Far too often, entrepreneurs get caught up in the dream phase. They can see their business as a glowing success, netting them millions and entitling them to a cushy lifestyle.
For the overwhelming majority, that’s where it ends.
The real nuts and bolts of entrepreneurship aren’t sexy. No movies will be made about the true path you need to take and you won’t hear any get-rich-quick scam artist tell you this.
You need to have a plan.
Here’s my seven-step process to true entrepreneurship. It’s not easy. It’s not dreamy. But it works.
1. MAP OUT YOUR PERSONAL VISION FOR THE FUTURE
The first question you need to ask yourself is this: “What do I want my life to look like?”
This is crucial. I’m not just talking about having a general idea, but getting specific. You’ve already done this for your business, planning out how many clients you want to have in five years and what you want revenue to be. Now do it for your personal life.
Do you want to just have enough money to live comfortably, maybe go on a vacation or two a year? Are you going into this so you can have more time to spend with your family? Do you desire a yacht in the pier and a Ferrari in the garage?
Don’t just think of it as “I want to make $5 million per year.” Think of it in terms of tangible goals. Map out exactly what you want for your personal life in the future.
Devise a plan for three lifestyles: sufficiency (living just above comfortable), surplus (living rich) and superfluent (living wealthy). Know exactly what it takes to obtain these lifestyles, or else you’re flying blind.
2. TRULY CALCULATE YOUR NET WORTH
This is something most entrepreneurs have no idea how to do. Figure out what your net worth is, separate from the business you’ve built.
How can you know how much you need to earn if you don’t know your starting point? Take a look at your balance sheet — not the one for your business. Here’s a handy guide showing how to calculate your personal net worth.
List your assets (money in your bank account, possessions, value of investments) and their worth. Then list your liabilities and their outstanding balances. So many people track one side or the other, not getting a complete picture of their net worth. Or they calculate their net worth based on what it would cost for them to be bought out of their business. Don’t make this mistake.
From there, compare that number to the three lifestyles. Maybe you’ve already reached a sufficient life. Maybe you’re facing an uphill battle to even get to sufficiency.
The one mistake most failed entrepreneurs make is sacrificing the sufficient life while going for the superfluent life. The sufficient life, where you have enough money to pay bills but don’t have any major luxuries, is a foundation. Trying to speed past this and go right for the life of wealth can have disastrous consequences.
3. BREAK DOWN THE LIFESTYLE COSTS
Now that you know how far away you are from a lifestyle of luxury (or even sufficiency), it’s time to form a plan of action.
You have your destinations set: sufficiency, surplus and superfluence. Think of it like a road map. If you’re in Los Angeles, you can look up the distance to San Francisco and to Seattle. You know the distance. Now figure out how you’re going to get there — and stay there.
The easy part is getting to that surplus stage for a year or so, but if you’re reading this, I’m guessing you want to stay at that surplus or superfluent stage in perpetuity. Don’t call it retirement, call it building your perpetual lifestyle.
The big question: what do you need to accrue in order to take out 4 percent a year to fuel your goal lifestyle?
4. CALCULATE WHAT YOU NEED TO DO IN YOUR BUSINESS
To get to a better lifestyle, does that mean expanding into 3 new markets? Does it mean shipping 10 percent more units each year?
Now that you know your net worth, you know the value of the three lifestyles and you know how far away they are from you right now, calculate what you need to get there.
Smart entrepreneurs are the ones who know the value of their time against ROI. As I’ve said before, don’t risk sufficiency to get to the superfluent lifestyle. Find out what you need to do to make your business grow at such a rate that the lifestyle you want is achievable.
This step is one of the most important, as it allows you to set short-term and long-term goals. Your sales goals for a life of sufficiency are vastly different from one that enables you to live a gilded existence.
Write down the figures and goals that will enable you to live the lifestyle you’ve planned for in step one. Keep it in your office, somewhere prominent. Every business decision you make needs to reflect that goal.
5. UNDERSTAND WHAT YOU KNOW (AND WHAT YOU DON’T)
Now that you’ve taken stock your wealth, your goals and the gap between them, take a more personal inventory.
You’ve gotten where you are now because of your expertise in your field. You’ll be approached with business offers that have nothing to do with your expertise. You might be tempted, but these often end up sucking away your time, money and progress.
Many radio, TV personalities and authors will tell you to play the stock market. But why would you take time away from your business to try this? If you know nothing about the stock market, don’t jump in just because someone tells you to. You can delegate these duties, but don’t abdicate control over your wealth.
Look at it this way, when you need an attorney for your business, you hire one. You don’t start studying law.
You know your strengths and weaknesses. If an opportunity is in your strength, go for it. If it’s in the realm of your weakness, avoid it. Your time is too valuable to waste.
6. ACCEPT THAT YOUR RELATIONSHIP WITH MONEY HAS CHANGED
When you’re signing six-figure checks or investing in a fleet of new laptops for your team, you can often lose vision of the value of a dollar when it comes to your personal life.
The biggest thing you need to learn and accept is that financial expenditures are completely different from personal expenditures.
You spend a lot of money on your business because there’s ROI. I’m sorry to tell you, but there’s very little ROI in overspending on high-end luxury cars, champagne and fine goods. Unlike investing in your business, throwing that kind of money around in your personal life will not generate a financial return.
You spend a lot in your business, knowing it will come back to you. Don’t spend in your personal life believing that it will do the same.
As you continue to climb the ladder, major purchases will seem minor, since you’re spending around the same amount on your business. Don’t fall into this trap. Know that the way you spend money on your business has to be fundamentally different from the way you spend personally. Ignoring this could send you backward in a hurry.
7. BUILD YOUR MOAT
This is the least sexy part of the process. Now that you’ve planned for the lifestyle you want, and understood what it takes to get there, it’s time to build your protection.
The fun stuff everyone talks about is building an investment account, or buying some real estate. The gritty stuff you rarely hear about: insurance.
While it’s easy to dream about buying that yacht or Ferrari, your future self will thank you for investing in insurance and appropriate estate planning documents like a will and trust. You need to get liability insurance, disability insurance, a will/trust, a personal umbrella policy and life insurance.
Think of it this way: you’ve built your castle. Now it’s time to build your moat. This is the kind of advice you won’t get from your financial advisor or insurance salesperson and too often your insurance salesperson does not know how to integrate the protection with your wealth building strategies. You won’t find it on the front page of Entrepreneur or TheWall Street Journal, but you absolutely need protection.
After all, what good is building a life of wealth if you’ve done nothing to protect it?