Always Bet On Yourself

Welcome to this week's edition of The Weekly Trail Report, where we share,

1 Story, where real stories of architects and engineers meet tailored financial strategies,

1 Actionable Tip, to provide actionable insights and guide you towards financial success,

1 Financial Term, to demystify key concepts and empower your decisions.

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1. Story: Jackson Bets on Himself

“I just figured it would make sense to have a solid plan for retirement before I get too deep into this.”

Jackson had been working as a mechanical engineer for 20 years and had decided to take the plunge into business ownership. He had just gotten his firm off the ground, and planned to completely fund the business on his own.?

“I think that’s a great idea,” I agreed, “let’s take a look at the numbers.”

Jackson had done a good job of prioritizing his retirement so far, and now that he was 42 had accumulated about $500,000. His contributions had quickly fallen off the priority list once he started his business, and he had fully stopped setting money aside for retirement.

“Okay, quick math tells us that by the time you’re 62 you should have around $2,000,000 invested barring any extreme complications.”

“Okay,” Jackson said, “that matches up with my estimations and that’s about right where I figured I ought to be.”?

“So in theory you’re in a good financial position to take everything you have and invest it back into your business.”?

“Do you think that’s wise though?” he asked.?

“Well, that’s really a question for you. What are your plans for your firm? Do you plan to sell it when you want to retire? What do you anticipate your ROI being on the money you’re investing now?”

So we took a deep dive into Jackson’s plans for his firm.

Jackson’s goal was to keep his business relatively small, maybe around 5 employees outside of him. At the same time he was thinking he could do around $1,000,000 in annual revenue with that team. Considering a multiplier of around 1x revenue, that would mean he could potentially sell his firm for around $1,000,000 down the road.

If it took him 10 years to grow his firm to this point and he invested $100,000 to get it off the ground, that would be a 10x return over 10 years. Or around a 23% annual compounded growth rate. Not a bad investment at all.

“So the way I see it,” I said, “Is that this is your opportunity to bet on yourself. And once you do, it’s going to be up to you to make it happen.”

After Jackson’s first year in business, we revisited the plan. He had managed to turn a profit his first year, and was in a good enough financial position to pick up regular contributions to his retirement accounts.?

“I just figured it couldn’t hurt,” Jackson said when we sat down.?

“Well you won’t find me disagreeing with that,” I said.?

So we set him up to contribute a few hundred dollars per month to keep his retirement accounts growing, though the majority of his extra cash went right back into his business.?

“I’m going to keep betting on myself,” He said when we shook hands at the end of the meeting.?

“I think you’re going to like how that investment turns out,” I replied with a grin.

2. Actionable Tip: Always Bet on Yourself

Starting a business can be both scary and exciting. Oftentimes, it might be the greatest investment you ever make. Businesses can provide significant income potential as well as the possibility of a future sale.

On the flip side, starting a business has a high failure rate, around 70% within 10 years.?

So if you are going to do it, do it right.

Make sure you:

• Are in an industry that is poised for growth
• Have a solid business plan
• Conduct market research
• Maintain financial discipline
• Focus on your ideal customer
• Be adaptable as you search for what works

Betting on yourself and your business can yield substantial rewards. By investing wisely, building a solid foundation, and preparing for the unknown, you can maximize the potential return on your investment and create significant wealth.

3. Financial Term: Sole Proprietorship

Starting a business is easier than you think. A sole proprietorship is the simplest and most common form of business. You can start one, typically, by just registering your business with the state and potentially local government.?

Some key features are:

• Owned and managed by one person
• No legal distinction between the business and owner
• The owner has unlimited personal liability for the business
• The business is not taxed separately - income and expenses are reported on the owner’s tax return

There are obviously pro’s and con’s to this list but as far as getting started, it makes it easy. You can also change the formation type of your business at a later date if you want additional liability protection, to add employees, etc.

Happy Trails,

Ryan

Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.