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This week the Rebel Business School are in Gdansk in Poland for our annual team retreat! I will write another article soon about why we travelled all the way to Poland instead of staying in our own country! This team meeting has inspired me, we have been talking about the democratisation of entrepreneurship, where we are going as a business, so much more, and it has got me inspired! I have been thinking about applying FIRE principles to a business! Could you achieve financial independence within a business?
Can a Business be Financially independent (FI)?
The starting point for this conversation is what is FI? The best definition I have at the moment is:
You assets create more income than your expenditure
The idea behind this is if you achieve this in your personal life then your assets (rental properties, stocks and shares or businesses) create income for you and then you can choose if you work or not.
The whole movement is based on the 4% rule which says that if you are invested in the stock market then you can live off of 4% of your investments annually without reducing your capital amount. So if you had $1m invested then you could comfortably live on $40,000 a year without ever working again. Mr Money Mustache does a great job of explaining the 4% rule here
The purpose of doing this is to free your time. So many people are in jobs they hate, doing things they don't enjoy, and all they can think about is escape so they invest and work to get out of the rat race.
That was not the purpose for my wife and me. Our purpose was to have more freedom over our time and to be able to choose the projects we work on. So this year we achieved our FI number and we are now free to make all sorts of bold choices, such as going to LA to write a movie.
We have been working hard on our personal finances for some years and my business has helped me to achieve that goal.
This got me to thinking: what if I applied these principles to my business as well as my personal life? What if I took X% of my profits each year and invested them in Vanguard Index Funds? Could we build up enough of a pot in Rebel Business School where we wouldn't have to rely on continual sales to pay the wages, and we could truly work as a team on the mission to democratise entrepreneurship?
The FI of Business
If we took $50k each year and invested into Vanguard stocks and shares, over the next 14 years we would build up a pot of $1m within the business that would create a $40,000 income for the business. Enough for one member of staff.
What if we managed to create a $10m pot over the next few years? That would generate $400,000 a year following the 4% rule and pay for all of our current team to be able to work forever without ever selling anything again. We could GIVE it all away for free.
That would allow us to truly democratise entrepreneurship. We would be able to film the course, build an incredible online resource and really give the source code of entrepreneurship away free for ever! We would be able to add, experiment and develop the content each year, run courses for free and work for free for ever!
Now this idea gets me EXCITED!
I don't see any reason why you couldn't take any business and get it to FI. It is just simple maths. Take some of the profits each year, start to invest and build up a pot that forever creates a revenue for the business! But what are the pros and cons?
The benefits of Business FI
The negatives of Business FI:
This idea has been mulling round my head for a year or two now and I have really got excited about it at this annual Rebel Business School retreat, and I thought I would use this article to share my thinking about it and ask you for your opinions and help. What have I missed? What have I not thought of? Do you think this is a worthy goal of a business?
Please leave me thoughts, comments and ideas below. I really appreciate it as it helps improve and explore my thinking!
I am excited about helping Rebel Business School get to financial independence so we can truly democratise entrepreneurship and give everything away!