In America, and throughout the world, the way money is created is a rather complex process that, after reading and studying for hours, I still have yet to fully comprehend. But that’s not at all important right now. You just need to understand a few key concepts and examples about money and it will become clear to you that not only is the money supply not fixed, it’s ever increasing and that’s a good thing.

1. Money has been around for several thousand years. If you read the Bible, Jesus references various coins including a denarius when he declares, “Give to Caesar what is Caesars.” Between 300-400 AD it’s estimated that 55 million people lived in the Roman empire. Our population is now approaching 7 billion. If each person 1700 years ago had $1000 than the entire wealth in the world was $55 billion. Out of almost 7 billion people today, the 2 richest have amassed more wealth than that and at one point, with the economy booming, the richest man in the world was worth nearly $50 billion alone. So what does this tell us? Money is a byproduct of economic  activity and increases because of it. In other words, if everyone has a job, everyone has money and somehow the banks and governments figure out how to keep printing money to keep up with it. Again, how they do that is complex and secondary to this discussion. Just grasp that there’s more money today than before and at the same time our standard of living is higher (though not everywhere as unfortunately not everyone is taught this lesson).
   

   Creating economic activity by contemplating my book as I enjoy a distant rain storm at the Grand Canyon.

2. Money does grow on trees and can be dug out of the ground and can be created on a computer. Think about it. What does it cost to buy a 2×4 at the local hardware store? What does it cost to buy a tree that you can then cut down, process and make a 2×4? If you look at the cost of the raw wood while it’s still in the tree, it’s pretty cheap, maybe worth a few pennies. If you then figure out what the treated 2×4 costs after it’s been cut, cleaned, shipped, and displayed at your local lumber yard it’s still pretty cheap. Maybe $5 for that piece of wood. Now take the cost of a completed frame of a house and divide that by the number of 2×4′s and you’re looking at closer to $20-$40 per 2×4 depending on location, complexity, labor costs, local taxes etc. So why the constant increase in cost? Because more economic activity is being added at each level. And guess what? The whole time those are being processed and houses are being built, new trees are being planted and grown to sell all over again. Now consider all of the resources all over the world from our food supplies that are being farmed and grown every year, to new oil reserves that are being found because of new technology, to drinking water that’s constantly being recycled, and you realize quite literally money does grow on trees and so can never be a fixed amount. Now consider that sitting in front of a computer using virtually no resources I can create a software program that has value even though the raw cost of goods is nothing more than my own energy or, in other words, the only cost is my own economic activity. Sitting here with my computer I created value out of nearly thin air. To take our tree analogy further, what is the cost of that wood when it’s converted into paper and a book is published on it? The added value for the book was partially due to refining and colors and other raw goods and the rest was created out of thin air or more precisely out of someone’s mind. That being said, in my opinion books are by far the greatest value in the world since you can learn from a person’s lifetime of experiences and lessons for $15 or less.
3. It’s the Federal Reserve’s and International banks’ job to keep the supply of money on par with the economic activity of the world. Whether you agree with their policies is irrelevant. I’m just pointing out that, that’s currently the system we have in place. They print money and provide money to the member banks and attempt to keep inflation in check throughout that process. And they print more money every year because more economic activity is added to our economies every year.
4. To finally tie all of this together, if you figure out a way to extract oil out of the ground more efficiently and I concurrently figure out a way to cut and process trees into lumber more cheaply we both have added value to the economy at the same time and neither of us stole money from anyone else to do it. This happens every day. Again, just consider technology companies and authors who create value out of thin air and it should be obvious to you that the only thing they stole from anyone else was their own time and thought.

In conclusion, there’s enough wealth and abundance quite literally for everyone, not just in the US, but in the world. Rich people don’t make poor people by making more money and poor people aren’t poor because there are too many rich people. As I pointed out above, that’s just not how money works. So don’t feel jealous or greedy because you want to provide a comfortable lifestyle for you or your family. More importantly, be sure to help as many people along the way achieve that same level of success.

To your abundant success, Bryan

Let’s start 3 generations ago… Think post World War 2 and the 1950′s – commonly known as the baby-boomers. These people viewed jobs, income, being rich and, quite frankly, a whole lot of things differently. Life for the average American was pretty straight-forward:

1. Go to school
2. Get a job
3. Keep job for life
4. Raise a family
5. Go to church every Sunday
6. Teach family athletics, manners, and respect
7. Take vacation every year
8. Get the entire family together for major holidays
9. After 40 years retire with the money you saved, move south, golf and/or fish and spend time with the grand kids
10. Being rich means having a nicer house, car, and boat than your neighbors.

Life was centered around family and work. Pay was based on a combination of:

1. Education or Skill
2. Experience
3. Number of hours worked

In other words you put in your time in the form of schooling, work-experience, and a long work-week and you were paid well.

Then in the 1960′s and 70′s the hippies came along and decided they didn’t much like their parents out-dated, sheltered, closed-minded and limited view on the world. They questioned and reexamined everything they were taught and decided life was about new experiences more than family or a steady-income. Their lives were a bit different:

1. They found new experiences in drugs, travel, music, sex, politics and just about anything else.
2. They stopped going to church or at least as much.
3. They stopped having large families.
4. They stopped keeping the same job forever.
5. “True” hippies tried not to work at all or just enough to fund their next adventure.
6. Work was no longer a sense of pride but simply a means to an end. A job. Work became a 4-letter word.
7. Retirement? Don’t you have to have a job to retire from first?
8. Wealth is about having more experiences and a better understanding of yourself than your neighbors.

Sunset over Jackson Lake in Grand Teton National Park

However, even with their new ideas about the world, pay was still based on the 3 items listed above and all directly related to time input. Obviously not all members of the hippy generation decided to travel down the hippy highway. Quite a few followed in the footsteps of their parents and particularly the “work hard to get ahead” mantra stuck with them. However, they couldn’t fully escape the free-spirited influence of their friends.

Then comes along generations X (1962-81) and more particularly Y (1982-98). We are being raised by parents and in school systems that try to educate us to, “work hard to get ahead” and to “put in your time and it will all pay off.” While at the same time being taught to have balance in our lives. Don’t become a workaholic. Take time to see the world since travel is so cheap these days. And the advice I’ve personally heard about 1,000 times, “take the time to do all of those things while you’re young.” Apparently the solution to the conflicting worldviews of the hippies and the baby-boomers is to be a hippy while you’re young and enjoy all the great new experiences that you can handle and then “settle down” and follow the baby- boomers’ formula for success as an “adult.” If you’re Generation Y you know exactly what I’m talking about… Because you’ve heard it, too. If you’re early in Gen X or a baby-boomer, you’ve probably said it…

Come again? I’m supposed to see the world and race motorcycles and skip church and experiment in my 20′s so that I can “get it out of my system” and then somehow be content the rest of my life making the proper decisions, raising a family, working a steady job, and limiting travel to occasional vacations?

I promise you, that plan does not work. How do I know this? In August, I’ve failed to publish any new blogs because I took a 17 day, 5561 mile, 10 state, 9 national park motorcycle journey throughout the west. The following story has happened to me in some form dozens of times, but here’s one example of how that desire for freedom, expression and new experiences can never be satisfied once you’ve tasted it.

My bike outside of Death Valley NP. FYI: Don't ever ride thru Death Valley in August!

As I’m walking to my motorcycle from the shower facility in Yellowstone National Park I notice a minivan parked next to me with 2 cute little girls running about, both sliding doors and the rear hatch open, a wife running around doing motherly things, and the husband just standing there waiting for me… He’s literally looking straight at me as I walk toward my bike. My bike is fully stocked with saddle bags, camping gear, and everything you need for an extended vacation and this guy noticed… After some small talk while his wife gathers the necessary tools for their showers I ask him if he rides. He HAD been smiling. His wife immediately stops for the first time and with the-smile-that-says-a-thousand-words looks straight at him. He looks at her and I couldn’t help but remark, “Uh oh, your wife is listening to your response so you better get it right.” She doesn’t flinch or take her eyes off of him. He smiles and says, “Yeah, I ride dirt bikes now.” The Mrs. goes back to her motherly duties satisfied with his answer. I bet you can guess his advice to me… “Do it while your young.” That was the second or third time in 2 hours that I’d heard that advice. I’ve lost track of how often people tell me that.

Did you catch how he ended his sentence with, “now”? Yeah, me too. Granted this man had a beautiful wife, 2 super-cute little girls, and enough money to take a week long vacation with the family to one of the most awe-inspiring places on earth. He was living the baby-boomer dream… But if you could have seen his face and the way his eyes were transfixed on my motorcycle it would be immensely obvious that something was missing… He had tasted that freedom and adventure, which for him happened to be on a motorcycle, and he wasn’t fully satisfied with his new stable, predictable life. Would you be??? Or if you’re not there yet, will you be? Can you have both that stability and some freedom? Issues with your better half aside…

Along comes what Timothy Ferriss calls in The 4-Hour Workweek, the New Rich. Thanks primarily to the shrinking of the world due to increases in technology, people have started to realize that you can work from anywhere. For 2 years I worked out of the basement of my home for a software company 620 miles away. While taking pictures in Oceanside, OR last week a nice couple told me they moved there and out of the city because the husband “telecommutes” as a software engineer 700 miles away to San Francisco.

In addition, people have realized when you don’t have to deal with small talk at the water cooler or talk to your co-workers about last night’s episode of Survivor you can get a lot more done a lot more quickly. In other words, when working remotely, you can do so more efficiently. This is what the New Rich are all about. The ability to work from anywhere more efficiently than their co-workers sitting in an office.

There’s more to the story thanks to the hippies, though… As I mentioned earlier, the baby-boomers always thought you traded hours for dollars. More time equals more money. Over time you can save enough money in your nest egg to pay for the time where you won’t be making money in retirement. The New Rich don’t see it that way… As a matter of fact, that’s all wrong. Whereas conventional thought values a person’s wealth based solely on their bank account and possessions, the New Rich consider 2 things:

1. Cashflow
2. Timeflow (yeah, I just made that word up)

Cashflow – If you have a steady income, you don’t need a nest egg. In other words, if I have a business that makes me money every month, why do I need a million dollars to retire? Your answer to that should be – “Well you need to work in that business if it’s going to make you money and if you’re working you can’t do the things you want to in retirement.” Good answer. But you’re wrong. It is possible to have cashflow without giving up your life and all of your time. Besides, what good is having all the money in the world if you don’t have the time to enjoy it? Just as importantly, when you’re 68, will you be able to enjoy the same adventures as you can when you’re 28?

Timeflow – I’ll use an example to explain this concept. If you’re a lawyer and you make $208,000 per year and work 80 hours per week your hourly income is $50/hour. You’re now one of the top income earners in the country and, with a reasonable savings and investment plan, will be rich in short order, right? What if, however, I make $52,000 per year, have no office, can work from a cafe in Jackson Hole, WY or a beach house on the Outer Banks of North Carolina, and only need to work 5 hours per week? Only one hour per day. That translates to $200/hour.  More importantly, I have an extra 75 hours of time that I own, control, and is available to me every week. That control of your time is what I call, timeflow.

Now for the tough part, which is more valuable? Which is more important? This isn’t a trick question. One of them is truly more important and more valuable than the other.

It’s your timeflow for one simple reason: You can lose all of your money and get it back, but once you’ve given up your time, it’s lost forever.

That being the case, when was the last time you went into a performance review and asked for more vacation time instead of a raise? What about when negotiating for your job? Did you offer to give up a week or 2 worth of pay for additional time off? If your time is truly more valuable, what are you doing to improve your timeflow at work or in your business???

If you understand that concept, you understand what it’s like to be the New Rich. To become one of the elite members of the New Rich community you need to work on 3 things:

1. Cashflow
2. Timeflow
3. Mobility

The best way to achieve these 3 things is to own your own business. That business can be a brick-and-mortar, main street style business as Brad Sugars suggests and I have owned. Or it can be an internet business that simply resells products as Timothy Ferriss suggests. Either way, the business has to be absentee-owned so, whether you’re there or not, it’s putting money into your bank account. If the business you’re looking to buy doesn’t allow for absentee ownership, don’t buy it. If the business you own doesn’t provide that option, sell it.

So how did the hippies create a group of people with such financial and business savvy? Well they didn’t do it on their own. The hippies simply taught us the importance of timeflow. They reminded us of the human-spirit’s desire for new experiences and to see new places. The baby-boomers taught us that, to enjoy those things, you still need money. The Generation X and Yers have put those together, wrapped it all up in the latest communications technology, and created this new breed of entrepreneur. Once you’re a member of the New Rich you can decide if you prefer the cars, motorcycles, and boats in the style of the baby-boomers or the travel and experiences in the style of the hippies… That’s the beauty of their lifestyles. They’ve created a way to do what they want to do when they want to do it. You can learn to do the same.

Whether you own a business or have a job, hopefully by understanding how the New Rich are finding balance in their lives amongst all the conflicting information they were taught by their parents and educators, you can better achieve a timeflow and cashflow balance in yours.

To your balanced success, Bryan

P.S. If this makes sense to you and you’re interested in learning how to go about acquiring your own business start with The Fundamentals. If you already own a business, you need to learn how to start improving your timeflow. If you’ve owned that business for any amount of time you may really need to consider moving on and buying one that can truly help you achieve your goals. You may also email me directly for more help.

July 17th 2010 is my 10 year high school reunion. Ten years ago I was asked to give a speech at my high school graduation. Recently I’ve read a few blogs by entrepeneurs providing advice to recent graduates…  That got me thinking about what I’ve learned a decade after high school and what I’d say if giventhe opportunity today… And this time I don’t have to deal with the principal censoring me…

Ten years ago, my speech focused on the powers of the mind and positive thinking. Topics I’ve reviewed in my blog in several instances and, though those lessons are still paramount, my new speech offers a bit more “practicality”. After writing out my suggestions, I noticed I’ve written blogs to explain most points in more detail so follow the links for more clarification.

Keep in mind that a blog is much different than a speech. A blog can be read, reread, reviewed, and linked to additional information. A speech is heard only once. If given a speech I’d simply focus on 9, 11, and 13 and tell a memorable story to illustrate each…

1. Develop good habits – We are all creatures of habit. Our eating habits, work-out habits, reading habits, education habits, relationship habits, drinking habits etc. etc. etc. ultimately form who we are. Your habits will control you. If you develop bad habits you will be fighting them for years to come.
2. Never stop learning – Read. Attend seminars. Ask questions of your grandparents and parents and those better than you. Write and expose your thoughts to criticism. You are what you know. The difference between you and your millionaire neighbor is that he knows something you don’t and he’s taken action to do something you haven’t. Learn what he knows and then do what he does. This lesson is applicable for all professions.
3. Always spend less than you make – This sounds simple. And it is. So do it. You don’t need ANYTHING that you can’t afford. To that I’ll add, never take out debt to pay for a toy (i.e. motorcycle, atv, jet-ski), vacation, or non-essential. In other words, ONLY take out debt for real estate, your college education, and, if you have to, your primary mode of transportation. Pay cash for everything else.
4. Save, save, save – Now I’m bordering on preaching but Americans seem to have a serious issues with financial discipline. Get into the regular habit of saving at least 10% of your paycheck. Setup an automatic transfer to savings. When you get a raise, increase the percent you save and keep the same standard of living until you can live for 6 months entirely on your savings. Then invest.
5. Attend every wedding you’re invited to – In the last few years I’ve attended weddings in Texas, Pennsylvania, Colorado, Michigan, Indiana, New York, and Wisconsin. I’ve spent literally thousands of dollars travelling to these weddings and the only weddings I regret are the ones I missed in Florida and Nevada. If a friend thinks you’re important enough to invite to their wedding, you need to attend.
6. If you’re not happy, do something else – At 10 years after High School and 5 years after college it amazes me how many of my friends wake up to jobs they hate. Promise yourself, at whatever cost, that will not be you. And if it becomes you, which is almost inevitable at some point, you’ll do everything you can to change it.
7. Network! – Your #1 goal with attending college should be to network with as many people as possible. That includes classmates, professors, alumni and just about anyone else you bump into. Actively search out and befriend influential people. It will help you get a job, find investors, find great investments, and it’s a lot of fun. “It’s not what you know, it’s who you know“, is as true now as it ever has been.
8. Never lose touch with your friends – In the world of email, IM, texting and Facebook, there’s simply no excuse. Keep in touch with your friends. It makes the journey a lot more fun.
9. Live today – tomorrow is never guaranteed – At every high school commencement you can stand there and say, in 10 years some of you will no longer be with us. In 10 years, some of your parents, or grandparents, or friends, or family will no longer be with us. You’re not guaranteed a 10 year reunion and your not guaranteed to have the same friends and family to celebrate with. In the words of James Dean – “Dream as if you’ll live forever. Live as if you’ll die today.”
10. Serve God and others – TODAY! – The World Bank defines poverty as having less than $1.25 per day to spend on living expenses and they estimate more than 1.4 billion people fall below that bar. No matter where you are or what you’re doing there are people less fortunate than you in this world. While you’re at college, while you’re working through your first job and paying down debt, you’re still blessed. Don’t wait to volunteer when you have enough time. Don’t wait to donate to charity when you have more money. Give to others today and you’ll always be the better person for it.
11. Set goals - And put them in Do x Be = Have context. According to a Yale study from 1953, the 3% of graduates who had written goals had amassed more wealth than the other 97% of classmates years after graduation.
12. Believe in yourself – Because chances are, at times, you’ll be the only one doing so. Be confident and fearless.
13. Take a risk – I used to travel a lot for work. Maybe 40,000 to 50,000 air miles per year and another 20,000 miles on the ground. On a flight one night, on my way home from California, it hit me. My whole life and the “success” that people had seen in it was perfectly planned. In 25 years of life, as far as I could tell, I had never taken a single risk. It was a hollow and scary feeling to think that I was limiting myself to only taking on the challenges I knew that I could accomplish. Never give yourself the opportunity to look back and say that to yourself. Learn to fail. As the book, How We Decide, by Jonah Leher points out, our minds are designed to learn more from many failures than from a few successes.
14. Skip class when you have more educational things to do – In the words of Mark Twain, “Never let school get in the way of your education.” When you’re negotiating for a job, never forget to get as much paid vacation as possible. I always attended class unless I had something going on where I’d learn more. Sometimes that lesson was that it’s more important to go motorcycle riding with my friends than listen to a professor talk about things I could read in the book. For some reason, that’s a lesson I’ve never forgot.

If I could sum these 14 points up in a single sentence it would be simply, figure out a way to do what you love with the people you love and everything else will take care of itself.

Lucky for you, my speech is much shorter than it was 10 years ago. These are a few of the important lessons I’ve learned. God-willing, in another 10 years, I’ll be able to review my thoughts again.

To your life-success, Bryan

1. Visualize the future and how finding your keys is going to make your life better and easier and relieve stress.
2. Visualize the past to determine the last place you recall having your keys through the point at which you knew they were missing.

Simple test, right? Obviously the second method is going to work and the first is completely worthless because how in the world is that going to help you? It won’t.

Since this is a business blog, let’s project that into our realm. Is visualizing something abstract like “getting rich” or “being successful” or “being happy in life” any different? Well you can imagine what it’s like to be all or some of those things, however how does that help you achieve them? As far as I’m concerned, it doesn’t.

Visualizations work in limited scenarios and here they are:

1. To train your brain and in turn your body to get better at a physical task. There is a great article in Psychology Today that explains the studies that have been done to back this up. In one study, Dr. Guang Yue had average people start weight training by going to the gym daily and had another group weight train by visualizing training every day. The group who went to the gym increased muscle mass by 30% however the group who simply visualized weight training increased muscle mass by 13.5%! Just by using their minds!
2. To problem solve (by visualizing the past or present). As I mentioned in the example above to find your keys. This can be used to solve all sorts of problems from improving your next lap at the racetrack by reviewing where you were slow on your last lap, to improving code you’ve written for a computer program.
3. To create something entirely new. In other words, visualizing a design, idea, or invention that hasn’t yet been created to help determine how all the parts, components and pieces will fit together. This obviously doesn’t guarantee a perfect design, but can help.
4. To motivate yourself. Visualizing the wicked burnouts you’re gonna be doing in your new ZR1 or how the sand is going to feel between your toes when you make that month-long trip through the Mediterranean are definitely motivators. When your mind feels that a dream or goal is that close to being a reality it helps motivate you to trudge through the difficulties of today to get there.

That’s a relatively short list and so is certainly incomplete, so it’s probably more important to point out the main weakness of visualizations:

Visualizations haven’t been proven to help solve problems by visualizing your feelings or circumstances once the problem is solved. Self-help guru’s would have you believe that visualizing anything can make you produce it. In one part of The Secret a wealthy gentleman tells a story about realizing a house he’d been visualizing years before was in-fact the house he was living in now. He hadn’t even realized it until he found this picture years later. That sounds like a powerful testimonial for visualizing “being rich” or “successful”, but it’s a lot more specific and really falls into #4 above. Even that may be a bit questionable, though because he couldn’t be visualizing that one too regularly or you think he would have remembered it, right?

To clarify a beneficial visualization from a worthless one, consider the study above where people visualized lifting weights and gained 13.5% more muscle. If instead they visualized being ripped or how it would feel to walk on the beach with their perfect new body do you think it would have made a difference? I don’t think so either. That’s obviously the equivalent of visualizing wealth and happiness. It’s too abstract and therefore worthless.

I just added The Field: The Quest for the Secret Force of the Universe by Lynn McTaggart to my Amazon wish list so I’m still keeping an open mind. Maybe McTaggart will present me with some evidence to prove that “The Force” does indeed exist and that you can simply “think things into existence” as the self-help guru’s preach. Until then, I’m going the way of Michael Jordan and skipping the daily affirmations and the visualizations of success.

To your success, Bryan

1. Think positively
2. Tell yourself how good you are and that you have self worth
3. Create a positive self image by reciting “Affirmations”
4. Make use of the Law of Attraction – “Thoughts become things” – This one can be true if you full understand it’s meaning as you can read in my blog here. It has it’s place, but that place isn’t all alone as your guiding principle for success.
5. blah, blah, blah

Does that sound pretty close? We’ve all heard that stuff to some extent and obviously I’m going to now tell you that’s mostly wrong and half-true at best.

Do you think Kobe Bryant or Lebron James getup every morning or sit down before every game and tell themselves:

• “Gosh darnit, I’m a great basketball player”
• “My J is like butta” (i.e. I have a great jump shot)
• “I have mad handles” (i.e. My ball-handling skills are awesome)

Do you think Sidney Crosby or Alexander Ovechkin do the same thing every morning or before hitting the ice? What about Warren Buffet? Does he sit down every morning and tell himself he’s the greatest investor in the world?

Of course not (though they may visualize taking a game winning shot, or negotiating a billion dollar deal but we’ll get back to visualization in a different blog). That’s ridiculous. Why don’t they do that? Because they already know it to be true. They know this in both their conscious and sub-conscious mind. In other words – they know logically and instinctively they’re great at their given profession because they’ve already proven to themselves (and the rest of the world) that they are.

Ok, but maybe they’re great because ever since they were little they told themselves they were. Of course we’ve heard of the professional athlete who predicted as a 10 year old he’d be in the NFL. But then again which 10 year old doesn’t think they’ll be a professional athlete? Sorry, that’s not enough. Michael Jordan was cut from his high school basketball team as a sophomore. Think that helped his self-esteem? So did he sit around for the next year telling himself he was a great basketball player? Of course not, he went out and practiced until he actually was a great basketball player. And he kept practicing, and kept working hard until he was arguably the greatest athlete to ever pick up a basketball. Even the self help genius, Stuart Smalley, didn’t quite understand why Michael didn’t need affirmations.

Are you starting to see the failed logic of the self help “guru’s”? They tell you to tell yourself that you’re great before you ever are. Sorry to break it to them, but your mind knows the difference between truth and fiction. Even worse yet, as a general rule, your mind will reject the fiction and you’ll be no better off.

So what are you REALLY supposed to do to become successful? (And why should you listen to me about this?)

1. You can NOT be anything you put your mind to. Sorry, your mom is flat out wrong. Think about it for a second, there are only a mere fraction of human beings every physically or intellectually capable of becoming Olympians. I say intellectually because you can be the greatest physical specimen the world has ever seen, but without discipline you’ll never be world class. We all can’t be Einstein’s. Doesn’t matter how good you are at high school physics or how long you study, it’s just not possible. If you need more proof than simple appeals to logic, read, First, Break All the Rules: What the World’s Greatest Managers Do Differently by Marcus Buckingham. With very exhaustive research, he demonstrates why your mom’s words of encouragement are not at all realistic. Instead he points out that by a combination of nature and nurture we are predisposed to be good at something. Figuring out what that is, is obviously the trick.
2. Visualizing vague potential future scenarios doesn’t work. In the book, Made to Stick: Why Some Ideas Survive and Others Die, Chip Heath references a UCLA study that had 3 groups of students try to resolve problems in their lives. The first group (the control group) was given some basic instructions on how to deal with problems by thinking about the problems and coming up with ideas to resolve them. They were then given a list of benefits for fixing the problem such as reduced stress. The second group was instructed to visualize the problem and all of the steps that lead up to the problem in an effort to find the solution. The third group was told to picture the problem being resolved. In other words visualize the future of how the problem will be resolved and what that will look and feel like. If you’ve heard the self help preachers, as I have, then you instantly “knew” the third group did best. Sorry, wrong answer. By almost every measurable dimension the group that visualized the steps leading to the problem, NOT the group who visualized the possible future solution or how that solution would make them feel, did better. Sorry, self help guru’s. You’re wrong. (Honestly, that came as a shock to me too. But when you consider the science and a bit of common-sense, its easy to see that they’re obviously wrong.)
3. Lying to yourself is just plain silly. Noah St. John points this fact out in his book, The Secret Code of Success. He suggests that if you tell yourself every morning that “I’m rich” and you aren’t, your mind knows the difference and you won’t just become rich. Instead he claims that your mind prefers to look for solutions to problems. In other words, if, instead, you ask your brain, “Why am I so rich?” every morning, your brain will instinctively try to find the solution to that problem. He has plenty of anecdotal evidence though no real scientific studies to back up his assertion. In my book, that makes a LOT more sense to me than lying to yourself.
4. Confidence comes with experience. Two weeks ago I went on my first off-road mountain bike ride in about 5 years. Our trail was one of the top 50 ranked trails in the US called “The Alien” in Aztec, NM. The trail was a complete blast to ride, but I must admit there were some hairy parts. It’s mostly single-track and you spend a lot of time looking into canyons, riding between large boulders, and trying not to lose your traction on desert sand. Lizards regularly run across the trail. My guide was a friend who has quite literally ridden the trail about 50 times. He even completed a race on the trail less than 2 weeks before. He also just happened to be a national BMX champion in his youth. He has half a room filled with biking trophies. In the particularly scary parts of the trail, of which there were really only 2, he warned me ahead of time. He could ride the trail with his eyes closed (actually he does often ride it at night) but he knew I was on a new bike on a new trail doing something I hadn’t done regularly for a decade. I was a bit nervous. He was not. He had mastered the trail. I was just glad I hadn’t wrecked. He had immense proficiency due to years of riding in general and in particular on this precise trail. I had neither. No matter how much time I spent that morning, or even for the last 10 years, telling myself I was a great mountain biker I wasn’t going to do as well as him. On the other hand, I promise you, he didn’t expend one ounce of mental energy “affirming” for himself that he was a great rider that day. Confidence comes with practice and experience and not with mental repetition (visualization is something entirely different).

So why do all of the “guru’s” get it wrong? I can offer a few guesses:

1. They are naturally positive, confident, and good at things that bring success such as public speaking, learning, negotiating and leading people. Or they have some of those qualities and taught themselves the others. Since much of it is natural, they can’t ever figure out why other people aren’t that way and so just guess that if everyone else repeated to themselves daily what these guru’s already know to be true about themselves, they’ll improve themselves. Seems like a somewhat logical guess. Unfortunately, it’s wrong.
2. They don’t really dig deeper. By that I mean they don’t read and research the books and studies that attempt to explain the human mind and soul and so never get a full picture of what they themselves are probably doing naturally.

So how do you get it right? Let me sum this up in one simple quote:

“The difference between where you are and where you want to be is knowledge.”

In other words, if you aren’t wealthy, popular, successful or a star athlete but want to be, you need to learn what people who are the those things are doing. You need to know what they know. You need to know how they came to know it. You need their knowledge and eventually experience and skill. Once you have that, you will have the confidence you need without tricking your own mind. Obviously this also assumes that you have the ability (either mental or physical) and temperament to do all the things they were capable of doing.

The simplest explanation I’ve heard for this is Do x Be = Have. Read my blog explaining that formula.

That’s pretty much it. Sounds a bit too simple doesn’t it? No memorization, no daily recitations, no lists of positive self qualities. Though it is simple, if that sounds easy to you, you misunderstood what I said. If you want to be as wealthy as Bill Gates, you have to know and do all of the things that Bill Gates knows and does (and be lucky enough to have the timing and potential that he does). That’s not easy. If you want to simply be a millionaire, find a few who you’d like to emulate and learn everything they know and do. Unfortunately, this is a lot MORE work than the self help guru’s would lead you to believe. Fortunately, this will actually work. How do I know? I’m working through it with my businesses every day. You don’t have to believe me. Let me know how those daily affirmations work out, though.

To your success, Bryan

P.S. This, I am aware, goes against some of the ideas of great authors such as Og Mandino, Napoleon Hill, and Tony Robbins and obviously that means some people may passionately disagree. However, I have 2 quick counters to that disagreement. Firstly, I see this as an improvement not a replacement of those great minds. We’ve learned more about human psychology and are able to more effectively apply it now then they were. Secondly, that’s what blogs are for. If you disagree, comment and let me know.

Widen your gaze to see all the benefits of Google Adwords

Here’s the concept. In previous blogs I’ve talked about the free tool at Wordtracker.com to help you determine which keywords are most popular on the internet. The problem with this tool for small businesses is that it’s a global tool. Meaning that it’s tracking keywords all over the world not just in your territory and so what might be a popular phrase or keyword around the world might not be in your area. More importantly, just because, on a global basis, your competition’s franchise is real popular, that doesn’t mean they are in your area. Or how about if your competition is a local restaurant that won’t even register on the tool at Wordtracker.com because only people (i.e. your potential customers) in your local area search for that business name?

Let’s look at a few examples. Keep in mind that this blog assumes you know how to set up a Google Adwords account, create a campaign for a targeted geographic area, and buy negative, broad-match, phrase-match, and term-match keywords. If all of that is foreign to you, check out my blog on Online Ads. Also review some of Google’s resources.

1. Local Industry Trends – Everyone has competition. And sometimes your direct and indirect competition might not be who you think. For instance, if you own an upscale restaurant who is your competition? You might say your direct competition would be the other upscale restaurants in town, however you would be missing out on a large part of your competition. Call it “indirect”, but any place where someone might spend discretionary income would be competing with you. After all people don’t go to your restaurant because they’re hungry. They can cook for themselves or eat fast food. They go to an upscale restaurant for a social experience. If you’re an accountant, you might consider other accountants in town as your direct competition however accounting software and people who do their own taxes are also your competition. For the water treatment industry, everyone else who sells water softeners and drinking water systems would be your competition however all the soap companies who sell people on the idea that more soaps and lotions are all they need to solve their problems are also competition. You get the point. With Google Adwords, in addition to buying your competitors’ business name as a keyword, you also need to buy all of the keywords that describe your indirect competition. You’ll catch the trends as to what’s popular in your area almost immediately and then be able to use that information in your marketing to better TALK directly to your prospects in the words they are using.
2. Competition – As I mentioned above, my top competitor just started marketing (through a direct sales telemarketing approach that’s very hard to track) in my area in the last month. How do I know this? I bought the keywords for his business name for the geographic territory that I serve about 10 months ago and in the last month more people searched for his business name than the other 9 months combined. The logic is quite simple. People are only going to search for things they’ve heard of so, one way or another, they’ve heard of his business and are doing some background checks via Google.
3. Market Interest – As you can tell, all 4 of these benefits are tightly related and so this one just builds on the last 2. Quite simply, if you’re tracking your direct and indirect competition as described in steps 1 and 2, you can gauge total market interest by simply monitoring the fluctuation in the number of searches for each term. If more people are searching for “Tax Software” than last month or last year, you better have a page on your website that directly addresses why your accounting firm is better and more cost-effective than off-the-shelf software.
4. Key Terms – The internet is an unparalleled testing ground for marketers. You can test creative, copy, calls to action, offers, coupons and just about anything else that can potentially improve your marketing. Now, with the help of Google Adwords, you can track common phrases. Last week my ad agency sent me creative on a newspaper insert we are working on. This ad agency works with dozens of franchises similar to mine around the US and part of the wording on the ad included the term “Water Analysis”. I’d been buying that keyword phrase along with a common synonym, “Water Test”, for months so I logged into my Google Adwords account to see, in my area, which was more popular. Turns out people search for “Water Test” or “Water Testing” 11 times more often than “Water Analysis”. Analysis just isn’t a word people use. So we updated the marketing to reflect the phrase that is already on prospects’ minds. The goal being that, as they’re sorting through their newspaper, they’ll be more likely to notice the term “Water Test” as they’ve already given that phrase a position in their mind. Make sense?

Now that you’re tracking all of this information, what do you do with it? You respond to their problems and let people know why your solution is the best to solve their problems. In marketing we can break up any individual marketing creative into 3 basic pieces:

1. The Target Audience – This is the MOST important piece. You can be running a buy 1 get 1 free deal on Harley’s but if you’re doing so in People or Home and Garden magazine your marketing isn’t going to perform as well as if you put it in American Motorcyclist.
2. The Copy – This is what you say and how you say it. Whether it’s written words or video or an audio recording.
3. The Offer – or Call to Action. This is what you use to try to make the prospect “Act Now.”

With the Google Adwords system I describe above, we can improve each item to maximize our conversion rate.

1. Target Audience – We are only marketing to people who search for the keywords related to your business or competition. It doesn’t get much better then that.
2. Copy – With information on local industry trends, competition, and key terms, your website can directly talk to your prospects in their own words. More importantly, you can create individual mini-sites to address each competitor or trend that might be taking business away from you. Again, you can specifically target and respond to the EXACT problem that you can solve for the prospect.
3. Offer – The possibilities are, of course, endless. If you can pinpoint your competition and why people are choosing them over you, you can easily structure a risk-free offer to get them to choose you. For the restaurant you can describe how the quality of food, waitstaff, atmosphere etc. far exceeds anything else in town. With testimonials and specific examples of the painstaking processes you use to hire chefs and maintain the utmost food quality. Put yourself head-to-head with your competition and show how you’re better. Now that you know exactly who your direct and indirect competition are, you can really get into the minds of your prospects.

This is a huge topic to cover in a blog. The ways you can leverage the information Google Adwords can provide for you are nearly endless. It’s a marketer’s dream-come-true. The best (or worst part if you sell Google Adwords services) is that it’s not complicated, would take a few hours to setup, and maybe an hour or 2 per month to maintain to garner all of the important information you can use.

Granted, as easy as it is to track, I’ve never heard another Google Adwords guru describe this power for small businesses. They all focus on online businesses so if you’re looking for more ideas on small business marketing in today’s  marketplace be sure to follow my Facebook Fan Page or sign-up for my email list in the upper right.

To your Google Adwords marketing success, Bryan

P.S. If you don’t even have a website you can still use everything I described. Just place your bids so low that your ad will show up on page 4 and never be read. If you’re looking to bring a new product to market or start a new business, this is a great way to determine current market interest.

This past week I was brushing up on vehicle dynamics by thumbing through an engineering text I received at the OptimumG training put on by Claude Rouelle. The first story the book told went like this. The top 9 drivers in qualifying at a recent Nascar event (Virginia 500 2002) were separated by .1 second (.5%). The top 15 drivers in qualifying at a recent F1 race (Austria 2002) were separated by .8 seconds (less than .8%). Business works the same way, you don’t have to be 2 or 3 times better than your competition to get more business. You literally only have to do a few small things better and people will choose you. This is what’s meant by the “law of the slight edge.”

Me autocrossing my 2006 G35 at BeaveRun in 2007.

So how do you obtain that “slight edge” in racing? An engineer has 2 ways to address a problem. A driver goes out for a 6 lap test drive and says a car has a lot of understeer. The engineer adds 2 degrees to the front spoiler and sends the driver out for another 6 laps. Now it understeers less but still understeers. He adds 2 more degrees to the front and the driver heads out for another 6 test laps. Now it oversteers so the engineer subtracts 1 degree from the front spoiler and again out for another 6 laps. Finally the engineer adds another half degree and after 6 more laps the driver confirms that the handling is neutral. That took a LOT of time, money, rented track time, and energy. A total of 30 laps to accurately setup and test the car to come up with 3.5 degrees added to the front spoiler. This is how most business owners tackle problems.

A better way to improve the car is for the engineer to listen to the driver indicate understeer, evaluate the data (because he knows the correct data to review AND how to interpret it) to determine the cars Aero balance is at 36.9%. Then he compares that data to when the car was setup perfectly on a similar track and determines that an aero balance of 38.3% is needed. He makes a single adjustment to the front to add 3.6 degrees and the car is perfectly neutral the first time. A total of 12 laps and he knows the car is setup well. This is how business owners should tackle problems.

Now before you start saying, in the real world of business and dealing with people things are never that perfect. In reality, in racing it’s never that perfect either. Drivers are good, but they aren’t that good. They also aren’t generally very consistent and, in reality, they aren’t “sensitive” enough to feel slight variations. Moreover, weather, cross-winds, other drivers on the track, and a thousand other items can make choosing a “perfect” setup challenging. Which is why we’re never looking for perfect. We don’t need to be perfect. We just need to have a slight advantage over the competition.

That’s why the Team Leader for our race team used to point out to us when we were getting TOO wrapped up in the perfect simulations or calculations that “We’re engineers not scientists.” In other words, we live and work in the real world where your gut instinct and experience will ALWAYS be a factor in making decisions because you’ll never be able to test every single variable. On the other hand, scientists setup controlled environments so that they can test and control each variable.

As a business owner, your job is like that of the engineers relying on science, data, driver-input AND experience to make the best decisions. And that is why business consultants and coaches don’t work! Let me explain.

For that engineer to make the best decision for his racecar, a few things have to be present:

1. Experience
2. Data on his car
3. Comparable Data for that car running on other tracks
4. Ongoing support and testing because each track is different and even the same tracks can vary

The same is true of someone who wants to help you improve your business.

1. They need experience in running, owning, AND analyzing a business. Business coaches and consultants can both reasonably have this prerequisite.
2. They need data about the business. In other words, when a car is setup with hundreds of sensors to acquire data, they need to not only have access to that data, but they also need to know how to look at the relevant data and discard the irrelevant information. If the consultant or coach could reasonably have this skill however, there are plenty out there who are looking at the “wrong” numbers or skipping over some of the most important data. Quite often, they over-complicate it. For instance, in the example above, the engineer could have considered tires, anti-roll bars, springs, aerodynamics and even driver error in getting the car setup correctly. Experience told him exactly which data to review, however.
3. For comparable data, your coach or consultant needs experience AND data working with similar businesses. Think about it for a second. What conversion rate is reasonable for your business? If you have an accounting office is your conversion rate going to be the same as a woman’s clothing store? Probably not. When you have comparable data, you can now better determine which areas present the greatest area of improvement so that your time is always being invested on the projects that will give you the best ROI. This is where the rubber of the 80/20 rule meets the road. Just because you know there are 20% of things you can do to give you 80% of the results, doesn’t mean you know WHICH 20%. Industry specific consultants and coaches may have this data and experience, however most consultants and coaches are trying to be everything to everyone so look out for this.
4. Finally, the variables on the racetrack and in your business are ALWAYS changing. It’s not enough to be given a plan of action by your consultant and then be asked to implement it as he walks out the door (as is normally the case). It’s also not enough for your coach to call you every week or month and tweak your plan for real-world circumstances. To be truly effective, that coach needs to be constantly comparing your business to other similar businesses and providing you with input. Along the way both of you will develop the experience needed to make better gut choices when everything can’t be calculated and moreover, you’ll better understand how other similar businesses are tackling the same problems you are. No business owner, coach, or consultant will have all the answers so continually reviewing problems and solutions from a group of similar businesses can help everyone involved more quickly achieve excellent results (i.e. more profits with less time input).

As you know by now, I don’t write about problems in business without offering a solution. The solution is the Small Business Engineer leading a team of small business owners in the same industry. Just like the engineer at the racetrack, the Small Business Engineer will continually work with the driver (i.e. owner) to gather real-world feedback. He’ll help you determine exactly which data (i.e. reports) to be watching and help interpret the changes. He’ll provide data from similar racetracks (i.e. other businesses in your industry) to help you get up to speed more quickly and determine which 20% you should always be focusing on.

Whether for a business or a racecar, the engineer’s job is to help improve the problem as quickly, effectively and cheaply as possible. Once that’s done, your business can now have the slight edge it needs to blow away your competition.

If you’re interested in learning more about working with the Small Business Engineer, comment or email (bryan@ethicalbusinessbuilder.com) me.

To your business-engineering success, Bryan

P.S. For more information on what numbers to watch in your business, check out my 5 part series on how to fix your business fast.

What I am personally fanatical about tracking is the results to direct response marketing. By that I simply mean that if I send out a post card, create a website, or insert a piece in a newspaper, I want to know exactly how much revenue those marketing pieces generated for me. As a small business (i.e. you don’t have $100 million dollar ad budgets) this is the ONLY type of marketing you should be focused on.

Major corporations, however, invest in very sophisticated very expensive institutional marketing programs. By that I simply mean that hundreds of millions of dollars have been spent to create a recognizable name, character, and/or slogan. More importantly, that advertising has created a position in people’s minds ideally relating the name, character, or slogan to their brand unlike any of their competitors are able to do. Once you have that position you never want to give it up because changing an already established position can create confusion in the prospects mind and it gives room for a competitor to take over that position. Along these precise lines, I recommend a great book written by Al Ries and Jack Trout called Positioning: The Battle for Your Mind. Ries and Trout give example after example of businesses like Volkswagen, Chevrolet, Michelob, Miller, Avis and others who did and did not understand their positioning and how that affected their long-term profits. Some have messed it up horribly.

Camel cigarettes had deep enough pockets and understood the power of institutional marketing, branding, and positioning so well that more 5 year-olds in the previous generation could identify Joe Camel than Mickey Mouse. Obviously 5 year-olds can’t buy cigarettes so why do they want 5 year-olds to know Joe Camel? Because in a decade when teenagers start getting exposed to smoking by peers, whether they consciously understand it or not, Joe Camel has made a position in their mind that’s not easily forgotten. If you have a small business, you can’t possibly afford to do this. You need to pay your bills and make payroll this week, you don’t have a decade to build a position.

There are, however, 2 main “small-business” exceptions to the rule that small-businesses shouldn’t engage in institutional marketing:

1. Banks – In your lifetime, you are more likely to get divorced than change banks. For some reason, banks have customer retention rates somewhere in the high 90% range. My mother told me that when she moved across the country, married my father, and they started a family, the ladies at the bank were some of the first people who she would show her babies too. That sounds rather strange to me, but it makes sense. Any good marketing is about developing relationships and any bank worth it’s salt is going to train their tellers to do just that. If their good at it, it’s just natural that their customers would know all about their “favorite teller” and vice-versa. After all, it’s a very intimate relationship as that teller knows quite a bit about you that your best friends and family will never know. So how can banks invest in institutional marketing? I would suggest in the same way that Joe Camel did. Target children. If you know that you’ll have a 90% plus retention rate, it’s a race to see who can get that first checking account setup for the first job, right? Well what if you deposited $5 in an account for each middle school or high school student who came to the bank with an A on their report card? It may take a decade or longer before that pays off, but you’re almost guaranteed to keep that child as a customer as they need a car loan, house loan, student loans etc. etc. etc. At least you’re more likely to get those accounts from that child than you are to attend their 50 year anniversary.
2. Franchises – Obviously this is one of the benefits of a great franchise. Yes, of course, their are franchises that are downright terrible and the name isn’t worth a whole lot. However their are others that have been established for so long and have invested so much money in marketing over decades that their name is extremely valuable. This week I was speaking with a colleague who owns a franchise that’s one of the top 300 most recognizable names in marketing and has no competitor recognition in the top 1000 names. Their tag line has been known and marketed for decades. The business is a Culligan water dealership and the tag line is obviously “Hey Culligan Man.” Prior to his current business, he owned an independent pizza joint. In addition to loathing the late hours required at a pizza shop, he said it’s nearly impossible to make money when you’re competing with the big name pizza places like Pizza Hut, Papa Johns, and Domino’s. Even when you have a great product, which he did. All 3 of those pizza franchises have the resources to invest in both institutional and direct-response marketing. Each month without fail, I will get a postcard with the latest specials from each of those 3 pizza franchises. Why? They want me to cut out a coupon and take action right now to buy their pizza. Obviously they also invest a lot in commercials, websites, radio ads, sponsorships and other items that don’t generate a “direct-response” for them, however, it does help them create a position in their prospect’s mind so that when she starts thinking of pizza, they pop into her head.

So if you have a small business, what should you do? The answers is very simple, invest all of your marketing budget in direct-response advertising. If you decided to go the route of being an independent franchisee, you’ll obviously benefit from the institutional marketing your franchisor does on your behalf. However if you have any control over your own marketing dollars, you better make sure that every dollar that you spend in marketing is coming back with friends. In other words, with the use of micro-sites, web analytics, coupons, call-tracking phone numbers, and plain-old asking people (though you do always have to be skeptical of their answers) you should do your best to determine exactly which marketing investments bring money to your business.

In my business I’ve tested radio, direct-mail, newspaper, websites, gooogle adwords, yellow pages, local sponsorships, home shows, and just about everything else. Over 2 years I’ve tracked the results of each item and today can, with very high certainty, know approximately how many dollars of revenue I’ll bring in for my best marketing projects. For my business, newspaper (which was literally the last thing I decided to test because I thought it was dying) has out performed everything else even though there are still some profits to be made with home shows and direct mail if done properly.

So what does that mean to me? I’m going to put as much of my marketing budget into newspaper marketing as possible as often as possible until it stops working. Do you know what marketing projects can produce those results for your business? If you stop investing in institutional marketing and start investing in direct-response marketing, you will.

To your direct response marketing success, Bryan

P.S. If you’re looking for a great book on the subject and some more details on what numbers you should track with your marketing, check out my blog about Claude C. Hopkin’s book Scientific Advertising.

1. If someone won’t negotiate with you via phone or email, they’re not real interested in negotiating with you in person. This happened to me twice. It wasted a lot of my time and energy and really annoyed me since they weren’t willing to make any good deals in person but assured me if I came to the dealership they would give me a great deal.
2. They can give you a very close estimate of your trade-in, sight unseen. Don’t let them tell you you need to drive 3 hours in one direction to get that information.
3. Whatever their first offer is, ALWAYS deny it. Do the same with the second offer, they can ALWAYS do better. In other words, BE PATIENT. How much better? Well upon my first phone call one dealer gave me a price of 36,000 and 0%. Second call he offered 31,000 and 0%. Third call he offered 31,000 and 0% and 18,000 for my trade-in. Fourth call he offered 31,000 and 0% interest and 20,500 for my trade-in. So from first to fourth call, we’re talking about a swing of about $7500. :-O  And I know I can get the price down even more. Another dealership, without even me prompting dropped the price on a car by $1000 from one weekend to the next. They didn’t even call me, they just emailed the new better offer to me.
4. Invoice prices that you see on Edmunds.com and similar websites don’t mean a thing. One dealership I went to had a “Market Adjustment” markup over MSRP for Mitsubishi Evolutions of over $3,000 and they wouldn’t even drop the price to MSRP!!! Another dealership across town agreed to sell me the same exact car for $3,000 under MSRP which was about a $1000 less than invoice. Do you really think that car dealer was going to sell me a car at a $1000 loss? Of course not. The salesman needs to get paid as well as the dealership. The invoice price doesn’t mean a thing.

As I mentioned in my blog about selling to the Internet Generation, we know how to get a good deal. One of the ways we can the best deal, is by being “dispassionate” about the purchase by negotiating via email and phone. If you didn’t just get out of test-driving a fresh, new car, it’s hard to make that split second decision to buy it cause it makes you feel good. Car dealers HATE unemotional buyers! As a matter of fact, they feed on them. That’s why they want you to test drive their cars, they’re convinced that you’ll give them the valuable information they need about how much you love the car so they can sell you that car. Granted, as Dave Yoho used to say, “There’s no such thing as an unemotional, dispassionate buyer, who buys solely on merit.” I’m no different. So the question is not whether or not I’m going to buy the car, it’s just what do I have to do to get the best deal. And therefore, which dealer will I purchase from.

How dispassionate can I be?  I make up a spreadsheet with the numbers I want to see based on the 5 year cost of ownership of the vehicle taking into account gas mileage, insurance, car payments, and up-front costs. If the numbers in the spreadsheet aren’t where I want them, I walk out. I even tell the car dealer that. “Hey I appreciate your time, however this is what I can afford, if you can’t make money on this deal, I’m not going to ask you to sell me the car. I’ll just wait till I sell my car at a higher price.” That’s when they start coming back with better offers.

It’s worth noting that this is definitely a buyers market. With the sluggish economy car dealerships are hurting and are much more willing to make a deal now than they were 2 years ago. It’s not your fault that they need to badly sell cars. They don’t have to accept any offer that you put forth. As a matter of fact, you’re trying to help them out by buying a car from them. Always keep that in mind when negotiating for a car, business, or anything else.

To your negotiating success, Bryan

If you could consistently make 20% MONTHLY returns in the stock market you’d still benefit from a small business. Realistically, I can’t think of a single reason not to own a small business. Even if the business only employs you, there are tax advantages though there are certain advantages, such as healthcare, that are only possible with people working with you.

Keeping in mind that less than 12% of millionaires, according to The Millionaire Mind, are professionals (i.e. doctors, lawyers, engineers, etc.) and the vast majority create their riches through building a business, that’s actually beside the point. My point in this blog is simply that owning a brick and mortar business has many advantages that even your 1-man-show-no-employees-to-deal-with internet business can’t match. Let’s look at a few:

1. Taxes
2. Room to cutback
3. Health Insurance
4. Retirement Accounts

The quantity of tax advantages possible with a small business are for more numerous than a short blog can cover so I’ll touch on a few highlights:

1. Pre-tax Expenses – Your gross pay is meaningless. Your net pay is all that matters and when your phone, internet, car, car insurance, business meals, and travel are all paid for by your business the savings are huge. As an example, if all of those pre-tax expenses add up to only $10,000 per year and you are in the 30% Federal Income bracket, have 5% state income tax and have to pay 15.3% in FICA (7.65% from the employee and 7.65% from the empoyer) you’d have to pay yourself over $20,000 in salary to afford the same expenses. If you own a business and those expenses only amount to $10,000/year you probably need a better accountant. Keep in mind you have to be honest about the use of those items. For instance, my company doesn’t pay for my entire cell phone bill because obviously I use the cell phone personally a portion of the time. The same is true for my vehicle allowance.
2. Distributions – When you have a pass-thru entity you have to pay yourself a “reasonable” salary and the rest of the profit you can take as a distribution without paying any FICA tax (a savings of 15.3%).
3. Racing - This is probably my favorite! In essence, if you like racing cars, motorcycles, airplanes, bicycles or have some other hobby and you don’t mind plastering your race vehicle with your business’ logo, then your vehicle and most of the expenses related to racing can be paid for pre-tax as a marketing expense for your business.
4. Real Estate – If your business requires a building and you own the building in a separate entity (most likely an LLC), your business can rent the building from your other entity and the rent is passive income that isn’t subject to FICA (again saving you 15.3% over a salary). Obviously the rent has to be reasonable.

As you can see, just these few items can quickly add up to tens of thousands of dollars in tax savings even with a business grossing less than $500,000 per year. Obviously, the larger the business, the greater the savings.

By room to cutback, I simply mean that if you have a business that employs just you and sales drop, guess who the first one to get fired is? On the other hand, if you have a business with just a dozen employees and sales start dropping now you have a lot more room to cut payroll before you’re out of a job or taking a pay cut. As a small business owner, I know personally that cutting others before you cut your own pay is extremely difficult to do, but you can’t deny that, if necessary, you and your family have a bit of extra security.

As for health insurance, if you have a few employees (at least prior to the new Healthcare Reform Bill) there were health insurance advantages to being on a group plan such as your rate is primarily based on your age and not pre-existing conditions. I learned this first-hand as I couldn’t get insurance as an individual but had no problem getting on my business’ plan.

Since it’s your business, you get to structure your SEP-IRA or other retirement vehicles in any way that you want. Of course you have to make the accounts available to everyone on your team, however you have the ability to structure the accounts to best benefit you. This power can have a major impact on your overall tax bill today and into retirement, so don’t overlook it.

Finally, if you’re looking for what type of entity to create, I highly recommend an LLC filing as an S-corp. Also, make sure you have a GREAT accountant to take care of all of the details of these tax advantages and to make sure you’re doing everything legally and ethically.

To your tax-saving success, Bryan