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The Anti 9-5 Approach to Building Wealth

by retirebyforty on June 19, 2013 · 21 comments

in entrepreneurs, guest post

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The following is a guest post from Anton Ivanov from Dream Cash True.

Get a good job, live below your means, save as much as you can and invest in index funds. With time, your discipline will be rewarded with a successful retirement. We’ve all heard this financial advice time and time again. It’s the traditional way of building wealth. But is it the only (or the best) way?

The Limitations of a 9-5 job

anti 9-5 build your own business

One of the problems with working a regular 9-5 job is limited income potential. Sure, you can graduate from a good school, land a high-paying job and work your way up the corporate ladder. You may even be entitled to matching 401k contributions, free healthcare or a retirement pension. But it will likely take you decades to save enough for retirement, and that’s if nothing happens to you or your career in the process.

And what if you didn’t graduate from college and didn’t get your dream job? What if you are working overtime and still barely making ends meet? There are only so many hours in a day and your income earning ability is limited by your hourly wage. Aside from hoping for a raise once in a while, you have little control over your income.

Building Wealth Faster

So how do you solve the problem of limited income potential? You become an entrepreneur and start your own business.

A successful business will allow you to exponentially increase your income. As an entrepreneur, your hard work can translate directly into building wealth. There is no ceiling to your success – you can emerge a multimillionaire in less than 10 years. That’s nearly impossible with a regular salary job, unless you occupy high-level executive positions.

Don’t get me wrong – being an entrepreneur is not for everyone. You’ve probably heard the gruesome business failure statistics. Most business start-ups do, in fact, fail within a few years. Managing a company requires tremendous dedication and hard work. It may mean years of 80-hour work weeks with little income.

But if you aspire to join the ranks of the super wealthy; if you want to retire at age 40, or even 30; and if you want to afford a luxury lifestyle for you and your family, entrepreneurship is probably your only option.

Picking the Right Business

Not all businesses are created equal. The guy selling hot dogs at a baseball stadium will tell you that he is self-employed, but I doubt he is better off because of it. If you don’t pick the right business model, you will just trade one job for another. Your business growth will be limited and your take home pay low, despite the countless hours you put into your enterprise.

There are two ways of quickly building wealth with businesses – developing an organization that is increasingly passive or building up your company to a liquidation event.

Passive Income - Generating Machine

business success build your own business

A passive business is exactly what it sounds – it is an income-generating machine that doesn’t require your direct involvement. No business will ever be passive from the beginning – it’s something you will need to work hard to achieve. But once done, you will have an enterprise that virtually runs itself, while you simply collect the paychecks.

Different businesses have different potentials for being passive. You can make a business more passive through automation or hiring employees.

Automation allows business tasks to be performed without your (or anyone else’s) involvement. It may be expensive and tricky to set up, but it is great for increasing profit margins and supporting growth. Hiring employees to do the work for you is another way of making a business more passive. Due to their salaries, employees are more expensive to maintain and will cut into your profit margins, but they are able to perform tasks resilient to automation.

So what are some businesses that have good potential to become passive? Lead generation, brokerage systems, equipment rental, software sales and subscription-based online services are good examples.

Liquidation – Selling Your Business

By growing your business and brand, you exponentially increase its value. One way to estimate business value is to multiply earnings before interest and taxes (EBIT) by an industry-specific multiplier. By picking businesses that can grow quickly and operate in industries with high multipliers, you increase your chances of selling your business for a large profit.

After deciding on an industry, your job becomes to grow business revenue and earnings as quickly as possible. That’s not an easy task by any means and requires a keen understanding of your market, an extremely useful product or service, creative marketing campaigns and flawless customer service.

Once your business grows and you begin to get noticed by individuals or companies looking for acquisitions, it’s important to pick the right time to sell your business. Selling prematurely may mean millions of lost profit. But waiting may result in a change of industry conditions and lower business value.

Determining industry business value multipliers is not an exact since. One way is to look at past business sales. Historically, the following industries have had high multipliers: insurance, e-commerce, internet, building materials, biotechnology and healthcare.

The Choice is Yours

You may not like risks, be comfortable with your current job and have solid plans for your financial future. Or you may have a burning desire to achieve something great and be willing to risk trying to start your own business. Which road you choose is entirely up to you – you are in control of your own destiny.

If you want to learn more about quickly building wealth through business ownership, I highly recommend The Millionaire Fastlane by MJ DeMarco.

Anton Ivanov is an aspiring financial writer, a successful investor and a zealous entrepreneur. He is extremely passionate about helping others become financially independent and shares his financial knowledge at Dreams Cash True. You can follow his updates on TwitterRSS or Facebook.

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{ 21 comments… read them below or add one }

Savvy Financial Latina June 19, 2013 at 6:52 am

Great article! It’s a topic I constantly tackle. I don’t want to be 40 or 50 or 60 years old working in corporate america. I have decided that so far. Many times I wish I could ask people, why are you still working??? Shouldn’t you have made enough money to do something you enjoy?

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Steve June 19, 2013 at 8:29 am

I actually asked that very question of a corporate executive. She was leaving the company 13 months after it was acquired – I assume having worked just long enough to collect a bonus of some kind. She only gave a vague answer about how expensive college is going to be. The truth is, you can spend nearly any amount of money if you put your mind to it – or worse, if you don’t pay attention and just let it happen.

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Anton Ivanov June 19, 2013 at 10:14 am

I don’t business is for everyone, since it does require certain skills a very powerful drive, but I do agree with you that more people should consider it as an alternative to decades working for somebody else (and making them rich).

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Pretired Nick June 19, 2013 at 7:33 am

I’ve considered starting my own business many times. Maybe I will someday. In the end, I decided I wanted to be financially secure before I tried it, not after. Probably if I could have dreamed up an awesome business idea, I would have gone for it, though.

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Anton Ivanov June 19, 2013 at 10:16 am

I do believe that you need at least somewhat of a financial foundation before starting a business. If you are sitting on a pile of debt and have very little savings/investments it may be hard to go through the first stages of business development when your income is very low.

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The Passive Income Earner June 19, 2013 at 7:49 am

Nice post. You make a good point about generating wealth passively outside of the day-to-day job. I have approached it two ways:
- Invest solidly in Dividend Income
- I created a blog as a small business with lots of potential

You don’t get rich working for someone so it’s important to have a plan :)

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Anton Ivanov June 19, 2013 at 10:18 am

You’re absolutely right – working for somebody else will always make the company owners more wealthy than yourself, even if you are getting a decent salary. A plan is crucial for anything in life, especially starting a business.

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Mike@WeOnlyDoThisOnce June 19, 2013 at 11:50 am

We hear all about successful entrepreneurs, but often overlook the fact that most entrepreneurs are not nearly as successful. Hard work and a great deal of luck are involved.

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Anton Ivanov June 19, 2013 at 12:04 pm

Very true. But you can’t possibly succeed if you don’t try. Starting a business is definitely a risky move that requires a lot of planning, but it has an enormous potential to build wealth.

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David @my2centopinion June 19, 2013 at 2:21 pm

I think developing a passive income is the most compelling part of owning a business. For a lot of businesses once you get them built and to a critical mass, then you can usually hire out the tough stuff and limit your interaction. Maybe someday you could even stop working at it all together.

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Anton Ivanov June 19, 2013 at 2:47 pm

If you pick the right industry, that’s definitely possible. Your business needs to have large enough profit margins to allow for hiring employees.

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Martin June 19, 2013 at 8:08 pm

It is a great review. I have a great job which makes me busy and I really want passive income, but starting a business needs a lot of effort and work at the beginning for which I do not have energy left. I am hoping for investing and blogging (although that needs a lot of work too), but it allows me working my primary job and blogging and investing at the same time. Starting my own business alongside the primary job is not possible for me. I would lose my job and I cannot afford it.

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Anton Ivanov June 19, 2013 at 9:19 pm

It’s definitely a tough situation, Martin and unfortunately there is no easy answer. You do need a financial foundation to support you for the first few years of business ownership. But if you make the goal of starting your own enterprise a priority and spend the next few years preparing for that financially it may be possible.

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My Multiple Incomes June 19, 2013 at 9:32 pm

Good post! we must really learn to care for our environment and minimize our carbon footprint. It’s already bad enough that we are living in a world polluted by the very thing we use in our daily lives, but to know it and not do anything about it is really irresponsible.

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simple living June 19, 2013 at 11:38 pm

With the ability to outsource so many tasks, you would think creating your own business would be a little bit easier than before. That being said, you should have a great passion and some experience to make it happen.

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Anton Ivanov June 20, 2013 at 8:28 am

Outsourcing is definitely an option, but you have to remember that it will be eating into your profits. Until you can generate enough revenue, it’s hard to outsource a lot of small business tasks.

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Joe @ Stacking Benjamins June 21, 2013 at 7:07 am

Automation is the key, which is why I always recommend the book The E Myth to new entrepreneurs. It’s difficult to build a passive business without systems and processes in place.

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thepotatohead June 21, 2013 at 8:36 pm

I’ve also considered starting my own business, but at this point in time i’m not ready to give up my current job, there is just too much risk. Ideally i’d like to start a part time gig and try to turn it into full time, but I’m sure that’s a hard path to take.

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Anton Ivanov June 21, 2013 at 10:04 pm

Every undertaking can be considered “hard”. But without risk and a lot of effort there won’t be any great returns.

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Jamin June 25, 2013 at 12:10 pm

The income and freedom aspects of owning your own business are great, but another huge advantage is helping you reduce your single largest personal expense, namely taxes. Add it up… federal income (15-39%), state income (0-11%), payroll taxes (15.3%, half from you, half from employer), FUTA/SUTA (another 1-3%), property tax (often another 10% of income), sales tax (6-8%), etc… Your own business lets you chip away at many of these, generating you a savings of your full-in marginal tax rate (>50%). Show many another way to legally and immediately generate a 50% reduction in your largest expense. :)

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Anton Ivanov June 26, 2013 at 9:10 am

Great point, Jamin!

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