Category Archives: Business

What is the best way to make more money? Payrise? Blogging? Consulting? Investing? Starting a business?

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Let me fill you in on a great guest post  “by FMF of Free Money Finance, a blog devoted to helping readers grow their net worth” that I recently read on I Will Teach You To Be Rich, a blog by Ramit Seth … FMF said:

I’ve faced a money making question a few times in my life and I’d like to get your thoughts on it. Here’s the question: as we all try to grow our incomes, which is better, doing more of what we’re currently doing or trying something totally new?

Here are some options I had for making money in my spare time:

  • Focusing on my investments — I had them fairly under control, but I needed to spend some good hours really sorting through my strategy for dealing with some past bad decisions. I knew that getting things straightened out totally would net me a decent return.
  • Consulting — I had a few people asking me to do some side work for them and help them out in their businesses. The per hour rates were equivalent to what I make at work if you include the benefits from my current job.
  • Blogging — Back then, no one thought you could make any money blogging. But it was something I could do easily and I thought it had potential.
  • Starting a new business — Or maybe even buying an existing business. I had a few ideas for this option, but I wasn’t sure of the time commitment (which I thought would likely be high).

Each of these, like my hobby income, had their own list of pros and cons — potential income, time commitment, “hassle factor”, and so on. But before I selected one I had to decide what was my best option — to keep doing more of what I had been doing or whether I should try something new?

As FMF went on to say: Millions of Americans face similar decisions every day.

So, which option/s would you choose? Before, I give you my opinion, let me share some personal history:

I joined one the world’s best companies to work for, straight out of college … I was sure that I would only be there for two years, then I would be able use that employer’s prestigious ‘name’ on my resume to look for an even better-paying job.

Therefore, I never even bothered joining the company’s very generous stock purchase plan (exploring my stupidity will be a great subject for a future post!).

I had a great – even wonderful career, but at Year 6 a light-bulb inexplicably went off in my head: I suddenly wanted to – in fact, simply had to – do something for myself!

The problem was, I didn’t know what that ‘something’ was …

So, it took me another 4 years to finally ‘make the jump’ (exploring my ability to procrastinate will be a great subject for a future post!) – but, what attracted me to FMF’s great guest post was that he seemed to be covering all the same decisions now that I went through then:

 – Focus on my investments and/or blog: Given that I didn’t have any investments to speak of then, having spent all of my money chasing a couple of failed long-distance relationships (exploring my ability to make bad life choices will be a great subject for a future post!), and given that blogging didn’t yet exist (although, we had – just – moved past the abacus onto the slide rule stage), that left me with …

– Staying in my job: I was past the point of no return on this …. when that ‘light bulb’ finally does go off in your head, you just realize that there is virtually no amount that you can earn in a job that can make you financially free, unless your expectations are very low and you intend to work for a very long time OR you can fight your way to the very top of the corporate food chain.

– Consulting: So that left me with only a couple of choices … consulting was tempting because that’s essentially what I did for this company that I was working for, and I was pretty good at it. But, I quickly realized that consulting was constrained by time and hourly rate … in other words, I was the product that I was selling, and there was only a limited amount of me to sell. And, I would have to divide that limited amount of time between: (a) doing consulting gigs (b) finding more consulting gigs (c) administering my consulting gigs … only one of which paid!

– Go into business: So, I was left with the entrepreneurial path … the path that ultimately lead me to wealth. Why was this path so attractive? I can sum that up in one word … leverage. There is no other activity that – when it works – can produce so much cash (to fuel your passive investments!) for so little investment – other than in blood, sweat and tears – than your own business. None … period.

And, the good thing about a business is that you can minimize your risks by investing little in the way of time (start part time) and costs (bootstrap!) – if you so choose – or, you can jump in boots and all … the choice is entirely yours!

So, here’s what I recommend to all of those facing the same choices as FMF and I faced …

1. Make a decision that you will (eventually) go into your own business.

2. Prepare by (a) starting/maximizing your ‘pay yourself first’ savings plan (b) paying down bad/consumer debt as quickly as possible (c) building up a 3 – 6 month income savings buffer.

3. Minimize your risks (financial and otherwise) by starting a business on the side (blogging, writing, consulting, online, hobby-turned-into-income, manically trading stocks or options, aggressively rehabbing/flipping real-estate, whatever) … if it ‘works’ great … if not, start another …

4. Put at least 50% of the excess business income (i.e. after reinvestments in anything that will help you quickly grow the business) into your Savings/Investment Plan

5. Wait until either your business income grows enough to support you or your passive income from investments grows enough to support you.

6. Then fire your boss before he fires you! At least, it would be nice to have the option 😉

BTW: By now, I’m sure that you have picked up the fatal flaw in my original plan, back when I was still working for ‘The Man’:

If I did choose to start my own consulting practice then, I could have eventually turned it into a consulting business by hiring other consultants to do the consulting work; hiring marketing staff to do the selling; and, hiring administration staff to do the rest … there have been plenty of mega-consulting-businesses started in exactly this way (exploring my ability to fail to see the obvious will be a great subject for future post …).

… but, I think you get the point?

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Don't like your boss? That's just plain, old too bad.

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It seems inevitable that from time to time, life’s just gonna’ suck …

For example, are you suffering from ‘Mondayitis’? Now, imagine:

It’s already 5.45 pm but you’re still stuck in your little cubicle, stapling some dumb papers together that your annoying boss said that he had to have on his desk first thing in the morning or “It’s your ass!” 

 It’s just about then that you start thinking that maybe opening up your own business and throwing in this whole ‘work thing’ is what you should be doing, because then …

… you won’t have some stupid boss telling you what to do!

Right? 

Having sucessfully started (and sold) many businesses across a number of countries, I can honestly say that going into business because you “don’t want a boss telling you what to do” is probably the dumbest reason that you can come up with to go into business for yourself.

[AJC: High up on that same list are: money, fame, freedom … but, that’s a whole series of posts, sitting right there!]

Having a boss can really suck … I know, because I’ve had ’em and I’ve been one – and, I would not want to work for me 😉

So what?! 

If you really don’t want anybody telling you what to do:

1. Don’t get married

2. Don’t sign up for a loan

3. Don’t take on a contract

4. Don’t have any customers

Get it? But, don’t let that hold you back …

5. Do start a business because it is still the greatest opportunity to make money that you will ever see!

Just don’t do it because of your boss …

So, while you are still in the ‘planning stages’ for that new venture, just remember to treat the little time that you have left with your boss as a ‘training exercise’ to learn how to grovel to: spouses, customers, and bankers …

… oh, and the traffic cop who pulls you over because you’re driving the spoils of your business success a little too fast down that hill in The Valley 😉

AJC.

PS Oh, and while you are on your mid-morning coffee break, why don’t you trot over to the 149th Canival of Personal Finance being hosted over at Happy Rock to see what I and other PF bloggers have to say?

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Business and real-estate: a marriage made in heaven

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I was reading a review of Robert Kiyosaki’s new book, Increase Your Financial IQ, on Patrick’s blog.

The book holds no great interest for me … although, Robert Kiyosaki’s Financial IQ # 1 did:

It simply says: “Financial IQ #1 – Make More Money” …

… which is perhaps the only real ‘secret’ to getting rich – which is strange, since it seems so self-evident … but, that’s the subject for another post.

But, I was interested in Patrick’s summary of what he liked / didn’t like about the book:

Like.Kiyosaki is a contrarian, which at times is a good thing. He believes more people should work for themselves to create wealth and alternative income streams instead of relying on trading your time for a paycheck. This is contrary to what many people believe – go to school, get a good job, and save. Not everyone should run their own business, in my opinion, but everyone can do little things to increase their income.

Didn’t like.Kiyosaki is extremely harsh on the stock markets, which in itself is not a bad thing. But it is a bad thing when you make incorrect blanket statements about them. Case in point: “You can train a monkey to save money and invest in mutual funds. That is why the returns on those investment vehicles are historically low.

Now, I happen to agree with all of the above …

Rich people make their money in businesses and keep their money in real-estate … pure and simple.

It’s what Robert Kiyosaki did (his business was writing books and making/selling ‘Cashflow’ games; his wife looked after the real-estate investing side of the “Kiyosaki Family Business”) … and, it’s what I did …

… and, according to the new book about the wealthy – Get Rich, Stay Rich, Pass It On (think of it as The Millionaire Next Doorfor the new millennium) – it’s the way that the 5,000 rich families that they interviewed got – and keep – their money through the generations.

[AJC: Before you rush out an buy this book, wait to read my upcoming review … the stats are great … the conclusions that the authors draw from the stats are downright dangerous!]

I recently reminded my Grandmother (95 and still kicking) of a story that she told me when I was very young … one of those simple stories that can define you … it certainly defined the way I think about saving v spending.

She said that when she first emigrated from Europe, and she and my Grandfather had re-established themselves as poor but hard-working immigrants, they had a dilemma …

My Grandmother wanted to use their savings to buy a house so that they could have a stable environment in which to bring up my mother (an only child) in their adopted homeland.

My Grandfather wanted to use their savings to start a business. 

He eventually ‘won’ the debate by saying something that I will never forget:

You can always buy a house from a business … but, you will never buy a business from a house

You can argue whether this is true – after all the 20% Rule encourages you to use your home equity to invest – but, would you have the intestinal fortitude to put yourself deeper in debt to buy or start a business?

Or, would it be better to delay buying that house and pay for it later using the profits of the business?

I for one like the business route: anybody can start a business, just try it part time and limit your financial risk … if it takes off, fine … if not, try again …

Businesses do one thing really well: produce free cash! But, free cash-flow is useless, except for three purposes:

1. Reinvesting in the business to make it grow even faster

2. Increased lifestyle for the owner

3. To fund property acquisitions (build up for a deposit) and/or running costs (cover paying mortgages if the rent doesn’t).

Since I borrowed so heavily from Patrick’s post, I thought that I should let him have the last word on this:

I will guess you like all three of them, but number 1 has the largest benefit while you are growing your business. Do that for a while until you reach the point when your ROI experiences diminishing returns, then use the money for 2 and 3. As long as you increase 2 at a lower rate than the rate your free cash increases, you should be OK.

Right on the money, Patrick … right on the money!

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How your hobby can set you financially free!

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The path to financial freedom usually comes from accelerating your investment plan – which usually starts by accelerating your INCOME.

Why?

Because, you usually can’t just save your way to your dream retirement.

There are many ways to increase your income (e.g. ask for a pay-rise, work longer hours, get a second job, send your spouse back to work, etc.) but the rewards are generally limited to the number of hours that you can put in … and simply working longer/harder can sap your emotional and physical energy.

There can be a better way!

For example, if you have a hobby – something that you willingly and happily spend time on anyway – why not look at ways to make some extra money from it?

Look at it this way: if you can earn at least some money from your hobby, rather than simply spending money on it, aren’t you already well ahead of the game?

Early Retirement Extreme writes on his blog about his hobby, which happens to be blogging!

It all started with the observation that all my expensive hobbies were a major drain on my finances …Let us consider personal finance blogging or maybe just personal finances in general. This is a valuable hobby (from the perspective of financial freedom). Even in its most passive form it does not cost much. In fact one may avoid a few mistakes.At slightly higher levels, one learns to do one’s own taxes and perhaps to invest for market returns without having to pay fund fees. (This is where I am).Getting slightly more active one can start a blog. Commit an hour a day to write a post and one can pick up an extra income within a month or two. This can be a very valuable hobby. Some bloggers have even replaced their day jobs e.g. Lazy Man and Money, Get Rich Slowly, The Simple Dollar.

Now, I’m not sure that blogging (except for the few … those who started early and treat it as a ‘serious business’) can earn all that much money for the average blogger, but I don’t advertise, so I can’t be certain.

But, the principle of earning money from your hobby is a wise one, indeed …

Here’s an example that I really like, courtesy of the Internet Marketing Center.

It’s about an ordinary guy who was able to turn his hobby of making wire-sculpture jewellery into a $600,000 a year online business!

Preston Reuther of Wire-Sculpture.com has overcome incredible odds to build and grow not just one profitable Internet business… but three of them!

Preston overcame his mental illness and went on to start his very own Internet business selling wire sculpture jewelry tools, growing it to an impressive $50,000 in on-line sales… per MONTH! (To save you from running for your calculator, that’s over $600,000 a year.)
  

 

I have a friend who has a similar hobby, she designs interesting jewellery that is very quick, easy, and relatively cheap to make. A bit like beading, but her designs are unique and quicker/easier to make.

She has turned her hobby into a very small business, selling jewellery that she makes to friends and even to one or two stores.

She also lists some on her own home page and on craft-oriented web-sites like etsy.com.

Now, I can’t let an opportunity like this go begging, so this is what I have suggested to her:

1. Buy a video camera and film herself making (and, explaining how to make) some of her designs. Package these videos as an ‘eCourse’ for download off her web-site for $49 each.

2. Buy wholesale lots of the tools and bits and pieces that she uses, to create a Jewellery Start Up Kit that she can package with her videos and sell the combined ‘advanced start-up package’ at $149 each from her web-site.

3. Create / photograph (and/or video) new designs and sell these (with the bits required to make them as kits on her web-site from $9.95 each to $29.95 each.

Now, she may do some, none, or all of these things … that’s the wonderful thing about hobby/businesses – you enjoy doing them anyway, so an improved financial outcome is a bonus!

For example, I’ve mentioned my 13 y.o. son’s hobby before: he has taken a liking to everything-eBay.

Now, he sells products on eBay, which he packages and ships himself (every day, there’s a parcel of two sitting on the front door-step for the mailman to collect and deliver) and makes a cool $30/week. 

The moral: you don’t have to be big to benefit …

So, if you have a hobby, think about how you can use your creativity to move you closer to your financial dreams:

i) If you can EARN money from your hobby instead of just SPENDING it, you are twice as well off than you are today

ii) If you commit to saving at least 50% of the excess income that the hobby produces, then you can accelerate your Investment Plan

iii) If you are extremely lucky … and work very hard at it … the ‘hobby’ could eventually become a fully-fledged business, perhaps even allowing you to quit your day job.

Let me know how you plan on turning your hobby into cash?!

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"I noticed you have incredible traffic for a 3 month old blog!"

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blogrdoc 

This was a comment that I just received from a fellow blogger …

I didn’t know I had any ‘fellow bloggers’, but bloggers seem to have an ‘unofficial’ fraternity … so, I guess it’s kind’a nice to be part of a ‘group’ even if I didn’t set out to do so.

I have been communicating off-and-on with one particular fellow blogger that I only know as the mysterious  blogrdoc (that’s him in the picture!) ever since he left me a rather ‘flattering’ comment on one of my earlier posts:

I’m sorry, but if you made $7M, you would *NOT* be running a blog.

I immediately knew that I would like this guy!

After we got to ‘know each other a little better’ through a series of comments and e-mails, blogrdoc asked me a question that I thought I should share with you all:

I wanted to get your opinion on something. I’d *like* to make 7M in 7 years. Do I *necessarily* need to assume a lot of financial risk to do this?

No … blogrdoc … you just need an awful lot of luck 😉

You also need to take at least some risk and put in an awful lot of sweat … it’s just that the risk doesn’t need to be financial, and the sweat can be a little less or a lot more depending upon how quick you want to become rich (and how much ‘rich’ means to you) …

Let’s look at it this way:

If you want to make $1,000,000 in 20 years, just buy a house and keep up the payments and … wait.

Guaranteed millionaire!

If you want to make $7,000,000 in 7 years you need massive passion/action – and, a little (or a lot!) of luck – to get it …

But, if you want to end up somewhere between the two, then we can talk turkey.

First, here is blogrdoc‘s plan:

My Strategy is a multi-layered approach and will include: 1. Blog/Ad based revenue (for starters, I am aware that this is extremely difficult to monetize. Particularly for me since I don’t have too many connections. 2. Several product based revenue ideas. May file for a patent then license. 3. ???

Blogrdoc has hit the nail on the head … these are excellent Making Money 201 strategies:

1. Blogging may not make much money, but it may bring in some (at least 50% of which should go towards your Investment Plan) … the more money it brings in, the shorter the time to the ‘end game’.

2. But, blogging also brings those ‘connections’ that you need to make your life a success … this is just a new twist to an old game called ‘networking’ … it’s not what you know, but who you know that counts.

3. Product based ideas become businesses … businesses (with a lot of hard work, and a little luck) become income … income becomes fuel for your Investment Strategy and we are back to 1. … the more money these businesses bring in, the shorter the time to the ‘end game’.

Now, here is where I think the people who have taken the time to read this whole post get their reward:

In none of these cases am I anticipating putting more than $10k or so at risk. My main concern is that I’ve got a family and I just don’t have the stomach to put too much at risk. I can’t just leave my day job or anything like that. Do I have a chance? Am I looking at this all wrong?

No, my friendly-neighborhood-bloggerman, you are doing this all RIGHT!

Even THE Guy Kawasaki (Apple co-founder; founder/ceo of Angel Investing firm) started his last two successfull online ventures (including Alltop) on something like $10k each … I am into three right now, with a max. of $50k committed to each.

Here’s the low-risk (but, not no-risk) way to reach your financial goals … for any blogger and/or just-starting-out business person out there:

… I can’t promise that this simple plan will make you $7 million in 7 years (first, you have to really need it to get it … just wanting it won’t cut it), but it has a better-than-even chance to make you more money than you ever thought possible:

i) Maintain your Making Money 101 habits: pay yourself first (you know, that “10% into your 401k” thing); pay down your consumer debts (car loans, c/cards, etc.); buy your own house (better yet, buy a rental).

ii) Accelerate your income: Use any excess cash from your job, your side ventures (e.g. ‘starbucks experiment’), tax refund checks, anything that helps you to build up little pots of investment capital.

Hint: that does NOT include anything in (i) … never ‘gamble’ with anything you cannot afford to lose … and you cannot afford to lose your savings or investments … ever!

iii) If you want to get rich slower, simply add these ‘pots’ from ii) to your Investment Plan … if you want to ‘roll the dice’ and take, really, only a little extra risk to (maybe) get rich quicker, use these little pots of investment capital to fund your ‘product based revenue ideas’ and fund those patents.

Warning: this money has to come from somewhere … it will probably be the same money that you used to use for vacations, new sunglasses, baseball tickets, fancy dinners … you know. ‘stuff’ that you couldn’t possibly begin to do without 😉

iv) Starting more than one venture part-time (not necessarily more than one at a time, though) is exactly the kind of ‘controlled risk’ thinking that I like … just make sure that you have your ‘end game’ in mind right from the start (who are you going to licence those patents to? Who is going to buy those ‘micro businesses’ that you spin off).

v) Until the income from one of these ‘side ventures’ makes it seem stupid for you to do otherwise (you will know when this time comes), by all means: keep your day job and keep feeding your family!

vi) If you work hard, delay gratification, stay innovative, keep investing, get lucky, and keep those Step (i) Money Making 101 habits in place the whole way through, you probably won’t need $7 million to do whatever it is that is in your Life’s Dream … but 7 years should be just about enough time to get there.

Good luck to blogrdoc and all of the other Personal Finance (and other) bloggers out there …

… indeed, good luck to anybody who is reading this in order to break out of the pack. Hopefully, by following the advice in this post and others, you’ll need a little less of it (luck) to succeed!

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The most important question that you can ever ask about your own business …

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A little while ago a wrote a post that asked “why are you in business“?

It sounds trivial, but as I mentioned in that post, it is THE most important question that you can ask in business.

Here’s the comment to that first post that inspired this follow-up post:

I just read your post and to be honest I’ve never thought about this. There are several reasons why I am in business, but I have to admit I’ve never thought about the “end” result, let’s just say 15 years down the road. Hmmm….

So, why are you in business?

The answer, of course, is to sell it … tomorrow … eventually … or, not at all.

But, even if you choose NOT sell it, you should act as though … when the time is right … that you will sell it ….

… to yourself!

Why?

Because this kind of thinking forces you to do things with your business that you would otherwise not bother to do …

… things like setting out a clear chain of command (easy if you are flying solo … not so easy if it’s you, your brother, your aunt, and three cousins running the show!)

… things like setting out clear systems to run every aspect of the business (especially if it’s all just sitting ‘in your head’ and the ‘heads’ of those around you).

… things like pretending that you are creating a ‘franchise prototype’ and that one day there will be 1,000 more just like it …

… because, if you do, one day there just might be 1,000 more just like it!

 The difference between Subway and your local sandwich shop … the difference between Burger King and your local hamburger shop …

 Is ONE GUY who dared to imagine a larger business than the one that he had.

The difference between the McDonald brothers and Ray Kroc is the difference between two guys who had a great little business and the guy who made a multi-billion business from their little idea …

… by systematizing an already great (but, small) business!

Let me share a personal story …

In 1998, I had a little business built upon a great little idea but it had just trundled along for 5 years getting new clients here and there, growing slowly, but for one small problem …

The business was losing me $5,000 a month and I was struggling to take out $50,000 a year (my wife still had to work).
Then one day I had a vision of how my future life simply HAD to look:

1. No work (my vision required me to have LOTS of spare time on my hands)

2. $250,000 a year (to ‘fund’ my ideas … ideas that involved a lot of travel and creativity)

 Now, earning $250,000 a year is one thing – but, I had to get it with no work!

That meant that I needed about $5,000,000 sitting in some passive investments … trouble is I had no investments …

… except my little money-losing business.

That, my friends, is what drove me to massive action … to make my business somehow ‘worth’ $5 million to somebody … in 5 to 10 years!

It was this ‘massive action’ that took me to expanding my business across three countries … at the same time, building up a multi-million dollar real-estate and investment portfolio … all the while, keeping my eyes and ears open to try and quickly learn all the rules of the ‘money game’ …

Now you know how this site came to be called $7 million in 7 years.

Do you see why your future business success starts with a question?

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Education – a curse or a cushion?

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People often ask me what it takes to be an entrepreneur.

Probably the best book that I can refer you to is the E-Myth Revisited by Michael Gerber … it has changed many business owners’ lives (including my own).

 In it, he shakes the myth of the entrepreneur being some sort of ‘knight on a white charger’ – you know the type, like Jack Taylor, the founder of Enterprise Rent-a-Car who was a navy pilot in WWII then went on to launch Enterprise in 1957, taking it to $78 million revenue before handing the reins to his son, Andy in 1980 (it’s now a $7 billion company!)

 Here’s how Andy described his father:
 

My father was the true entrepreneurial risk taker. He was the guy flying airplanes off carriers. He did not see taking a $25,000 second mortgage to invest in a business as a huge risk, because he saw real risks being taken during World War II.

There’s no doubt that adversity makes for better entrepreneurs … adversity gives you a ‘nothing to lose’ attitude.

Contrast that with the educated middle-to-upper-middle class …

… once you finish college and put in a few years learning the corporate ‘ropes’ it’s very hard to let go of the comfortable $50k – $150k that you are earning (and that your lifestyle has magically jumped up to meet … you know: cars, toys, vacations, etc.) to jump into a business that all the odds point to going broke.

 You see, that education that we strive for, to lift us out of the middle-class, actually serves to keep us there.

Now, I happen to have a college degree, and it has served me well …

… but, after 6 years in the post-college corporate world, I was bitten with the ‘entrepreneurial bug’ so badly that I was miserable every day that I was still at work after that little epiphany (I used to LOVE my job until then).

Yet, it still took me 4 years to leave …

If I was still working, no doubt I would be well on my way to saving $1 million or maybe even more by the time I retired at 65.

 But, from where I now sit that is WAY too little WAY too late …

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The 4 absolutely vital questions to ask before buying ANY business …

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There are some great FREE sources of information out there in the Internet.

 One of my favorite (when it comes to stocks and options) is The Tycoon Report – and the related (and wonderful) Q&A sister site, Ticker Hound.

 However, sometimes you have to question the advice that you are given … for example, The Tycoon Report recently published a post on the …

4 Questions to Ask Before You Buy a Private Company

 After soliciting responses from their reader base, here are the 4 questions that they came up with and a little snippet of some of their (generally) excellent advice:

1. Do I understand the business?

To really “understand the business” you must know exactly how the business makes its money and exactly where the business spends its money. That’s the only way you’ll ever be able to properly analyze the company’s Profit and Loss statement. 

2. Am I comfortable with management?

Many of you wrote about trust in management as one of the key questions you should look at. You were spot on with that assertion. But how can you tell if the person pitching you the idea is trustworthy? That’s an art in and of itself, and we’ll dive deeper into that in coming weeks also.

3. What is the business worth?

Many of the companies you’ll be asked to invest in are start-ups (very high risk). Some of the companies you may seek investment opportunities in may be existing businesses (like Joe’s Pizza Parlor). Either way, you want to make sure that once you get to this part of the negotiation you’ll have a good handle on what the business is worth.

[PS–You could never determine the worth of a business if you didn’t first “understand the business”.]

4. What do I have to pay? 

Many people will argue that they invested in XYZ Company because, in their words, it was a “good company”.  But to invest at the highest level of the game, you have to be able to differentiate between a good company and a good price. Now, this is a subject that I happen to know a little about …

… and, I am not sure that these are the ‘4 question’ responses that you would have received had you asked, say, Guy Kawasaki or any other Angel or VC worth his salt.

The first two questions (do you understand the business and do you LOVE the management team?) are gimme’s …

… but, the last two (what do I have to pay? what is it worth?) are a FUNCTION of two FAR MORE IMPORTANT questions:

A. What is my EXIT strategy?

Before you go into a business, you must know how you are going to get out of it. Maybe, you won’t know exactly who you will sell to, but you will know what type of business will want to buy your business, and when (maybe not in terms of years, but at least in terms of stage of business development).

And a related question,

B. How ‘repeatable’ or ‘expandable’ is the business?

… in other words, how much can I make it GROW?

Nobody will buy your business unless they believe that they can:

(a) run it without you, and

(b) continue to grow it.

You can only achieve these if you:

(i) systematize your business, and

(ii) create your first business as though you were going to create 500 more just like it (whether you actually do or not doesn’t matter).

Don’t believe me? Check out this little snippet …

Ray Kroc paid the McDonald brothers $1 Mill. to buy them out, about FOUR TIMES what he estimated their share of the business was actually worth …

… who do you think had the last laugh in that little deal?

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Making Money 101, 201 and 301 principles applied to your business!

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Writing this blog sometimes puts me on mailing lists that I don’t recall subscribing to …

But, I am usually pleasantly surprised by what I see (if not, the <delete> key is a quick’n’easy solution) … so, I am usually quite happy to see some ‘surprises’ in my in-box (please don’t send me Viagra ads or other spam!).

An example of a ‘pleasant surprise’ was an article from Leigh Ann Rodgers of Creative Business Workshops called “Where does your business stand financially?” In it she said:

 In February when I pulled together all my financial information for taxes, I had an “ah ha” moment. I spent too much on my business last year! My profits would have been much higher if I had been more conscientious about my spending.

 Aha!

Here is how you should look at your business …

… exactly as you would yourself!

That means that your business also goes through three stages:

Making Money 101 – where your business is struggling to get ahead; not making as much as it should.

You need to apply exactly the same money-saving and budgeting techniques as you would for yourself. Here is what Leigh Ann recommends:

It hit me like a ton of bricks, that I need to apply these same [Making Money 101] principles to my business. I need to budget each month and only make purchases that I can pay cash for. I must admit that I have sometimes been a little loose when making purchases for my business, rationalizing that I could “write it off.” Now, I am thinking about every penny I spend.

 I agree … 99%.

But, you should NOT be stingy about any expense that DIRECTLY helps you grow your business (that means that you can track the $1 that you spend today to at least $2 to $3 earned within your current financial period, say, no more than a few months to a year).

Because it is this thinking that will take you into:

Making Money 201 – where your business is doing better than breaking even … now it’s full steam ahead!

You are saving money and watching costs, sure. But, you have realized that there is something that you can – and should – be doing that produces a far better result than mere cost-cutting …

… that is, accelerating your income!

 Why?

Cost-cutting is limited in scope … you can’t cut more than 100% of an expense.

Income-earning is unlimited in scope … the sky – nay, the stars – are the limit!

But, when the income is the greatest, you need to watch your costs even closer because bad habits – leading to hidden gotcha’s – creep in.

It is the Making Money 101 habits that will help you survive the increasing drain on your cash-flow that uncapped growth can bring.

If you do, may be one of the lucky ones who ends up in:

Making Money 301 – that idyllic stage where the business is floating in orbit, spinning off cash, controlling costs and just being … well… damn profitable!

Watch out for stagnation, though, because this is where product life-cycles wind their course, competitors come in, commodity pricing appears.

The secret to Making Money 301 is NOT to sit there for long … either:

1. Put yourself back into Making Money 201 – new ideas, new products, new markets, go off shore, become a franchisor … OR

2. Sell! 

But, it all starts with a business that survives the Making Money 101 stage … unfortunately, the odds are against you.

But, Leigh Ann has a great Making Money 101 tool to help you out:

Here is her Where do I $tand Worksheet …

Why don’t you try it out?

Making Money 201 – Going for Broke!

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If Making Money 101 could be drastically over-simplified as ‘saving’; then Making Money 201 is equally over-simplified as being about building your income.

If you were serious about getting your financial house in order quickly, then you probably already did some income building to help you pay debt off quickly while you were working your way through Making Money 101.

Unless you’re a CEO of a Fortune 500 company, or a top professional doctor / dentist / attorney / accountant, then you will need to think about starting a business.

And, to accelerate your business or professional income you may also decide to get into the business of active investing (renovating/flipping real estate, trading stocks and options, etc.).

This is the stage that you get to take RISKS (that’s why you need a solid foundation and plenty of runway … you WILL fail at least once, twice, three times …) because that is the only way to get the big financial REWARDS.

This stage is hard work!

But, it is where you actually sow the seeds that will eventually make you rich …

There are plenty of books and a few blogs around, but most of them are specific to just ONE WAY of making money … the author’s way; some are good and some are lousy.

By the end of this stage you will be earning more than 90% of the US population and will be accelerating rapidly down the runway to financial health … but, spending will also increase dramatically and you will struggle to hang on UNLESS you ALWAYS remember your Making Money 101 lessons about saving!

Paradoxically, you will be the ‘richest’ that you will ever be in your life during this stage IF to you, being ‘rich’ means being able to spend lots of money …

… the problem is that your ‘wealth’ is only based upon your income, therefore only lasts as long as your business or job does.

Also, many of the Making Money 101 rules now need to change, as do almost all of the tools ….

For example, dollar cost averaging and index funds are replaced with sensible investment and savings rules and strategies.

You are still far from ‘rich’ …

In fact, you are still Just Over Broke … but, starting to break free!