David Gerstel’s book, Building Freedom: A Construction Pro’s Path to Financial Freedom, provides a road map to building a successful business. Woven into the fabric of that business, from its beginning, he urges, should be the goal of financial freedom.
There are many goals an entrepreneur wants to achieve by running a successful business, but from page one, Mr. Gerstel emphasizes that the goal of financial freedom, simply defined as not having to work to pay your bills, should always be visible on the horizon. It’s great to build a business that achieves an excellent reputation, is a considerate employer of talented employees, and is a productive member of the community. But, in the end, if your business doesn’t provide the personal investment funds for you to ride comfortably off into the sunset, it has failed. That’s to say, do you want to work for decades and not have the money to pay the bills without working during what are supposed to be your retirement years? Building a personal investment portfolio to pay the bills should be one of your business goals. Mr. Gerstel’s book gives you all the tools to understanding and building a successful business that will help you create a successful investment portfolio.
For those of you who enjoy banging nails more than administration and financials, this may not be an easy read. However, if you have your own business, be it a one-person operation or an enterprise employing many, or if you are planning to have your own business, this book is for you. Even those of you not wanting your own business, or for those of you who love being on the jobsite and plan to work until your demise, you, too, must plan on a financial future and, possibly, for your family’s future. Reading this book should be a priority. You never know if an accident or injury will prevent you from working. I recommend you put this book on your shelf, even if you're not ready for it. In time, it will become apparent you need to read it.
Financial Freedom Doesn’t Just Happen
Even if you run a successful business, achieving financial freedom doesn't happen without specific plans, priorities, goals, objectives, and strategies for implementation. Mr. Gerstel offers no get-rich-quick solution to reaching financial freedom; it’s a long and arduous journey. It requires discipline, taking responsibility, and hard work. Running a business is 24/7/365, and it’s not for everyone. Even an extremely talented tradesperson, anxious to have their own business and be their own boss, may not have the acumen to run a successful business. But, if you want to give your own business a fighting chance, read this book.
There’s much to know and do to build and run a business. Don’t be overwhelmed, or expect to master or implement every aspect of a construction business from day one. As Mr. Gerstel notes, most trade businesses are not capital intensive. To start, one requires only a skill, a vehicle, some tools, and a computer. In time, as your business grows, pull Building Freedom off your shelf and study what it says about sales, marketing, bidding, estimating, accounting, contracts, employees, and more. It’s all there. It’s a road map for each turn your business takes, to help you travel forward, to build a profitable business that produces a desired product relying on and rewarding talented employees and contractors, and in time, to create enough wealth to pay the bills without having to work.
Often, it’s a person’s trade skill that motivates them to venture out on their own. As Mr. Gerstel notes in part two, “Building a Profit Engine,” you will need to master a number of other skills to build your business and create a profit engine to carry the business forward. Bringing in revenues, understanding where they go, making sure there are profits, and managing those profits is essential to survive. Profits resulting from an understanding of the various elements of a business – sales, marketing, branding, estimating, accounting, hiring talent, cash management – are what is needed to build financial freedom.
Mr. Gerstel makes a number of important distinctions in his book: Wages are not profits; accounting and cash management are not the same; being well-off and being wealthy are different. Paying yourself a wage is a business expense. Wages are one of the many costs of doing business, no different from office rent, materials, or advertising. Profits are what remains once all business expenses have been paid. Mr. Gerstel’s book outlines the tools needed to turn those profits into wealth.
Accounting, to quote Mr. Gerstel, “is about tracking the flow of money through your company so that you know where it is coming from and where it is going to.” Money comes into the business from construction projects and goes to project and business expenses (including our wages). Cash management, again to quote Mr. Gerstel, “is about directing the flow of money to the right places” –namely, to a business checking account to pay bills, to a capital fund for a new vehicle, to a tax account for paying taxes, to the creation of a war chest for emergencies, and to a personal checking account for the deposit of our own wages and company profits. However, before you spin those profits off, make sure your business’ war chest has six months to a year’s worth of cash to weather any economic roller coaster that the business climate produces. Only after your emergency war chest is well funded do you want to direct profits to yourself.
Once your company is generating profits, you are well off. You can remain well off and direct the flow of profits to a fancy car every few years, a boat, and other material stuff, but if you do, you will never build wealth. You may look good to others, but you are not building financial freedom. For many small businesses, there is not enough money to finance fancy vehicles and build financial freedom. The choice is yours, but if building financial freedom is your priority, Mr. Gerstel's book gives you the tools to do so.
Once your business is sound, is generating profits, and has a war chest to ride the ever changing construction economy, it's time to invest for financial freedom. Using your hard-earned investment capital to create financial freedom will not be an easy task. Once again, Mr. Gerstel offers no short cuts to success. It will require the same dedication and motivation you mustered to become a skilled tradesperson and successful businessperson. There is a steep learning curve to mastering the principles of successful investing. Mr. Gerstel introduces us to the titans of the investment world: Ben Graham, John Bogle, Warren Buffet, and Ray Dalio. Their philosophy: Slow and steady wins the race. To quote Mr. Gerstel, “Investing for financial freedom is more like keeping up a steady pace on a long hike to get to a good place.”
To get to that good place, Mr. Gerstel gives us three fundamental investment principles to put in our backpack and carry on our hike to financial freedom:
- Invest your cash, because inflation will reduce its value.
- Invest at a reasonable price; create a margin of safety by not buying at inflated prices during booming markets.
- Don’t put all your eggs in one basket; diversify.
With those principles to guide us forward, Mr. Gerstel introduces a variety of investment options, including stocks, bonds, and real estate.
Investing in stocks, bonds, and real estate requires adhering to sound advice and not getting distracted. Read Graham and Bogle. Keep their books next to Building Freedom on your office shelf. Manage your expectations. Thinking you can beat Mr. Buffet’s market performance is like him thinking he can man a hammer and build a house. Read Mr. Gerstel’s chapters on investment options as many times as needed to understand the significance of compounding, dollar-cost averaging, management fees, and contrarian investing when considering stocks, bonds, and real estate. If you’re going to do your own investing, great. If you’re going to consult with a professional, great. Either way, you need to educate yourself and be knowledgeable of what goes on in the investment world. Reading Mr. Gerstel’s book is a good first first step on the hike to understanding the investment world, to protecting your hard-earned dollars, and to achieving financial freedom.
Don’t think from this review, or from the book itself, that you have to own your own business, or that you have to wait until your business is generating large profits before you can start investing. From the day you receive your first paycheck as an employee or as a sole proprietor, you should be thinking and acting on investments for a secure financial future. Starting to invest early, with pocket change, can, over time, through the power of compounding result in a significant investment portfolio. Pocket change will not allow you to buy real estate to rent, and being young should keep you from investing in bonds. Instead, take Warren Buffett’s advice and invest in an S&P 500 stock index. Start with that first paycheck and invest each month what you can afford. Don’t miss a month and don’t stop until your career or business is generating the profits Mr. Gerstel speaks of and then, if you like, take on new investment opportunities. And, don’t make the mistake of buying an expensive pickup truck that costs $700 or more a month for 72 months and keeps you from investing. That’s a road to nowhere.