Thursday, February 7, 2019

FINANCIAL LITERACY - Understanding Business & Money

by M Jvlian Simmons


Have you ever heard the question from a frustrated and disenfranchised student, "When are we ever going to use this subject in the real world"?


I'm sure you have, and I'm also willing to wager that there was never an adequate enough answer offered. Well, I've recently discovered the reason they had us learn literally EVERYTHING EXCEPT the one course we need most: FINANCE-
..and its not pretty of them.

Big Business isn't wired for laborers.

Did you know that its actually illegal to teach finance in schools? ..not "Economics", but "FINANCE" (not the same thing).

The ultimate aim of the standardized educational system is to train the general public to only be an employee, or a specialist.

Afterward, only being offered liabilities (eg., student loans, mortgages, cars, etc.) sold as assets, stagnant benefits with ever-diminishing returns (retirement pensions, Roth IRAs, mutual funds, etc.), resigned to a mysterious fate of being increasingly unable to rise above their own expenses by much.

In "Metropolis" a prince replaced a worker, and is worn out.



In essence, the objective is to mass-produce a class of ever-hopeful Industrial Age-minded subordinates who believe in, and count on a "secure job with benefits", in the Information Age of the 21st Century of pump-and-dump companies, and quick turnover employment rates, where the "rich get richer", and if no one ever helps the little guy, then 'the poor' just "get poorer".
In "Metropolis", the industrial machine consumes its workers.

Think about it; a maximum of 20 years of "proper schooling" and a course in essential Financial Literacy you will never find!



ENTERPRENEURSHIP

"An entrepreneur is someone who will jump off a cliff, and assemble an airplane on the way down."
-Reid Hoffman

Did you know that the most successful business moguls in the U.S. have this one thing in common: They all agree that other than "reading, writing and 'rithmetic", the educational school system contributed ZERO to their success as entrepreneurs. And that everything they've learned to attain their status in the business world, they learned person-to-person OUTSIDE the school system.
Wayne and Garth listen up!







I've been an entrepreneur since the 1980s, selling extra ham, mustard and hot sauce sandwiches my cousin and I made, to our mid-class snacking grammar schoolmates.

Jack & Diane from "Black-ish"





I've since created a brand for the music and creative projects we've produced, worked a short but sweet time as an independent mobile DJ, and have Real Estate and investing in my blood through my own father (God rest his soul), and have always been the type to regularly program myself with various valuable life strategies, but I have NEVER been able to fully grip the concept of just how to understand money, and finance as a whole, let alone, understand where I was, and where I really belonged in this utterly baffling spectrum.

There are a few concepts to grasp, if one is to become an effective and successful entrepreneur:

YOUR FINANCIALS
Are you aware of what position you exist in, in the socio-economic pecking order? There is one, and its not "upper-middle-nor-lower class".


There are four ways we make money: By being an employee, being a specialist/Self-Employed, being a business owner, and/or being an investor.

Most people exist either in sector 'E' or in 'S', and if you either have a job and receive paychecks, or own a business where you are the chief laborer, then that's you too.



The idea is to leave the left side completely, and take up residence on the right side of the quadrant, where there are either other employees and partners to help quantify results of your labor, and/or where your existing money, credit, and resources can be used to create wealth by generating CASH FLOW, leaving the investor with the freedom they need to live life without fear of bankruptcy.

So, why isn't everyone ALREADY doing this? 



Only a few will get this reference. ^-^



 in order to transport yourself from E/S sectors to the B/I sector, lets take a moment to introduce you to the vehicle (your business) that may help you get there!


SYSTEMS
Just like a car, or any machine is more than just a shiny smooth chassis, but hopefully, a well-made and connected engine with premium parts/gears that results in the machine's greatest output.

Such is a good business.


Its engine's gears, or "systems" are made up of teams (Administrative, Sales, Legal, Distribution, Management, etc.) that specialize in crucial aspects centered around your business's growth.

STRUCTURE - Determine who needs to do what, and when.


INSTALLS & UPGRADES
One of the things that stall some beginners besides the lack of systems, is the lack of startup funds to cover the cost for them to be installed into your business.

Maybe its time to pay your lawyer for drawing up and interpreting contracts, or your management group for keeping your properties optimized, or even for your business license (or LLC) to begin with.

While it may indeed make intellectual sense to install and/or upgrade your teams and systems, knowing that it would increase productivity, efficiency, and profits, the question is still unanswered as to where all this money will be coming from; and how it is even going to work, from where I stand now?

Upgrading your system quantifies its output.
Here's where most gurus will say "So if you really want it, then save your money, guys", but while adult life usually costs just as much as we make, it can be daunting to even think up how to pay for it all, even if you did intend to "save up" for it.


Prince

This is exactly what both partnerships, and business loans are for!

PARTNERSHIPS
If you haven't yet saved up the cost yourself, or feel like you may need help in admittedly less familiar aspects, then consider other options, like taking on a partner in your business for an agreeable amount or percentage of equity, for them to give your endeavor the focus it requires, AS THOUGH they were paid up front.



However, to pull this off, you have got to have a written plan that clearly outlines how a partner or investor will make/get their money back from this venture, also called ROI (Return On Investment).

Otherwise, it all just translates as "pie-in-the-sky" BS to them, and they won't participate.



Sharks just want you to know how they're going to get their ROI.

It has nothing to do with you guys liking each other, nor with their having a personal preference for the product you want to offer; it has EVERYTHING to do with a concise plan for their monetary returns.

This also means that when your business's "engine" is being looked at by a potential investor or partner, it is paramount that they see the necessary specs, gears, and teams in place that insure the endeavor's even more likely success.

So again, where's the money going to come from?


Well don't worry; no need to feel like you've now got to ask your friends and family to "pitch in" on your startup.

There's other, and better ways to get funding, if you have first taken the time to assemble your current teams and partners on paper, and write up your business together, establishing your and their expected roles within, your responsibilities to one another, and having them approve the partnership with their signature(s).



When that's done, THEN we can go apply for the funding to pay for it.



YOUR LLC
An integral part of entrepreneurship is taking on debt, and one of the main rules of investment is "never use your own money".

While the employee may see all debt as a bad thing, trying desperately to get out, the entrepreneur however, sees debt as a neutral concept, and uses it as a strength, to fund endeavors that are designed to produce cash flow.

Your LLC is your super-suit. Put it on!
LLC stands for "Limited Liability Corporation", meaning that your business, the LLC may make larger industrial purchases that the individual would never be able to procure on their own strength.

The LLC also limits the amount of damage that bad business decisions can cause the individual, while running a business.

So say, worst case scenario, its the COMPANY gets sued, and not its owner, which means that the business may get stripped of assets, but the owner's personal belongings (eg., house, car, bank account, etc.) will remained untouched.

The licensing can cost upwards of $$$$, but its worth it, considering the protection it gives.

Keep your assets covered with an LLC!


BORROWING SMART TO CREATE WEALTH
So now, the money.

Here's where you get creative, getting funding by mixing together concepts that equal a solid plan, according to your potential investor's individual criteria.

Your carefully chosen business ventures can help a city grow!
There are government incentives in place that favor certain city-building/developmental interests like housing, tourism, or a facility that's particularly helpful to its inhabitants.

Student Housing rentals?
Commercial space rentals?
residential housing rentals?
Tourism suite rentals?












READER: But what if I don't want to go into the RE business? What if I want to make hamburgers, or run a string of laundromats?

Rental real estate types has proven to be a must, in successful business/investment portfolios, and can be the jump point, to free oneself up enough to be able fund other ventures, using one or various properties as leverage/collateral.

If you've ever heard of the McDonald's success story, their business isn't hamburgers (not since the 1970s), ITS REAL ESTATE.


Founder, Ray Kroc made its first efforts in hamburgers partnered up with the original McDonald's brothers, but made BILLIONS by teaming up with new partners, purchasing the land that each franchise rests upon, leasing their brick and mortar buildings to service Specialists (the 'S' sector, which unfortunately included the same original McDonald's brothers) and selling franchises to investors (the 'I' sector), resulting in purchases that pay for themselves within a few short years, using multiple business options (Real Estate and product franchise/licensing, leasing, etc.) to secure what we call COMPOUNDED wealth.




















My point, here, is that sometimes you have to be creative and combine methods (product types, brand licensing, RE, patenting, copyrights and publishing, etc.) for maximum effect, no matter what it is that you want to do as a business.

Which reminds me of yet another point in entrepreneurship: DON'T LEAVE MONEY ON THE TABLE.
You said it, Mr. Wonderful!








And see? Even if you are currently "going it alone", business life also means meeting new people more aligned with your current interests.

Fortunately, there are even loose partnerships you can foster with perhaps other professionals like bank loan officers, lawyers, contractors, etc., on the way to your goals that bring new and fresh ideas, so its needless to worry about if you already know people.

They will want to know YOU, especially if you put, have, and keep your head in the game.






PRODUCING CASH FLOW
Cash flow is the state of having a steady stream of minimally taxable income, stemming from the profits of one-to-multiple streams.


When a person has achieved Cash flow, their time is freed to spend more time with family, friends, and enjoying life free from financial strain.

One can stimulate cash flow by purposeful purchasing of "assets" (things that put money INTO your pocket), and intentionally reducing one's "liabilities" (things that take money OUT of your pocket).
ASSETS - The next best thing to having money trees!

















Q: What kind of things are assets, and liabilities?

A: The general public accepts that cars, trucks, and other vehicles are considered liabilities, but we have been taught to believe that single-family houses are assets, when actually, they are indeed liabilities too, unless you monetize via resell, or do a rental conversion.

Expenditures on liabilities throw away money.











Other liabilities include mortgages, student loans, still-dependent children, and geriatric parents, while assets include licenses, vehicles converted into taxis (i.e, Uber, Lyft, etc.), houses used for rentals (like AirBnB and other lodging networks), sound/P.A. systems, product studio/workshop.

The aim and objective of any endeavor is POSITIVE CASH FLOW, especially if it can be scaled or compounded.






BANK LOANS

"If you need five cents, don't ask for three; ask for TEN."
-DeLaSoul

FUN FACT: While earned income (a.k.a. "paychecks") is taxable up to 50%, BORROWED MONEY IS UNTAXABLE, and therefore the profit from assets purchased by loans, and the repayment of the loan are only minimally taxable, if at all.


Help is on the way!

It takes upward of $$,$$$ to cover the service cost of a bank loan approval, so don't be shy about fattening up your 'ask' by scores of thousand, to cover any contingencies (unexpected repairs, management, construction, promotion, debt consolidation, etc.), and salary for all, for at least two years.

Have this mapped out in the proposal for your endeavor, plus cost of LLC, and relative paperwork included.

THIS is why they tell most looking for only "small loans (up to $50,000)" with no real plans for expansion...











Do yourself a favor, and select your own bank loan officer, for consistent follow-ups, and advice.

Its better to have someone you deal with regularly, than different loan officers per visit/loan. Better relationships = more help.


BALANCE STATEMENTS
These little puppies can tell a loan officer/investor if you have enough forward momentum to warrant a loan of a particular size.


What the report card was for the student, the balance statement is for the adult, listing one's income, expenses, then itemizing one's assets and liabilities.

The remainder is called the NOI (Non-Operational Income) which is the amount of money left over after all operational costs and salaries have been paid.

Depending on the NOI, an equation is applied to find the loan's optimal approval range.



Lower NOIs warrant smaller loans and a lower chance of approval, but can all be boosted by refiguring/adding costs of upscaling what the loan is to be used for.

For example, I may be applying for a RE loan having an NOI of $$ which may equate to a $$$ loan range, but if, after reconsideration, I add-on funds for washer/dryers for each unit (apx. $$$$), although it adds temporarily to my expenses, they'll take only a limited amount of time to pay for themselves, now raising the amount of rent I could charge, which means more income/profit, raising my NOI from $$ to somewhere around $$$, bringing my loan approval range to apx. $$$$$.



Now, remember when I said that "small loans" (up to $85,000) by in large get denied, mostly because of the exorbitant service fees to approve it?

Well, imagine a loan amount that puts the fees in perspective; that 'ask' number would be closer to the hundred thousands or millions, wouldn't you agree?




REPEAT & SCALE
After funding, its up to you and your team to put the plan into play, and each partner's team should know exactly what they should be concentrating on, and who to report progress to.

If you've kept even a reasonably tight ship for a year or so, along with a steady ROI to your financiers, your track record will speak for itself to investors, and you should be able to use both your gained clout, plus your other assets as further leverage/collateral needed to scale your operation(s) up, with an even higher chance of refinance, and larger returns.



__________________________________________

Of course, there's way more to it all, but its not up to me to fully educate you, as with all things, the burden of proof is on you to do your own research, and due diligence.

Its merely my duty (and pleasure) to introduce you to the wonderful world of Business, and Finance.


Herein this video playlist are insights from Entrepreneurial greats like Warren Buffet, Robert "Rich Dad/Poor Dad" Kiyosaki, Phil Town with Rule #1 Investing, The Better Men Project, Evan Carmichael, and many more, explaining the essentials of business, the nature of money, and the strategies that can make all the difference in one's financial life.


As always, just hit play, and use the in-screen options to toggle through the playlist, play full-screen, from Youtube, or cast it onto your smart TVs, and binge-watch away!



BONUS: RELATED ARTICLES
For more on money, business, and wealth, just click on one of the articles below!
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* CAREER PATHS; REAL ESTATE - Marketing, Investing and Flipping

* FINANCIAL LITERACY - Understanding The Stock Market










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