One of the things I hear when I talk with a business owner who are over fifty years old is I’m going to be able to afford to leave my business in five years. When I go back two years later, I hear the same thing, five years from now, three years after that the same, five years from now. I’ve heard this so often I’ve named it perma-five…this is where something is always five years away.
The reason for permanent-five is I know there’s something I need to do, I just don’t know what it is and over the next five years, the answer will magically reveal itself and I’ll do what has to be done.
This happens all of the time when I have a conversation about becoming financially free from your business and that’s what today’s video is about. Today we’re talking about a tool I developed, called the Four Boxes Of Financial Independence and it’ll help with curing permanent-five.
One of the things I hear when I talk with business owners who are over 50 years old is: “I’m going to be able to afford to leave my business in five years”. When I go back two years later, I hear the same thing: “Five years from now I’m going to be able to afford to leave my business”. And if I go back three years after that, the same thing, five years from now. You know, I’ve heard this so many times, I’ve actually put a name on it. I call it perma-five. This is where something is always five years away, and it never seems to get any closer.
Now somebody says two years and five months, or three years and three and a half years, they probably have a better chance of hitting it than if you’re saying five years. I don’t want you to change the number just so you can feel better about yourself. I want you to know that when you’re saying something is always five years away, you’re probably stuck and really don’t know how to get past it.
You know, the reason for perma-five is, there’s something I need to do. I just don’t know what it is. And over the next five years, the answer is going to magically reveal itself, and then I’ll do what has to be done. If you don’t have somebody help you think through this, it’s gonna be that way forever.
And this happens all the time when I have a conversation with you about becoming financially free from your business. And that’s what today’s video is about. Becoming financially free from your business. So today we’re gonna be talking about a tool I developed called the Four Boxes of Financial Independence. It’s gonna help cure your perma-five issue.
Hey, I’m Josh Patrick, the founder of Stage Two Planning Partners and the Sustainable Business. I’m also the one who’s responsible for putting together our Cracking the Cash Flow Code Program, and I’m the author of Sustainable: A Fable About Creating A Personally and Economically Sustainable Business.
So, what’s the problem?
You know, too often we think our business is going to get us to retirement all by itself. Now I think you’d probably agree with me that if this is being worth $2 million, it’s a pretty good business and one that should help you a lot towards being in retirement.
Well, let’s talk about some of the sad facts about this. First of all, if you sell your business for $2 million, you’re not gonna be keeping $2 million. In fact, you’re gonna lose on average about 40% to taxes and fees. You have costs in selling your business, and, of course, Uncle Sam and whatever state you live in, is most likely gonna want to get their cut also. So, in our example, we have $2 million, we lose 40%, we’re left with $1.2 million. Still a really nice amount of money, but it’s not gonna be worth as much as you think it is.
Because, you see, in the financial planning world, we say that if you spend more than 4% of your capital, you’re probably gonna be eating into your capital at some point along the way. So if we just use the 4% rule, and we spend 4% a year, that gives us $48,000 a year. Now I can tell you that business owners I know have a business worth $2 million are probably making $400,000, $300,000 a year. And in retirement, they’re not gonna be able to live on $48,000 a year.
So this is where the issue comes from, is why develop the Four Boxes of Financial Independence. So what are these four boxes?
- First, the value of your business after you sell. We just went through that.
- Then next, the value of any real estate, any business real estate or commercial real estate you own. Now, after you sell your business, you don’t have to sell the real estate, and it can still collect the rent and live off that. In fact, it many cases, the rent from the real estate is worth more than the income from the business sale. So if you don’t own investment real estate, and you’ve got 20 years or more till retirement. Go buy yourself some business real estate you can operate your business out of.
- The third thing is the value of your retirement plan. Now that’s the magic bullet, I think, for getting yourself to be financially free from your business. Because by using your retirement plan in an appropriate manner, what you’re doing is you’re pre-funding the buyout from your business, or you’re subsidizing the buyout from your business. You know, if I take that $48,000 a year and I have $2.5, $3 million dollars in my retirement plan, now I’ll also have $130,000, $140,000 a year, and that’s before Social Security, before my real estate, before other investments, I’m probably gonna be okay when it gets to retirement. So make sure you understand the value of your retirement plan.
- And, then finally, we have the value of other investments that you might have. Now, most business owners I know fill three boxes but not that fourth box. And whether you do or not really depends on how well you’re doing with the first three boxes. So, here’s the thing is that I talk about this a lot. And in many cases you might say, okay, that’s nice for you to talk about, Josh, but don’t really know how to figure this thing out myself.
Well, I just developed an application that allows you to easily get your answer. All you have to do is fill out the form. It’ll take you about five or ten minutes, and you’ll get an answer whether you’re on the road to financial dependence or you have some work to do. And neither is a bad thing by itself.
I mean, being on the road to financial independence obviously is a good thing. But not being on the road to financial independence gives you information about what you might want to be focusing on to get there. In fact, what I’m finding is, people just filling out the form are getting a lot of ah-has before they even get the answer. Now, you might be saying, okay, Josh, this is really nice. You’re gonna ask me for a lot of personal information. And we are. And we also are gonna treat that personal information with a ton of confidentiality. Nobody, I mean nobody, will see your answer except me.
So, here’s what I want you to do. Take ten minutes, do the quiz, find out where you stand. Just click on the button below and it will take you right to the quiz. Spend about ten minutes there, and you’ll get an answer on whether you’re on the road to financial independence or not. And it’ll help you crack that perma-five that you may be experiencing.
So, why don’t you just scroll down, leave a comment about letting me know what you think about the Four Boxes of Financial Independence, whether you think it’s a good idea, I’m asking for too much information, it’s ridiculous, or it truly helped you out a lot which I hope it has.
This is Josh Patrick. Thanks a lot for stopping by. I hope to see you back here really soon.