Running a business can be very consuming. This is certainly true in the medical field. Yet, no matter how much you love your work, the financial outcome of everything you are doing may rest even more heavily on how you are investing your money.
This is not only true for practice owners, but is equally applicable to other professionals with consuming careers who want better than the status quo for their finances.
I’ve been a business owner for as long as I can remember. I’ve been investing in one way or another for over two decades of my life. I wish someone had shared these insights with me earlier. I would be much further ahead today if I had known.
These observations and tips are what I’ve learned from my personal journey, evolving from starting out reading all of the classical wisdom and advice on money and investing, to evolving, reinventing and innovating to manage over $100B in assets for doctors, lawyers, business owners, and others.
If these points resonate with you, I’d love to hear your experiences, and how you’ve been solving them yourself.
Diversification Is Essential
You’ve probably heard of ‘diversification’ already. When I first learned about diversification the way that almost everyone teaches it and sells it, it seemed like an aha moment. Also an obvious and logical financial move. I’ve also since learned some very expensive lessons about diversification, and how not to do it.
Still, the biggest risk many business owners fall into is throwing everything into their venture. They’ll bet their house, relationships, future income, and a lot more on it. Starting and growing a successful business certainly requires a lot of belief, commitment, and sacrifice.
Yet, it is very financially dangerous to keep on reinvesting everything back into the same business or industry in hopes that the math will finally turn in your favor, or there will be a really big payoff that will leave you set for life.
If you put everything you make back into your practice or startup, you are going to be dangerously overexposed.
Things can change incredibly quickly and drastically. The best laid plans can be foiled by a variety of wild card events, from responses to global pandemics to new technology, and financial and regulatory changes.
Do reinvest in your business, in building up your capital reserves and marketing to grow it. Also make sure though, that you are taking a significant enough portion of your earnings and profits, and are putting it into something else. Most tech CEOs sell large amounts of their stock to invest in real estate. Big hedge fund managers sell stocks, and then take their commissions and put it into real estate investments.
Remember, in many ways, your business is not an investment. For most, it is a job. Just as the house that you live in is not a true investment. It is your shelter.
A Lack Of Focus Is Equally Dangerous
The next major lesson I learned about diversification, being a business owner and focus was how not to do it.
I first tried diversifying out into several very different businesses all at once. I owned car washes, salons and real estate. Yes, it created multiple streams of income. Though, as you can imagine, it was chaotic at best. I wasn’t going to master each of these very varied industries and be the expert in them all.
It’s why medicine has so many specialities, right? And who typically makes the most in medicine? Is it the generalist or the specialist?
I learned to simplify this, and while still owning and operating businesses, and diversifying my investments, I also found hybrid diversified models which allow me to stay in my circle of mastery, while not betting everything on one horse.
The lesson for business owners here is that owning a business is great. Do it. Though when it comes to expanding financially, invest in other things, just don’t try to start a business, and master every field you invest in. You are going to struggle on all fronts if you are trying to run a medical spa, real estate construction company, and a crypto fund.
With the above in mind, I’ve gained an ever increasing appreciation for experts. They are the best way to hack time, knowledge and money.
I continue to make a sizable investment in expanding my network, knowledge and mentorship and coaching each year. Investing in yourself is certainly one of the best investments you can ever make.
Whether it is a mentor in your field of business, or financial advisor, I recommend spending the most time vetting those you work with, and who will manage your money. If you nail this, the specifics of individual investments is not as important. You know they are handling it.
The opposite is also true. If you fail to vet your money managers, it doesn’t matter how fabulous the individual investments look, they will blow it somehow.
You Need Passive Income Cash Flow
Transitioning from working for someone else to becoming a business owner comes with many potential financial advantages. You may make more. You also have access to more tax benefits.
Yet, in most cases business owners remain too involved. Especially in this industry.
We all need passive income and cash flow which is separate from our businesses. You may ultimately find it is the one thing which will fill the gaps in your main business when crises come along.
No one, and no business is immune to these things. I believe even Pfizer recently reported they expect their income to go down by around $45B, or 50% this year. In a time when medicine and healthcare has never been more important.
Trends Are Nice, But Fickle
There is a careful balance to strike between solid long term investments and taking advantage of trends.
If you are always trying to jump on the next hot thing, you are going to get burned. That’s why most SPAC deals have quickly lost money. What have been huge hits one day, like Zoom, can completely fall apart a few weeks later.
Then you have bitcoin, which has delivered both incredible losses and gains.
There is sense in putting out a big bucket when it is raining gold outside. You just need to know when to put some of that gold into your well.
It’s Not Only About The Cash Flow
Cash flow is important, but it isn’t everything.
You especially have to keep in mind what position you will be in if that cash flow stalls for any reason.
Liquidity, flexibility, and some lump sum gains to multiply your nest egg are nice too.
Rental properties are a great example. They are advantageous in that even if their paper value tanks, they can go on delivering the same amount of income each month. Having that concrete, tangible asset also means you always have something of value, and to bounce back with. Providing you are not overleveraged, you can always sell, recapitalize and reinvest in something else.
Pay Attention To Risk Adjusted Returns
When comparing investments, one of the most important factors to look at is what they promise to deliver in terms of risk adjusted returns.
There are new biotech startup ideas that may have the potential to deliver 100x returns. They may also have only a 1% chance of surviving and not going bankrupt though.
At the other end of the scale, there are horribly low yielding things like bonds. Despite seeming relatively conservative, there is always risk. In high inflation periods, with high taxes, being locked into these types of investments can easily mean you are being hit with negative net yields. You might be losing 3% to 5% per year, or much worse.
Whereas, you may find more of a sweet spot in the 9% to 11% return range, with investments backed by hard collateral.
You Are Not Your Business
It is easy to tangle your ego with your business. You need to be passionate about your business for it to be successful. Yet, when it becomes too emotional you aren’t making the best decisions.
It’s important to remember to invest in your life outside of work too. Your family, kids and friends are those who will be there when the business is gone. Perhaps the same is not always true in the reverse. Over the years you may have many evolutions of business, and multiple businesses.
Your investments can outlive them, as well as a strong investment strategy, retirement account, and multigenerational vehicles like trusts.
Your real legacy is rarely your business. For Bill Gates it will probably be the Gates Foundation. For Warren Buffett it will probably be the Giving Pledge. For other billionaires of industry it will probably be the names they leave on buildings, not the product they were selling that they are best remembered for.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund