Momentum Podcast: 71
Net Worth Growth Hack
by Alex Charfen
If you're growing a business, net worth may be the single most important metric you can track because so many business owners start making irrational money decisions based on anything but growing their net worth. We start making irrational money decisions based on weird impressions in the market, based on not understanding how financial transactions might work, based on advice that we get. Here's the net worth growth hack, I'm going to tell you right up front but then I'm going to explain to you why this is the most important metric you should track.
Many of my clients are growing businesses from around $1 million and they are quickly scaling to eight figures. If you do this successfully and maintain your margins, you will very quickly have a lot of money at your disposal. The people I work with grow their net worth at an exponential rate compared to the majority of business owners with similar profitability. One reason is that I believe that this is the single most important metric for an entrepreneur. A second reason is we use a simple network growth.It will probably surprise you when you hear how simple this is however when I've used it with entrepreneurs it's worked near 100% of the time to affect massive increases in net worth.
Full Audio Transcript
I'm Alex Charfen and this is the Momentum Podcast made for empire builders, game changers, trail blazers, shot takers, record breakers, world makers and creators of all kind. Those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy and we are obsessed with creating momentum. We can roll over bureaucracy and make our greatest contribution. Sure we pay attention to their rules but only so that we can bend them, break them and then rewrite them around our own will. We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few who are willing to hallucinate there can be a better future. Instead of daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters clearly the most important people in the world because entrepreneurs are the only source of consistent positive human evolution and we always will be.
Tonight's topic, this net worth hack I want to help you grow your net worth is critical for anyone who is growing a business.
In fact, if you're growing a business, net worth may be the single most important metric you can track because so many business owners start making irrational money decisions based on anything but growing their net worth. We start making irrational money decisions based on weird impressions in the market, based on not understanding how financial transactions might work, based on advice that we get. Here's the net worth growth hack, I'm going to tell you right up front but then I'm going to explain to you why this is the most important metric you should track. The hack is this, if you want to increase your net worth, you must track it on a monthly basis down to the penny. You should know and here's what I mean by tracking net worth. Everybody always says to me, "Well it's so hard because I don't know the value of my company or the value of my house changes or whatever". Okay, here's what you do. The value of your company is the cash your company has in the bank and nothing else. Just the cash because let's be honest, unless you have some crazy inventory assets or you're a jeweler who owns your inventory, then let's look at those things.
If what we're talking about is a desk and some computers and some equipment that you might be able to fire sale for something, if you feel like you need to, put in a number that makes you feel comfortable with what the assets might get because we're not talking about what the value of company is. That's a number that's made up until you're selling it. It doesn't matter what multiplier you use, it's made up until you're selling it. Don't calculate it. Here we're looking for a net worth metric that you're going to drive growth by. We want to include what's real. The second thing that we want to include is the cash that you have in the bank and then the equity that you have in real estate and the value of your cars because here's what happens. When you start putting together a net worth statement where you track things on a monthly basis, you're going to start making different decisions in these areas. When we go through them and we have those assets, so real estate, the value of your cars ... I know you might have other assets like watches and other things like that but here's why we're creating this metric.
We're creating it because I want to show you how to better spend your money. If you have watches that have a high enough value that they should be calculated, then put them in there and then track if they're going up in value or down in value. Put into this number enough information so that you can now start really looking at "Is the business you're running increasing your net worth"? Here's the challenge for so many entrepreneurs, they run businesses that make money but they don't actually end up affecting their net worth. They don't grow the money that they have in value in the world because they start doing things ... I hear from entrepreneurs I'll ask, "What's your profitability" and they'll say things like, "Oh well I try and make my business show as little money as possible". If you're doing that, you can't increase your net worth. Or I'll say, "How much money does your business make" and they'll say, "Well it makes this much money but if you put back in mine and my wife's leases, then it would make this much money". I think, "Why, why do they make decisions like that"? Here's the challenge for you as an entrepreneur from me is to track your net worth and start making net worth based decisions.
When somebody says, "Do you buy or lease a car" I tell all my clients the same thing. I always buy cars about four years old where most of the depreciation has taken place. I buy luxury cars. We drive really nice cars and nobody ever knows the difference because most people don't know four years ago. In fact, if someone knows the difference and they're judging you for it, you probably don't want to know that person. When you look at my cost of ownership and the cost of my car new for ownership, I pay about a third of what the original owner paid for the entire time that I own the car. People look at it just as much, they comment on it just as much, they're just as much fun. Then I sometimes buy old cars. That's an easy answer because I make net worth decisions. I ask myself, "Do I want to buy this asset"? If it's depreciating, I probably don't. Here's something I've always wanted in my life, is a Ferrari. Someday I'll get there and I'll buy it. Here's what happened, there's been at least 10 times where I've had the day where I've said, "Hey Cadey, I think I'm going to buy the Ferrari" and she'll say, "Well okay, let's look at it and let's go look for the Ferrari". Then I'll say, "Yeah you know what Cadey, let's wait a little bit".
Here's why. As I start calculating the amount of money it's going to cost me in my head, I think about what we could buy in real estate. I think about what that's done for us so far in net worth and then I can't make that decision. Or, I start thinking about buying the Ferrari and I think about some of the other business investments we have that have paid off so much more than real estate possibly ever could and it makes it even harder to make that decision. Then I think about the fact that I'm going to lower my net worth on my monthly calculation and I'm going to have a depreciating asset and I think, "That Ferrari is going to eventually start bugging me a little bit. What if it's like other stuff that I bought that I really liked but I overspent and I didn't really want to buy it"? That would be an even bigger time that I did that. I talked myself out of it because it's a net worth decision. Here's what I can tell you about being an entrepreneur.
Anyone who doesn't tell you to make net worth based decisions probably isn't building theirs because when you start growing your net worth and you track it on a monthly basis and you look at how much you're making, you improve the conditions in your business 'cause you'll force it to be profitable, you'll make sure people are held accountable, you'll make sure that the business is actually making money, it's not leaking money and you're not buying things you don't need to or spending money you don't need to. You start making more logical decisions with your money. When your accountant says, "Hey, it's the end of the year. You should go spend some money, you're going to pay a lot in taxes", you only go buy what you absolutely need for that year. You don't go buy stuff that you don't need. I walk into people's offices all the time and I'm blown away at the amount of money some people spend because of advice like that. The fact is, when you look at people who increase their net worth, who focus on this number, their businesses tend to outperform other businesses where CEOs don't look at this. This is the hack I use.
By getting people to focus on their net worth, this is how I help my clients scale from one million and quickly go through to eight figures faster than most companies do at an exponentially higher growth rate and with much higher margins. Here's what happens, when you scale fast and you maintain your margins and you increase your net worth, you do exactly what you should be doing and you make logic based decisions. You don't make decisions like, "Oh we're going to spend a ton of money on furniture we don't really need and we don't know how long we're going to be in this space". We don't go buy stuff that we don't actually use. We don't spend money 'cause we're told to. You don't go lease a brand new car. When people say lease versus buy one of the biggest issues with the lease and I'm saying this because I know people are going to argue with me on this but the fact is, you're leasing a brand new car. Most of the car depreciation happens in the first four years. You buy a four year old car, you can buy luxury cars for about ... I buy the car for about half what the guy who leased it paid, think about that.
Then I resell it when I'm done with it and I'm paying a fraction ... I might be paying a one year lease on that car to actually own it and I'm driving the same luxury somebody else is. It's been used for four years. That's a net worth based decision. Again, when I'm told to go spend money, I buy exactly what I need 'cause I'm increasing my net worth. For every business owner who isn't tracking this right now, here's what you'll find. Suddenly you acquire this new metric that helps you make every decision better. You won't ever say anything like, "Oh I try to make my business make as little money as possible" because that's really an excuse for not holding the business accountable to pay you. When you do and you make the money that you should because you're running the business at the size that you have and you force it to spit out profitability like businesses should ... The number one responsibility a business has is to make you money. I talk more about contribution than most coaches but when it comes to helping you be successful, I want you to know something, if you're not forcing your business to make you money, you are limiting your success.
The simplest hack is sit down on a monthly basis, Cadey and I use a website called Mint.com like breath mint, mint.com. You can put all your assets into that site. In fact, it adjusts your real estate by Zillow appraisals. It adjusts the value of your cars or you can put in the value of your cars and you can adjust then down quarterly or monthly if you want to. Zillow is not the most accurate perfect valuation on your house, but it's a consistent valuation on your house and any real estate that you have. By putting in the cash value of your company like how much cash you have in the bank and then any extraordinary assets or inventory the company has that you own and then the value of your cash assets, how much do you actually have, in Mint, it actually does it all for you. It makes it painfully easy. Here's what I've watched consistently for over 20 years, when an entrepreneur focuses on increasing their net worth, it forces the level of decision making responsibility with finances that will help your business grow. It will help you become a better entrepreneur and a better leader and a better CEO because you will make logic based decisions based on how much money the company is producing.
Those are exactly the type of decisions that will help your business grow, be foundationally stable and help you be a CEO that builds the right protection and support into a business and understands where things are in the business and knows what's really going on. For all of you who are trying to grow a company, that's exactly what you should do. Tracking your net worth may not be the sexiest advice but here's what I know. If you don't track it, you won't ever know when you've crossed that million dollar mark. You won't ever know when you've crossed that 10 million dollar mark. When you track it, you invoke the power of the observer effect. You invoke the phenomenon that what we focus on actually improves. Wayne Dyer said "What we focus on expands". Most entrepreneurs never track their net worth and then complain about their debt. Stop getting into debt and track your net worth. It will force you to make better decisions and to grow your business. It will help you with what may be the most important part of this, having your net worth increase, having the backstop that you have in the world increase, having the foundation that you have in the world increase will help you with the confidence you need to make the right decisions, to feel more bold, to feel empowered, to be more excited to be in the world.
When one of my clients starts making a lot of money, which happens often and they call and they ask me, "Hey what do you do with your money" or "What should I do first"? I tell them "First you build a war chest. You put money in the bank. You have cash. It will make you feel more confident. It will make you feel more excited about what you do. It will make you bulletproof because if anything happens in the business, you're going to have six months to a year in the bank for both business expenses and your expenses. Then, then take your margins and you can go buy the car or do whatever that you want to do. First, blow up your net worth because having a big financial backstop changes the way entrepreneurs show up in the world. It changes how we interact with other people in the world. It changes how we deal with conflict. It matures us as entrepreneurs so we can run even larger organizations". This is a mistake I made for a long time in my life. I ran companies where I made a lot of money but I spent a ton. Tracking my net worth and Cadey and I sitting down and actually talking about it has been a complete game changer to the point where money isn't a subject that we fight about.
Money is a subject we both look forward to talking about because we know this is one of the focuses that increases our stability, makes us feel better and helps us show up like we want to show up in the world. If you want to grow your net worth and you want to know when you've become a millionaire or you want to know when you become wealthy, whatever your measure is, this is only way you know you've gotten there. If you're an entrepreneur, and you're looking to grow your business and grow your team and you're doing around a million dollars, I have a mastermind for people in exactly your situation. I know how it feels when you get there. If you have an excess of opportunity and you know you're leaving dollars on the table and you're in that place where you know you could turn up the business, there's so much you could do, there are opportunities there, but it isn't clear how to grow the team and how to put the right infrastructure in place around you to help you do this, then we need to talk. Reach out to our office, give us a call at 8004820335 and talk to Justin.
We'll set up a call because if you're an entrepreneur who has hit a million and you know you have opportunity to go beyond that, you know you could grow, you know you could acquire more clients, you could grow faster then we must talk because I want to show you how you could unlock the potential in your business, get the protection and support that you need and do it all and still have a life, have a family and not disappoint those around you because that's really what's most important to us. Reach out if you're in that situation and if not, do me a favor, subscribe to the podcast, leave us a review. I would really appreciate it. I check the reviews all the time to see what the latest one is. I'd love it for the next one to be yours. Thanks everyone. Have a great night.