DO YOU HAVE A JOB OR A BUSINESS?

In terms of wealth building, there are two kinds of businesses. One is a real business, and the other is what I call "employing yourself." Knowing the difference between the two can make a big difference in your net worth.


DO YOU HAVE A JOB OR A BUSINESS? THE ANSWER CAN MEAN MILLIONS OF DOLLARS TO YOU

"I can't remember the last year I made less than 700 grand," he told me. "But you know what? Besides money set aside for the kids' education, I haven't saved a lot," my friend EP shared with me. "You've lived a good life," I reminded him. "But I made a mistake," he said. "I focused my energies on making a high income. I never thought about equity."

EP is right. When he stops doing what he's doing now (building and selling homes), his "business" will probably stop with him. Although he earns a lot of money every year selling luxury homes, he won't have any way of making money from his business when he stops working.

In other words, his business has no equity.

Knowing the difference between income and equity is critical to your wealth-building goals. It's important to have a good income -- and many businesses can give you that. But unless the business itself becomes more valuable over time -- unless it becomes something that can go on without you (or that you can sell) -- you will miss out on the most effective way to retire wealthy.
It's interesting how many high-income professionals miss this critical point:
*doctors
*lawyers
*architects
*actors
* athletes
Just to name a few. Yes, these jobs can pay great if you make it to the top of the industry, but unless you find a way to convert them into real businesses, they will never offer you the big pot of gold at the end of the rainbow that can be yours by planning smart.

Let's look at this issue with a simple example -- a job that I like very much: copywriting.

You can easily make a six-figure income as a freelance copywriter. But if copywriting is all you do, what you are really doing is simply hiring yourself out to other businesses. PH and DM were both earning more than $200,000 a year as copywriters after studying with me for several years. But if that's all they ever did, neither of them would be wealthy today.

PH got married and had kids. He bought a nice house in the country, a couple of new cars, and started sending his kids to private school. He was living very well, but taxes and expenses were eating up most of his income. He wasn't saving enough to retire on -- and he knew it.

The same was true for DM. He worked long hours and made tons of money, but all kinds of personal requirements -- including a costly divorce -- left him with a lot less in savings than he had counted on. If he had nothing but his job as a freelance copywriter to count on, he could live a good life. But when the time came to retire, he would have to cut back his lifestyle -- probably more than he'd want to.

BS and KH are running an advertising agency. Right now, they represent about two dozen clients. This is enough to give them both of them a decent living. If they keep doing what they are doing, the business will probably stay about the same size as it is now and they'll be able to continue paying themselves decent salaries.

But if they decide to treat their business as a business and force it to grow at a greater rate than would be "normal" -- if, for example, they grow their base of talent and clients by tenfold -- they will then have a business that will not only give them bigger yearly incomes but will also be worth many millions of dollars if and when they are ready to sell it. Or, if they don't want to sell it, they can stop working, or work less, and still take out some very good money every year in profit sharing.

Let's say you are a copywriter now and you realize that you don't have a business, just an income. What can you do? One thing you can do is hire other, younger copywriters to work for you. You can pay them salaries, teach them the ropes, and spend more and more of your time finding new clients.
You can build your client base from just a handful of companies to a dozen … and then from a dozen to 50 … and then from 50 to 100 or more.

If you do that over a 20-year period, for example, and increase your client base by, say, 10% a year, you could easily have 500 clients spending $50,000 with you every year. At a very reasonable 10% profit margin, and if we assume that such a business would be worth about 12 times earnings (modest for that industry), you would have created a business with revenues of $25 million, profits of $2.5 million, and a saleable value of $30 million.
Those are achievable numbers. That is the power of developing a business with equity. That -- equity -- is the difference between a high-paying job and a good business. Income is good, but equity is where it's at.

If you are an employee, you know you have a job and not a business. By the same token, if you are self-employed and your business income is your billings, you have a job, not a business. If you have all the accoutrements of a business but can't see how it can grow and develop by itself, without you, you too probably have a job and not a business.

If it's not already crystal-clear, I'm saying that having a business is -- at least from the perspective of wealth building -- infinitely better than having a job.
Think about your own situation. Make plans if necessary.


HOW TO TURN YOUR JOB INTO A BUSINESS:
Step 1. Put aside as much cash as you can to bankroll Step 2.
Step 2. Hire someone to replace you.
Step 3. Teach that person everything you know. Then, let him loose to learn more. Make sure his total compensation (including intangibles) is enough to keep him.
Step 4. Hire someone to duplicate or replace your replacement.
Step 5. While you are doing all this hiring, training, and nurturing, keep everyone busy by spending the majority of your time selling.
Step 6. Repeat Steps 1 to 5 until the business is worth enough for you to retire on the price you'd get by selling it.
Step 7. Keep or discard your business at will.