The Wealth Equation

mason-jar-savings-bank© 2015 Vinny Ribas and Tony Bodoh

In a recent survey of 1000 entrepreneurs, 74.8% said that building wealth was a major motivation for opening their businesses. At the same time, the average income of an entrepreneur is $68,000.  That hardly seems like wealth in the way that most of us would view it.

The truth is there are countless ways to define wealth. Some might say that you have to have a million dollars or more in the bank to be considered wealthy. Others might measure someone’s wealth by the value of their stocks or physical assets.  Others might consider the value of your company regardless of your personal income. And some consider themselves wealthy if they are surrounded by people who love them regardless of their economic situation.

For the purposes of determining physical wealth, we would like to propose a new definition for wealth, and do it in terms of an equation:

Income + Time + Value = Wealth

Here’s what we mean. You might earn a substantial income from your business. But you’re hardly wealthy if it takes all of your time and energy, leaving no time for your family, friends, hobbies and even your community.  And yet, working incessantly is unfortunately what many business owners are forced to do in order to create a comfortable income.

That is why it is critical to add ‘time’ to the equation. If you have a more than adequate income to live the lifestyle you choose, and you have ample time to spend with the people you love and on activities outside of your business, you now have work-life balance. Life looks good at this point. You’re 2/3 of the way there, but there is still something missing.

What happens if for any reason your income stops? Maybe the economy takes a downturn and your business takes a hit. Or perhaps a powerful competitor starts encroaching on your customers. Maybe you’re injured and can’t work for several months. Will your income suffer? Will you have to sacrifice your lifestyle? Will you lose that precious balance you fought so hard to achieve?

What happens when it’s time to sell the business and retire? Will your business still survive and thrive if you’re not there to run it? Will you make enough money from the sale to maintain that same lifestyle for the rest of your life, or will you have to downgrade?

If you see that any of these situations would cause a major upheaval for you, then it’s time to seek the 3rd component of the equation – ‘value’. The value we are talking about takes many forms.

First, you must build value in yourself. Education, experience, the way you think, the way you handle challenges, your personality, your leadership skills – these are all valuable skills and talents that you can take with you and apply anywhere you go. You could start over if need be.

Next you need to build value in your business. This means that its success is not based directly on your daily involvement. You can take a vacation and not suffer a loss in income. You company also increases in value if it is easily scalable and duplicatable. That means that there are no barriers to growing, opening new locations etc. as needed. Lastly, your company has greater value when it possesses and takes advantage of its assets. There are tangible assets such as your building, machinery, technology, inventory etc. There are also many intangible that increase the net worth of the business such as patents and trademarks, your reputation, your location, your brand, your place in the market etc. These enable you to attract investors or strategic partners. And all of these together mean that the company would be very attractive to a serious buyer.

Lastly it is critical to create and maintain value for others, including your employees, financiers, investors, buyers, customers, family, friends, your industry and even your community. This is critical because they will stand behind you and support you 110% through the good times and the inevitable rough patches. They will fight for your success because you have kept their well-being in mind.

This all brings us back to the Wealth Equation:  Income + Time + Value = Wealth.

From our perspective, you have wealth when you have three things:

  1. The income you need to live the lifestyle you want
  2. Ample time to spend on friends, family and non-business activities
  3. The peace of mind that comes with knowing that you are building long term value both in yourself and in your business.

This kind of wealth is far more important and long lasting than just amassing a huge bank account or real estate empire. In fact, we would go as far as to say that achieving this kind of wealth makes you a Brilliant Business Owner!

Tony Bodoh and Vinny Ribas are the co-founders of LeaderBridge. Tony is a Fortune 150 consultant and the founder of Tony Bodoh International and VenuPlan. He is also a sought after speaker, a corporate trainer and the author of the soon-to-be released book, ‘The Customer Within.’

 Vinny is the author of ‘CEO Secrets’ and has coached over 1000 entrepreneurs. He is also the founder of Indie Connect, an entertainment management, consulting and training company, and Top 4M Entertainment, a film and TV production company.

Together they are the authors of ‘The Brilliant Business Owner’ – a course and forthcoming book that teach business owners how to achieve financial success while maintaining a strong work/life balance and building wealth for the future.