The Most Important Wealth-Building Element of Building Your Business

Reggie T. desperately wanted to start his own business, but his financial obligations made it impossible for him to quit his job and go without a salary until he could grow a business into profitability. And with his demanding hours as a low-level manager in a retail store, he just couldn’t find any time to start a business on the side.
To say that he was frustrated is an understatement.
Then Reggie got laid off from his job. At first, he panicked, but the layoff gave him the perfect opportunity to take the plunge and start his own business.
Reggie’s hobby was martial arts. Not only was he a black belt in Tae Kwon Do, he was a good instructor. And he realized that this gave him what Michael Masterson calls a "financially valuable skill" - a skill that other people will pay for. As a result, he was able to use his expertise and teaching ability to build a small business giving martial arts lessons.
All this happened five years ago - and Reggie thought his future looked great. He was doing something he enjoyed, and he was working for himself instead of someone else.
But here’s the problem: Reggie now finds himself in almost the same predicament he was in as a retail manager. He’s working long, arduous hours, and is barely making a living.
Yes, teaching martial arts is more fun than managing a stock crew and cashiers - but because he hasn’t been able to get ahead financially, Reggie’s business feels like a ball and chain holding him down. He spends so much time keeping it going that he has no time to develop another stream of income.
Here is Reggie’s critical mistake: He built a business that is solely dependent upon him. Without him, the business will fall apart. That’s a big burden for anyone to carry. If you develop this kind of operation, you don’t really have a business. All you’ve done is given yourself a job.
Reggie sold his lessons by focusing on his personal credentials. And his students loved the way he taught. When he brought in an instructor-trainee to ease his workload, attendance dropped. So Reggie decided to bring in an expensive, highly qualified instructor.
At first, attendance remained steady and Reggie thought he’d finally found an answer that would allow him to expand. But then he ran into another problem. His new instructor built a strong loyalty with the students he taught, and decided to start his own school … taking a lot of Reggie’s students with him.
If you want to become wealthy as an entrepreneur, you must build a business that allows other people to fill your shoes. This is true of any business, not only a service business like Reggie’s. In other words, as Michael Masterson said in ETR #1050, "If you want to be able to control your own time - to come to work when you wish, leave when the whim to do so hits you, and take long, worry-free vacations - you must become replaceable."
So… how can you build a business that will work with other people running the show? Here are some ideas:
1. Try to base your business on a service that is not dependent on your personal skills.
It’s a lot easier to grow a business if the nature of the service you’re providing makes it possible for you to hire other people to take care of your customers as well as you could.
For example, if you have a lawn-service business, your customers probably won’t care who mows the lawn so long as it’s done right. But if you’re a life coach or a masseuse, they will likely have a strong personal attachment to you, and it will be difficult to get them to accept an employee instead.
2. Groom your customers to expect that someone else may render the service in the future.
Now, I’m not saying you can’t be successful in a business where personal interaction is a big part of the service. However, you’ll need to plan ahead if you intend to start transferring your workload to an employee down the road.
If, from the beginning, you plant the seed that you have an associate who may sometimes provide your service, it won’t be a surprise when you gradually replace yourself with him. It helps to build customer confidence in your replacement before you make the actual change by talking about how talented he is.
3. Make it difficult for employees to steal your customers.
I’m not a lawyer, so I’m not offering legal advice here. But one way I successfully prevented employees from stealing my customers was to have them sign a "non-compete" agreement when I hired them. By keeping the contract reasonable, it was enforceable. For example, a court probably wouldn’t uphold an agreement that your employee could never start his own business in the same field as yours. But if the agreement prevents him from starting his own business within 10 square miles of your location for two years after leaving you, that could work. And two years is long enough for any loyalty your customers may have with him to evaporate.
I was advised by my lawyer that one of the elements a contract must have in order to be enforceable is "consideration." For example, if John signs a contract to clean Debbie’s house every week for 10 years without being paid, that agreement is likely unenforceable because John is not receiving any consideration in return for his work. And consideration doesn’t necessarily have to be monetary. I always worded my agreements in a way that made it clear the employee was making the agreement in exchange for the training he was getting. According to my lawyer, the training I provided qualified as consideration.
If you don’t feel confident writing your own non-compete agreement, I definitely recommend hiring a lawyer to do it. The small amount of money you invest in doing it could eventually save your business.
I like service businesses because they often require little capital and can be started on a part-time basis. But be sure to lay the groundwork so you end up with a real business that can expand (and even be sold)… instead of just another job.

By : Larry Fredericks has owned and operated over half a dozen highly successful small businesses. Learn where to find a "goldmine" of investors for your business - and the step-by-step process to attract them - in his "Street Smart Business" program.]

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7 Tips On Claiming Your Tax Deductions for Business and Charitable Contributions

The tax situation for us last year is looking a little complicated, thanks to a combination of life events, business moves and tax law changes that have just recently come up. I have just finished speaking to my tax accountant and he told me jokingly, that we were in trouble.
My tax guy is not too happy about the additional work we are making him do, and as a consequence, he’s forced into filing for an extension for our taxes, despite our early preparation efforts. This isn’t altogether our fault though, because he claims that this year is one of the busiest his seen in a while, mainly due to some company bankruptcies affecting some of his other clients, some personal bankruptcies and foreclosures going on, as well as last minute changes in the tax law that have happened in the last year.

Here’s why our taxes are more convoluted this year than in previous years.

Our Tax Return Headaches
(1) We unloaded 75% of our company stock options in a very short span of time.I’ve mentioned this ad nauseam here, given how much it’s impacted our lives. Because of these financial events, we are seeing a bit of a bump in our income due to the option unloading that we did last year, despite our main breadwinner’s job loss. This one time only situation has pushed us into AMT territory, so we’re bracing for some bigger taxes this year. Not that we’re seeing any material benefits to any option gains we’ve made, as these are being poured right back into the new businesses we’re trying to establish. As I’ve said before, when those options were liquidated: bye bye easy retirement.
(2) I started a few home businesses and a consulting service.The loss of a steady job in our household has encouraged me to look into additional income sources to help support our cash flow needs at this time. This spawned some home business ventures which brought in a small profit last year. While some of these businesses worked, others didn’t. The tax guy has allowed us to look into applying home office and business expenses deductions against any profit, which has yielded some tax savings. If there were no profit, he wouldn’t have been keen on having us take a home office deduction as that would potentially trigger an audit.
As a reminder, here are the things you can expect to deduct as business expenses:
Home office
Travel, meals, entertainment and gifts
Professional fees and dues
Office supplies
Insurance premiums
Furniture
Retirement contribution
Other equipment
Social Security
Software and subscriptions
Telephone charges
Mileage
Child and other labor
Now the home office deduction can be part of what you decide to claim. It’s a neat tax deduction if you can qualify for it, because it permits you to deduct expenses you’re already paying for to run your household. The idea is that since you’re using a proportional amount of resources to run your office, that portion of your expenses can be taken out of your gross income for tax considerations. Just how much of the space is deductible? Measure your work area and divide by the square footage of your home. That percentage is the fraction of your home-related business expenses — rent, mortgage, insurance, electricity, etc.– that you can claim.
Here are the ingredients for your home office deduction:
Property insurance
Utilities/telecommunications fees
Home repairs specific to your office
DSL/other fees to support your home office operations
(3) I screwed up my charity tax deduction tracking process.Every year, I’m usually pretty good about recycling our surplus items to give away as charity donations. But we were somewhat distracted by changes in our usual routine last year, so that I wasn’t as meticulous with our financial record tracking as I normally am. In the past, this wouldn’t be an issue in the realm of charity deductions since that would mean that I could claim our donations of under $5,000 in our tax return without much question, though to be sure, I get Salvation Army receipts as well as refer to proper appraisals and valuations of property via books and software such as It’s Deductible. But since I’ve been bad, and because new laws have just been passed about stricter government regulations regarding charity donations, I’m out in the cold this time. It looks like the only things I can claim this year are the ones I’ve made in cash, since I have cashed checks to prove my donations. On this subject, find some interesting views in the financial blogosphere about dealing with charitable contributions here and here.
Tax Deductions Require Proof, So Sayeth Uncle Sam
How can we all make sure we have sufficient evidence to justify our business and charity deductions? Here are some tips to cover our assets:
(1) Take photos of your home office.
(2) Take photos of your donated items to charity.
(3) Cash donations now require receipts.This new requirement has now taken effect in 2007. If you plan to deduct cash donations to your church or to any other type of collection box, you’re now required to keep receipts.
(4) Store your various receipts and keep an actual record of your receipt amounts.If you’re running a business or just plan to itemize deductions, keep your evidence in one place. Organize and store your receipts, even in a shoebox at a minimum. Consider investing in a financial software package to help you with your record tracking and organizational tasks.
(5) Get software or books that help value your donated items.It’s Deductible is an example of such a book. It may also be available in software form.
(6) Itemize your donated items more carefully.You need to provide more descriptive information now such as “five shirts, two pants, one lamp, one chair” rather than just something like “two boxes of miscellaneous items”. Your deductions will need more elaboration in your tax return.
(7) For more expensive items, you may want to get an appraisal.I can imagine what a hassle this can be so it’s only something to consider for truly more valuable goods.
With our tax guy complaining, I’m just glad I have him to do all the work instead of us trying to wrestle with all the requirements on Turbo Tax. Knowing the esoteric kinks that exist in our financial situation, it would take me till kingdom come to work things out. So for now, I feel it’s worth the premium to pay our pretty fiscally conservative tax guy, whom I consider as a form of insurance against costlier tax mistakes and the potential for a dreaded audit. I told him that the only time I’d ever consider using Turbo Tax is if our lives ever got simpler, but I doubt things will ever be that way again. So I’m going to live by the saying: if it ain’t broke, don’t fix it.

Resources:AMT: Middle class more at risk than millionairesIRS cracks down on charity cheatsGive and grow rich with charitable deductions

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Wish You Could Quit Your Day Job? Do It the Smart Way!

It doesn’t take long to realize that you’ll have a hard time accumulating any significant wealth by working for someone else. Your check looks kind of puny after taxes take a big bite. Your expenses seem to grow in direct proportion to your salary. Your retirement fund… well, actually, you haven’t gotten around to funding it yet.
You’ve also got to deal with all the other downsides of having a full-time job – a demanding boss, difficult co-workers, a bumper-to-bumper commute. It’s enough to make anyone dream of self-employment. That dream leaves you with lots of questions – and if you don’t answer them wisely, you’ll find yourself crawling back to the world of employment.
What Are Your Skills?
In all your years as an employee, you’ve developed some skills that you can use in your own business. It may take some creative thinking to nail down a business that matches your skills. One way to start narrowing the field is to make a list of your skills – list everything, including things you haven’t done in years. Then, ask a few people to make similar lists about you. Finally, compare these lists to see which skills come up most often.
With those skills in mind, brainstorm about businesses that use them. Think outside of the employee realm. For instance, a teacher could start a tutoring business, become a consultant to educational publishers, or open an after-school program.
You’ll probably end up with a list of exciting options. Your best option is one you can start doing while you’re still employed. Your job will serve as training wheels, and help keep you from stressing out while you build your business. Your best bet is one that’s simple, that’s got a fairly short path from startup to profit, and that’s not heavy on initial expenses.
Think Things Through
Once you’ve decided on a business, you’ve got a long list of other decisions to tackle. You’ll need a business plan, a name, a tax entity structure, a business bank account, some marketing strategies, goals, and tactics.
As the business owner, you also get to cast the vision for your business. What do you want your business to offer its clients? This question goes way past the actual product or service you’ll provide to the benefit your business will bring to people. Answering this question thoughtfully will lead right into your marketing plan.
For example, the teacher who decides to start a tutoring business may want to give families peace of mind, and peace at home. A struggling student means worried parents, which often leads to dinnertime struggles. Students who receive the academic help they need experience success in school, and are better able to complete their homework independently.
So, this would be the teacher’s vision for her tutoring business – giving her clients a more peaceful family life. The marketing materials for the business should reflect this key benefit, meeting prospective clients’ needs as they see them.
You Don’t Have to Do It All Yourself
Many of the other particulars surrounding the business plan can be handled by professionals – a CPA to advise on business entities, a copywriter to develop marketing materials, and a banker to assist in opening accounts and credit lines.
Part of developing a business plan is revenue modeling. This is determining several different income streams for the business, developing strategies to bring that business in, and projecting how much income will come into the business.
Take Action
Once your business plan is in place, the next step is taking action. It takes boldness, energy, and dedication to get your new business up and running. You’ll need to learn all the different aspects of business ownership: marketing, sales, customer service, record keeping, budgeting, and management.
As money starts trickling in, it’s pretty exciting. But don’t quit your day job yet! Wait until your business consistently pulls in at least as much as you bring home from your job. You’ll have higher expenses (health insurance, especially), but they’ll come out of your revenue before taxes. Once your income’s steady and high enough to live on, you can take that long-awaited walk into your bosses office and say, “I quit!”

By Sue LaPointe

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