Enterprise

Financial freedom comes to those who save religiously

savings

Other than your own savings, your business should have assets and invest in other companies. PHOTO | FILE

Personal finance advisors will tell you that financial freedom comes to the person who embraces the cardinal rule of regularly saving a portion of their income throughout their earning life. At least 10 percent is considered the ideal minimum saving figure.

Somehow, most business owners that I have interacted with think this rule applies to only people in employment with regular income.

My advice is that the rule of saving for financial freedom is a universal one that applies to all.

The biggest challenge for most entrepreneurs is to see logic in saving and investing money in a venture or investment vehicle whose returns are deemed to be lower than their key business.

For instance, as one businessman asked me, why should you invest in shares or unit trust (other people’s business where you have limited control) when your own business needs more money and can generate higher returns and you have absolute control?

Another argument is; why should you save or invest money elsewhere when your business is in debts that are apparently attracting higher interest?

This line of thinking may seem to make sense in the short term but not in the long term.

For long term sustainability and financial freedom, every entrepreneur needs to save and invest outside their core business.

This is irrespective of whether the business is in debt or is in need of more capital for growth.

As a business owner it is highly recommended that you get a regular pay commensurate with business profitability and your input.

Once you get this pay, part of it must be saved and invested outside the business even if you are the sole owner.

This requires a good portion of self-discipline and commitment. Putting part of your savings in instruments such as land, shares, unit trusts or pension fund secures your future should business fortunes change.

Cases of thriving businesses that came down leaving their owners literally paupers because that was all they had are not rare in our society.

Secondly, such savings and assets help one to secure loans with ease and at low cost by using them as collateral.

One can commit a little amount of money every month, preferably with the help of a financial consultant or a broker, in shares, unit trusts or pension funds.

One can take a loan and buy a plot or develop one and repay over a period of time as the business continues.

It is not wise to wait for a time when your business is stable and debt free. Such a time may never come.

A good business needs money to grow, hence external financing is unavoidable.

Do not wait too long for business to get out of debt and be stable before you start paying your self and saving.
Separate the business from yourself and start paying yourself as early as possible. This act of saving and investing outside your business will stablise it and make it debt free in the long run.

Other than your own savings, business on its own should have assets and invest in other companies, preferably listed ones.

This insures your venture against many market risks.

In case the venture shrinks or is pushed out of business by factors beyond your control, you can liquidate some assets to survive the dry period or use as capital to diversify or venture into another industry.

It is not wise to put all your eggs in one basket even if you are sure to watch it.

Mr Kiunga is a business trainer and the author of The Art of Entrepreneurship: How to Succeed in a Competitive Market.

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