Sunday, April 5, 2015

The Investor Quadrant Explained - Daphne Mallory's Family Business Quadrant

Let me be clear: You don't need to be rich to become an investor.

As you grow your family business, you'll have excess money. One of the best strategies for what to do with that money is to make it work for you through smart investments. What are those? A smart investment generates income for you and your family in the here and now. You can count on cash every month or quarter from the income that the investment generates.  The mindset of an investor is to use money to make more money. It's not to save money for a future date. (Note: I am not saying that you should not save money at all. Some families try to save 6 to 12 months living expenses prior to investing. Some families need to take advantage of opportunities and will risk savings to invest, with a plan to start saving again. Use wisdom and discernment to make those decisions.)

You need to have excess to invest. For example,
your family may decide to make sacrifices and live on a tight budget for your first year or two in a family business. There are lots of blogs and articles online about how to cut or decrease daily living expenses. The model that I'm proposing in the Family Business Quadrant is to invest the difference in your family business so that you can generate profits faster. Once you generate profits, you'll want to invest the excess in one or more of the following investments:

      • Residential Real Estate (Single-family homes, multi-unit properties, land)
      • Commercial Real Estate (for the experienced real estate investor)
      • Businesses (other family businesses or non-family businesses) 

These investment vehicles can generate cash flow that you can use to reinvest in your family business and eventually into your community. You can generate family wealth for generations to come and each generation will have a head start with the family business quadrant.

Your family goal should be to make the majority of your money as investors. Let that sit for a moment. Can you imagine generating 90 percent or more of your income from investments? Wealthy families live this dream everyday. It does not make them lazy. They do a different kind of work, revolved around thinking and acting creatively, managing the family wealth and steering the family business(es) into the future.

I also recommend that you pursue investments in the order listed above. Your first investments should be in residential real estate. Try to master one or two forms of investments. For example, start with single family homes or land. (Many of you live overseas where purchasing land is the first step to single family home investments. If you live in the United States, finding existing structures to invest in is often the best way to get started.) Learn how to effectively manage those homes and monthly cash flow. Then, try your hand at multi-unit properties, such duplexes, triplexes, 4-plexes, apartment buildings and boutique hotels. There are competing philosophies and real estate programs on the right way to invest. I'll dedicate future posts to help you figure out what's right for your family.

Once you master residential investments, it's time to master commercial real estate. You can invest in office buildings, warehouses, factories, industrial properties, or land for commercial development. For example, your goal may be to franchise your family business. Investing in land may be a great investment, because you can lease that land to a franchisee. You may want to invest in an office building and have tenants cover your office expenses, while you generate excess cash flow. Your investments may reflect a passion of yours that does not fit your family business. For example, you may invest in a television studio because you're passionate about entertainment, even though your family business is in discount stores.

Other entrepreneurs will ask your family to invest in their businesses. As a smart investor, you'll want to find other businesses to invest in. Many successful family business owners invest in other family owned and operated businesses. You'll have a major advantage in that you understand what it's like to start one. However, you don't have to restrict your investments to family businesses, and you shouldn't. Investing in others may be the best way to innovate your own family business. For example, the entrepreneur you invest in may invent a new technology that will improve your own products, systems and processes. Perhaps you want to invest in social entrepreneurs who will improve the quality of life for those in your community, tribe or country.

Are you excited? What do you do now? If you don't have any money to invest, then take the time now to study and get training on how to master the best investment vehicles for your family. You'll be ready with both the knowledge and skills when your family business generates profits. If you have the money to start investing, then get started. Learn how to analyze real estate and business deals, scout properties and businesses. Some experienced investors will tell you that they analyze 100 deals just to pick one good one.

As an angel investor, your family can make a difference in the life of another individual or family, and in exchange, earn a return on your investments, and change the world.

No comments:

Post a Comment