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Tuesday, May 29, 2012

Business Success Achieved – Concentrate or Spread Out Your Nest Eggs?

Your Nest Eggs - Concentrate or Spread Them Out?

After much sweat, hard work and some luck – you have achieved business success. Sales, profits and cashflow are growing. You have plowed everything you own into the business to support new hiring, additional equipment and carry more inventory and receivables.
Now growth is becoming more manageable, cash is accumulating after all critical funding needs have been met. What is the next step? Invest even more funds into the business or invest some outside the business for your retirement? Should you continue to concentrate your personal net worth in the business or should you begin to spread it out?

I share my experience from 25 years back. I started a printing business in the early 80’s, struggled to build the business, achieved sales and profit success, and faced the same question – concentrate or spread out my nest eggs? 

In the quick printing industry publication, there was an article that addressed this issue. I recalled that it used a dentist as a case study – he invested all his profits in additional equipment for his practice. Nothing was invested outside his business, he reasoned "I'm going to invest everything in my dental practice.  Patient numbers are growing, revenues and profits are growing. Everybody needs dental care.” Unfortunately, his office’s demographics changed for the worse and his equipment became obsolete – he was unable to obtain full value for his investment. All his nest eggs were in the practice.

After reading the article, I thought it made a lot sense. I decided to spread out my family’s nest eggs – note this decision’s potential impact on your family. I invested in stocks and bonds, income real estate in addition to our house. Fortunately, this worked out well because computer technology did eventually hurt the printing business.

After your business’s critical funding needs are met, I believe it is a good practice to spread out your family’s nest eggs. It will lead to more confidence and peace of mind because you will have more alternatives.

Next – we’ll discuss choices and implications of this decision.

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