I’ve published an article called how to become rich. It talks about the process of becoming rich by investing. If we can also add an idea of business to the process, the ultimate objective of becoming financially independent will become easier. How?
This is what we will learn in this article. If one wants to attain financial independence in life, then the idea of business will go a long way. It can also relatively quicken the whole journey.
The probability of being financially independent is low while in a job. Not that salaried people cannot be Financially Independent. But people who do a business are mentally more prepared to travel that path. How?
In a job, the majority lives a life of compromise due to a lack of funds. No matter how big the salary is, one often carries the feeling of being cash-starved. That happens because salary-earning people tend to overspend more than a businessman. The latter is more prudent in handling cash.
Why Businessmen Handle cash Prudently?
The above infographic is a typical representation of how a business will generate free cash for itself. Orange boxes represent activities dealing in cash. Blue boxes are of other activities.
You will note that the business has already done so much to generate “free cash.” The effect of the struggle shows in the way the ‘free cash’ will be handled in times to come.
While managing various business activities, a person becomes a pro in handling cash prudently. This ultimately also shows in the way these people manage their personal finance.
So does it mean that salaried people cannot handle their personal-finance in the right way? The answer is both yes and no. Yes, because the focus of salaried people is always on their work. Check the below infographics
Like a business, a job can also generate free cash. But unlike in business, in a job, there is a disconnect between work and money. The control of an employee on their free cash generation is limited. How? Two things:
- Work Focus: Employees must focus on their work. If their performance is good, they will get nice annual increments and bonuses. Who will sanction such benefits? The boss or the top management of the company. That is the disconnect. You will ‘only’ work, and if the boss likes it, rewards will come. The control of the cash in-flow is more with the boss than an employee. Read: Pay yourself first.
- Only Expense Control: To increase one’s free cash, an employee can control only their expenses. They can lower the expense to step up the free cash.
In a way, we can say that, in a job, what employees do is only work. Income becomes like an aftereffect of work. Moreover, the control of income is completely in the hands of the bosses.
But in a business, the disconnect between work and income is negligible. Increased sales and improved profitability become immediately visible after good work-done. Why? Because in a business there are no bosses, there are only clients/buyers. They will purchase the products and services anyway – if they like them.
Focus on Brand Building
A good businessman’s focus is spread between three pivot points – Operations, Sales & Marketing, and Finance. These three things are done to create a brand name. The brand name will evolve with time by taking care of all the stakeholders of the business.
But this is more like an idea. How to execute the idea? By implementing these five main ingredients of a good business:
- Infrastructure: All businesses have their unique type of infrastructure. Some business needs more brick and mortar infrastructure (Automobile). For some, infrastructure can be cloud-based (Information Tech). Providing a suitable infrastructure for the team is one of the basic needs of a business.
- Values: What are the principles of doing business? The team must know the values for which they are working. A value statement highlights the important things for a company. It can also state how the team must conduct itself while managing the priorities.
- Leadership: It is the leaders who steer the team in the right direction. A good leader adheres to the values and runs the business to meet the goals. It is essential for a Business to have the right leaders in the right places. A collection of good leaders will run a winning team.
- Team: Only property, plant, and equipment is a business without brains. What is the brain? Team – workforce. Leaders build a team that works to deliver the results.
- Cash Flow: At the end of the day, all resources must render cash flows. Everything ultimately boils down to cash. A world-class manufacturing facility, having outstanding leaders and team members, cannot yield positive cash flow, is a bad business.
Use of Free Cash From Business
A Good business is more capable (compared to a job) of generating sustainable free cash for its owner. But free-cash alone cannot take us to the goal of financial independence. It is essential to reinvest the free-cash for passive income generation.
For me, the top advantage of a good business is its capability to generate frequent cash flows. This also translates into quick free cash for its owners. Such frequent free cash flows can then be utilized for more productive use. How?
As shown in the above infographics, I’ll like to use my free cash to buy equity (undervalued stocks) using value investing principles. This is done to give a faster multiplication power to my free cash. When the invested money has grown sufficiently, it can be sold to used to buy assets capable of generating passive income
Why passive income? Because our ultimate aim in life is to become financially independent. Only passive income will make us reach there.
There are people whose mindset is more apt to do a job. But there is a public who would love to leave their job and do a successful business. For such people, the idea of business feels immensely rewarding.
Why leave a job and become one’s, own boss? The following reasons can be the driver.
- To Create: Doing a business for the sake of only doing it is not worth it. While doing a business, one is creating a brand name – a valuable asset. This sense of creation along the way is one of the best benefits of doing a business.
- Priority Setting: Here, by priority, I mean those activities which define how to run the business. Priority setting is not everyone’s kind of a thing. But people who can do it may not like to follow the inept priorities set by others. Such people will love the idea of business.
- Income Control: Businessmen have more control over their income than an employee engaged in a job. In business, there is almost a direct link between one’s effort and income. But in a job, there is a disconnect between work and remuneration.
- Free Life: As a business owner, life feels liberated than in a job. This feeling is more dominant in terms of time. One is free to conduct themselves the way they want within the limits of 24 hours. Others are more likely to adjust to their timelines.
The cumulative effect of the above four benefits is that the person leads a less stressful life. This further enhances the business acumen of the individual.
I would personally encourage people to try working on a business plan. Create a sketch for yourself and try to make it as detailed as possible. This will eventually help while executing the plan.
I always stop and remind myself why I’ve left my job, what is my goal? My goal is to achieve financial independence in life. The idea of business seems to help my cause more than a job.