Intentional Growth
#306: The Business Owner’s Dilemma: Solving for Current Cash Flow vs. Long Term Business Value Creation
Podcast summary created with Snipd AI
Quick takeaways
- Business owners need to decide whether to reinvest profits into their company or invest in other assets.
- Wealth planning is crucial for business owners to navigate their financial goals effectively.
- Exit planning involves strategic investments and growth to maximize the sale price of a business.
Deep dives
Understanding the Importance of Being Intentional
Being intentional means constantly thinking about the purpose behind what you want
Exploring the Reinvestment Dilemma
Business owners face the challenge of deciding whether to reinvest profits into their company or invest in other assets
The Legacy Dilemma: Balancing Purpose and Wealth
Business owners have to consider the purpose of their wealth, whether it is for their family, charity, or personal fulfillment
Navigating the Exit Dilemma
Business owners must decide whether to grow their company or sell it, considering factors like reinvestment and personal fulfillment
The Importance of Wealth Planning for Business Owners
Wealth planning is crucial for business owners to navigate their financial goals effectively. Identifying the need for independent wealth and business risk capital is the first step. Independent wealth refers to the amount required for financial security, typically determined by the desired annual gross income and distribution rate. Business risk capital, on the other hand, pertains to funds earmarked for entrepreneurial pursuits or investments. It is important for spouses to align their risk aversions and goals. An excess of wealth can be directed towards children's inheritance or charitable endeavors. By having a clear understanding of personal financial needs, fun investments, excess wealth allocation, and legacy goals, business owners can make informed decisions to secure their financial future.
The Misconceptions About Exit Planning
Exit planning is often misunderstood and associated with negative connotations such as estate planning and discussions about mortality. However, true exit planning goes beyond selling a company and focuses on building value in the business. It involves strategic investments and growth to maximize the sale price. Educating business owners about the distinction between enterprise value and net proceeds is crucial. Many business owners overestimate their net proceeds, failing to consider factors such as debt, equity partners, team bonuses, and taxes. By reframing exit planning as professional investing in one's own company, business owners can better understand the value of intentional and strategic wealth planning, which includes optimizing tax efficiency, asset positioning, and reinvestment to achieve holistic financial goals.
EP. #2 [THEME TWO]
Should you reinvest your business’s profits or take home distributions instead? In this episode, Ali Nasser, founder and CEO of AltruVista, is on the show to help us answer this question and continue our current theme: are you running a lifestyle business or creating a valuable asset?
Ali talks about the three critical dilemmas that are on every entrepreneur's mind when it comes to growing your business and lifestyle. He explains how to think about reinvesting in your company vs. taking the money home and investing (or spending) outside your company, how to plan for an exit, and how to create a legacy you are proud of. The first topic he challenges us to get clarity on is… well, you guessed it, what do you want long-term? Ali walks us through different reinvestment strategies as well as how to plan for an eventual exit based on the capital you need for your lifestyle and legacy (which is tightly integrated into the Intentional Growth™ Principle #2 - Financial Targets).
Many entrepreneurs feel trapped when it comes to thinking about an exit, which is why we’ve been talking about how to view your company as a financial asset that gives you choices to exit when and how you want if you build a company worth what you want–or need–it to be worth. If you know what you want long-term and how much it costs to live the lifestyle you want–while saving some money for low-risk investments–you will find clarity on the right mix of reinvesting back in the business and saving outside the business so you can hit your long-term financial goals.
//WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast
What You Will Learn
- The Three Dilemmas that every entrepreneur deals with.
- The six categories that define the entrepreneur wealth spectrum (WISE).
- Lifestyle wealth versus legacy wealth and how it ties into net proceeds.
- How to navigate the intersection of wealth planning and life planning.
- Exit planning versus a value enhancement strategy.
- Why you need to know what you want from your company–both financially and emotionally–before creating an investment or exit strategy.
- The different reinvesting options every business owner has–demonstrated by Ali’s IOD chart.
- How to think about risk as it relates to investing in your business and all the other asset classes outside of your company.
- Why and when it’s important to diversify your net worth outside of your business.
- Why it’s so important to understand your own perception of risk and how that compares to the real risk when investing in any asset.
// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment
Bio:
Ali Nasser is a #1 Amazon best selling author, a passionate entrepreneur, communicator, and life enthusiast. His goal is to help business owners find their best path forward.
While serving as a guide and partner to some of the world's most successful entrepreneurs for almost two decades, Ali identified three critical dilemmas challenging their minds.
He has successfully turned those challenges into opportunities via the Wealth Integration System for Entrepreneurs™ and in his book, "The Business Owner's Dilemma” Ali reveals how business owners can integrate business, wealth, and life decisions to create the life experience they truly desire.
Interview Quotes:
06:15 - “Comprehensive integrative planning. And then also bring their team of advisors (tax, legal) together to the same table so we’re all pulling in the same direction. And for most business owners, that’s just not something that’s easily available. And getting that, with a clear process and a clear path specifically built for owners, isn’t something that’s easily available.” - Ali Nasser
09:11 - “By the time you liquidate, it’s too late to move the needle on your business.” - Ryan Tansom
14:55 - “It’s so hard because we think of money as mechanical and financial and it’s really not. Especially not entrepreneurial money. It’s extremely emotional.” - Ali Nasser
18:34 - “You’ve got to make a decision about whether your business is a lifestyle business where, it’s the boat, it’s the lifestyle, it’s the fun, it’s all about what it is and does for me, not necessarily about whether you’re maximizing the enterprise value or the business value.” - Ali Nasser
18:52 - “Do you want a lifestyle business or are you truly trying to build something that has marketability, that has equity, that can grow that total enterprise value.” - Ali Nasser
23:20 - “This [entrepreneur’s investment opportunity diagram] explains how every entrepreneur thinks about investing, but not necessarily how we always articulate it. This is what goes on in our head when you put it on paper.” - Ali Nasser
49:35 - “The first thing you need to identify is, how much do you need for independent wealth?” - Ali Nasser
55:49 - “He had a $35 million exit and everyone was like ‘Oh wow! He sold for $35 million!’ And then we got to talking and looking at his net proceeds… It was under $10 million.” - Ali Nasser
68:50 - “Being intentional is one thing but intentionality is a state.” - Ali Nasser
Links and Resources:
Ali’s email: ali@alinasser.com
The 5 Intentional Growth™ Principles (5 Videos to Help Clarify Your Vision)
Intentional Growth™ Financial Assessment
You can also reach out to me via email at rtansom@arkona.io, or on my LinkedIn.
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