January 18th, 2012

Tip One: Cultivate the skills and experience of investing so when/if you do sell your business, you have the skills to intelligently invest the money.

This includes picking a few areas to focus in on to build your “Advantages” in. Your Advantages include your knowledge, expertise, experiences, contacts, financial resources, etc.

For myself, over the past 15 years I’ve cultivated Advantages in real estate and my two key investment niches are currently commercial real estate (mainly office buildings) and hard money lending. Both of these work well for me to generate passive, residual income (PRI) based on my advantages.

What niches will you focus on? A particular area of stocks? Bonds? Private placement investments in privately held companies? Index investing?

You need to start today to create a plan whereby you accumulate the Advantages you need to be successful. If you wait until you have that liquidity event (e.g. selling your company) you’ll be in a rush to invest the capital and you’ll make mistakes. I learned this one the hard way to the tune of $3 million.

What do you need to learn about your chosen niche investment vehicle?

What books, courses, classes will you master?

What contacts do you want to cultivate over the next 24 months to help you in this area?

What experience sets do you want to gain to help you in this area? How can you creatively craft those experiences over the next 24 months?

Tip Two: Start investing 10-15% of your working time and money NOW to your investing outside of your main business.

I will be the first to acknowledge that focusing your main efforts on building your business is the single BEST way to accumulate net worth. Period. End of story.

But it isn’t enough. You need to build wealth outside of your business, both to protect you and your family, and also to cultivate the skills and Advantages you need to be ready if you ever sell your business.

Start today to set aside 10-15% of your working time and net income to invest outside of your business. (An interesting test would be to sit down and calculate how you are doing on this target that I laid out. Where is your current starting point?)

Tip Three: Create a simple quarterly “scorecard” for how you are doing in your investing outside of your business.

Your scorecard should include:

  • How much have your set aside to invest (both in dollar amounts and as a percentage of your net income). Track this against your target (see Tip 2 above for my suggested level).
  • How have you done managing your investments? Measure your AFTER TAX, AFTER FEE, REAL return against an appropriate passive bench mark.
  • The key learning goals you have for the quarter in this area of your life. Track how you did to meet and exceed these learning goals.
  • The key relationship/contacts you wanted to establish or deepen for the quarter. Track how you did to meet these targets.

Imagine the impact of doing this for several years BEFORE you sell your company. You will be more confident and much more prepared to wisely invest the money you get from the sale.

I’ll share one more cautionary tale about this. One of our clients sold his business for over $4 million cash. He knew how to build businesses, but he never really focused on the skill of how to intelligently invest his net worth. The result? 5 years after the sale of his company he had lost $3.5 million from the sale from bad investments. Don’t let that happen to you. Invest the time and energy to prepare yourself NOW!