James Sinclair’s Business Philosophy Part 4: My Four-Company Rule
This is something I live by when building businesses.
When you’re running a business, you want to be in the mindset that you’re running four companies in unison.
Now, you’re not actually running four separate companies. It’s a philosophy.
When we’re running a business, we have fast pounds and slow pounds.
Your turnover in your business – just like a salary – is your fast pounds. It tends to come in fast and leave fast.
Think about a personal salary: it comes in, then the rent or mortgage goes out, the food goes out...
That’s what happens with cashflow in a business. You’re generating all of your turnover, payroll, the VAT man, the business rates. Whatever it is, cash is coming in fast and it’s leaving fast.
What you want to do is generate 50% of your profits into slow pounds. I call it “50-50 living”.
If the company that you are today generates £100,000 profit, you can keep £50,000 or invest into more fast pounds. But you want to put the other £50,000 into your property or investment company, which is building slow pounds over a period of time.
For me, that’s commercial property. I’ve been taking my profits and putting them into a property company. I’ve bought warehouses, put a couple of hundred grand into them, and over a period of about 10 years, that compounds in value to create some nice assets.
This is very important when it comes to personal wealth, but also for the trading business.
Why assets are so important
If you look at great companies like Marks and Spencer, for example, they had a pretty wobbly period. They needed to innovate but they weren’t really worried about going anywhere, because they owned loads of freehold assets.
“Innovate, don’t evaporate.”
On the other hand, the airline company Thomas Cook went bust because it hadn’t innovated. They focused purely on the top-line businesses, generating more fast pounds. When they got into a period of trouble and needed to re-innovate the business, they couldn’t afford to because they had no assets. They had no property and leased all their planes, so nobody would lend them any money and they went bust.
It's crucial, if you’re a savvy entrepreneur, that you’re taking some of your cashflow and putting it into some slow-pound assets. That’s your rainy-day guarantee – putting money into safe investments that appreciate in value.
Look at me, for example. When I was a children’s entertainer, that was “the company I am today”.
I had my sights set on the future, way back then.
What I really wanted to be was a multi-site leisure operator, which I became. I thought about that at the same time as running my small business.
It’s about thinking: “This is what I’m aiming for. Everything I’m doing now is going to help me when I’m that big business.”
My entertainment company gave me the knowledge to run visitor attractions.
Media and Marketing
A media/marketing company is really important. You should be a marketer of your business, not an operator of it.
Great entrepreneurs understand that getting your business known and getting really good at attracting warm, well-qualified leads to your business can explode the growth of it.
Look at Disney. It creates all those films that help sell tickets to its theme parks, toys, and hotel spaces. That’s all on the back of media.
It used to be very difficult to do that stuff. You needed to be Disney or the BBC to be a media company. Now, with effort and energy, you can be a YouTuber, TikToker or podcaster if it’s right for your business.
If creating media isn’t right for your business, then you should certainly think like you’re running a marketing company to get well-qualified leads into your business.
It’s one of the reasons I make all this content. It gives me so much deal-flow for business opportunities. It’s so good for recruitment.
You should see the number of people who watch my business videos and then go to my Rossi Ice Cream parlour, stay in my hotel, or visit my farm parks. There are also massive opportunities to fund my businesses, bring on investors if I wanted, or buy companies.
Building your personal brand, using media and marketing to push leads to your operating companies, is the way to go.
Key metrics for building a super successful business: The 3 KPI Rule
three KPI’S entrepreneurs should be thinking about:
1. A monthly profit and loss
2. Average customer value
3. Labour-to-turnover ratio
Most entrepreneurs track their revenue growing all the time. No – get out of that habit!
Track your average customer value – or your average transactional rate – growing every time.
We must know our numbers on a monthly basis. We’re telling our accountant how profitable we are.
Most people wait for their accountant to tell them how profitable they are. Accountants should be doing tax planning for you, helping to grow your business. You should know how profitable you are on a daily basis.
With Quickbooks and Xero, it’s easier than ever before.
Great businesses have a high revenue per employee.
If you’re turning £1 million and you’ve only got two staff, that’s £500,000 each.
If you’re turning £1 million and you’ve got 10 staff, it’s now only £100,000.
I tend to find the best businesses have high revenue per employee. That’s why we’re focusing on our labour to turnover ratio.
If you’re in retail, 15 to 20% of your turnover will go on labour. If you’re in leisure, that’s 25 to 30%. If you’re in childcare, that’s 50 to 55%. If you’re making software, that could be a lot higher.
Work out what your labour-to-turnover ratio is within the sector in which you operate, and bloody well stick to it.
The biggest cost in most businesses walks on two legs and if you’re not controlling it, you’ll be out of the game. You don’t want it to be too hot or too cold – just right like Goldilocks.
Spend too much on labour, you go bust. Spend too little, you’re not researching and developing or offering great customer service, so your customers go elsewhere.
I told you this entrepreneurship game was really difficult!
But here’s what 23 years in the business has taught me: