It’s often been said that the only difference between wealthy/successful people and not so successful/poor people is how they think.
I have always followed Henry Fords’ advice. He is one of America’s most successful entrepreneurs.
So if one wants to be successful simply copy a successful persons thinking.
He said ” he would give his cars away for free as long as he retained the spare parts.”
He also said “you can have any colour you want as long as it’s Black.”
He built a massive empire.
He certainly thought differently to everyone else. He focused on investing into his Balance Sheet whilst the rest of the population focused on their P&L.
What is your Car in your Business?
In business, the “car” he refers to could be such things as the products that we sell and the “spare parts” he refers to are the spares and the services that we apply to ensure that our customers are happy with their purchase. The services work is the “annuity” income, however to get the annuity income one must “invest” (Balance Sheet).
Your business “investment” is selling products at a “competitive price” which than produces spares and service work which is an annuity income for life.
His comment re “any colour as long as it’s black” refers to “specializing in one thing” or “only doing one thing really well,” “don’t try to do too many things”
Which is why in your business you have specialised according to your field of expertise.
Doing the one thing a thousand times versus doing a thousand things once.
There is more success in “sticking to ones knitting” and getting really good at it.
I had a friend who manufactured “nail guns” and the nails that went into the “nail gun”.
When he first came into the market there was an existing competitor who sold his “guns” at a high price.
My friend came into the market and sold his “nail guns” at cost.
It was really tough for the first 5 years as he made no money on his “nail guns” but he was investing into his Balance Sheet.
He soon captured the market because thousands of customers bought his “guns” as it was cheaper. He was investing.
However, he made a lot of money selling the nails (P&L) to his “guns” (Balance Sheet investment).
Today he is extremely profitable due to the nails that are being sold for the thousands of “guns” in the market place.
The investment in putting thousands of “guns” in the market meant that they all had to buy the nails from him and he created a passive income.
The competitor closed his business as he kept his “nail gun” at a high price and lost customers and stubbornly would not change.
Why didn’t he change his ways is the same reason why the frog died in boiling water.
Why didn’t he notice that the water was gradually getting hotter and jump out?
Because it was getting hotter gradually and he did not notice it.
Many businesses die this way if they don’t change with the times.
Which is why we have to embrace technology, outsourcing and be more efficient at what we do if we are to survive and thrive.
The competitor’s focus was only on the P&L and not the Balance Sheet.
The money is in the nails/spare parts/compliance.
Invest in the Balance Sheet by “selling at a competitive price” the Products/Cars/nail gun to achieve a trailing/annuity income from the services/nails/spare parts.
Hope that helps to shape your thinking because your thinking determines your actions and your actions shapes your life/success.
Think like a successful/wealthy person and invest into your Balance Sheet.
“So in your business which is the item sold only one off and which is the part that gives you an annuity income.
Real Estate Agents
1. Sales section gets high commissions but has no Balance Sheet value.
2. Rent Roll gets low commissions but it’s annuity in nature has a large Balance Sheet value.
Lawn Mowing Business
1. Sometimes the customer wants things done around the house such as trees trimmed, grass laid, fertilizer in gardens etc. Each job is profitable but has no Balance Sheet value.
2. The regular annuity income is the weekly grass being mowed. Is low cost but has a high Balance Sheet value when sold.
1. Services cars on a irregular basis but has low balance Sheet value unless it’s part of the petrol section.
2. Petrol sold at low margins but an annuity income and has a Balance Sheet value.
This will help you focus on the right section of your business and build an annuity income that has a great goodwill or Balance Sheet value also.
Don’t just focus on the “visible” income nature of the business but also on the “invisible” nature of the Goodwill or Balance Sheet value of your business.
The increase in the Goodwill or Balance Sheet value of your business has no tax to pay on it until you sell it.
Even then there are great tax incentives such as 50% exemptions and retirement and Superannuation exemptions.
You should naturally refer to your Chan & Naylor Client Manager to determine whether you can take advantage of these exemptions in your circumstances.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.