Trying to figure out how to build long-term wealth as an entrepreneur? Here are 7 main things that you would have to focus on.
Learning how to build long-term wealth as an entrepreneur requires intentional planning, the right mindset, patience, and dedication.
Wealth cannot be built in a day. You would have to invest years or even decades in growing your cash flow, learning how to distribute the money that the business generates, and making difficult decisions.
But the best part is that it’s all going to be worth it in the end, as long as you are able to pick the ultimate right goal at the beginning.
Where to Start?
Below you will find a few helpful tips on building long-term wealth, but in order to make them work, you would first have to make a mind shift and learn how to separate your personal assets and business finances.
Change Your Mindset
You might never be able to build long-term wealth no matter how hard you try if you simply do not have the right mindset. Unfortunately, a lot of people who have not been born into wealth have plenty of mental barriers that prevent them from achieving their final goal.
Here are a few things that you would have to work on, especially if you’re a first-generation wealth builder:
- Let go of all limiting beliefs. If you believe that there are not enough resources and opportunities for everyone, then you do not have an abundance mindset (which, in its turn, is necessary to have for anyone who wants to achieve financial success). You would have to learn to control your thoughts and, ultimately, rewire your brain to expect abundance. You can get rid of the scarcity mindset by starting to make multi-million decisions before you even become a millionaire. This means becoming proactive, making counteroffers instead of going with the first offer, and so on. People with an abundance mindset do not automatically become wealthy. They, of course, would also have to work a lot, but the way they think allows them to not miss the big opportunities that come up in their lives.
- Accept that money is not evil. You won’t be able to build wealth if you are convinced that there is nothing worse than money in this world. But as soon as you realize that the resource can be used for good, your life will make a 180-degree turn. In fact, the increased ability to give might become one of the reasons why you choose to learn how to build long-term wealth as an entrepreneur in the first place.
- Understand that a high salary is not enough to build wealth. You will not be able to achieve your main goal without managing your expenses and investing. A high salary is certainly great, but money tends to lose its value the longer it sits, so as an entrepreneur, you would have to make sure that your money is constantly ‘working on you’.
Another important thing that you should bear in mind is the fact that your business is not your job. It is a tool that will help you build wealth.
If you’re working in your business all the time and you have to focus on day-to-day tasks, it means that you have managed to create a job for yourself, and that’s not how wealth is created. Try to work yourself out of the role you have and make the business run on its own.
Always carve some time out of your day to think about your business strategy (you won’t be able to do that if you’re constantly buried in work).
In a word, you shouldn’t dream about being ‘the boss of the train’. Be ‘the owner of the train’.
Separate Your Personal Wealth from the Company’s Finances
At the very beginning of their journey, a lot of entrepreneurs have to use their personal savings or family assets to start their businesses.
But as soon as you are able to do that, you have to consider separating your personal wealth and the finances of your company. Otherwise, your fate will fully depend on the success of your business.
Ideally, no matter how badly your company is performing, you should have enough personal assets to be able to provide for yourself and your family. That is why your personal investment strategy should not cross paths with the area in which you’re developing your business.
For example, if your company has something to do with real estate, you might not want to heavily invest in real estate investment trusts as, if something were to ever go wrong in this sector, you would potentially end up with nothing.
You should also try to stop using your personal finances to fund your business as soon as possible. Once the company is able to provide for itself, you might want to begin setting aside a certain sum for the development of the business that has been generated by the actual business.
In a nutshell, your company should have enough cash to become its own bank. In such a case, you would never have to rely on a bank or dive deeper into your personal finances.
How to Build Long-Term Wealth as an Entrepreneur
Starting your own business is one of the best ways to build wealth (together with such sources of wealth creation as real estate and the stock market). But, in order to achieve that, your business should, of course, be successful. And not only marginally successful.
There are no universal pathways that an entrepreneur can follow to build long-term wealth. But there are certain strategies that can help you increase your chances of reaching your final goals. So, make sure to take those into consideration.
Find an Experienced Accountant
The importance of a good accountant cannot be overestimated. In fact, a competent accountant can become a business’s invaluable asset.
The responsibilities of accountancy professionals include:
- Assisting with corporate strategy
- Providing advice and helping the business to reduce costs where possible (including claiming tax deductions)
- Mitigating risks
- Analyzing, creating, and communicating financial information
- Creating a realistic budget
The not-so-obvious benefit of having a full-time accountant is the fact that such an expert will help you avoid an audit as there won’t be any mistakes in your tax forms or excessive write-offs.
Last but not least, knowing that all the paperwork is handled by another professional will allow you, as a business owner, to focus on other important things. Like figuring out how to build long-term wealth as an entrepreneur, for example.
Grow Your Cash Flow
Ideally, your cash flow should become the fuel for your business. In the worst-case scenario, a strong cash flow can help you cover emergencies without having to file for bankruptcy.
Together with your accountant, you should monitor your cash flow, track the progress, and be prepared for when new opportunities (or problems) arise.
Of course, the ways of growing the cash flow would depend a lot on the type of business that you have, but there are a few tips that anyone can take into consideration:
- Always stick to your budget
- Build a cash reserve
- Aggressively manage your inventory
- Look for additional suppliers (shop around to find out if other vendors offer better prices)
- Don’t be afraid to raise your prices (in 2022, the global inflation rate was 8.8%)
- Consolidate your debt (combining multiple debts into a single loan might help you receive a lower interest rate)
Understand What’s Going on with Your Finances
Having an accountant who is going to be helping you with your finances is amazing, but that does not mean that you shouldn’t be holding your hand on the pulse of things.
For example, you should always keep an eye on the current economic situation. Price inflation, issues with supply chains, and global events – if you know exactly what’s going on, you’ll be able to make informed financial decisions faster.
You should also understand the true value of your business. Knowing the numbers will help you figure out whether or not you have already created enough value within your business to reach your goals.
When determining the business’s value, you would have to take the following factors into consideration:
- Tangible assets (machinery, inventory, and property)
- Intangible assets (patents, trademarks, brand recognition, etc.)
- Liabilities (debts)
- Financial metrics (annual profit, revenue, and so on)
Knowing how much your business is worth can help you not only in a situation when you want to sell it. Determining the value can provide additional insights into the strengths and weaknesses of your business. For example, if you have found out that your brand recognition does not add much to the value, you might decide to focus more on marketing.
Build a Retirement Plan
One of the reasons you might want to find out how to build long-term wealth as an entrepreneur is that you’re planning on living the life of your dreams once you retire.
It is important to understand that the people who are planning to fund their retirement with the money earned from selling their business might end up with nothing. A thought-through retirement plan will help make sure that you achieve your goals in any case.
- Of course, you would have to start with defining your retirement plans as moving to the countryside might be enough for some, while others would prefer to buy a yacht and go on an adventure around the globe
- Talk to a financial advisor who will help you assess your current business strategies and define any changes that need to be made so that you are able to achieve your goal in your chosen timeframe
- You should also be able to stay on track with your plan. This includes having regular meetings with your financial advisor to make sure that everything is going as planned
Have an Exit Strategy
A successful entrepreneur has to understand what he or she would ideally want to do with the business once they no longer want to be part of it. It is important to make such a decision way in advance as it will affect the way you do business.
In the absolute majority of cases, entrepreneurs choose one of the following strategies:
- To liquidate the business
- To keep the business operating
- To sell the business
Liquidating a business can become an option for those who, for some reason, cannot find a buyer. It might also seem like a nice plan to come from a psychological perspective as the business will ‘vanish’ instead of being transformed into something that you might potentially not like.
All the assets can easily be sold on ‘going out of business’ sales. And as long as the liquidation is properly planned and doesn’t take too long, you might be able to earn decent money from it.
If you’re not planning on liquidating, then you should focus on increasing the value of your business. You would also have to develop a strategy that will allow the business to successfully function after your departure (in other words, the brand should not be centered around you).
Identify the next generation of leaders and make sure to train them to properly run the business, if you’d like to pass the company to someone else. If you’re planning on selling, then be prepared to invest quite some time in organizing and structuring all of the business’s finances.
Final Thoughts
Now you know how to build long-term wealth as an entrepreneur. Make sure to start with the small but extremely important steps like working on changing your mindset and finding an amazing accountant.
And don’t forget to figure out what made you want to make this money in the first place. If the aim is good enough and it aligns with your personal philosophy, then success will not keep you waiting.
