A lifestyle business is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle. They are geared toward supporting the owner’s income and personal requirements rather than maximizing revenue.
The goal of a lifestyle business is to create a sustainable and pleasant work/life balance. The business should be lucrative enough to allow the lifestyle the owner desires without having to sacrifice a personal life. The type of business may also be selected on the basis of personal interest, so that time spent working is enjoyable.
Objectively think about your situation and goals.
Do you fit into the lifestyle business category? Or are you there by default because you’re not maximising revenue?
Many people would love to have a lifestyle business but feel stuck in their daily 9-5 job. For those who practically have a lifestyle business but would prefer to have a business that made them money, so they could do something else with their life in a different ‘style’, then it may not be too difficult to achieve.
To create a profitable business, there are a few things to consider.
- Objectively analyse the core operations. Break the business down into simple processes. Could each process be improved? Are all processes necessary.
- Calculate where you actually make a profit. Match expenses with revenue to determine which revenue streams or products are profitable. Look at defining your profit & loss ledgers a little more, so you can identify which products are making a loss (if any). Can they be made profitable or do they add some competitive advantage to the business which compensates for that loss elsewhere, or should you just cull that product line?
- Can you increase your prices or decrease costs? The Australian average inflation rate from 1995 to 2015 was around 3%. The September quarter 2015 was 1.5%, meaning average household prices increased by 1.5%. People expect prices to rise, therefore if you haven’t increased prices in a number of years, it may be time to think about it.
Have your suppliers increased their prices? Are you paying the best price you can? It may be worthwhile requoting new or existing suppliers, as a small change in your cost will likely have a large improvement on your profit over a number of years.
- Are you getting value from your staff? Do they actually perform for the full time you pay them? The most common issue I find with businesses is that staff are underperforming because they don’t know exactly what is expected of them. Staff often don’t think about the big picture (staff must be making the boss money or or what’s the point of employing them?).
A way to improve this is to implement;
a) Position descriptions (outline what is expected for the position)
b) Policies & Procedures (how to do the job successfully and efficiently)
c) Employment contracts (outlining expectations, remuneration & how under performance will be handled)
5. Rethink the way you present the business. Talk to your customers about how they benefit from dealing with you. What makes you different from the rest? Focus on the benefits of dealing with you, as this will help you improve your sales.
6. Measure and maintain records. If you can’t measure it, you can’t improve it! If you can improve your profitability by 0.5% each year, within 5 years you’ve made an extra 2.5% for very little extra work.
By treating your business like a business, where every decision is based on its financial or operational merit, profitability will improve. Some people may then complain they’ll have to pay income tax. Income tax is NOT a bad thing – it means you’re making a profit. There are many legal ways to minimise tax. Ultimately, making a profit and paying some tax is better than not making a profit at all.
Speak to specialists (accountants, business consultants, etc.) who know how to make a business perform and how to implement tax minimisation strategies. The small investment you make in this advice will have a huge benefit to your bottom line. Use specialist advisors to leverage your skills to build your wealth – even if you have a lifestyle business. Richard Branson didn’t get to where he is today by doing everything himself. He surrounded himself with very competent people to leverage their skills to build his empire. Successful businesses use the same concept.
Lifestyle business or not, I don’t know anyone who couldn’t do with a little more cash in their pocket. Therefore by applying some simple business management strategies and using some external advice, you may be able to turn ‘a lifestyle’ into ‘a stylish life’!
By Stirling Tavener, Financial management advisor