’ or ‘plan your exit’ and all those popular buzzwords.
I have a different phrase - ‘Do you know your number?’
At Becketts we refer to ‘financial independence’, some say ‘financial freedom’, or a variation on ‘choosing to work rather than having to work’.
Whatever you call it, it’s the figure where you can: be confident, be comfortable, be adaptable and not run out of money!
It could be a lump sum or an income that you feel in control of. But how do you get to your number?
The first step is to make a spending plan and understand your desired living costs. Know the life you want to live. Be honest and don’t compromise here! You are building your business to help achieve this financial independence.
Cover the basics first - household, food, bills; followed by leisure activities – memberships, hobbies, holidays, etc.
The luxuries come last, the exciting stuff! Fine dining, taking a sixmonth sabbatical, buying a boat!
Once finished, you should have a clear understanding of your desired future spending and any one-off expenses.
Working out your lump sum thereafter is an easy calculation – if you know which other numbers to factor in.
When combined with an investment withdrawal strategy, you need to calculate what withdrawal amount is sustainable to provide your income. As a rule of thumb, withdrawing 4% annually is widely accepted. At Becketts, we use a ‘Guardrails Strategy’ to manage this.
This approach requires a 25x multiple of your budget to calculate your lump sum. History tells us this approach is achievable without ever eroding your capital over the long term.
Now it’s time to put your money to work.
That is a question most entrepreneurs should consider when thinking about their number.
If you don’t know your number, how do you know the right direction for your business?
Money gets left in cash or unstructured property investments are considered but not often executed. There is no strategy around how to get the most from the exit long-term.
Alongside this, the fear of giving up control and moving into something new can cause inertia, which can be one of the most detrimental responses to a long-term successful plan.
At Becketts we create personalised financial plans to help you make informed decisions with clarity and confidence. Ones that are laser-focused on your goals and objectives for life. With these in place and as an exit is considered, the stresses of post-exit life can be reduced.
Your business is your vehicle towards your personal financial success and how you want to live your life, or at least it should be!
Make the most of it!
Enjoyed this? Read more from Dominic McLoughney, Becketts