The Danger Of Being A Lifestyle Business Owner

You may or may not know if you’re a Lifestyle Business Owner, but by the end of this article you’ll be clear on whether you are, what it might mean for your future and any actions you might need to take.

Remember when you got your first full-time job? Mine was when I started at Marconi Communications in Chelmsford, Essex. I was 21 and had moved over from Northern Ireland. New job, new town and a new way of living.

Of course, an important part of any job, part-time or full-time, is getting paid. That regular credit to my bank account helped me save up for my first car – an old MG Midget.

As an employee I considered my salary and benefits as my total income. My employer deducted some of my salary for my pension and that was to start building funds for my retirement, when I wouldn’t have an income from employment.

Becoming A Business Owner

Now consider being the owner of a new business. If the business is a limited company, you’ll probably be an employee on the payroll. Still getting the monthly salary.

You’ll also be able to have other income benefits the same as your other employees:

  • pension contributions;
  • company car and fuel;
  • travel and business expenses.

Saying that, as the business owner you’ll also be able to take more types of benefits and bigger values. Subject to keeping within HMRC guidelines of course!

You will also be able to declare dividends if the business makes sufficient profits.

And for most business owners that is their return from the investment they made in becoming a business owner.

Essentially, the business pays for the owner’s lifestyle as long as they keep working.

Check If You’re A Lifestyle Business Owner

If you’re unsure whether you’re a Lifestyle Business Owner, I’ve put together some questions to help you to decide:

  1. Is your focus on current income?
  2. Is success being able to afford your lifestyle today?
  3. Is your view on exiting the business financially driven? A “I’ll die at my desk” mentality. If I can’t cut at my lifestyle, I can’t exit.
  4. Do you think the business is valued as an equation based on historical financial performance?
  5. Do you think that value of the business has to be what you perceive it to be?

If your answers are predominantly ‘yes’ then you’re probably a Lifestyle Business Owner!

The Danger Of Being A Lifestyle Business Owner

Here’s where reality can start to bite. You are probably part of the 72% of owners who don’t believe their exit will impact their lifestyle. Let’s do a simple calculation.

Assume your total income from the business including benefits is £100k. You may decide you can live on less when retired or you may have plans to see the world, etc.  To keep that level of income when you retire you will need a fund of between £2 million and £3 million to see you through retirement! That fund can come from a mix of:

  • personal savings and investments;
  • state pension;
  • private pension;
  • your property;
  • your business (either income or sale proceeds).

Any shortfall between what you need and the size of that fund means you need to:

  1. reduce your lifestyle;
  2. build up the value of your assets outside the business;
  3. grow the value of the business.

Or you’ll never exit the business and will need to keep working.

Here’s the nub…staying as a Lifestyle Business Owner rules out many options making that shortfall harder to reduce.

What Do I Need To Do To Reduce The Shortfall?

If you’ve realised that being a Lifestyle Business Owner isn’t going to give you the future you desire, you need to decide if you should switch to being a Value Accelerator Business Owner.

Then you will be able to answer ‘Yes’ to these questions:

  • Is your current focus on the enterprise value of your business?
  • Is success all about getting the highest profit multiple when you sell?
  • Is exit about building a valuable asset that is easily sellable / transferable?
  • Do you view the business being valued on the intangibles – the operational drivers of the business?
  • Is that value what you need it to be worth to maintain your lifestyle in retirement?

To be a Value Accelerator Business Owner you need to know how best to add value. It’s not just about selling more.

To understand how well your business generates value spend 13 minutes taking the Value Builder Assessment

Your assessment results will show you where to put your effort. It will also tell you how valuable your business could be.

That’s when you can start working towards the lifestyle you want and deserve when you retire.  Get my Value Builder Score now!

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