Your financial planning today will dictate what you’re doing in retirement.
Why is money so uncomfortable to talk about? Most of us were taught by our parents that it’s one of the things (along with politics and religion) that you don’t talk about in mixed company. This article puts the topic of money on the table, and explains why it’s so important as you get older and start thinking about selling your company.
When I work with business owners and we talk about selling their company, I ask them to think about what the rest of their life might look like. It does not include cutting back on their lifestyle. Why would anyone do that? You’ve worked hard and earned a quality of life that you enjoy. Maintaining that lifestyle in retirement requires a certain level of money.
I had a career goal of being financially fit by the age of 55, which I accomplished. My goal was to have a financial foundation that would accommodate my family in retirement. Along with that foundation came a level of freedom that was very liberating. While I still create income in my retirement, the money chase is behind me.
Regardless of your personal philosophy around money, the bottom line is you must have a certain amount to live a good life. The definition of a good life varies greatly, but at its core, it means the financial freedom to do whatever you like. For me, that means a second home, travel, fast cars, charitable giving and providing for my family.
But the real definition of a good life is a life without compromise – the foundation of a good life and a life without compromise should be everyone’s life goal.
Last August, I was driving to Montana with my wife and family. The phone rings and a buddy invites Pam and me to Hawaii. Without hanging up the phone we committed. We never had a discussion about money – the question never entered our mind because we have worked to build a solid financial foundation for our retirement.
In October, I emailed my friend Bob and told him I’m speaking in Oregon and am skiing Mount Bachelor after. It’s a cheap trip. Bob has the wheels and a house. But he emails back: “I have no money for that. Just bought new skis.” My initial response was, “So what? What has that got to do with a quick and easy trip to ski Bachelor?”
Committing to Hawaii is living a life without compromise and being unable to take a quick ski trip is living a life with compromise. But it won’t happen unless you are disciplined and have a plan. If you don’t have it mapped out today, it’s time to start.
Most financial planners will tell you to plan on a five percent return on the money you invest. A five percent return on $1 million is $50,000 per year. Add Social Security, and maybe you will net $60,000 if you are lucky. There will not be any European vacations, second homes or fun cars in your retirement.
A five percent return on $2.5 million will provide an annual income of $100,000. That’s certainly a better scenario but it will not have you living large in retirement. Health care, insurance, utilities, travel, greens fees at the club all add up. Five percent on $5 million earns you $250,000 annually and it gets better as the number gets bigger.
When I throw out $5 million to many green industry owners, they cringe. They have not built an organization that produces that level of profit. They are stuck either working in their business and not on their business, or they have built more of a lifestyle business and not a highly profitable, best-of-class organization.
Landscape contracting operations, generally, net 10-20 percent profit. Under no circumstances should you be satisfied with a profit level below 10 percent. If one of your profit centers is underperforming, get help to fix it. If you can’t fix it, get out of that business. That’s how you focus on earning.
To get help, you’ve got many options. Join a peer group, Vistage or the Young Presidents Organization. Hire a consultant. Attend the Green Industry Conference. Network with other contractors around the country and visit their operations. Keep reading Lawn & Landscape.
Once you get your business in order, engage a financial planner and your network to help you focus on the saving and investing of those earnings.
It doesn’t matter how old you are or where you are in your career. Commit to becoming a best-of-class operation and you will reap the financial rewards. It takes a certain amount of money to live a good life and retire without compromise. Get your life and finances on track now to make this a reality.
Tom Fochtman is the founder of Ceibass Venture Partners, an M&A consulting group. He can be reached at firstname.lastname@example.org.