Contributed by Noah B. Rosenfarb, a member of the Entrepreneurs’ Organization (EO) and a certified public accountant who helps entrepreneurs increase cash flow, sell their companies successfully, manage their wealth and create predictable passive income.
1. Invest in Yourself
We all invest our time and money in people and things. The best investment for entrepreneurs is always going to be in themselves. This could mean your health, education, well-being or relationships—anything that can fine-tune and improve your life will bring the highest return on investment because the cost is often very small.
Invest in yourself in both small and big ways. For example, hire a housekeeper so that you can stay focused on higher-value tasks. Get a massage every week to relax. Spend time with your family without distractions. Often, prioritizing time to exercise your body and mind will produce great returns.
Giving yourself set times to think and focus is a valuable investment. Look at the schedule of the world’s wealthiest entrepreneurs and you’ll uncover that comprehensive wellness is a high priority.
My best personal investments include memberships in EO and YPO, coaching programs, mindfulness training, as well as reading a book a week and taking three workdays each month to enjoy alone time with my wife.
2. Invest in Your Business
If you can’t create the highest return on investment in your present company—then maybe you should rethink continuing to operate your business. Entrepreneurs should flow to the area where they can generate the highest returns on time and money.
When you think about investing in your business, consider adding talent and equipment. Look toward creating new sales and marketing structures that perpetuate your sales cycle. Oftentimes, entrepreneurs focus almost exclusively on top-line revenue growth that will lead to bottom-line profit gain. However, it is still critically important to focus on risk factors in one’s business.
All companies are sold using a simple formula of earnings times a multiple. The multiple is driven by the risk factors inherent in the business. If we can reduce the risk factors, we can increase the multiple. Sometimes, decreasing the risks provides greater returns than one can achieve by focusing on increasing profits. This is especially true in the years leading up to a sale.
My most productive recent business investment has been building our back office team in the Philippines, which expanded our capacity at half the cost of a team in the US. I’ve also generated a surprisingly high return from content creation and social media.
3. Invest in Tax Strategy
Successful entrepreneurs may not realize that their single biggest personal expense is their income taxes. By evaluating options to lower their taxes, entrepreneurs can often increase their net income anywhere from 10 percent to 50 percent with only small changes in the way that they operate their business and personal life.
This increased cash flow, if reinvested wisely, can dramatically impact your future. We believe that once an entrepreneur is making more money than they need to cover their living expenses, then they should be focusing on building their tax structures.
Our most effective tax strategy was to open two businesses in Puerto Rico, where we pay only 4 percent in corporate taxes. We also structured these companies to be owned by a Roth 401k plan, so we never pay taxes on our dividends and we can invest our profits tax-free for our lifetime.
4. Invest in Real Estate
Real estate is another area where entrepreneurs should allocate capital. Real estate can often be used to house the business of the entrepreneur. I’ve seen many instances where the entrepreneurs’ net proceeds from the sale of their real estate are greater than that of the sale of their business.
Real estate has many qualities that enhance its attractiveness, including tax benefits, the ability to use as leverage, inflation protection and more.
My real estate strategy is to buy apartment complexes where we can implement our Infinite Return model.
5. Invest in Life Insurance
Entrepreneurs too often dismiss investing in life insurance structures. Most life insurance is sold, not bought. Unfortunately, that creates a conflict of interest for the person that educates the entrepreneur about the insurance. When an entrepreneur purchases life insurance, the advisor receives a big commission. That is definitely something to be aware of, but life insurance is an incredible tool that can be used to enhance an overall financial plan.
One thing most entrepreneurs don’t realize is that banks will pay the majority of insurance premiums on their behalf. This can create positive leverage that produces net returns that can rival real estate investments while also providing protection to the entrepreneur’s family if they die unexpectedly.
I purchased my first whole life insurance policy at 27, before I had children, as a place to park cash that I could borrow as needed. I purchased term insurance when my kids were born to make sure my family could live the lifestyle I created even if I died. More recently, I’ve used premium financing to acquire insurance that will provide me with tax-free retirement income.
6. Invest in Private Debt
High-performing entrepreneurs have good cash flow and little need for ongoing significant liquidity, especially if they’ve been able to establish lines of credit. As a result, we find entrepreneurs often have more cash and liquid investments than they need to accomplish their goals. By allocating their conservative investments to private debt instead of publicly traded bonds, the entrepreneur trades liquidity for a higher yield. Often this results in 3 percent to 6 percent per year of additional returns.
I started a private debt fund in 2011 to take advantage of this reality for my family and our clients. We make short term loans where the borrower can use our capital to make more money for their business. Often the collateral is real estate, purchase orders, accounts receivable or even business equity.
7. Invest in Other Companies
When entrepreneurs have succeeded in growing their own business, they may find value in investing in other people’s companies, either actively or passively. Private equity returns are some of the highest of any asset class, but they also come with significant risks and a greater standard deviation between return expectations.
In layman’s terms, that means a lot of people lose money investing in companies. The best private equity investors can make 30 percent or greater annual returns. It’s critical to develop your own opportunity filter so when you begin to seek investments, you know precisely what to look for.
I built a unique company, FIGI, that enables me to invest in online businesses using the power of a royalty structure. I also hold significant minority interests in small private companies where I provide strategic advice, but have no role in daily operations.
8. Invest in Stocks
I would be remiss to not suggest that entrepreneurs also should build a diversified portfolio of publicly traded stocks. Over time, publicly traded companies produce average returns that exceed inflation by 4 percent to 8 percent. The primary advantage of stocks over the above items is the ability to sell them and generate cash within days.
Compounding your investments in public companies over a lifetime should result in significant wealth creation.
Personally, I have avoided building a portfolio of stocks and bonds because I haven’t found value in the liquidity it can provide. My cash flow exceeds my lifestyle expenses and if I had an unexpected need for capital, I have sources I could use (like my life insurance or my home equity line of credit) to tide me over. Still, my family office has deep expertise in constructing and managing portfolios of stocks and bonds for our clients.
For more insights and inspiration from today’s leading entrepreneurs, check out EO on Inc. and more articles from the EO blog.
The post To succeed as an entrepreneur, make these 8 investments appeared first on THE BLOG.
Original Source: blog.eonetwork.org
When I first moved out of my parent’s house, my spending was out of control. I bought take-out regularly, new clothes often, and fun products frequently.
However, I quickly realized that I was spending too much money on unnecessary things.
After racking up some credit card debt, I realized that I needed to cut costs somewhere.
As a business owner, it can be just as easy to overspend as it was for me.
When that happens, it’s time to review your bottom line and see how you can reduce your spending.
In this post, let’s go over some of the top ways you can cut costs in your business.
1. Analyze and track the efficiency of your business.
Before you can reduce costs in your business, you need to take a step back and analyze what you’re currently spending money on.
Take a look at your balance sheet and your budget. Look at your production costs, and do an in-depth analysis of your current processes.
Asking yourself questions like, “Is what I’m doing efficient?” and “Am I spending needless money somewhere?”
Once you have a full picture of what your spending looks like, you’ll have a better idea of where you can cut costs.
2. Negotiate with your vendors.
A great way to cut costs in business is to negotiate with your vendors. You should price shop and compare vendors in almost every area of your business.
For example, if you’re deciding on insurance providers or looking at supply costs, you should communicate with the sales reps that you’re looking at other companies as well.
This will let them know that you aren’t afraid to walk away and are ready to negotiate costs based on your research.
3. Bring efforts in-house.
Outsourcing can make sense if you don’t require a full-time employee to do a task. However, bringing your efforts in-house might save you money if you’re outsourcing several projects that could be assigned to one person in-house.
To decide if you need to bring efforts in-house, take a look at your current outsourcing budget, and compare it to the cost of one part-time or full-time employee.
4. Eliminate products that don’t sell well.
Developing products requires time and money. Instead of selling a bunch of products that don’t sell well, focus on the products and services that make the most money.
By concentrating on the products that sell, you can deliver higher quality products. Plus, you won’t waste money on the services that aren’t selling.
5. Hire the right people.
Hiring the right people is important for several reasons. If you choose employees that have specialized skills and are experts in their field, you’ll have an efficient staff.
When your employees aren’t sure how to complete a task, they’ll spend time researching and learning about it on your dime. That can possibly waste both time and money.
If you focus on hiring the right people, you won’t have to worry about whether your staff knows what they’re doing.
Additionally, you should also hire for culture fit as well. You don’t want to have too much turn over, because that can also waste money.
6. Crowdsource when necessary.
While you should bring efforts in-house if you’re spending too much money on outsourcing, if certain tasks don’t require a full-time employee, you can work with freelancers.
Freelancers are generally less expensive because you only have to pay for labor on a certain task. You won’t need to pay for benefits or training.
If you don’t need to have a full-time staffer on board to complete an assignment, consider using freelancers.
7. Evaluate your technology.
One of the top ways that businesses waste money is by subscribing to software you don’t need or stopped using.
It’s important to evaluate your technology needs on a regular basis and ensure your software is up to date.
You can hire an IT person to be in charge of consolidating your software needs and make sure you don’t overspend on technology.
8. Consider a remote set-up.
When I was in college, I worked on a fully remote team of 10 people. If you’re running a small business that doesn’t necessarily require a physical office space, you should consider going remote.
Office space is one of the most costly expenses that companies spend money on, and you might not need to.
In fact, not all companies require physical space. Some positions are suited perfectly fine to a remote set up. This could end up saving you thousands of dollars a month.
9. Buy in bulk.
Of course, a great way to save money is to make purchases in bulk. However, when you do this, make sure that you’re saving money.
Not all items need to be bought in bulk. For example, if your team doesn’t drink a lot of coffee, you don’t need to make that purchase in bulk. However, if your team can drink through bulk coffee quickly, then buying it in bulk will save you money. It just depends on your needs.
To save money, evaluate which items should be bought in bulk and which items can be bought on a smaller scale.
10. Participate in loyalty programs.
Let’s say your company spends money on paper every month. This is probably a repeat purchase that you’ll likely continue making for the duration of your business.
With these types of purchases, you should do some research and see if your suppliers offer loyalty programs.
You might be able to save money from the stores that you make purchases from all the time.
Additionally, you could also work out a trading system with other companies. Don’t be afraid to talk to other business owners and see if you can work out a system with them.
11. Become eco-friendly.
Environmentally friendly appliances are great for the environment, as well as your budget. That’s why you should consider becoming eco-friendly with your purchases.
For example, you could consider going solar, buying an eco-friendly fridge for your kitchen, etc. A lot of appliances can be made eco-friendly and save you money.
12. Treat employees well.
When employees are happy, they become advocates for your company and will want to stick around. This means you’ll spend less money on training and onboarding.
When companies are more focused on the bottom line than their employees, they’ll likely experience a lot of turnover.
I’ve seen this first hand and having a rotating door of employees will end up costing you more money than just treating your employees well from the start.
13. Consider bundling your services.
This might seem like a simple suggestion, but a lot of purchases can be bundled together. If that’s an option, you should consider it.
For example, services such as phone and internet are usually bundled together. Bundling services will typically save you money.
14. Automate processes.
When your processes can be automated, you should do it. This means you’ll spend less money on labor and you’ll have a more streamlined process in place.
For example, if you use marketing automation software, your marketing team won’t have to manually post on social media or send emails every morning. Instead, they can automate that process and it’ll save them time and save you money.
15. Use reward credit cards.
As a business owner, you’re going to spend a lot of money. That’s why you should spend money wisely.
For example, you can get a business credit card to charge things to so you can make use of rewards or cash-back programs. This way your purchases will add up to rewards and bring you money back.
When it comes to reducing costs in business, it’s not about looking for ways to cut corners or take advantage of your employees. It’s about streamlining your processes so they’re working for you.
Original Source: blog.hubspot.com