Confused about divorcing your time from money in relation to liquidity even

[AmyQ]

My husband and I have a business that is divorced from our time in the sense that we make money whether or not we work. However, we are still working 60+ hours a week because our goal is to build our brand/revenue to the point where we can have an 8 figure liquidity event. While it would only take us about 6 hours of work a week to maintain our passive income, it is going to take 60+ to reach our goal for when we sell.

So, while our time is fairly divorced from our income, it isn't divorced from our long term financial goals. Before joining this forum this made a lot of sense to me, but reading about posters who are working less hours but still own their own businesses makes me question our approach.

I wonder if we are doing something wrong or if other posters just have different goals - maintaining a passive income from a business vs. selling and maintaining a passive income from investments.

Interested in hearing your thoughts/goals.

 

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[H. Palmer]

Hello Amy, interesting questions and I’m offering my 2 cents here (or 2 mil if you like).

First off, I think your real problem is that the concept of passive income itself is confusing. I don’t know who invented the idea of passive income, but it was popularized by the book Rich Dad Poor Dad by Robert Kiyosaki. Since Kiyosaki sold over 30 million books, al these millions of people now think it is a real thing.

What happened is that Kiyosaki made a huge mistake. He took a concept out of the Internal Revenue Code (“passive income” according to the IRS meaning income from properties that is taxed lower than income from work) and Kiyosaki pretended that is was a real thing.

In the real world passive income does not exist, even if you work 4 hours a week in your business and even if all your income comes from real estate. In the case of RE even a property manager does not save you from handling crises from time to time.

What does exist is that some types of income are more passive than others. In other words, there are degrees of passiveness just as there are degrees of leverage.

Virtual real estate such as a niche website or a not so niche website where almost all the work is outsourced can be passive to a high degree. But not entirely.

It’s only a liquidity event of the size that you are aiming for (8 figures) that can result in pure passiveness, in the sense that you never have to work again in your life.

So, I think your real challenge is to decide what exactly it is that you are aiming for. Total passiveness means going for the big one first.

 

[AmyQ]

Thank you for the thoughtful reply, Amschel.

I guess the time/money equation has been kind of ironic for us so far. We have spent a lot of the last year working on business process management so that our business can function without us doing functionary tasks. While we have had some success at that, we still have a long ways to go because we aren't separated enough from management tasks to devote ourselves to executive work as much as we should be. Even when we get the management tasks under control, it still won't free up our time, but it will allow us to use it in a way that yields more results.

The bottom line is that even though the day to day operations of our business can run without us, we spend so much time on trying to scale, so we really haven't divorced our time from our money. As you point out, I guess a large liquidity event is the most likely way to do that, so back to work I go!

 

[Steve37]

If you can scale enough that your net justifies an 8 figure liquidity event and you can still run the business on six hours a week, would you actually sell? Once you've built the processes you're working on now - treating the business like a piggy bank for six hours a week is about as passive as you can get.

 

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[Chris_Willow]

treating the business like a piggy bank for six hours a week is about as passive as you can get

That is only true if you assume the business will be viable forever. New competitors, government regulations and technology can destroy a successful business virtually overnight.

In fact, James Altucher mentioned this on the other thread:

Most acquisitions turn out bad for the acquirer. Which means that most times you start a business, you should sell as quickly as possible and then start a new one.

 

[Courtney]

First, congratulations on getting your business to the point that it can run fairly passively! I agree with what has been said about no business being 100% passive, but 6 hours a week to maintain your passive income is something to be proud of!

IMO, I believe the posters that you are referring to do have different goals than you. Maybe they are interested only in maintaining cashflow, as you mentioned. Or perhaps they've been so seduced by the idea of a 4-hour work week that they are blinded to the bigger picture. As MJ discusses in the book, you should use the excess income from your business system to fund your money system. I think you can also replace the word "income" with "time." Now that you can step back from the day-to-day minutia of your business, spend that time investing in your money system ie. preparing for a large liquidation event.

 

[H. Palmer]

AmyQ, I think in your situation you will have a lot of use from the book "Build a Business, not a Job" by David Finkel.

It contains a step by step guideline about how to structure your business in such a way that you can grow it and eventually sell it.

There is a free PDF on the internet somewhere that you can download. It's very high quality content.

If you can't find it, just give me a PM with your email and I can forward it to you.

 

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[DennisD]

If you walk away from the business will it make money? If yes, that business generates passive income.
If you leave the business alone for a year.. will it grow? If yes, that business generates passive growth (even if it's a very small 1% growth).

A healthy business with good systems will grow whether or not you're there. In a fully mature business There are systems in place for when to acquire new clients, new employees, etc.

Will working 60+ hours a week make your business grow faster? Yes. Will it pull in additional revenue? Yes. Always.

So I guess it's a question of speed. You and your husband want a liquidity event at higher number and on a faster timeline than the business would provide if left alone.. so you work extra to realize those goals.

The people who dedicate 1 hour per week to their business do not have the same liquidity goals on the same scale and the same timeline as you, which is okay. Unless you reevaluate your goals (decide you're okay with a smaller payout at a later date) it sounds like you're working just as hard as you should be.

 

[AmyQ]

Great insights from everyone. Thank you!

Amschel, I ordered the book you recommended on Kindle and will read it this week.

Dennis, your post made helped me realize something. We have systems and processes in place to oversee day to day operations, but we do not have systems in place for scale. My husband and I are doing 60% of the executive level work. We haven't gotten to the point where we are hiring executives to do our tasks, let along creating processes to make sure executive level work is being done correctly. I guess that we have done a decent job supervising others, but we haven't done a good job of supervising ourselves (since our processes to check our own work are inside of our heads).

Thanks to everyone for offering some perspective, clarity and a reality check. Business owners can definitely get caught up in the echo chamber of our own heads, which is why it is great to be able to come hear and bounce ideas off of people.