They were looking for investments and business opportunities.  The real estate market had already started to go sideways and they didn’t want to get into that too soon.  (Thank goodness!  They’d have bought way too high if they had done that then.)

They tried a few things and then decided to commit to building out 40 websites. That might sound like a lot, but they found a template they could follow for the sites and they were very easy and streamlined.  

The real work was finding the markets to target and learning about keywords, SEO, markets and affiliate marketing.  But they did that.  The first few sites didn’t do much of anything.  In fact, they started in January and I don’t think they even made a dime until March or so.  

Here’s where a lot of people would have given up.  The cost wasn’t that much so far, at least in money, but they had spent a lot of time and it didn’t look like it was going to pay off.  Was this all just a waste of their time?  I hear that question a lot in emails I get and posts at the TaxLoopholes and other forums.  Why work this hard for a few dollars per month per site?

They kept on, though.  They had committed to building 40 sites and they finally finished in early June.

That’s when they started going back to the first sites and fixing some of the things that they’d done wrong in the early months.  (not early years, early MONTHS)

And it paid off.  In fact, they made more money in June then they did combined in January - May. 

The sites are all done now and they keep going back and tweaking them.  It’s just a few minutes per day now.  And the sites dump money in their account each and every day.  July will be much bigger then June.  And they know August will be bigger then July.

They have created money, literally from nothing.  Just from the air.  They invested 5 months of hard work and will now be paid on it for years.  Or until the market shifts, and when it does, they have the education to change it and the acumen to be there first when it does.

And, are you ready for this?  They are financially free.  It’s done.  

This isn’t a blog post about a program or about affiliate marketing.  The point is to keep going.  In the old Industrial Age it would take up to 10 years to get a business profitable.  You can do it now in a matter of months, but only if you keep with it.  Learn from your mistakes.  Fix it.  Test.  Implement.  Just keep doing it.

Where will you be in 5 months?

But now let’s say your company has an affiliate program in New York.  New York wants the tax.  But so does Texas.  What to do?  Most companies have dropped affiliates in New York because they don’t want to go there.

Now, North Carolina, Hawaii and Rhode Island have all jumped on the band wagon with their own version of the “Amazon” tax.   And true to form, companies are dropping affiliates who live in these states.

If you want to be an affiliate marketer, you’ve now also got to look at where you live!  Amazing times we live in.  This move which was supposed to increase revenue has just cost thousands of people their at least part time livelihood.

And, then do you know how to turn those numbers into a real business financial scorecard of where you are now and a predictor of the future?

If you don’t, you may be like thousands (probably hundreds of thousands) of other small business owners who don’t have a clue what the future holds or whether they really have enough money to pay the bills next month.  

In 3 weeks I’m going to introduce a hot-off-the-press Business Financial Scorecard to my Private Clients. The Financial Scorecard will show the five key components to a financially healthy business:

(1)  Income.  If you don’t have income for your business, your business is not going to last very long!

We track three trends:  Gross Income, Gross Profit and Net Income.

(2)  Current Cashflow:  Do you have enough money right now and enough money within 30 days to cover your expenses?  These ratios are called a quick ratio and current ratio.

(3) Projected Cashflow:  How well are you handling the assets of your business?  Do you have stagnation?  Are the assets converting to cash quickly? And are you paying your bills on time?  (A sure fire indicator of trouble ahead)  Track A/R (Accounts Receivable) Days, Inventory Days and A/P (Accounts Payable) Days. 

(4)  Business Valuation:  How much is your business worth today, realistically?  How much WAS it worth?  How much WILL IT BE worth?  Map out your trend & focus on the key indicators that make your wealth increase as your business becomes more valuable.

(5)  Key Leading Indicators:  What are the three most significant indicators for your business that tell you what your business prospects are for the next 180 days?  In my business, I have three conversion ratios that I watch regularly.  What indicators predict how your business is doing?

Keep watch on this blog and my Twitter account http://www.Twitter.com/DianeKennedyCPA for news on the new ONE PAGE Business Financial Scorecard and how you can get a free copy!  (I have to get Eva, our graphic designer extraordinaire to draw it up first.)

Imagine - having all the information you need for your business on just one page.  And best of all, it’s not just numbers!  You’ll see at a glance what you need to do to make your business explode with growth and possibilities, and best of all, you’re going to keep more of what you make.

No matter what has happened to your business and your investments since this started, there is one thing that is true:  There is a story you’re telling yourself.  

As human beings we distill large amounts of facts into easier categories.  We all do it.  And then we assign some kind of meaning to those categories.

There is an interesting phenomena occurring right now in parts of the middle of the US.  If you’ve noticed it’s primarily the west coast and the east coast that have gotten slammed by the plummeting real estate values.  There are areas in the middle of the country where there haven’t been any significant drops…until now.   What’s happened is “perception becoming reality.”  In other words, home sellers have been watching the news and have started to panic.  They are selling their houses for thousands less then they need to, just because they’re sure that what has happened in Southern California, Virginia and other places in the country is going to happen to them.

Be careful when you hear news.  Is this really news for you?  Is this really true for you and your circumstances?  Be careful what story you create from the stories being spun for you every night.

And what if you really are getting hammered by real estate downturns?  I have a client right now that is a prime example of a guy who is getting it right.  He got hit hard, very hard, and lost millions of dollars on real estate.  I think he might be the biggest ‘loser’ of all my clients.  But he’s not a loser.  I compare him to people I talk to who have had a house or two drop maybe a total of $100,000 and are creating stories of:

Everything I do turns bad.  I’ll never invest again.  I hate real estate.  I’m no good at this.  My family is going to starve without a roof over their head.  and so on…

In the case of my client who lost millions, he worked out what he could on the severely upside down properties, took the hit on his credit and has already got a few months into a new business that is doing great!  He’s packaging up REOs in areas of the country that are hardest hit and then reselling him.  He made as much in his first month of business as he ever made in his previous real estate sales business.  

He clearly recognized where the losers were.  Came up with a workable plan for the lenders and the moved ahead, with no regrets and no second thoughts.  He put his energy into the next deal.  The other thing about him:  he talks in such glowing terms of his wife who is his true partner in this.  They are building the next company together and they each respect and value the other.  I am uplifted every time I talk to him.  

There is courage in getting through adversity without regret and moving on. 

Other clients are repositioning their businesses.  Many businesses are in a unique opportunity of seeing their sales drop as customers demand lower prices (mainly because they just don’t have the income they used to) but at the same time, the business also has the opportunity to drop their prices.

I’ve seen it in my business.  Two years ago I paid $2,500 per month for hosting that I now get for $270 per month.  I am moving my email server from in house ($3,000 per month plus program updates costs) to an outside source for just a few hundred per month.  We can get products designed for just $47 per item.  I could go on and on about all the cost savings I’ve seen.  Here’s my story on that:

Business is changing, faster than ever before.  The greatest survival skill is flexibility.

The times have changed.  Most of us have seen huge changes in how we our businesses work and how much our investments are worth.  That could mean a reason to not get out of bed or it could mean a reason to spring alive, full of the possibilities of a new day.

I choose to be grateful for the challenges that make me better.

This post is for all the people

If you’ve ever done that, then this analogy is going to make sense.  The economy and business today sometimes seems like you are swimming in the surf.  There are times when you make some progress and then a riptide pulls you off in another direction.  Your instinct might be to fight it, but that’s where the trouble is.  Just go with it, riptides bring you back in too.  And then a wave crashes on your head and you have to fight to get a breath of air.  

So, here’s the business analogy.  For a long time, business was just swimming downstream on a fast moving river.  You had to dodge a few rocks along the way, but you were working in the current and all was well.  Now it’s turbulent and constantly changing.

The last two weeks, for me anyway, have been definitely swimming in the surf for my business.  When it gets like that, I always look at successful models in the past and current.  What works?

Today, I was digging around researching the most successful entrepreneurs.  What did they do that got them results even when the odds were against them?  Here’s what I found:

o    They all started with a clearly stated goal/objective.  THEY were in charge of the outcome.

o    They were extremely flexible & had a big skillset to choose from in order to achieve the objective.

o   They put a big emphasis on communication and had a strong awareness of feedback - what was working and what wasn’t - in that communication.

o   They enjoyed a challenge.

o   They had skills and abilities that had become second-nature to them.  

o   They worked with precision, purpose and skill.

o   They kept working at a problem with different approaches until they figured out what the problem actually was.

It all starts with a clear, understandable and succinctly stated objective.  that’s what I’ve observed in my successful clients as well.  The guys who know what they want, keep a level head, good communication skills and are flexible to change are the ones who are coming out way ahead in this uncertain time.

People love it, hate it, or don’t know about it.  Not too many people are ambivalent about it, after they learn the real facts about it.  On the surface of it, this Bill does good things - cuts down on predatory lending.  

But it’s more than the surface, it also lumps anyone who sells a property more than once every 36 months into the same category.  You can only finance with 30 year fully amortizing loans, have to provide stacks of incomprehensible “information” and can’t do second loans, balloons, or any of the mainstays of creative real estate investing. 

It also has a section tacked on that allows the govt to seize any multi-unit (ie, apartment) building that is in default or risk of default.  And, in committee reports and the brief that accompanies the Bill, goes on to state that the purpose is to convert to low income housing.

OK, that’s where the Bill is.  And it’s now being discussed, blogged about, commented about by knowledgeable, sophisticated real estate investors and some people who don’t have a clue.  

This is crowdsourcing at its worst.  Crowdsourcing is a cool term to describe getting a bunch of people together to work together to design, fix or otherwise do some kind of project.  The Internet makes that possible.  In a lot of cases, it’s a brilliant tool.  

The problem that occurs is like my friend Megan says, “Everyone’s John Wayne behind a keyboard.”  They also have the same ring of authority in whatever they talk about.  

So, the guy I know who has done at least 100 property deals is shouted down by the fast typist who has never done anything.  I read a comment where one guy posted, “Well, that’s what investors should have been doing anyway.”  What?  Are you crazy?  I wanted to wade into the fray but then realized I’d just be one more voice in a forum where people are all “equal.”  

When it comes to opinions, yes, we all are entitled to our opinion.  But when it comes to understanding something a little more concrete, like how law historically works, bills are written, passed and implemented, and how specific investment techniques are done, you need a little more than an opinion.

I had a comment at another one of my blogs that one real estate guru didn’t think it was a big deal.  Now, that’s a valid comment.  That’s because I know the guy referenced and I know he knows his stuff.  Of course there are at least 100 other real estate gurus who don’t agree.

Me?  I know that something like HR 1728 is going to pass.  And I know that the really sharp guys will see opportunity in this problem. In fact, the first guy to develop a system around the new law will make a fortune because he just lost all his competition.

The part I find more ominous, though, is how easily private property rights are trampled.  Or at least, threatened to be trampled.  They are going to take my apartment building away because they THINK I might default?  When you read the info behind that, you can see the discussion was about determining default risk based on the neighborhood (I’ve frequently invested in fringe areas, waiting for the change - so I’m at risk now?), what others in that same area have done (you’re judging me based on the guy down the street?) and whether the property is upside down (I know a lot of people who are upside down in real estate and still making payments).

That’s the part that is concerning me.  And my real fear is that hoorah created by the current crowdsourcing model for everything under the sun and where everyone who has an Internet connection and keyboard has an equal vote, is going to get this really wrong.  

And then one day we wake up and ask:  What happened to the America I used to know?  Answer?  It didn’t get outsourced.  It got crowdsourced.

Oh, and just for the record, I think HR 1728 is an example of bad law wrapped in a shiny wrapping of protecting those who can’t protect themselves.

The Bill, HR 1728, is called the Mortgage Lending and Anti-Predatory Lending Act.  Sounds good, right?  The problem is that in an effort to protect buyers from anything outside a very normal, middle of the road loan, they have actually taken away the ability for a huge segment of the market to ever own their own home.  Plus, if you planned to make some money in real estate (and isn’t that the American way?), you’re going to have a much tougher time of it because the creative techniques are soon going to be against the law.  That is if this passes.

In plain terms, the Bill will preclude any type of mortgage financing that isn’t plain vanilla, 30 year amortizing loans.  You can still have some adjustable loans but they are going to be very restricted.  Creative real estate investors buy and sell property using seller financing.  They might have wrap mortgages (wrapping existing financing), seller carry-backs, second loans, partial amortization with balloons - you name it, these are the types of loans that get people into houses.  

This Bill won’t allow any of these types of financing anymore.  Over 1 million Americans have lost their homes to foreclosure. Their only way back into home ownership anytime soon would have been through seller financing.  And now the government says the willing buyer and the willing seller can’t do a deal.

There is one more even more ominous provision in the Bill.  It’s Title IX and it allows the government to take any multi-family property that is in default or RISK (as they define risk) of default.  Take it.  Away from you.  Even if you never missed a payment.  And they’re going to turn it into low income housing.  Meanwhile, they grabbed your asset and trashed your credit.

But as bad as all that is, it’s inevitable that this or something just as bad will eventually get passed.  That’s because the government is seeing tax money flying out the door.  Businesses are going virtual.  They are outsourcing.  Working from home.  The workplace and business world has dramatically changed.  We’re in the Information Age now and there is nothing a government, who depends on geographic boundaries, is more afraid of.

There is a grass roots letter writing campaign going on against HR 1728, largely pushed by the guys who sell programs that teach you how to buy no money down deals.  I hope they win.  But if they do, it’ll be a short lived victory.

When it comes to taxes and tax law, we’re in for a very bumpy ride.

And that’s where the opportunity always is.

The part that I see some entrepreneurs do that gets tweaked in their business model is they begin to think it’s one OR the other.  It’s sales OR fulfillment.  It’s marketing OR accounting.  It’s research OR maintenance.

The answer of course, is it’s all of those.  

The top line has no practical upper limit, if your business model is scalable.  In other words, if you’re selling horseshoes designed only for Tennessee Walking Horses, you have a limited market. It’s going to be hard to franchise that idea.  I’ve got a limited business model for http://www.DKTaxServices.com as well.  I only work with US taxpayers who have businesses and/or investments.  The fact is that market is about 12 million or more, though, so I have a pretty big market and haven’t even begun to touch it.  

You can grow your business in ways beyond just selling more of what you already have with more customers.  You can also branch off and create ancillary products.  You can teach others what you do.  You can offer low end and high end solutions to maximize the bi-modal business curve.  You can create passive income generators from the assets you already have such as your client base, your reputation, your knowledge or your systems.  You can joint venture.  You can refer related services for a referral fee.  You can sell client base to your competitors. You can buy your competition.  The list goes on and on.

In fact, it can be so much fun looking at the top line of your business and working at new strategies to explode your business, that you might just forget about looking at the bottomline.  The danger with ignoring the bottomline is that one day you might wake up to discover you’ve been working really hard and you have nothing to show for it.

Here are five steps to take right away:

( 1)  Get monthly (at least) financial statements.  If you don’t have a bookkeeper to help you with that, drop my husband Richard a note at Richard@DKTaxServices.com and we can help you find a bookkeeper.

( 2) Determine the key indicators for your business.  What stats do you need to watch to know whether you’re in good shape or bad?  (And no, the bank balance isn’t a good stat)  What are your key profit makers and what are your dogs?

( 3) Review audit controls.  Do you have good controls in place so that no one person can steal you blind?  Or if they do, they don’t do it for very long?

( 4) Review your processes.  What can you do faster and cheaper?  What can you outsource?  What new technology is available?  

( 5) Create systems.  If you need help on that, make sure you go back in my previous blog posts and read about the sticky note system to quickly and easily create systems.  

A business in balance needs a solid TOP LINE and a BOTTOM LINE.

A Season in Juarez:  Stalled slightly now.  It was supposed to be a free book download to chronicle my experiences of living at an orphanage in Juarez.  Blame it on Jorge and my son - Jorge’s team designed an amazing website based on my son’s photos.  I have to write a better book now.  

And I have the TV Guide synopsis:  ”True story of life and death struggles bringing hope to orphans in Mexico’s most dangerous city.”

“The Bottomline of Your First Business:  You.  Richer.”  -  I LOVE this project.  Megan Hughes and I are working together on it.  It’s the accounting, tax and legal specific how-to for first time business owners or, for that matter, for anyone who started their business without really going through the foundation first.  This gets you caught up.

“Your Business.  Your Taxes.  Your Money.”  This is a more advanced tax strategy book designed for the business owner who has been in business for a few years and is now looking for ways to create more income, build more wealth and best of all, do it so you pay even less taxes.

Yesterday, was a crazy day.  I had a lot of past admin stuff to research and look through.  I didn’t finish up until about noon.  By then the day was shot, so Richard and I decided to just take the afternoon to go run errands.  We’d turn Sat into a full work day.  

And somewhere along the line, things got strange.  I should mention that we both work from home and rarely venture out during the day.  So shopping on a weekday and traveling highways at rush hour were new phenomenon for us.  

We got caught up in a traffic jam and the highway was just creeping along.  A guy in a big white pick up tried to squeeze through traffic, where there was no lane, to get to an exit.  You could see his truck wasn’t going to fit where he was trying to put it (right next to our car), but he did it anyway.  And hit our mirror.  No damage, but there was this momentary “What the heck was that?”

He came so close I was sure it was going to be worse, but no harm, no foul.  We all moved on. Still, I wonder why it was so important that he get to that exit.  He couldn’t take the 15 min or so that it took for the traffic jam to disperse?

Later in the afternoon, we were at our bank.  I actually stayed in the car while Richard went inside.  He came back and we were talking briefly before he started up the car.  I saw a car behind us in the handicapped space and I saw another car pull into the space right next to the car in the handicapped space.  I just kind of made note of it, didn’t really pay a lot of attention.  Then we stared hearing a loud commotion.  The elderly man in the handicapped space was trying to get out of his car, but the other car was parked too close.  He  couldn’t open his door.  The man started yelling.  It was obvious he was panicking.  The other guy seemed to either not care or so involved in his phone conversation that he didn’t hear.  

Richard got out of our car and started back to see if he could help, just then a lady in the car next to his side got out as well.  She was early 30’s, looked like she taught martial arts or something.  Very buff, and confident.  Obvious that she was going to take care of the situation too.

The guy in the handicapped car got his door open an inch or so and banged it against the other guy’s car.  That’s when the guy on the cell phone threw his car in reverse and slammed right into the back of our car.  He turned the wheel, popped it into drive and took off, grazing the leg of another man who had just walked out of the bank.

Then the car stopped.  The athletic lady got out her cell phone and took a picture of his license plate.  Richard wrote down the plate number.  The security guard went over and talked to the guy.  But as we approached, he took off again.  He drove into a nearby lot and waited.  Then he took off again.

Meanwhile the handicapped guy got out of his car and went in the bank.

Someone called 911.  And then the guy came back.  He was a total wreck.  He kept saying “I’m really a nice guy.  I don’t do stuff like this.  I was just so scared.”

I understand panic.  And I understand not always thinking right.  As your emotions go up, your intelligence goes down.  So, the more emotional you are, the worse your choices are likely to be.

But then reality set in.  He was scared of an elderly crippled man?  This man had trouble walking.  Or maybe he was scared of Richard?  Now that is even funnier - those who know Richard know he’s about the most peace-loving guy there is.  (Unless you threaten his family.  He has been known to get nasty then.)  Or maybe it was the athletic lady.  I’ve got to say - she could be intimidating and she was clearly on the side of truth, justice and the American Way.

But I don’t think it was any of those.  I think the guy was in a perpetual state of shock.  He looked horrible - like he hadn’t been sleeping well, hadn’t been eating well and had been worrying way too much.

I’ve seen this more and more lately.  The economy, job loss, real estate drop, stock market drop and all the over-the-top reporting about it has created a base level of fear in many people.  They are just on the edge and all it takes is an irate elderly man to push them over.  

My clients tend to be tougher and more courageous then most.  That’s what it takes to be an entrepreneur these days.  You’ve got be flexible, in charge of creating the day you want and the life you want, on your terms.  For the others, I’m a little worried.  What will it take to be that final straw?  And what does that mean for them and their families?

It’s never been more important to think logically, rationally and to a conclusion that works out best for all intended.  If everyone else is losing their heads, you’ll need to be the sane one.

For example:  ”Passive” business that is 10 hours or less per month.  It’s a passive activity, not an active business.  That means your deductions are probably going to be limited.

Real estate “business” that involves buying properties and then renting them out.  IRS says that’s an investment, not a business.

Setting up a corporation.  I’m surprised how many times this one comes up.  Someone sets up a business structure, without any business purpose, and assumes that means they have a business and less tax.

It’s confusing enough when you talk about taxes and the definition of business, what about when you talk about ways of making money?  In other words, when is it a business and when is it an investment?

This whole discussion is prompted by a chain of comments on my Facebook page regarding affiliate marketing.  Scott Bradley, a really smart guy, gently challenged the concept of affiliate marketing as a business.  His definition includes longer term strategies that build relationship.  The thing I like most about Facebook and Twitter is that I get the chance to challenge my own thinking.  That’s because I agree what Scott was saying and at the same time I like the concept of affiliate marketing.  

I realize now where the conflict was for me.  Affiliate marketing doesn’t meet my definition of business either.  I think of business as something where there are customers, patients and/or clients.  You build relationships and together, grow businesses, health, lives - in other words, there is a long term commitment.

If you think of it that way, stock investing (as well as Forex, bonds, options) is not a business either.  And neither is real estate.   

For a long time, I’ve talked about (and thought about) wealth-building as a three-legged stool:  One leg is business, another is paper investments and the 3rd is real estate.  I think that affiliate marketing is a 4th leg.  It doesn’t fit my definition of any of the other types of money-making categories.

Actually, I like this definition a lot.  With this, you have 4 ways of making money.  A 4 legged chair is more secure than a 3 legged stool. And in today’s economic times and as we move from the Industrial Age to Information Age economics, we need all the security we can get!