Years ago, you made the decision to leave the comfort of your cushy salary, company car and free yoga to start your own business. After years of struggle, things have been going great. All of the tremendous risks, ridiculous hours and financial stresses have put you and your company in the unique position of having experienced some success -- the result of which is that your net worth and bank account are rapidly growing.
The question becomes, when should you begin to personally reap the benefits of that success? The answer for some people is never -- which sounds awful -- and for others it's immediately -- which can mercilessly drain needed company revenues and/or personal funds.
Thirty million dollars?
This concept is of particular interest to me as I’ve had a number of conversations with friends and colleagues on the topic as of late and I’ve been shocked at the disparity in thought processes. One very successful friend, whose dream car is a Lamborghini, claims that he wouldn’t even consider buying such a car until he had at least $30,000,000 of liquid net worth. That’s $30 million!
To be clear, the car cost around $200,000 -- or used for closer to $100,000 -- and could be leased for a small fraction of the annual interest generated on a sum of money nowhere near his $30 million minimum -- having a nearly unnoticeable financial impact.
Another friend, also having achieved some recent success, purchased his dream Aston Martin the second he was able to afford the monthly payment -- with the contention that he’s just rewarding himself for his efforts and success.
What’s different between these two thought processes?
I’m not by any stretch saying that one is right and the other is wrong. Hell, some people aren’t into cars -- which I’m only using here as an easy comparison. But when I challenge the friend that is working crazy hours for years and years with the question, “when do you get to benefit from the fruits of your efforts and labor?” He stared at me, almost blankly, as if he has no idea. So what’s the point?
On the other side of the coin is my friend, the Aston Martin aficionado, who seems to spend it as fast as he gets it -- to whom you clearly don’t even need to ask the same “when do you benefit” question. We know the answer.
One of the major downsides with this thought process is that the second his company hits a bump in the road -- some economic downturn or major new competitor -- he’s going to have to start putting money back into the company, which he’s not likely to have readily available. He’s also potentially restricting the necessary reinvestment that is required to continue driving innovation by taking larger than reasonable distributions -- and we all know that the second you’re not innovating, you’re dying.
Both mentalities have problems.
There are obvious issues when it comes to bleeding your company of needed cash flow and reserves, which have a very clear affect on your business and its viability, but I’d contest the opposite thought process presents an equally troublesome problem that is much more personal -- yes, it affects you, your family and your relationships.
When you’re putting yourself through the happy equivalent of entrepreneurial hell, with little or no intent of reaping the rewards, you’re really just meandering aimlessly through a tunnel with no hint of a light at the end. What really is the point?
Although I can appreciate both mentalities, there must be some meeting place in the middle -- which should be a planned or orchestrated event. For example, set aside a small but reasonable percentage of your monthly income -- it could be 1 percent or 10 percent -- based on your individual circumstances. This reserve will serve as your reward fund. Then set one or two specific dates per year where you must use the reward fund to take an extended vacation or buy something ridiculous that you’ve always wanted but never imagined having -- then stick with it.
What do you think? When should you start rewarding yourself? Sound off in the comments section below.