Category Archives: Business

Why are you in business?

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For those of you who are in business (or aspire to be) let me ask you a straight-forward question:

Why are you (or why do you want to be) in business?

If your answer doesn’t at least include TO SELL OUT FOR $x [insert your favorite number greater than $1 million here] then you need to readjust your thinking.

You see, as Michael Gerber said in his famous (and required reading!) book The E-Myth Revisited your business should support your life … in other words, at some stage you probably want to get out of your business so that you can have your real life back (or, for the first time!).

The best way to get that life is to sell out (eventually) and retire (one day) … when and how are all subjects for future posts.

Or, you may decide to keep the business (perhaps running on autopilot, generating mountains of cash) but at least being CERTAIN that it COULD be sold anytime that you wanted for the amount that you needed to live the life of your dreams …

For now, it’s just sufficient to recognize that you should ALWAYS be thinking about your business in terms of “how much do I NEED to sell it for … and when”.

As I mentioned in a recent post, this will always be MORE than you think … and, sooner!

So, you had better get back to work!

Against the odds …

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For those of you who follow this blog, you will know that a key part of getting ahead is increasing your income.

And, you will already know that I think one of the best ways to do this is to start your own business … perhaps part-time, at first, to limit your risk … and, definitely in combination with other financial strategies that I will be sharing with you over the coming weeks.

For me, the gold-standard in this area is still The E-Myth Revisited by Michael Gerber … a book that I will unashamedly admit changed by life.

But, for anybody heading down the entrepreneurial path, I equally highly recommend a book by Guy Kawasaki (ex-Apple, founder of garage.com) called Art of the Start.

Guy can also be found on his blog, where I found this interesting post, that deals with the various myths around being an entrepreneur.

The problem is that the guest author is an academic who uses ODDS to establish that some types of businesses are better than others, and to suggest that it is the type of business that you go into rather than your ‘entrepreneurial ability’ that determines your success.

Here’s where I disagree …

YOUR odds of succeeding in any business venture are exactly 50/50 … either you WILL or you WON’T succeed!

Obviously, that makes no MATHEMATICAL sense, but going into business rarely does.

That’s why the rewards for those who DO succeed can be so high. If it were easy – and if success was GUARANTEED – we’d ALL be doing it!

For example, we intuitively know that the ODDS of being a huge success are so small in, say, sandwich shops.

In fact, the article suggests that the odds of mega-success in that type of business are 840 times smaller than starting, say, a computer business.

Yet, who wouldn’t like to be Mr Subway, Mr Quizno, Mr Togo, or Mr Potbelly?

I’ll even put up $1,000 that says that each of them knew EXACTLY what they were getting themselves into when they started out.

But, somewhere along the line each and every one of these entrepreneurs … in fact, EVERY SINGLE SUCCESSFUL ENTREPRENEUR IN HISTORY … simply said: “screw the odds”.

Having done some ‘odds screwing’ of my own (a number of times, with great success) over the years, I humbly suggest that you do, too.

Please let me know how well you do …

Let's not confuse 'saving' with 'investing' …

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This goes back to a comment that I received in response to a question posted on another finance blog – one that I happen to like for early-stage savers …

I suggested that for many people, their retirement savings actually won’t be enough to fund their ideal retirement … if they’re happy to accept less, fine!

If not, then I suggested that they may need to do something a bit more active to pick up the pace …

Here is a response that I received:

“Your investing approach of “actively (business, real estate, trading)” sounds more like speculating and your savings approach (CDs, 401ks, etc.)” sounds more like investing to me. Just based on the statistics of individuals who trade rather than index…most get eaten up by fees while compounding growth usually is the better way to go using monte carlo analysis, But who knows what will happen in the future.

Posted by: klauss | February 08, 2008 at 12:21 PM “

My point is simply this:
IF your retirement plan is on track, then keep doing what you’re doing.
But, the vast majority of people can’t simply SAVE themselves into their ideal retirement; they have to INVEST in their future.
I call it ‘investing’ – investing in our future – but, if starting a part-time, work-at-home business, experimenting with actively trading stocks or options [not my personal choice], renovating then holding an income-producing property, etc. is ‘speculation’ to you …
… I simply say:

Bring it on baby!

Save your way to a fortune? I don't think so …

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You’ve read the blogs … you’ve bought the books … you’ve talked to your financial advisor (your wife).

They’ve all told you that you need to pay yourself first! So you are … 10% of your gross salary !

You’re putting some aside in your 401k (with some employer match) and you have a little change going into the cookie jar next to your bed.

Great!

You’re already doing two-and-a-half times better than what CBS News calls ‘most people who only save 4% of their salary”.

But …

… it won’t make you rich!

It will stop you from being poor and may even fund a retirement if you start early enough and are willing to take a 30% pay cut.

The problem is, you can’t just save yourself to the retirement of your dreams on the average salary … you have to at least earn more and save most of the extra.

Look at it this way … the amount you can save is limited …

… limited to less than 100% of your salary, and for most people, limited to something between 0% and 20% of their salary.

But, the amount you can earn is only limited by your imagination and your capacity for hard work.

Here are some examples of ways that you can increase your income:

– Change jobs (maybe)

– Work longer shifts (yuk)

– Ask for a payrise (why not?)

– Take on a second (third?) job (horrible)

– Join an MLM ‘opportunity’ (do your homework carefully!)

– Renovate some houses (now may be the time to get back in)

– Start trading some stocks (better know what you’re doing?!)

– Start a business ‘on the side’ (my favorite!!!)

Whatever you choose: Start Small … Finish Big!

The point is not how YOU should do it, the point is you CAN do it … if you are prepared for some hard work and sacrifice now for a better future. Are you?

If you keep paying yourself first at only 10% of your current salary in your day job, and 50% of the additional money that you earn (after paying off debts), THEN …

… you just may retire RICH!

Let me know if you think this can/can’t work for you …

How much should you take out of your business?

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This is one of the most difficult questions if you are a business owner and, like most business owners, it is your primary source of income.

You might say, of course it’s your primary source of income .. that’s why I’m in business! But, that is the fallacy that we will be exploring in upcoming posts.

For now, let me tell you about a conversation that I had with a friend over dinner last night:

My friend said that he had a friend who owned a payday lending business – sounds a bit unsavoury to me, but generates mountains of cash for him.

My friend’s point was that this guy would admit that he’s not very smart, but has a very simple system for dealing with the $3 mill. that his business spins off every year:

1. He gives $1 mill. to Uncle Sam

2. He invests $1 mill. (my friend didn’t ask where or how)

3. He spends $1 mill.

Simple!

But, it’s also wrong …

What would happen if the business had to close down tomorrow (e.g. change in government regulation)?

Unless this guy had managed to save $20 mill. to $40 mill. he wouldn’t be able to keep up a $1 mill. lifestyle (common wisdom says that you should only withdraw 4% from your portfolio every year … I say about half that) …

I believe that it is 10 times HARDER to go backwards in your life (in the event of a financial disaster like if this guy’s business had to close down) than taking a slower run-up in lifestyle in the first place.

This is what I did:

I always drew a minimal salary and tried to live at the median level of the circles that I moved in (for me, this was upper-middle-class college educated professionals).

When my businesses started throwing off more money than that, I invested EVERY penny of the rest, in my case mainly into: (a) reinvesting in the business to expand it, and (b) opening new businesses (3 more), and (c) passive real estate investments.

As I built up equity in (c) – I ignored the ‘value’ of any business until I sold it – I used my ‘divide by 20 – 40 rule’ to decide how much I could spend each year.

Maybe my friend’s friend should have given $1 mill. to Uncle Sam, spent $250k a year to start off with, and invested the rest?

Maybe, after a few years, if financial disaster struck it wouldn’t matter any more what happens to his business …