New Year brings with it splendid new opportunitiesJanuary 4, 2016 10:46
Bottle up your wealth
Business owners spend so much time worrying about their source of wealth that they forget their actual wealth, says Peter Ellen.
April 16, 2013 5:34 by kippreport
Sometimes, pictures help people to understand a point. The other day, I was working with a group of clients discussing wealth management, when it struck me that the water bottle I was holding could be a simile for the problem of wealth management we were discussing.
Supposing you have an empty water bottle, with your sole purpose in life to fill it with water. Every day, month or year, you are able to pour some water into the bottle. The first question is: where do you get the water? Water in this analogy is obviously your wealth and by working you create wealth; whether as an employee or an entrepreneur.
The purpose of the bottle is that it captures your stored wealth – it is not your business, although a lot of business owners seem to believe that their business is their wealth – this is only true in a minority of cases. In most cases, your business is the source of your wealth, but not your actual wealth. Business owners have to find ways of capturing their wealth, so they can exit their business at a time of their choosing, with the equivalent of the wealth they have created.
This is harder than it seems, as business owners spend so much of their time and energy creating and working in their business, that the question, “how do I get my wealth out of the business?” is often put to the bottom of the agenda.
I advise business owners to think there are two companies – I call them company A and company B. Company A is the business – its purpose is to create wealth (it is the source of wealth) and company B is the bottle – its purpose is to capture and store the business owner’s personal wealth. Unless the business owner has both companies, they run the risk that wealth will not be available at the time they want it.
In reality, the simile holds good for employees, as well as business owners. As an employee, you go to work every day, and at the end of the month, you pick up your salary (and maybe, if you’re lucky, at the end of the year, you’re given a bonus, too). This money goes into your bank account, and, unless you make a clear commitment in the opposite direction, it will flow out just as quickly, leaving you with little or nothing at the end of each month or year.
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