Why entrepreneurs should invest beyond business

- May 18, 2020 3 MIN READ

If there’s one lesson we’ve learnt from the past couple of months, it’s that the economy is fickle. It’s a lesson that we must continue to learn again and again, whether it’s about having to navigate a global financial crisis or a global pandemic, writes Sam Bashiry founder of Broadband Solutions.

Fortunately, I learnt my lesson about the uncertainty of business fairly early on. Not very long into our relationship, one of my biggest clients had a change of management. In the process of re-pitching my services to the new CEO, I discussed a series of initiatives I was hoping to implement once they were on board again. It turned out that I revealed too much, because they ended up taking my ideas and developing them in-house. I lost their business and I also lost the chance to execute my ideas first.

That mistake didn’t kill my business, but it taught me a valuable lesson: one day your business can be worth millions and the next day it could be worth zero.

What the pandemic and the lockdown have taught us is that the success of your business is subject to a lot of elements, some of which are out of your control. Those uncertainties can hurt your revenue and profitability. If your business is your sole source of income, that has serious consequences for your personal wealth.

The decision to diversify

A lot of people have an idea in their heads that if you own a business, you must be wealthy, when the reality is that business, especially in the early days, ties up a lot of funding to pay for startup costs and overheads. For a long time – sometimes years – many founders don’t draw a salary and just live on the bare minimum so they can re-invest in the business.

It’s not selfish to think about how you as an individual are doing financially. After all, if you’re struggling, it’s hard to give your business the attention it needs to succeed. So make sure you’re okay for money as a baseline. I know it’s tempting to back yourself and put everything that you have back into your business, but after realising that having one didn’t guarantee anything, let alone profit, I came to understand that I needed more than my business for income.

Diversification is all about spreading risk over different types of investment so that you can ride the ups and downs with more confidence. A diverse wealth portfolio is generally lower risk and earns higher returns than putting all your eggs in one basket.

Around that time, a lot of people I knew were talking about their investments in the stock market and everything seemed to be going pretty well, so I decided to have a go. I tried it for a few years and I lost money. I won’t go into too much detail except to say that earning money through shares is about knowing how confident people are about the company you’re investing in. It requires a lot of work and attention for consistent results. I personally didn’t have the knowledge or time to dedicate to do it well – in some ways it was like having another job.

The stock market is also highly influenced by public sentiment. Both the global financial crisis and the global pandemic wiped a whole lot of value from shares across all industries in a matter of days. In many ways, all it does is spread risk across businesses other than your own, but you’re still investing in ‘business’. It was at this point I turned to real estate.

Investing in property

The first property I bought wasn’t an investment, I was inspired by the Australian dream to secure a family home. It was only a few years later, when the market started improving, that I realised property would make a handy long-term asset. People always need a place to stay, and any property in the right location will appreciate in value given time.

Real estate investment can be versatile. Some people focus on short-term capital gains by flipping a place: buying, renovating and then selling it at a profit within a year. For me, the appeal is being able to play the long game where a well-located property, no matter what improvements you’ve made to it, will give you a capital gain. In the meantime, you can extract income through rent.

Another unexpected advantage of property investment for me is that I’m really terrible with money so needing to put aside funds to buy, build and maintain property makes me more responsible. It also appeals to me because it’s tangible – something I don’t really get selling technology services in my business. There’s nothing quite like turning a piece of land into a row of townhouses and being able to drive past and say, ‘I built that’.

From one business owner to another I say this: business is risky. We often invest a lot into our businesses without thinking of our own wealth. Learn to diversify your income and find the kind of investment that you feel comfortable with, that suits your needs and risk profile. I guarantee you’ll feel more secure the next time an economic disruption comes along.

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