The 5 Levels of Financial Freedom Every Entrepreneur Must Master

When you think of Maslow's hierarchy of needs, you think of the financial freedom map of needs and the evolution of you as an entrepreneur. In getting through this process and getting to the top self actualization stage of being an entrepreneur, there's no cash flow reserves, we're not building up investments. Business and personal finances are intertwined, meaning that not that you only have one bank account, but the businesses succeeded, you're taking more money out and your personal is succeeding. Not a clear definition or defined line between the two of them. Most entrepreneurs think growth equals profits, but growth without clarity leads to burnout. We need the clarity. We need the goals. We need the vision. Good day and welcome to the Wealthy Entrepreneur Podcast. I am your host, Bob Govreau. It is great to have you here with me today. I just want to remind you that the Wealthy Entrepreneur podcast is the place where we dissect the elements that contribute to entrepreneurial success, from mindset and leadership to profits and revenue. We're actually going to talk about something that, you know, it's something that I can definitely live, I've lived through and can appreciate and certainly find myself, you know, going up and down a scale along this journey. But it's the five levels of financial freedom that every entrepreneur must master and I'm going to go through all of these together. But you can appreciate that when you think of Maslow's hierarchy of needs, you think of the financial freedom map of needs as well and the evolution of you as an entrepreneur in getting through this process. Right. And getting to the top self actualization stage of being an entrepreneur, which I'm going to walk through all of these stages. But you know, it's really interesting as we're on our journey, just looking at the next step to say, okay, this is the next step for me. This is what I need to work on right now and this is how I get myself to the next level. And that's what we're looking to do today. So most entrepreneurs are grinding every day. We're thinking of the next sale, the next client, and really the next hundred thousand dollars. Right? We're always thinking, okay, this next, if I can just increase my revenue by $100,000, it's gonna make this difference. If I just make this one sale or if I add one more employee, it's just going to add to us achieving this, right? It's always finding what's the next stage for us. And if we hit that next stage, it's the hope that, you know, we'll hit this stride of passive Investment income that everybody talks about. And it's not that easy, right? So for those of you who haven't hit that stride just yet, don't worry, it's. You're not alone. This is tough. And understanding where we are along this line is going to be important, but we are always looking for that next level. But freedom just doesn't show up with our next revenue milestone. It's built with strategy. And today I'm going to walk you through the five levels of financial freedom, a framework that we use with entrepreneurs who want more than income. They want true independence. We want to achieve financial freedom. Okay? And you know, this is definitely, like I said, this is a, a journey and this is the five step journey of realizing that financial freedom that you're really looking to achieve. So level one is. And if you're not in level one, you've been in level one, you can appreciate level one. This, this is really where a lot of us are starting. But also, you know, every now and again we, we resurface back. And this is in the survival mode and survival paying the bills mode. And ultimately at this stage, you've left the nine to five. You're just replacing your job income or you've been in business for a while and you're just starting to create a little bit of income where you've paid the bills and then sort of now what situation, you're able to cover your personal bills, you're able to keep your lights on, but really there's nothing left at the end of the day. So some of this, this is how we feel at this stage. You know, it's feast or famine, you know, where all of a sudden it's like, okay, we've got some extra cash, life is going to be good. And then all of a sudden we go back down the cycle and it becomes a little challenging again. And trying to balance cash flow and, and make sure that our bills are being met. Really at this point, there's really no cash flow reserves. We're not building up investments, we're not doing anything like that. And a lot of times business and personal finances are intertwined, meaning that not that you only have one bank account, but, but that if the business is succeeding, you're taking more money out and your personal is succeeding. So there's not a clear definition or a defined line between the two of them. @ this level, we're in hustle mode. You're saying yes to everything just to stay afloat. You're saying yes to every job, the scope of the job is whatever anybody wants, we're going to take it on. And really at this stage, our goal is to stabilize our revenue, create a personal budget and separate our business finances. So if you have been in that spot, which everybody has, I know at least at the beginning, we likely have shown backup in that spot, at least from time to time. And that's when we're on that journey back down and we're struggling financially to make sure that we're paying our bills and cash flow becomes a challenge. So again, remember that we're our goal is to stabilize but also manage our personal resources and make sure that we're starting to come up with a plan for on how to get out of it. Level 2 of the Entrepreneur framework of how we achieve financial freedom is sustainability. So this is where we get consistent, right? We get consistent in paying ourselves. Our business consistently has the money in to pay its bills. We're either on a salary or we're on a fixed sort of draw dividend compensation plan at this point. So really you've systemized your business enough to take a consistent pay. You're not just surviving anymore. You have a little bit of breathing room, a little bit of wiggle room. You now cover your taxes, your team, your operating expenses. You're paying yourself, you know, either weekly, bi weekly, monthly, whatever that is with an appropriate compensation structure. And you've started building an emergency fund or cash buffer or forced savings plan or whatever that looks like in your particular situation. But this is where you're starting to see your business as a real business, right? You're starting to see that there's hope for this being a long term solution, something that you're excited about, something that is going to pay the bills and help create financial freedom in the future. You're not waiting for the next invoice to pay yourself. You've got rhythm, you've got consistency, and now it's time to start thinking about optimization. So at this point, what we want to be doing, right, if you're at sustainability, it's like, okay, we've got sustainability, can we build up a bit of a buffer? So setting a three month cash buffer so that you can have the resources you need, that if something goes wrong, we don't go back to survival mode, we stay in sustainability. So we're in this plan of, okay, let's build up some resources, which I like to refer to as the safety net. You know, even at this point, if you were looking at you've got sustainability now let's start looking at operating lines of Credit. Let's start talking to the bank about those. Is that a possibility right now? Starting to think that way. Right. So either having cash reserves or working with a financial institution to make sure that we have those reserves, because that is the demonstration of sustainability that we know we're going to be okay even if there is an economic downturn or something challenging happens in our business. Okay? So we've got survival and then we've got sustainability. So level three is scale. And this is where we grow with profit. Okay? So again, sustainability tells us we've hit this level where our income coming in is greater than our expenses going out. We've got some surplus. It's starting to happen. And then level three, it's like, okay, what's the plan? How do we scale this? How do we reinvest the profits and take this business to the next level? So this is what, level three. So you're no longer in just creating income, you're building a profitable engine in your business. Growth is happening with intention, right? It's intentional. We've got it predefined. We've got a budget in place. We've got plans, goals, metrics, key performance indicators that are in place so that people, when people deliver what's expected of them, that the company continues to succeed. So it's intentional, not chaotic. You're hiring the right people to get out of the weeds, right? You're starting to build a team. You understand your margins by product line or service line. You know your numbers, and you're investing back into building systems, marketing, leadership, and your people, right? Reinvesting back in your people. And you're now reinvesting back into scalable growth. I would also suggest at this stage that you need to have an accountability system in place so that all of the members of your team know exactly what's required of them. They know whether or not that they're on track for delivering those, and they want to know what their contribution is towards the overall organization's goals as well. So how are they making a difference and are they on track to doing that? This is the make or bake, make or break level. Most entrepreneurs think growth equals profits. But growth without clarity leads to burnout, right? So we need the clarity, we need the goals, we need the vision. You know, this would be a really good time to look at what your core values are, what your vision statement is, and what it is that you're trying to accomplish as an organization. You need financial intelligence to scale without the stress. And your goal at this point is to know Your unit economics to delegate effectively and reinvest with return on investment. Clarity. Again, accountability system, defined vision, core values. What's bringing everybody together that's bigger than all of them individually. Having those goals set out, having individual goals and what individuals are contributing and have a plan for where it is that you're going for the future and helping everybody understand how they're going to help you get there. Super important. So this is where a lot of us strive to get to, right, Is a scale and grow with profit. Now this is definitely one area that I have enjoyed. It was probably the most challenging because I didn't have an accountability system in place, meaning that we told everybody, hey, this is what you're expected to do. But were we holding them accountable to actually doing that? And who is responsible for holding them accountable for doing that? So level three is all about figuring that part out. A really great book that you could read to start getting you thinking is Traction by Gino Wickman. I enjoy that. There's a bunch of other ones, but that one will give you start giving you insights of how to hold everybody accountable, how to create goals and benchmarks as well so that you can start putting those things in place. Level four. So this is after you've been scaling with intention. Level 4 of the Financial freedom that all entrepreneurs are trying to strive for is really the security of building wealth outside of your business. So you know, when you think of, when I think of financial freedom, and this is likely where a lot of people suggest that passive investment income is, oh, it's so great, you just start this business, it's got all this, you don't even have to work, it just builds this income for you overnight. It's the easiest thing ever, which doesn't really exist, guys, I gotta tell you. But when your business has scaled and you've grown with profit and you can take those resources and invest them in something that creates passive investment income. Passive meaning that you don't have to actively be involved with. So thinking of whether that's real estate, whether that's, you know, stocks and investments, index funds, whatever that is, where it's paying income back to you and you're able to either take that income out or reinvest it back in, but you've now you've got this method of having your wealth create more wealth. Now when I think of financial freedom, which was where I was heading, financial freedom exists where all of your lifestyle costs to live life on your own terms, however that is, are being paid for by passive investment income, where regardless of how much money or success the business is making. You've got enough passive funds that require you to do nothing, that create the income to support your lifestyle. That is really where we get to financial freedom, right? And that's exciting. Now that's not intergenerational wealth and a long term element that you can see maybe is where we're heading, but building that wealth outside of your business so that you're starting to generate a secondary income source and building that income source up so that it could actually take care of you for the rest of your life. That's financial freedom and that's what we're looking to create. So really when you get to this stage where you're building wealth outside of your business, your business is producing consistent profit and you're using that profit to build personal wealth outside of the business. Now it could be still in a business, but maybe a separate business, not your operating company, but an investment company of some sort. Maybe even you're using these funds to buy other businesses that you're not actively involved in, but that pay dividends and whatnot. So at this stage you've set up a corporate investment strategy or a holding company. You're investing in real estate, equities, passive investment streams like we talked about, and you have a tax plan, not just a tax bill. So everything becomes very predictable, methodical, planned out. Passive investments continue to accumulate. We're continuing to reinvest some of those profits from the business because the business doesn't need all of those profits to grow and scale. We can actually pull some of those out and start building our own outside of the business portfolio as well. At this stage, your business funds your life and not the other way around. You're not relying on growth to feel secure. You've got backup plans and you're building long term wealth. Really the goal at this point is to establish diversified income streams and protect personal wealth from business volatility. So again, financial freedom comes in to this point where if we have enough resources on the passive investment, even if our industry was completely shut down and our business went away, that we would have enough income to support our family and to support our lifestyle. And last but not least, on the govro hierarchy of financial freedom needs, actually I should call it, that would be great is the optionality and exit power. So this is really, and this is why it's, it's not just financial freedom for all, which I would suggest, you know, the security, building wealth outside of the business. Once you've got that passive investment income piece that's financial freedom, that's really the end of it. But as an entrepreneur, this is where we create a space in our lives where we're ready to exit and also take that large wealth and maybe even transfer it to to another generation. So really, at this point, your business works with or without you. You've created all the systems, the team, you've got the income being generated from there. It's succeeding without you being involved. You've designed it to create optionality, whether that's selling it, stepping back or pivoting. Okay, the business operates without you, which is one of the major risks of entrepreneurs ever exiting their business is that they can't because the business is dependent upon the owner. So the business now operates without you, which is fantastic. You can now step away for three to six months without the revenue collapsing. You've built an asset that has a transferable value even without your face being part of it. You have freedom of time, income and decisions. And really, this is where wealth becomes generational. You're no longer the driver, you're the owner. And you've earned the right to design life on your own terms. Now, this is where we're all trying to head, right? This is the freedom of entrepreneurship. So not only have you got passive investment income, but now you're continuing to accumulate wealth from the value of the business. The business is paying you your compensation whether you're there or not. And it's going to succeed whether you are there or not as well. And the goal is really at this point to create an exit strategy even if you never sell, and build a personal financial legacy plan. So this would be building the business that either operates successfully without you and you're taken off as the chief executive offer. You've got somebody who's in there who's running the show without you. They're compensated fairly, just like you used to be when you were building the business, but now you get compensated as a pure shareholder. Maybe you're on the board, maybe you're going to get it ready to sell, maybe you're going to sell to your employees. But really, this is the idea for all entrepreneurs, is get to a point where the business operates without us and we have decisions to make and we've hit financial freedom. So really, for all of you, where are you at right now? Where are you along your journey? On your journey, are you covering bills but not paying yourself consistency, like back in survival mode? Or are you at sustainability where you know the bills are paid? It seems like you've got a little bit of momentum or are you at scale right where you're now reinvesting profits in the business? You're starting to build some really great momentum. You're starting to grow, you've got team in place or you know, level four really was building wealth outside of the business. So you're now starting to build passive investment income or lastly you've built the business, it doesn't need you to operate, it's going to be successful without you. You now have the opportunity to say I'm going to keep this business and hire a management team, continue to operate this or I want to exit successfully. And that's really the exciting piece. So what you want to do, right, is ultimately know and identify exactly where you are right now and come up with a plan for the next 90 days and say what is it going to take for me to move from survival to sustainability or sustainability to scale and grow or to from scale and grow to building passive investment income, which is, you know, the security side or going from building passive investment income to getting to a spot of freedom where you have the power that you can exit and operate your business. What would it take in a 90 day plan to move you from where you are right now to the next level along that phase of your business journey? So financial freedom, it's really not just about making millions, although making money. Money gives us some of the freedom with passive investment income and it de risks us from having too much reliance on our business. It's about financial freedom really is about building a system that supports your life. The five levels are the roadmap for you to go from really just hanging on to building a life with complete financial freedom. You're now your job is to find out where you are and how to start building that next level. What I would love to do, definitely make sure, you know, if there's any way that we can support you on this journey. We've got so many YouTube videos to help you understand how to take those leaps from one journey to the next. And I'm going to circle back on this because I think this is a really fantastic topic. But if our team can help, go on our website or send a note in or a comment, leave a comment on here. You know, we're looking for some support to get to that next level. How can the team at Govro or the wealthy entrepreneur support us on that journey? We are here to help support you along that, make sure that you're following us on our social as well. We give a lot of value away and free offers and We've got another free offer that's going to be coming out for all of our clients where we're going to be offering coaching for free coming up in the near future. So I'm excited to announce that formally and likely by the time this is aired we will already have announced that. Really, really excited about that. But ultimately our goal is to empower entrepreneurs. Empower you to have the confidence to make informed decisions so that you can change the world and so that you can go from feeling in survival mode to financial freedom along this five phase scale. If there's anything we've shared along this journey today about our govro hierarchy of needs, make sure you share this out. Share this with any entrepreneur. Again, we're trying to support everybody with this absolutely free. Share this with them so that they have an understanding of what steps need to take place in order for them to achieve financial freedom Next. If you want to leave a comment, if you have any questions, please post them below. Make sure you give us a follow every single week. We're here to bring value. We have so many great, successful guests who share their entrepreneurial journey where we can learn from some of the areas that they struggled, some of the areas that they succeeded, and also bring great resources into your personal Rolodex so that you can reach out to experts who can help support you along the way. My name is Bob Govreau. It has been an absolute pleasure having you here today talking about the five steps towards an entrepreneurial financial freedom. I am so grateful that you joined us here today and I can't wait to see you once again next time. Have a great day everybody.