Step 5 Build Businesses

Truth time. It’s really hard to achieve genuine financial independence as a wage slave working for someone else’s company. So in the fifth of this seven-part mini-series I want to share the secret of serious wealth creation – step 5 is all about building businesses.

Unless you’re the CEO of a FTSE100 company, you’re unlikely to earn enough after tax to acquire the assets that will make you free. Maybe if you’re a highly successful sales person with an unlimited commission package. But in the ever dwindling world of corporate middle management, I’m not seeing fortunes being made. If you have your own professional practice as a doctor, dentist or lawyer, times are tougher than they used to be. But you can still use your annual profit share to invest in an asset each year. If you add a new care home suite to your portfolio every year for the next decade, you’ll be generating something like sixty thousand pounds a year in passive income by the end of that period.

That could mean cutting back to working two or three days a week with hand-picked clients on the stuff you really enjoy. Maybe walking away from the stress of the NHS and focusing on private practice? Or using your commercial law skills to help business start-ups and receiving sweat equity in return because you don’t need the cash. It’s all about choices. And choices come from passive income you can rely on. But what if you’re a modestly paid employee in the corporate world?

I urge you to find some sort of commercial enterprise you can start on a part time basis while keeping the day job. Here are some tips for finding the right business for you:

• Don’t try to invent something new. The world has more than enough ‘stuff’ and the chances are you’re not the next Steve Jobs.

• Choose something you already know something about or have a passion for

• Formulate a product or service from it

• Test it in a small way online before committing any funds to it

• Determine whether you can access a big enough market on a cost effective basis

• See if you can acquire an existing business in the same area to kick start progress

• Once it builds to a level of income that equals the day job, you can jump ship and focus on growing your entrepreneurial empire

• If it doesn’t work, ‘fail fast’ and move on to the next thing

Struggling for ideas? Ask yourself these questions, then mull over the answers to find a business idea you can test:

1. What skills and experience do I have that others might find valuable?

2. Is there anything unique that I can play on in terms of my background, the obstacles I’ve overcome, the countries I’ve done business in, the combination of products and services I’ve worked with?

3. How can I best package and position my unique skills to target a tightly defined niche market that would value them and that I know I can access?

4. How can I establish instant expert positioning eg by writing a book, a white paper or a newspaper/magazine article on my topic?

As a general rule, the more specific and niche you can be the better. One friend of mine began with a broad statement that she wanted to start a dating agency. ‘Who for?’ I asked. ‘Everyone’ she replied. ‘Bad idea’ said I. By the end of a one hour conversation based on her unique experience, her contact base and our combined market knowledge, she ended up with a very different plan. She would become THE dating agency for divorced female lawyers over the age of 50 living in London. Now that’s what I call a niche. Do you think that will be a price sensitive niche? Or would such a woman pay almost any price to be served by an agency that seems tailor made to her circumstances?

So here’s the plan:

1. Keep the day job while you experiment with business ideas.

2. When you gain some traction you can transfer to your business full time.

3. Get into the habit of accumulating capital in the business then using it to acquire passive income generating assets. You’ll need to take tax advice on whether to own these assets on the company balance sheet or as a private individual

4. Look for other businesses that can be acquired cheaply or merged with your own to achieve scale faster.

5. Work towards an exit through a trade sale or IPO within a 3-5 year time frame.

6. Use the funds from your exit to acquire enough assets that you can live on the passive income.

7. You are now financially independent!

Now that you’re making all this money we need to turn our attention to how you hang on to as much of it as possible. So in the penultimate episode we’ll look at how to Tame the Taxman. See you soon!