When you think about your business right now, and the life it’s giving you, is there a gap between where you want to be financially and where you are now?
Have you got the lifestyle and security you thought running your business would (or should) give you? And when you look to the future can you see where your pension and possible exit are coming from?
Do you even know where you want to be?
And do you know for certain exactly where you are now financially?
And you know what – these might be difficult questions to answer. We often just accept where we are, hoping for better, but not having really thought about what “better” even looks like.
I can really relate to that!
If you know me, or you’ve been reading my blog for a while, you’ll know I can be a worrier, and can have a tendency towards a scarcity mind-set. Something about losing my first house when I was 21, and seeing my parents lose their home and business in the early 90s recession, does tend to colour how I see the future sometimes!
So being a worrier, and long term financial security being something I really value, I’ve been working on defining exactly where my financial gap was, and over the last year in particular working to close that gap to the point where I know what I want for my life and my future, and have figured out a way for my business (hopefully) to give me that.
If you don’t define it how will you get there?
What does that mean in practice? These are the steps I took:
- I defined exactly what I needed to take home and why – looking at our costs, the things we want to do, and the holidays / trips and adventures we want to have.
- I worked out with my financial advisor what I needed to get into my pension to give us an income we’ll be happy with later (and the younger you are, the more I urge you to start making decent contributions as soon as you can – don’t leave it till later)
- I worked out how much buffer cash I wanted to have in my business – this helps me sleep at night and means I know I have choices for the future. I like to have a year of costs in the bank, but I recommend everyone has at least 3 months put away.
- I decided how much retained profit I wanted to make each year, to keep that buffer cash pot building.
- THEN I could work out what my gross margin needed to be to consistently give me that level of security. Notice I didn’t say turnover – chasing turnover is never the answer!
Was it easy? No not particularly, but SO worth it. Having confronted the difficult questions, and made some decisions about what I’m aiming for everything seems so clear now. And it takes the anxiety about the future away.
Where can you start?
You don’t have to do this all at once – just start thinking about what you really want for your life. What do you want your financial situation to be, and what will that make possible.
Once you’ve done this (the hardest part in my opinion) then the rest of the pieces will fall into place with a bit of spreadsheet work and a chat with your financial advisor.