Ah, the age-old dilemma – do I invest in my business or focus on upgrading my home? It’s a decision that can keep even the savviest of entrepreneurs up at night. As someone who’s been there, let me share my personal story and some hard-won insights that just might help you navigate this tricky situation.
You see, my wife and I were once in a similar predicament. Our cozy little house had become a safety hazard and an eyesore, with its green carpet, plumbing nastiness, and nearly 50-year-old floors. Both my mother-in-law and my son had even taken a tumble down the sketchy steep stairs on separate occasions. Yikes!
But here’s the kicker – we live in a relatively expensive suburb, and a full-blown remodel was going to cost us an arm and a leg. To make matters even more complicated, my business was also in dire need of some crucial investments. It was like my life and my business were on a collision course, and I had to make a choice – do I prioritize the house or focus on growing my company?
The decision wasn’t easy, and my wife and I stressed over the options for what felt like an eternity. I remember feeling a sense of urgency because of the ages of our kids. I wanted them to have some time to enjoy our home before they grew up too fast. Plus, the overall flow and function of our house just didn’t seem to be working for us anymore. It was constantly on my mind, consuming my thoughts for days, weeks, and even months at a time.
After much debate, we ultimately decided to make the most out of our old home until my business had a chance to mature a bit more. At the time, my company was much smaller, with only a handful of employees, and everyone was doing a little bit of everything. Even though my wife and I were kind of bummed about the “let’s wait” decision, we tried to hold onto some positives – the big yard, the outdoor recreation, the mountains nearby, and our awesome neighbors. Sometimes, you just have to remind yourself of the trade-offs you consciously chose along the way.
Looking back, I can easily say that this was the single most important financial decision my wife and I made, and it resulted in the ultimate success of our company. The cash we would have otherwise spent on a remodel or a down payment, not to mention the additional cash flow we would have gobbled up with a larger mortgage, was instead directed towards some critical investments at a critical time for our business.
The company has grown a lot since those early days, and it continues to grow under the supervision of some really talented people. Our investment in sticking it out in less than ideal housing became part of our culture and has been the difference between extraordinary success and average outcomes. The business is finally at a place where my personal remodel won’t come at the cost of vital business resources. Now, we’ll have both a healthy business and a great place to live.
But as you can tell from my own story, I have some strong opinions on this topic, and I hope they’ll help a few of you out there who are facing a similar dilemma. Let me give you three good reasons why I’d hold off on the house decision for a while and push the biz forward instead.
Reason 1: Investing in Your Business Pays Dividends
When you’re growing a practice or a business, there are so many building blocks you need to invest in. Like attracting the right type of patients with excellent marketing and positioning, or getting the right employees in place – both management and role players. The list goes on and on. You’ll need to spend money on continuing education, new equipment, and your facility. And as your practice grows, you’ll discover a wide range of new challenges and opportunities.
I believe the investments you make in your team in the early years often determine how fast your collections will grow and your ultimate practice value. After all, the potential for a great return on your initial investment is probably one of the reasons you got into this line of work in the first place. Whether you’re just trying to get to breakeven or you’re wanting to push into a new gear of growth you never thought possible, you need to put some meaningful money back into your business to make that happen.
Reason 2: Housing Costs Can Drain Your Resources
When you purchase a home, you’re not just committing to a mortgage – you’re committing to a lot of out-of-pocket expenses. We’re talking down payment, landscaping, furniture and decor, just to name a few. An investment into your practice of that same amount could generate a substantial return. In some cases, the return on that business investment can make owning a much nicer home with much less financial pressure happen within just a few years.
We delayed our decision consciously for about 5 to 6 years, and that made a huge difference for me. The money I invested in my business gave me a nice return, creating enough value to pay down for much of my new house and even give me a nice cushion for retirement. Alternatively, had I started earlier, my dream house would have created a significant financial drain on my liquid reserves and put pressure on my cash flow. By jumping the gun, I wouldn’t have been able to afford the extras in my new house anyway – the landscaping, the furniture, and the finishes we wanted. But we were able to get things just the way we wanted by waiting a little bit longer.
Reason 3: Avoid Over-Committing to Housing
Buying that first home is super exciting, but the thrill of finding the right place can feel more like a burden when you’re stuck in the financial pressures of entrepreneurship. I’m sure you’ve heard stories or you know people who weren’t prepared for all the costs that accumulate after a purchase, a remodel, or new construction. It’s really easy to be quickly over your head with landscaping, repairs, taxes, furniture, and personal property items. In my own case, when I finally was able to afford the house, it was funny how many side items started to pop up on my radar that just wasn’t there beforehand.
You want to make sure that your income can easily support the housing costs you will incur. Affordable housing should be a low percentage of your gross income, like 12-20%. Avoid putting too much pressure on your current income, or you won’t be able to be an investor in your practice. Stay away from housing costs that push 30% of your gross income, and don’t look back. The mortgage broker will qualify you for 40% of your gross income, and that just won’t do for entrepreneurs who want to have money left over to grow a business. Plus, you should plan on 15-25% of your appraised home value for repairs, upgrades, and maintenance. Depending on where you live or the age and size of your home, this percentage could vary, but I’d be surprised if over a five-year period you were ever under 15% per year for maintenance costs.
At the end of the day, two of the biggest financial decisions you’ll make in your life are the timing and amount of money you invest in your personal housing and your practice. For many of you, these two decisions might feel like they need to happen at the same time. I know it’s hard to know which milestone to take care of first, and with a growing family and the sometimes urgent pressure to get into the right schools or enjoy life, it’s easy to feel torn between growing a practice or investing in a home.
But if you want to invest in something that will give you high returns and a sense of satisfaction, invest first in your own business. Start by building up the right levels of liquidity and make conscious investments into some unusual things that most people aren’t willing to do. Like investing in high-quality people, the right professionals, advisors, and consultants, and a strong marketing program. With the right amount of liquidity to back your practice growth, you’ll make decisions with more clarity. Once your practice hits the size you want it to be and the profitability levels are where they should be, you’ll feel better about and be more prepared for an amazing new home. And maybe you’ll even get a pool!
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