Thursday, 14 March 2013

Financial Freedom, Making It Your Own Business

Have you ever thought that achieving Financial Freedom (FF) is somehow similar to achieving success in a business. That thought came across my mind when I was having a discussion last night with a colleague about the meaning of Financial Freedom and what are the factors that we should cover in order to be truly Financially Free.

Let's take a look at a few facts about business first:
  1. 96% of small businesses fail within the first one year
  2. Most small businesses fail because of mismanagement due to inexperience.
  3. Preparation and planning is an important key to ensure a successful business.
  4. All businesses should have a goal in mind which will be supported by a proper business plan.
Say for example I have a goal to establish a successful restaurant that sells chicken rice, what should I do first?

Having A Business Plan
Obviously the very first step to start my own restaurant is to set a goal and develop a proper business plan. A business plan helps to ensure that all factors for starting up a business are covered and taken into consideration. That of course requires a whole lot of effort in determining the key factors such as:
  • How much start up money do I have and how much more do I need to start a business
  • Where can I obtain that kind of additional funds?
  • Where to open up the restaurant?
  • Any nearby competition?
  • What are the legal requirements to meet?
  • And the list goes on...
All the above requires due diligence to find out either from reading, asking, listening or getting consultancy. 

Challenges In the Business
After working out the details of the planning and executing the steps, I've managed to start my own chicken rice restaurant. Obviously there are many key factors to look into in order to have a proper running restaurant such as:
  • Hiring manpower and staffing (chef, cashier, waiters/waitresses, etc)
  • Ensuring that important raw materials (rice, cucumber, chicken) are delivered on time.
  • Customers are happy and satisfied with the food served.
  • Continuous menu innovation to attract more customers.
  • Total monthly sales is enough to pay off salary of staff, purchase raw materials, rental, utility bills and any other expenses incurred.
  • Ensure availability of "rolling cash" if there a need for emergency purchases or additional unplanned expenditures.
  • And the list goes on...
The bottom line of business is then measured by the net profit at the end of each month or year. A successful business on the other hand is repeating and improving upon the net profit year in year out.

What's Business got to do with Financial Freedom?
In actual fact Financial Freedom (FF) is your very own Personal Business. Like it or not, if you wish to achieve a successful business in "Financial Freedom", you've got to plan, execute, revise, and  monitor the progress like any successful business man/woman would do with their business. 

The first step is to set a goal which will then be supported by a well planned strategy (very much like having your business goal and plans)

Let's take a look at the similarities between planning a Chicken Rice Business and planning a Financial Freedom Business in the table below: 

Chicken Restaurant Business
Financial Freedom Business
To open 3 outlets in Klang Valley within 5 years
To achieve Financial Freedom by 45 years old
Current Financial Status?
What is my current funds status and how much more do I need to start my first restaurant? Do I need to take a loan?
What are my current assets, savings and investments? Am I in debt? How much more do I need to be Financially Free?
Forecasting and considering  threats
Who are my rivals and is my restaurant location  strategic to attract the right customers?
What is the worth of my money when retire at 45? Have I factored in inflation?
Legal Requirements
Type of License required and what type of tax II have to pay from my profit?
Identify what are the type of tax I have to pay from my investment returns?
Action Plan
How should my menu be? What kind of Chicken Rice will generate the most sales? Should I serve only chicken rice or should I add in other choices in my menu?
What kind of investments should I pick which will generate the highest returns? Should I concentrate on one or diversify my investment?
Is my business and assets insured? Do I have enough insurance to protect my premises?
Do I have insurance? If I do, is the coverage sufficient?

See the similarities now?

My Financial Freedom plan is ready, what's next?
Most businesses fail largely because business owners do not stick to the original business plan. Many business owners that start off with a small initial profit tend to be easily lulled into a false sense of security that their business is doing well!

Mismanagement due to overconfidence, losing sight of the goal and not following the plan have caused many businesses to fail within the first year itself. Try asking any successful business owners and you'll find that all of them already have a goal in mind, execute their strategies accordingly and always seek for ways to increase their profits. 

The same can be said when you plan for Financial Freedom. A Financial Freedom plan needs to executed, monitored closely, revised accordingly and finally reviewed at least once a year to ensure that your Financial Freedom goal is on track. 

Here is another similarity table between running a Chicken Rice Business and running your own  Financial Freedom business.

Chicken Restaurant Business
Financial Freedom Business
Increase in Customers
Is my chicken rice good enough to attract more customers? If not, should I continue serving plain chicken rice
Are my investments giving me better returns? If not, should I search for better investment alternative?
Ensuring raw materials are available and sufficient when I need it.
I must ensure that all raw materials that I need to prepare a chicken rice is available and delivered on time.
I must ensure that I have enough insurance protection and coverage.
Availability of "Rolling Cash"
I must have certain amount of liquid cash for any emergency purchases.
I must have certain amount of liquid cash saved up in case I need it during an emergency.
Income from my business enough to pay off all my overheads
I must make sure that my business is able to generate income to pay for the salary, raw materials purchases, rental, utility bills, etc
I must make sure my investment  returns are sufficient to pay off all my expenses without the need for me to work.
Expansion of business
Net profit from my business allows me to eventually ecpand my business
Additional investment returns allows me to enjoy things like going on a vacation yearly

See the similarities again?

Financial Freedom, a business that you should venture into!
Many tend to give the excuse that doing business is not their fortitude and financial freedom is never going to happen. Have you realized that sub consciously you have been practicing business every time you plan on what to do with your income, how much insurance to buy, how much should you save for your child's education and more? The only difference between individuals is how well you run your business from the perspective of personal finance. A well ran business will eventually reap the reward of Financial Freedom at the end of the day!

Don't you think it's time for you to mean business as well?

Cheers and Happy Investing!

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