Since the days when America was composed of 13 fledgling colonies, business ownership has been one of the best ways to create personal wealth. According to the U.S. Small Business Administration’s Office of Advocacy, in 2003 there were 12.2 million nonagricultural businesses in the United States. Of these, 710,000 were African-American owned. While the African-American business community has experienced dramatic growth over the past decade, launching a business, or even having the business survive, does not mean that it will create personal wealth for you and your family. Is your business structured to create personal wealth? Here are seven tips to place your business in a position to win.
- Incorporate the business.
According to the SBA, 82 percent of all minority businesses are unincorporated and owned by individuals. Whether you are a large construction company, an independent real estate agent or a professional model, you need to have your business incorporated. This decision will give your business a more professional status. More important, incorporating protects you personally against many of the legal liabilities that may be generated from your business activities. In addition, incorporation may reduce the chances that you get audited by the Internal Revenue Service. The IRS views self-employed individuals with suspicion and therefore subjects their businesses to audits. Given this attitude, those who have incorporated businesses are scrutinized much less than those who are unincorporated. Incorporating is a simple but important step to positioning your business to create wealth.
- Establish a retirement plan.
Retirement plans for business owners are a tremendous source of wealth creation. While an employee can contribute $13,000 tax-deferred to his or her 401(k) in the 2004 tax year and $3,000 to an IRA, a business owner can contribute up to $40,000 per year tax-deferred and even more may be set aside through sophisticated executive compensation plans. Many business owners make the mistake of believing that their business cannot afford a retirement plan. If your business is structured to maximize wealth, it can’t afford not to have one!
- Develop financial projections.
Far too many businesses underperform financially because their owners do not fully understand the factors that were influencing the growth of their businesses. Financial projections create a level of discipline in a business and force you, the business owner, to think through the near-term and long-term impact of revenue and expense decisions. Financial projections also help clarify the reasonableness of expectations and allow you to target the level of wealth you desire to achieve from the business. While many businesses are started without financial projections, developing such projections are key to determining how much wealth your business can generate and when.
- Establish hurdles by which to measure your success.
Establishing hurdles is central to creating wealth from your business. Given the large number of tasks facing the business owner every day, it is easy to lose focus on the underlying purpose of being in business, which is to create wealth. Writing your hurdles down serves as a constant reminder of what goals you need to achieve in the short term to realize your wealth goals in the long term.
- Establish a financing relationship with a banker.
While your business may not need financing today, it likely will need it if it is going to get to the next level. The absolute best time to build financing relationships is when you don’t need money. Thus, build financing relationships today, so that you may maximize the wealth creation opportunity when your business is at that point.
- Join your industry association.
Industry associations are an excellent way to build business relationships. You may feel you do not have the time to participate in these organizations, but if you want your business to create wealth, the informal information network you develop by being a member of these groups is indispensable. Joining these organizations will also allow you to increase your knowledge of your industry and learn business practices that could help your company operate more efficiently. Join an association within your industry today!
- Do what you do best and outsource the rest.
To maximize the wealth creation potential of your business, you must focus on those activities that have the greatest financial impact. There are thousands of tasks that need to be done every day. Each task is valuable, but only about 20 percent of them actually affect your bottom line. For your company to create wealth, it is essential that you focus only on those tasks that have an impact on revenue. Focus on accomplishing these tasks and outsource all other functions.
David Hinson is founder of Wealth Management Network in New York City, 646-375-2388, www.wmnllc.com . E-mail: firstname.lastname@example.org.
By David Hinson