It’s a common New Zealand plan – start a business, continue to reinvest in it, generate profits later to pay yourself better, and then sell it for a capital sum which helps to fund later life (“Retirement”).

There are a lot of Kiwi’s that have grown their financial wealth significantly this way. There are also a lot of stories where this hasn’t worked out as well as expected, or the planned (or hoped) returns on sale are just not as high as what was expected.

One of my first questions to business owner clients is “What is your Plan B?”

Many business adviser’s/coaches/books discuss making sure you pay yourself first. This is really important. But should be closely followed by – “What are you doing with this to grow your wealth?”.

It’s not just what you earn, but what you do with what you earn.

Many New Zealanders are now using KiwiSaver to grow their wealth but a lot of business owners aren’t. This often isn’t a bad thing, as the benefits of KiwiSaver specifically are more limited for those that are paying themselves, as the co-contribution from their employer is effectively themselves. The main benefit is making sure you receive the government contribution every year.

However, the upside to KiwiSaver is that this sort of investment is automated and simple – the money is gone before you have a chance to spend it. This is one of the ingredients to its success. However, this can be replicated in a relatively easy fashion, and give you, the business owner, greater flexibility and control over your investments.

By setting up some sort of investment structure outside your business – be it direct property, shares, management funds (there are a lot of ways to invest money!), you can start to generate a significant investment pool of funds.

There are really two key features I believe are required for investment outside your Plan A – but this can depend on where in your business life cycle you are at:

1. Simple – so you can put more time and effort into growing your business.
2. Well Diversified – you likely have a significant amount of capital tied up in your business, and also your home. Getting some diversification by being invested in different areas, and across a number of different types of assets makes sense to start spreading your risk across different areas.

Overall, this helps so you don’t have total reliance on your business sale to fund your future life – there is a Plan B so no matter what, you can maintain you lifestyle.