A business plan without a personal strategy is as pointless as not knowing your numbers, according to Xentum MD Adam Carolan, a next gen financial planning expert whose Grab Life ethos brings a fresh perspective to a staid sector.
If you’re in business, your day will undoubtedly be full of numbers. Numbers relating to your profit and loss, your sales figures, your headcount, your cash flow, your net income, your price point, your gross margin, your total inventory. They’re what you focus on day in, day out. After all, they’ll be what will determine the health of your business. The problem is that you can be so focused on all the numbers there’s sometimes little time to step back and think about your own personal future. But when it comes to your own financial planning there’s one number that’s more important than any of the others – your number – the number that will allow you to plan your exit from your business and get on with enjoying your financial freedom. The irony is that very few people think about taking the time to work it out.
What does knowing your number mean? Being clear about your number means working out the figure that will allow you to do everything that would make up your ideal lifestyle. That figure will give you the assurance you won’t run out of money, whatever happens. It will also enable you to set a clear date for when you can exit your business. Now, selling your business may seem a long way off but it’s never too early to start planning; and as with anything in life, if you know what you’re aiming for you’ve got a much better chance of getting there.
So how do you work out what your all-important number is? Think about when you would like to step away. It’s a tough one. This is the business you’ll have put your heart and soul into building up but there’ll come a time when you’ll want to move on and do something else. After all, the reason you decided to start your own business in the first place was no doubt to give you and your family financial freedom and live your ideal lifestyle.
If you want to stop work at 60, and assuming you have paid off your mortgage, now think about all the money you will still need to spend on outgoings each year: Basic bills (food, utilities, council tax, broadband, phone etc); holidays (skiing and summer – maybe including some lifelong travel ambition); leisure expenses (clothes shopping, eating out, entertainment, gym membership etc); and helping other family members.
There’ll be many more things to consider but in this simple example let’s take a figure of £40,000 per year. Assuming you live until 90 that’s 30 years of life after running your own business – 30 x £40,000 makes £1.2 million. Without over complicating things in this short article, we can take off what you’ll receive in state pensions, other income and bingo – we have your number! When you know this number you’ll have a goal that leads you to achieving financial freedom. That’s the only figure you really need to worry about – the one that will enable you to live your desired lifestyle for your life going forward.
Obviously, the calculation is a lot more complex in reality. As well as state pensions it will also need to take into account any other income, inflation, investment returns, future capital expenditure and changes in lifestyle – but you get the idea. Knowing what you’re working towards means that if you’re getting tired of the daily grind and there are other, more exciting things you want to do, you no longer have to feel tied. All sorts of opportunities could open up.
It also makes sure that you don’t have to carry on working crazy hours, completely wedded to your business for longer than you need to be, without realising you could have exited years earlier. Once you’ve reached your magic number you can stop! So maybe it’s worth taking a step back and asking the question, ‘If you could sell your business today and know that the proceeds would allow you to live your desired lifestyle for the rest of your life – would you?
Fresh perspectives on life matters
Adam Carolan will share more insights on financial planning and wealth management based on his Life. Grab it. Live it. Love it. approach at next month’s ICT Investment Forum (see opposite box). He is championing a new approach within the financial advisory space and has worked with many organisations and business owners in the creative media and tech sectors to help them achieve personal financial success. He has supplanted the traditional standardised, rudimentary service with a focus on innovation and inspiration as the cornerstones of financial advice and wealth management. Carolan also founded NextGen Planners, a primarily digital training and community platform that trains the next generation of financial planners with over 300 members. And he hosts the NextGen Planners podcast which has over 60 episodes.
Maximise the value of your business
ICT Investment Forum, February 28th 2019, BAFTA, 195 Piccadilly, London
Insight sessions include:
• Navigating the comms sector growth landscape
• How to identify the optimal financing solution
• Investing in the future: You have the funds, what next?
• M&A strategies: First steps and how to get it right
• High calibre interviews with business growth experts
This event is free to attend based on approval. To register your interest please go to: ICTInvestmentForum.com