The Financial Well-being of Business Owners: An Essential for Success

The Financial Well-being of Business Owners: An Essential for Success

It’s a well-known fact that the majority of small businesses fail in the first five years. In fact, according to the Small Business Administration, some 20% of businesses don’t even make it to year two. As a CFO who has reached that status after starting a business from scratch, Don Moragne knows what it takes to beat the odds. He shares this expertise with entrepreneurs through his program Wealth Zone University.

Because there’s such a high failure rate for new businesses, Moragne emphasizes that cash flow is critical, even in the earliest stages of a business, and remains a concern as the business develops and the owner can begin building wealth. In the process, he reveals that there are four levels of an owner’s financial well-being.

Levels of owner financial well-being

Of course, there’s more than one level of financial well-being for a business owner. These range from barely scraping by to the ability to purchase a large home and build wealth for retirement. As we’ll see later, these levels are linked to the stage of a business’s lifecycle.

First level: Living wage

While business plans are critical to startups, there’s a lot more to financial stability at this stage. However, a living wage might not be possible initially, which means that the owner must have money for living expenses during early startup. Otherwise, there’s a risk that the owner will have to add a second job or abandon the business to survive financially. However, by the end of this stage, the business needs to pay its owner a living wage from earnings.

Second level: Financial security

Of course, a minimal living wage isn’t enough in the long term. One of the biggest reasons people become entrepreneurs is to be financially secure. To that end, as a business grows, the owner should reach that goal. Entrepreneurs are their CEOs, and financial stability is one of the CEO’s goals.

What does financial security mean? In short, it means making more than the minimum to live. The business owner’s second level of financial wellbeing should include enough money to live a good lifestyle and have enough money left over to save for the future. At this point, the entrepreneur isn’t as worried about personal finances and has the energy for further business growth.

Third level: Financial independence

Ultimately, entrepreneurship is all about becoming financially independent without being a corporate employee. Financial independence involves having enough independent income that, should something happen at the company, an entrepreneur can still pay the bills. 

This objective is achieved in two ways. First, the business should be strong enough to weather downturns and still pay the owner and employee salaries. Second, an entrepreneur should have enough passive income through other tools, such as investments, to pay the bills without a salary.

Fourth level: Financial wealth

By now, the business owner is financially secure. But mere security isn’t the only reason to be in business: Otherwise, a well-paying corporate job is often enough. During the financial wealth level, an entrepreneur should have a large investment portfolio. In addition, they should have significant forms of active and passive income that are well over what they need for a good standard of living. This means that the entrepreneur builds wealth over time. Moragne calls this the goal of being in business.

Business development stages relate to the owner’s financial well-being

Of course, nobody goes from a minimum living wage to wealth overnight. These milestones follow the growth and development of an entrepreneur’s business. According to Moragne, these are the development phases that accompany the levels of financial well-being.

First phase: Startup

At the startup phase, owners make careful plans to make their business profitable, and sustainable, as soon as possible. Then, they secure the money to get started. Seed money includes an owner’s initial living wage, along with the expenses to start a business such as a premise and inventory. During this phase, owners must not lose their money but should expect little in return from the business in terms of salary. However, they have enough money from other sources to ensure their basic bills are paid.

Second phase: Growing

Once a business exits the startup stage, it starts growing. In turn, a business owner will start drawing a regular salary from the business that makes them financially secure enough to live a comfortable lifestyle. At the same time, the business may start adding employees, but it isn’t in fast growth yet. In this phase, the business has positive cash flow as it follows and perfects the business model.

Third phase: Sustaining

While a business can still fail at this phase we normally think of it as a “going concern.” Businesses that are sustaining often have multiple employees that count on it, an established reputation, and are no longer surviving from one month to the next. At the same time, their owners have financial independence with significant assets and passive income.

Fourth phase: Mature

Mature businesses are expanding from their original line of business or adding locations. They experience leadership transitions and increase value for their shareholders. As Moragne points out, mature small businesses have a similar objective to mature larger ones: they seek to provide the best value for stakeholders. Because the entrepreneur is the primary shareholder in their business, they have also reached level four of the financial well-being scale: wealth building.

Proper planning: the way to climb the ladder

How do entrepreneurs beat the curve and see their businesses survive to phase four? In short, with proper planning and execution, along with proper financial principles. At Wealth Zone University, entrepreneurs and soon-to-be entrepreneurs can learn what it takes to get and keep, their business on a strong financial footing. Once they learn the “business of being in business,” they can climb the ladder to wealth.

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Company Name: Wealth Zone University
Contact Person: Don Moragne
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Phone: 240-247-0089
Address:4061 Powder Mill Road Suite 700
City: Calverton
State: Maryland
Country: United States