How to bullet-proof your assets …

Posted on September 14, 2008 by Adrian

Surprisingly good advice from a somewhat unusual source (this guy is a self-proclaimed ‘internet marketing guru’ rather than an attorney, it seems) …

… he says 7 steps, but it’s actually three steps:

1. Separate your personal assets from your business assets – in fact, most of our personal assets are in my wife’s name, not mine.

2. Put your business assets in an LLC – actually, I use a combination of trusts and LLC’s, but this is where a good attorney and accountant comes in handy!

3. Separate your investments into separate LLC’s – I agree with this completely; I have more companies that I know what to do with, each houses just one business or investment (say, one property).

He also glosses over a ciritcal step, if you can swing it (I never did this … but, in hindsight, it’s a wonderful thing to do): separate your business into TWO companies – one holds the client contracts (hence, the revenues), and the other provides management services (hence the costs).

But, here’s the beautiful thing: the management company charges just enough (check with an attorney on how to do this right!) to keep the ‘fronting company’ (i.e. the one with the client contract) at roughly break-even … it’s the one that’s most likely to get sued by customers (those are the expensive law suits!) whereas the management company is the one most likely to get sued by employees.

For information on company protection and charging orders, check out these two links:

http://www.assetprotectionbook.com/charging_orders_intro.htm

http://www.assetprotectioncorp.com/chargingorderprotection.html

The bottom line: DON’T hold businesses or other active investments (e.g. real-estate) in (a) your own name, or (b) as ‘doing business as’ or (c) in the type of entity where the ‘general partners’ are held personally liable for the performance of the ‘business’.

How to disconnect how much you earn from how much you can spend …

Posted on September 5, 2008 by Adrian

For most people how much they earn and how much they spend is connected.

They are either always spending too much, or managing to save too little, and this remains the same no matter how much their income increases … it seems to be simply the ‘way they work’!

In a recent post, I illustrated this concept with this chart provided by Trent over at a Simple Dollar (in this post):

In a visual way, my spending used to look something like this over time (with green representing spending and blue representing income):

Most personal finance blog readers understand by now that their spending should be less than what they earn … they now understand at least the green line should be somewhat disconnected from the blue!

Think about it:

If you want to build up a nest-egg for retirement, how much of your current salary can you afford to spend?

100%? Of course not.

90%? Not likely.

85%? Nope. Won’t do it.

Michael Masterson publishes a neat set of guidelines for what % of your gross income you should save at various income/salary levels:

How Much You Earn                                     What % of your gross Income You Should Save

If you are making less than $30,000 a year                  15%
More than $30,000 but less than $50,000                   20%
More than $50,000 but less than $150,000                 25%
More than $150,000 but less than $300,000               30%
More than $300,000 but less than $500,000               35%
More than $1 million but less than $2 million              40%
More than $2 million but less than $5 million              50%
More than $5 million                                                   55%

How would you achieve a 40% – 55% savings rate at higher income levels? Unfortunately, Michael doesn’t say!

But, it’s easier than you think if you have the luxury of starting when your salary is still in the $15,000 – $30,000 range:

1. You start by saving 15% of your gross (usually via your 401k – at least this is how most people will start), and then,

2. You add 50% of the gross value of all future salary increases (if you can’t manage gross, just pretend that really only receive half of any extra ‘take home’ pay),

3. You throw in 50% of any future ‘found money’: money you find lying in the street, spare change from your pockets, you tax refund check, lottery winnings (what were you doing buying lottery tickets, in the first place?!), inheritences, etc.)

You pretty quickly find that this approximates Michael’s recommendations.

The problem comes at higher income levels; once, I gave the real-life example of a guy who earns $3 million a year from his business (presumably after reinvesting some of his profits in the business to keep it expanding):

– He pays one third in taxes

– He invests (saves) another third

– He spends a third

Seems sensible, except that Michael suggests that he give Uncle Sam 33%, that he saves 50%, and that leaves just 17% – or, $510,000 – for spending. And, our ‘friend’ is spending $1 million!

The problem is this:

When his income stops, his lifestyle will have to stop because it’s unlikely that his investments would be able to support a $1 million lifestyle.

At any income level, as your income increases it’s important to disconnect how much you earn from how much you spend …

… for example, even if you think you are a millionaire, cap your spending when you get to the $150,000 – $250,000 level and put all the rest into passive investments.

That means that you can spend $150,000 – $250,000 or 5% of your passive investments (not including the value of your primary business or source of income), whichever is the greater.

Because that is sustainable, even if your income eventually stops.

I'm about to find out if you can make money online – Part V

Posted on August 23, 2008 by Adrian

I spent most of yesterday’s post talking about starting businesses (for College-age kids, but it’s a great way to go for anybody looking to start something low-cost and part-time) … so, it’s time to update my occasional series on starting an on-line business!

But, we’ve tried the scams and ignored the schemes and so far haven’t yet found an “off the shelf” way to make money online.

So, now it’s time to try Plan B: create my own Information Product.

My plan is to take some of the information that I have already published on this blog and my other one and turn it into an e-book. The purpose isn’t to make money for me … it’s to show you how you can make money online.

So, I will ‘open up the books’ here [AJC: if I can find an easy web-based tool for accounting that let’s me publish reports, I will literally ‘open up the books’ so that you can see how it works out, financially … let me know if you know of one?] …

Why Information Publishing?

Well, it lets me do something that I won’t do on my blogs: turn stuff that I know into stuff that I can sell … and, it allows me to sell all sorts of affiliate stuff (so, all the referrals that I make to various books and other useful products on this site, without any financial benefit to myself, can be sold WITH affiliate commissions on the new site).

Again, for your benefit. How?

Because you can think of some area where you are (or can quickly become) an ‘expert’ and follow in my foot-steps … assuming that my site produces a useful income. That’s the purpose of this test!

So, as I write this post I am literally sitting down having this morning hit on the concept for a commercial version of my blogs, and am looking for the ‘right’ way to implement it.

For this, I have decided first to try out Derek Gehl’s new product, BeBiz – supposedly a way to create an sales-oriented internet site pretty quickly … since I don’t yet have the product (I am thinking an eBook to start with) or the means to create my own web-site from scratch, I am hoping that this product will lead me ‘by the hand’ as this product demo [AJC: which I have just paused to write this comment, and which I am about to continue watchingbefore typing and more] promises.

We shall see …

[AJC: Rather than fill this blog with more posts on this subject, I just created a brand new blog – yes, AJC is officially an idiot … instead of sitting back in his hammock, drinking pina coladas like he’s supposed to be doing now that he’s fully and healthily/wealthily retired at 49 years old, he wants to create yet another blog to fill in his time! I hope to use this blog to chronicle how to start an easy – well, I hope it will be easy – web-site that actually makes enough money to make it worth while for somebody like you … and, I plan to do that one in ‘real time’ i.e. write posts as I do stuff on that blog]

How to get that web-site up and going?

Posted on August 8, 2008 by Adrian

Jonathan (a.ka. ‘Rocko’) is an aspiring entrepreneur with a great idea for a web-based business in the education sector: it’s a concept that he believes very strongly in.

Like many of us with ideas that can and should be implemented via the Internet, the technical aspects can be a real stumbling block – I mean, if you’re not a tech-head yourself, how do you get the damn thing developed without a budget?

That’s exactly the question that Rocko e-mailed to me earlier this month:

My question is about taking the necessary steps to get your website’s more technical aspects completed when you have no capitol to work with – how do you find an interested “angel”?

Well, I can tell you this …

I have been working on a web-based concept for a while now, and wrestled with the same problem. I obtained some estimates to have the site developed professionally and found numbers between $50,000 and $250,000 to do ‘properly’.

The problem is this:

You may be able to fund – or find partners to fund – such development, but I don’t recommend it for the following reasons:

1. By the time you develop it, your requirements / specifications for the project will have changed 50 or 60 times … the chances are that lots of small “how about we add this? and “how about we change this” will add up to a net 40% to 60% change in the way you originally envisioned the site

2. You will launch a Beta trial of your site (you’d better!) and will find a flood of user requests for changes: errors, omissions, and simple functional additions/changes that you could not have foreseen.

3. Your site will require plenty of maintenance – and, will probably need to be fully rewritten two or three times to cope with the architectural stresses of a hugely (we hope!) expanding user-base.

All of this adds up to one thing: super profits for the outsourced developers … they have you by the [BLEEP] and both you and they know it!

Think about when you last rehabbed or built a house: the contractor provided a great estimate for the work and you selected them … then they ‘found’ hidden problems that required supplementary invoices. It’s common wisdom that you should expect to pay 20% more than estimated for this kind of work …

… it’s worse in IT … much worse!

Realizing the above, I did the only sensible thing when we needed to rewrite our operating software for one of my businesses way back in 2000 (to cope with the Y2K ‘bug’ … remember that?): I hired an inhouse team.

I never regretted that decision … it turned out to be the ONLY cost-effective way that we could have operated.

But, for your little start-up, Rocko, how will you be able to afford an in-house team?

You will need three IT people: a back-end database designer/programmer; a user-interface programmer; and, a web-designer. Good people … and, you will need the best … will set you back $120K a year or more. Each!

So, how did I solve this problem for my start-up?

Simple, I found my team of three and offered them 50% of the concept to write, maintain, manage the site …

Why 99.999% of businesses fail …

Posted on July 20, 2008 by Adrian

This short (less than 2 minute) poorly made commercial for “Dan’s” product or service (or whatever it is that he is offering) is delivered by a ‘talking’ toy car.

Aside from that, he gives a great summary of what it takes to have a business rather than a glorified job. On that basis alone, it’s worth the effort to try and watch without snickering.

Why retail businesses suck …

Posted on July 19, 2008 by Adrian

My blogging friend, JD Roth posted a great reader question recently on his super-popular Get Rich Slowly blog:

I’ve been at the same job since I graduated from college nearly ten years ago. Lately I’ve lost the passion for what I do and am aching for something completely different. I want to start a retail shop.

Two problems:

I’m paid well here, so I’m going to have to figure out how to make this transition in a way that won’t hurt the family’s finances.

I don’t have any real business training, and the thought of keeping books for the business gives me stomach pains. But there are resources out there to help with the logistical side of running a (retail) business, and I know where I need help and will pay for it (accounting, interior decorator, etc.).

Well, this reader is exactly where I was not that long ago … nearly 10 years into a high-flying corporate career – with all the perks that go along with it (cars, travel, expense accounts) – and, I got bitten with the entrepreneurial bug …

… just like getting bitten by a mosquito and catching West Nile (the non-fatal form!), once you get it, it’s almost impossible to shake off.

So, I have a question for this reader … in fact, it’s probably the most important question that he needs to answer before going INTO this (or any) business:

Who are you going to sell it to when you finally decide to get out?

If his answer is: “whoever wants to buy my retail store” …

… then I suggest that he doesn’t even start, because he will effectively be trading his high-paying corporate job (with perks) for a low paying, slave-labor ‘job’ in retail.

Retail sucks because: there are way too many overheads; your balls are tied up in leases and inventory; and, you’ll be working 60 – 80 hr workweeks for the rest of your life.

BUT, if the reader can honestly & passionately answer with something like:

“Well, I have a unique niche/vision, so I’ll be opening my first store in 2008; 3 more in 2010 and 50 across the Eastern seaboard by 2015, then I’ll IPO or sell to Sears”

… he just MAY have an opportunity worth pursuing!

The reader then went on to ask:

The bigger issues, I think, are how to get from where I am now — sitting behind a desk doing the job I’ve been doing for 10 years — and getting the momentum going to really make this happen (and to not fail at it, leaving me jobless and penniless).

No, Little Grasshopper … if you have the passion, and can feel it in your bones … and, if it is REALLY an opportunity worth pursuing … then you are either all wet or all dry …

… you need to have a financial buffer (well, I started even without that … but, then again, I’m one crazy dude!), then get out and Just Do It!

You will NEVER start a retail business like this whilst still working full-time … there are just too many roadblocks in your way: scouting for locations; negotiating leases; sussing out the competition; negotiating with suppliers; hiring your first employees; sucking up to the bank manager; and, so on.

Would I start a retail business … unlikely.

How would I start a business today … exactly the same way that I am now starting two:

Come up with an Internet-based business concept; look for partners who can build the business for equity; put up a little seed money; and, stay in my day job as long as possible (well, this last step doesn’t apply to me … but, you get my point?).

Then I’d cross my fingers, close my eyes, and jump right in 🙂

I’m about to find out if you can make money online … Part 4

Posted on July 14, 2008 by Adrian

Well, it’s been a while since I’ve hunted for the ‘next big thing’ on the internet … as I’m still trying to find a way to make you all rich online …

…. of course, when (if I ever) do, I won’t actually sell you anything – or even refer you to somebody who will pay me a nice big, fat commission – because that’s not how I operate.

But, I think the point is pretty moot if this e-mail that I received from “Brent L” (I won’t tell you his last name) that I will paraphrase for you here, is anything to go by. I have to paraphrase it, because I deleted it before I realized that some of you may actually be tempted to go for it:

AJC [he used my name, sweet],

Here is something that has made me a lot of money and might make your site some money too …

[click affiliate link here]

Brent L.

Well, I pretty much check everything out – I’m a curious fella – and here is what I found … a web ‘sales letter’ that said, in part:

[AJC: unfortunately, the site that hosts my blog forbids links to ‘spam’ sites … so you will have to trust me on some of this … don’t worry, sooner or later somebody will e-mail you a similar breathlessly worded ‘hot tip’ and you will get to see the sales page … just don’t be tempted to sign up unless you really know what you’re doing]

GET FREE GOOGLE PAY PER CLICK ADS

This is an incredible system developed by none other than Dr Jxx Cxxxx, MD (retired) who found a little-known “twist” in how to use the pay-per-click (PPC) and paid-for targeted advertising programs at Google™ and the other search engines.

Say you went to the heads of Google, Yahoo, MSN and 100’s of other TOP Search Engines, and got to be good friends with them, and then they suddenly said to you:

“Don’t worry ever again on paying for advertising with us – we’ll just let you advertise on our search engines, but we won’t charge you – so feel free to sell whatever you want, using as many keywords as you want, and we’ll even place YOUR ADS at the TOP of every FRONT Page and for EVERY SINGLE KEYWORD you choose!”

So, the promise of free advertising on Google adwords (those little ads that you see on the side of most web-pages … except mine) … you’d be crazy not to take it up to advertise anything that you wanted on the internet! You’d make millions!!

Right?

Until we check out a little bit of semantics … you see, I hunted down the Good Doctor’s own words on this web-page where he defends his product and advertising with a clever example:

I went to a carnival one time as a young man and a fellow was shouting “Buy 1 get 1 FREE!” and I asked him:

“Which one is the free one, and which one is the one I have to pay for?”

He held up one and said “If you buy this one, you get this one here free!”

I told him I would just forego the one that would cost me money, but would surely take the free one for free.

He slapped me on top of my head, and said “Get out’a here, punk!”

[You think I have a deep New England accent! – You should’a heard this guy!]

His point was that in order to get the one for free, I had to buy at least one – which to me I thought meant the “free” one wasn’t really free at all!!

—-> But this is an ACCEPTED advertising practice used by fast foods restaurants, your local businesses, and so many more businesses I can’t even begin to name them all! —->

So, this should give you a clue – the guy (a ‘doctor’ apparently) is hinting that his own product doesn’t really get you free ads on Google … it’s just ‘like getting ads for free’ …

… there’s only one way that I know of to do that:

It’s to bring in as much money (or more) from running your own ads to pay for the ads that you put on Google … so, in a twisted kind of logic, the ads on Google (that you DO have to pay for, by the way … they aren’t free at all! So, of course, Google loves you!) bring you enough customers to your own site to pay for the ads …

… well, isn’t that the purpose of all advertising?!

So, why do I need to pay $67 for an e-book (yep … a $67 e-book) to learn that?

Here’s an exerpt from a UK site that explodes Online Venture Attempt #4:

Ok, so what is in the ebook? Great advice on how to get millions of pounds (dollars) worth of Google Adsense advertising for nothing? No. Here’s the system:

You select as many popular keywords as you like;

You bid the highest possible price for all of them (getting you to number 1 foreach of them);

You fill that website with advertising and affiliate links which will make you money.

That is the “system”.

Forgive my ignorance, but surely that is not free! In fact, that is the whole premise – they aren’t actually FREE, you pay for them, but they are as good as free because of all the lovely cash you’ll be earning. What bollocks. What about all the countless people who click onto your site, and sooner or later, realise that it is just full of shit that they don’t need or want to read. They go elsewhere, yet you’ve spent $2 for them to visit.

Now, you may not understand fully what this is all about, because I can’t give you the link to the web-site (the spam-checkers on my hosting site will send me a cease-and-desist order, thinking that I’m actually promoting the site rather than debunking it! BTW: that’s a pretty good ‘smell test’ right there, isn’t it?) …

… but, I’m pretty sure you will come across this idea soon, if you haven’t already, so bookmark this page.

One final point: I wrote a post a while ago about being able to apply very simple common-sense logic to things that just seem to good to be true.

The test on this one is this:

1. This is the internet … so, news travels fast!

2. So, don’t you think that by the time that you have heard of this, that Google would have, too?

3. And, if by some miracle the Google Ad Execs hadn’t heard of this system already, don’t you think that the Good Doc would want as few people in the know as possible

4. If so, would he risk his self-proclaimed $67 Mill. empire for a few lousy extra million in e-book sales giving the precious ‘secret’ away?

5. And, since #2 is much more likely than #3, don’t you think that Google would have changed the rules by now, if the Doc had really found a way to place top Google Adwords for free?

Hmmm … smells pretty bad to me. Pass!

Anyone else come across this product yet? Anybody try it?

How to see through a job disguised as a business …

Posted on June 18, 2008 by Adrian

The best way to give up your ‘day job’ is to watch my Live Show this Thursday @ 8pm CST (9pm EST / 6pm PST) at http://ajcfeed.com ….

_____________________________________________________

Lots of people come up to me to proudly tell me about their wonderful, growing businesses … how do I look them in the eye and tell them that I really think that what they have is actually a job?

… and, no, I’m not just talking about the obvious: the accountant, doctor, attorney who earns an income from their own labor, whether individually or in a partnership.

Anthony asked me to post on this (I had said I might … so, I guess he was just encouraging me!), when I mentioned in a recent post that I would comment on this exact topic:

You should. I want to start my own business in an artistic field and every-time I think of having an employee create my vision, I shudder, just a little bit. That’s where modelling someone comes in. Model those who were able to export their vision to other people.

To me the difference between a ‘job disguised as a business’ and a ‘true business’ is:

1. Could it run 3 months without you?, and

2. Can you sell it?

The first point is self-evident: no employees/partners = no ability to run without you (unless, you can totally automate your business … in which case, call me … I want in!).

Therefore, no business!

The second point is a bit more subtle: if the business is not saleable (a) it probably also fails the first point (i.e. no employees), and (b) you are tied to the business and it is tied to you … when you stop, the business stops … when the business stops (market changes, product life-cycles end, etc.) … you (at least your income) stops.

To me, that’s a job; sure, it’s a flexible job with extra benefits … but, a job none-the-less, just like that ‘self-employed’ accountant/doctor/etc.

Now, how do you make a ‘glorified job’ into a true business?

First, you create Positions in your company!

Now, the business may be you, your Mom and your Dad (that’s a whole series of other posts right there!) … but, if you are going to morph into something that meets our two requirements (i.e. runs without you; and, is saleable), then you are going to need to create a simple Management Structure:

CEO (the gal who runs the show); CFO (the guy who runs the finances); Sales/Marketing Manager (the guy who brings in the business) … right on down to Mail Girl.

If there’s only one, two, or three of you … well, you’re each going to be wearing lots of hats for a while. The key is, though, that each ‘hat’ (i.e. position) has only ONE person who wears it! Only ONE of you gets to be CEO (now, I let me know when you have your first Owner’s Meeting … I sure want to be a fly-on-the-wall wall for that!).

Now, for small businesses it can be very difficult to understand this concept, so try this one one:

When the OWNERS walk in the door, they become EMPLOYEES … when they leave at the end of the day, they become OWNERS again. Simple … critical!

Next you create Systems!

You need to get down and document absolutely everything that you (and everybody else!) does in the business.

As Michael Gerber (whose ground-breaking book, The E-Myth Revisited, taught me everything that I know about business!) says, you should act as though your business is a prototype and that one day there will be 500 more just like it.

Even if your little store is ever going to be the only one, this step will allow you to easily grow and add staff, and sell the business … because the purchaser will see how well everything is documented.

Of course, if you’re like me, you could never believe that your business can run without you … here’s how I learned otherwise:

In the early days of one of my businesses, every file would come to me for approval … now, I had experts – trained in the field in which we were operating (compared to me: I was self-taught when I decided to get into that particular business!) – yet, I still checked every major file.

Eventually, my staff stopped bringing me every file … gradually, at first (they’d ‘forget’ to bring me one here and another one there).

When I didn’t notice – because I was so damn busy, running myself ragged doing ‘other stuff’ – they conveniently ‘forgot’ to bring more and more files to me until, they stopped bringing any to me for approval at all!

If I had noticed, would I have got so upset that I would have fired somebody? Probably. Ego does that.

Did the business run any worse after they stopped bringing me the files? Of course not … I said they were trained, and I wasn’t! I just needed a lesson in faith and trust.

So, that’s how I was gently pushed out of Operations and never again stepped a foot back in … in ANY of my businesses.

But, I was CEO … without me at the helm the business would hit the rocks and sink … or, so I thought:

A year or two later, I closed on an opportunity to acquire a business in the USA, requiring me to move countries. I decided to move to the USA (where we’ve been ever since) as this would be a much bigger business – but, at the time, I wasn’t selling any of my overseas interests.

So, I did the responsible thing: I hired a replacement CEO months ahead of my planned relocation …

… who decided to leave less than 6 weeks before my departure for the USA!

Luckily, after a frantic phase of executive search that consisted of me calling the only guy that I thought could do the job (even though he had no direct industry experience) and him saying ‘yes’ immediately (phew!), I found somebody who could start exactly 4 weeks before I was leaving … remember, this is a business that COULD NOT POSSIBLY run without me, and here I was putting in ‘New Guy’ with only 4 weeks ‘training’!

Needless to say, he took over seamlessly, didn’t miss a beat, never called me about ANYTHING (bruised ego on my side!) and, not only did he keep the business running, keep the staff happy, and keep the clients equally happy, he damn well GREW the business!

In his favor, he did have Positions all neatly laid out and filled before he joined, and he did have a whole Operating Manual full of Systems that worked …

… and, in my favor, I had a business not a job! How do I know for sure?

Not too long after, I found a buyer …

How about you? Do you have a business or a glorified job?

The most dangerous idea in retirement planning that I have ever read!

Posted on May 2, 2008 by Adrian

Double Dose of 7million7years! Please check out my FIRST EVER Guest Post … it’s at BripBlap, a blog that should be on your DAILY READING list: http://www.bripblap.com/2008/guest-post-education-a-curse-or-a-cushion/

In a few weeks, I was planning an ‘expose’ of a book that I read , but just came across a related post by an innovative thinker who calls himself Gryffindor (presumably, named after one of the Hogwarts Houses in Harry Potter) so I can’t resist but to weigh in now …

And, I’m going in boots and all!

First, here is what Gryffindor had to say – which I actually like because it is innovative and a little controversial:

So if an investor has 2 million at the age of 55, what does the conventional wisdom say? He could invest it and with a safe withdrawal rate of 4% count on $80,000 a year. 2 million of savings – with that all you get is a 80k a year. No wonder most people are depressed about retirement.

Now what if the investor takes a million of his nest egg and buys [a] business? She gets $200k of cash flow a year that is growing at 3% to match inflation. She can also reinvest the additional earnings from the other $1 million. She also gets some additional tax benefits of owning the business and can have some productive part-time hobby / business and not just spend her time on the golf course. It sounds all good to me.

And, here is part of my response that I posted on his blog post:

This is such an important topic that I am going to post a response on my blog [which you are now reading!] … I would really like to set up some debate on this because it is a very useful – but, potentially highly dangerous – retirement strategy that really needs to be well thought through before anybody implements.

Rightly or wrongly, some people just see me as a guy who ‘got lucky lucky in business’ (AJC: most of my $7m7y Net Worth actually came from investments … my leter/additional Net Worth came from selling some businesses), so it might seem natural when I say that Gyffindor actually appears to be onto something that is one of the central ideas in a recent book called Get Rich, Stay Rich, Pass It On.

The principle is that rich people keep their money for generations ONLY if they split their assets roughly one-third in a business, one-third in paper (stocks, bonds, mutual funds, etc.) and one-third in real-estate (incl. their own home):

Then, you might be surprised when I say that this is “the most dangerous idea in retirement planning that I have read”!?

What the book is recommending, that I find so damn dangerous for retirees, is this:

The authors of Get Rich, Stay Rich, Pass It On suggest that you need to invest, and keep invested forever, 25% – 35% of your Total Household Assets into ‘continually innovative enterprise/s’:

What we mean here by a continually innovative enterprise is one that either offers a product or service that breaks new ground or changes a traditional product or service so much that it becomes virtually new.

Now, that is something that you do before you retire so that you can retire rich … you take risks, you innovate, then you sit back and reap the profits (or sell) …

… it is not something that you get into in order to preserve wealth, which is exactly what the authors suggest:

At the lowest level of personal involvement, you might invest in a limited partnership, private equity plan, or venture capital program in which the actual management of the enterprise – possibly even the choice of the enterprise to invest in – is beyond your reach and outside your control.

Put simply: this recommendation is crazy …

… in my opinion, it unfortunately totally discredits an otherwise fine book written by authors who are respected consultants who assess the wealth habits of America’s mega-rich for the financial planing industry.

to me it seems that they are confusing the Making Money 201 wealth-building practices that rely partially on risk-taking strategies that may include a business – or, at least look a lot like a business (e.g. rehabbing/flipping real-estate; trading stocks/options etc.) …

… with the Making Money 301 wealth-preserving (i.e. retirement) practices that move you away from risk towards passive income!

So, is there a place for owning a business in a wealth-preservation strategy?

Absolutely!

I think that I speak with some authority on this: I have owned, operated, and successfully sold a number of businesses across a number of countries, many of which I owned at the same time!

I was an active owner in some and am still a passive owner in others …

Now that I am retired before 50, I am giving one part of a business away to my partner, converting another part into a ‘licence annuity’ that I will keep, and I am also keeping one other operating business as a semi-passive entity.

This last one is interesting, as it appears to support the thesis in Gryffindor’s post and the book that I mentioned:

This business is still in another country … it’s a finance company that turns over $40,000,000 per year with a only staff of 4 and nets me a cool $250k per year with about an hour’s work a month from me … I control it (through various legal entities) 100%!

Even so, here is the fundamental truth:

There’s no such thing as a PASSIVE business – as long as you own a business, you:

1. Will lose sleep every so often until it is sold or closes down, and

2. You will NEVER be truly retired.

As long as you can accept this level of semi-retirement worry and activity (which may actually HELP to keep you young!) then the Gyffindor Strategy could work for you, BUT:

i) I could accept owning in retirement: Big Name Franchises; Self-storage facilities; Mobile-home parks; Car-Washes; Your own well-established business that you are now ‘winding back on’.

ii) I would be a lot more concerned about: auto-repair and other skill-based businesses OR ‘vanity businesses’ – you know, the types that celebrities like to own (e.g. restaurants, bars, etc.).

iii) You would need to set out to have the business/es that you select run without you from the very beginning.

If you like the idea of owning a business in ‘retirement’, here’s a hint:

This strategy could hold a lot more attraction for you if you can also own the real-estate that the business operates from!

Why?

A. It assures the rental stream,

B. It assures at least some capital growth,

C. It hedges your bets against business failure (particularly if you plow excess cash generated by the business into the mortgage),

D. It provides a partial exit stream i.e. sell or give the business to management or a buyer under the condition of a long-favorable lease with upward-only ratchet clauses (rents increase at least with inflation).

A final thought:

I mentioned that I will continue to own at least one business now that I am fully retired:

– I founded this business and have owned it since 1991 … it has successfully run without my direct involvement for more than 5 years.

– I tried to sell it anyway, but it was only worth 3 times annual Net Profit before Tax … for that I will keep it for three years and take my chances!

– If I do happen to find a buyer who will pay me 5 or 6 times annual Net Profit before Tax, I will sell it.

– I do not count this business’s income towards my retirement portfolio’s ‘safe withdrawal rate’ because anything can happen with a business at any time … rather, I use the profit to build my portfolio’s total value, and spend the passive income from that.

If I do eventually sell it, THEN I will increase my portfolio’s withdrawal rate because I will have converted the business into a passive investment (cash, stocks, or real-estate).

Phew! This is one of my longest posts … so, now it’s your turn to comment!

Some financial advice for the blogging community …

Posted on April 30, 2008 by Adrian

Click Here

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OK, I am a relatively new blogger … I obviously don’t do it for the money [AJC: no advertising, affiliate links, or product sales here!], but many do … or aspire to.

And, as Alex recently commented on this post, there’s nothing wrong with blogging for money:

If people like Guy Kawasaki, Dilbert’s author, and other wealthy people all put ads on their site to make money, then there’s no reason why we should not. John Chow is making $30,000 month off his main blog so there is always an opportunity to make money through your blog.

It is these Mega-Bloggers who are paving the way to [apparent] riches for the rest of the blogging community …

… but, as far back as 2006 there were already 50,000,000 blogs [holy sh*t!], growing by a mere 17,500 new blogs a day!

So, how is Joe Average Blogger actually doing? Check out this chart:

Source: Problogger

Problogger does a regular survey of their readers to see what they earn; now, this isn’t a scientific survey by any means but it does seem to give a useful indication of Blogging Earning Potential.

For example, 28% of respondents don’t earn ANY money from their blogs with another 18% earning only a pittance!

Problogger says:

A quarter of those who earn something make less than 0.33 cents per day. If that’s not a reality check then I don’t know what is.

Of course, we will categorize these bloggers not as losers, but as new bloggers who are steadily winding their way up to the giddy heights of those who earn $100 – $499 per month … and, maybe even beyond 😉

Even so, this doesn’t mean that blogging is a futile exercise in self-indulgence … right?!

Of course not … it just means that you need to seriously assess exactly why you want to be in blogging:

1. Is it for strictly non-financial reasons?

ReadWriteWeb said in a recent post:

There are many different motivations for blogging and some do not involve money. Some people have a cause they are passionate about – they want to help change the world and a blog is a marvellous way to get attention for that cause. Others don’t even want to change the world or get noticed, they are just passionate about something and enjoy writing about it – attention is a by-product.

These bloggers may have Adsense ads and Amazon affiliate links. Who wants to turn away “no effort” money, however small? Just don’t judge them by their revenue, it is a by-product

2. Is it mainly for financial reasons?

I have some advice for those bloggers who do have at least some serious financial motivation:

Blogging – if pursued mainly for its potential monetary rewards – is a business, and a pretty competitive and limited one, from a strictly financial standpoint, at that.

Like any other business, it takes: commitment, planning, execution …. and, more than a little luck!

The very few guys who do make it Blogging Big (if you call $150k – $250k p.a. earned income ‘big’) probably started early in the game, and put serious effort into growing their business.

This COULD be you … but, here is my suggestion, just in case the odds don’t favor you:

i) Blog because you want to – look at the monetary reward as a bonus

ii) Blog as a form of networking – use it to build an audience for a future product or venture (e.g. a book)

iii) Blog to build content – ‘package’ your posts into an e-book or information product that you can sell

iv) Blog to provide a little extra fuel for your investment strategy – even if you are earning just a few extra dollars a week, doing something that you enjoy, put at least 50% towards your investment strategy and compounding will take care of the rest.

v) Blog because you want to combine all of these strategies … that’s the best way to get benefit from such a usually low-dollar-per-hour-invested activity.

To me, blogging is probably a bad ‘business’ in strict return-on-time-invested terms – I would never pursue it as a business; so many other activities have the potential to return much more and scale much better … and, who the hell are you going to sell it to, anyway?

But, the ‘financial’ value of blogging (if that is the path that you are pursuing) is that you may be able you use it to eventually drive higher-dollar-per-hour outputs, elsewhere.

For the guys pursuing the blogging-to-earn-money angle, that makes blogging a great marketing tool, pure and simple!

A great example is Jason, who also left a comment on that same post:

I am using my blog to make money, but not in the way you may think. I am using it to establish the fact that I am an expert in specific areas….then when I talk to my investors I can show them the articles I wrote and how it all works. Basically to give credibility.

Next I also use the blog to sometimes promote my computer company. I have not received any sales. but it is a hope … the main thing I use it for is motivation, so that I keep going on my path to being wealthy.

So, what about me?

I may accept advertising on my blog one day … I may also write a book … but, like blogging, that is a relatively low-expected-value activity.

In the meantime, I will keep blogging simply because I enjoy sharing what I have learned in the Financial School of Hard Knocks … I have important information stored up inside me that is simply better out than in!

What about you?

7million7years

How to make 7 million in 7 years …

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