Tuesday, December 31, 2013

Setting and Achieving Goals

Well, if I want to claim to be authoring a blog, I would think one post per calendar year would be some sort of minimum.  A blog post on the last day of 2013 takes procrastination to the extreme.  In my defence, I have been busy this year restructuring my empire and accomplishing my goals, but that is a lame excuse.
I was in Nivelles earlier this year visiting the Commonwealth War Grave of one of my great uncles.   I did some serious contemplation of mortality, personal objectives, goal setting and procrastination.  I would hope that is exactly what most sane people would do when witnessing the pointlessness of these great historical fiascos. 
So what does this have to do with unconventional thinking?  Maybe it is apropos at this time of year when everyone is trotting out New Year’s Resolutions.  Empirical evidence says the vast majority of those resolutions are forgotten by February.  There are some people who resolve to lose weight, quit smoking, find a job, or start a project ;  every year!  They set goals but never get started on the actions to achieve them.

I would be interested in a real study that compares those individuals to the people who could be described as successful.  I’m confident there is a direct correlation between success and goal achieving.  That is almost an oxymoronic statement.  If less than 10% of the population can be considered successful as measured by health and wealth, then more than 90% of the population can be considered to have lives of failed, pointless mediocrity.  The only missing ingredient is the initiative of taking action on the resolution.

We tried a frontal assault today and lost a thousand men.  It didn’t work so let’s try it again tomorrow and see if it works then.  I think you can draw the analogy from Flanders to your business.  To be unconventional means to set the goals but then to immediately lay out a plan, take action on the plan and make adjustments to the plan based on results achieved.  Jim Rohn described this as “setting a better sail for tomorrow” to confidently arrive at your destination.  Tony Robbins put it in his list as 2 of the 12 steps to success.  Develop a Step-by-Step Plan and Follow Through with the Plan are steps 6 and 7.

If you want to make your resolutions truly meaningful tonight, don’t be like the crowd, be unconventional and actually do something about achieving your goals. 
And to follow my own advice, I have set a 2014 goal to write a post to this blog at least once per quarter.  I resolve to make them timely and useful as well.  In 2013 it seemed I had a lot to say but upon reflection of posting a blog about those thoughts, it made them look cranky and unproductive.  Railing about some of the changes going on in modern society doesn't provide help to anyone.

Friday, October 5, 2012

Search Engine Optimization (SEO) Challenges #1

One of my primary businesses, Brock Health Administration, sells Private Health Services Plans.  Our primary source of new business is over the Internet.  That means we need to have a website that is Google friendly for searching by customers.  This process is called Search Engine Optimization, or SEO.  I will write a few articles on this topic from different angles.  But for the purposes of this post I just wanted to voice my challenges at getting this done.

To start, SEO is not a fixed solution that you buy and you’re done, like a new desk or lampshade.  It is a dynamic moving target. To be successful it needs to be continually monitored and adjusted.  It is a maintenance task and it is tedious.  It requires a passable technical understanding of computers, websites and specifically Google advertising and search engines.  It also requires a general grasp of marketing and human psychology.  And finally you need to clearly understand your product or service offering and your potential market audience.  That’s a tall order for what could be considered a tedious clerical maintenance task.  Juxtapose the skills against what you should pay a resource to do it.

For a brand new website starting at zero you can hire a light-weight firm to lay the groundwork to get you on the search engine map.  I am bombarded by many emails from firms in India that do this for a modest fee.  They are probably a cheap starting point to get in the directories, have some keyword density on your pages and make you Google friendly.  But to take it to a serious level you need to bring in the heavy artillery of social media, blogs, tweets, YouTube, AdWords and so on.  Someone needs to understand your business and manage this on a daily basis.  I am bright enough to know I don’t have the time nor inclination to do this.  I need to hire someone.

I had my site optimized about 4 years ago by a good firm in Toronto (Convurgency) for a one-time fee.  Now our business has grown and I need the next level. Unfortunately, I think there is a gap in service offerings, representing an opportunity for somebody. 

There are plenty of charlatans, wannabes, techies and light-weights in the market but few have all the characteristics needed to succeed.  

I have tried the casual part-time contractor for a few years.  It was probably the best of several bad options.  She was technically savvy with current social media and knew marketing but didn’t have a deep grasp of our business model nor the time to do the tedious task for extended periods.

I tried technical folks on different occasions but they seem to have limited patience with the tedium and little sense of advertising.

I did run into one fellow that sung all the right tunes in his pitch to me but was a zero on business delivery and follow-thru.  After 3 months and $4,500 in retainers I got 2 blog posts and a list of alt-tag changes for the site.  This was Matt Clark of Damang Media out of Calgary… a complete disappointment.  I’m posting their very light weight blog below as I figure I paid enough for it, I should at least give it some air-time!

If you compare it to our website, you can see it is an attempt to read our existing website to “learn” our business remotely and then write a short summary.  I surmise the plan is to fool some of my potential customers for some of the time.  Unfortunately that seems to be the new conventional wisdom especially for younger business people and as The Brief Case keeps spouting – it is not where I want to go.

I think it also speaks to one of the shortcoming of the younger vendors.  They know the technical and advertising stuff but they have no sense of running a business to deliver value to customers.  As I said earlier, this is a great business opportunity for someone with some ambition and enthusiasm to learn the various components and then execute it!


Content Format:    word doc
Content Type:       Blog Posts
Target Keyword:   employee health plans
Word Count:          437
Page Title:             Benefits of Private Health Services Plans

You have probably heard about health services plans before even if you aren't entirely sure how they work. But as you look at your business, you don't really know if these employee health plans would benefit your company or your employees at all. Let's walk through some of the benefits of these plans to see if enrolling in a private health services plan could work for you and your employees.

First, a little history. Canada introduced these plans in 1986 as a tax relief measure for businesses. Using the private health services plan, companies could provide employee health plans and deduct the expenses. At the same time, the reimbursements to employees are tax free, too, lightening the tax load for business and employee alike.

Benefits of a Private Health Services Plan
1. Tax Relief — The primary benefit of a private health services plan is the tax relief for employees and businesses. The entire cost of the plan, funded by your business, is 100 percent deductible. Secondly, the reimbursements your employees receive are not considered taxable income so they aren't hit with any additional tax burden either.

2. Healthier and Happier Employees — Benefits packages that include employee health plans make your compensation package more attractive and allow you to hire and retain higher quality employees. They also will have access to more efficient healthcare and have more choice in providers and services. This all combines for healthier, happier employees who will stick around longer and have lower rates of absenteeism.

3. Clear Budgeting — You may have shied away from private health services plans in the past out of concern unforeseen costs or hidden fees would make budgeting a nightmare. However, these plans actually provide for some budgeting stability. First, there are no premiums to budget for. You only pay when a claim gets submitted. Secondly, the costs are a fixed percentage of each claim. You will know exactly what you will pay for each covered service so you can anticipate actual costs.

4. More Coverage — The other option for employee health plans is insured plans, but the private health services plan actually covers more services than those plans. With more coverage, your employees will receive more and better care. The services covered under private health services plans includes:
  • Medical care
  • Dental care
  • Vision care
  • Laboratory services
  • Hospital services
  • Medications
  • Medical equipment
  • And other expenses like ambulances, prosthetics and wheelchairs

With all these benefits, maybe it's time to give the private health services plan another look. You can increase employee happiness and save your business money by adding employee health plans to your business model.

Tuesday, June 19, 2012

What Goes Around Comes Around

Well it’s been awhile. I would like to say I’ve been putting a focus on my business activities and doing something really intense. Unfortunately (for this blog perhaps), I’ve actually just been an idle layabout in Bermuda, Belgium and Britain from Christmas to April. One of my business associates made me feel better by saying if I was making a blog entry every day I wouldn’t have time to be out generating the experience of what I’m writing about. Maybe it is disparaging to journalists to say they spend their time making commentary about what someone else is doing… or, in other words, living by remote sensing if you will. I’ll let you sort out the philosophy of why I haven’t been posting in a while.

So to the subject of this post… I did go back to my consulting business at the beginning of May with the consequence of heads-down “experience gathering” since then. During a time of intensity, not only are my regular business activities confined but my philanthropic endeavours get curtailed. I am a firm believer in the adage “What goes around – comes around.” My interpretation of that is whatever, action, thought, or image you portray or send out is a mirror image of what other people will send back to you. We’ve all heard the analogy of a smile. You can try it yourself by walking around your own office or facility with a smile and people will smile back at you. It is human nature and we all respond the same way.

Of course, extending it to business or financial activity is a bit harder to prove. I see conventional operators in a recession who are cutting costs to the point of penny pinching. In fact, you could say some get downright cheap. They forestall advertising and marketing campaign and especially philanthropy. I am not a religious person, as you may know, but it has to be almost a religious belief for this to work. On a number of occasions when I have been financially challenged, I have done some generous financial things for people. And I have done it with conviction. And in all cases, I end up getting relief from unexpected quarters for my own financial challenges. There are a number of motivational speakers and organizations that try to explain and encourage this magical concept. I don’t try to explain it, I just have a pragmatic knowledge that it works for me.

So for those sceptics out there that want to have feet firmly planted in both camps, here is a compromise solution. You can be generous without breaking the bank. I can’t call it unconventional thinking but you will feel good regardless!

The concept is not new; it is micro-credit loans to the third world. There is an organization called Kiva to which I was introduced about a year ago. You get to make donations to small business people who are struggling to get going under harsh circumstances. This particular site is very well done. You get to read about and select the candidate to whom you want to make a loan. These loans are made up from $25. Now many of us are crying about the problems we have as a small business person in the industrialized world. I will tell you, a quick look though the list of thousands of potential borrowers and you will feel like a rich and famous entrepreneur.

It is particularly gratifying to make loans to other businesspeople and help others along their entrepreneurial journey. I prefer groups of people to individuals as I like the idea of collaboration. I also prefer women to men as they seem to be more innovative with their objectives. I like to see ideas that have potential to grow as business; buying assets rather than retail stock. Naturally, those are just my preferences and there are plenty from which to choose.

Check out my member page on Kiva and have a look at the stellar repayment performance of these loans for me. While the loans are overseen by Kiva (a San Francisco enterprise), they are administered locally by lending organizations in the particular countries.

The terms for most of these loans are about a year or so. As the money is repaid, you get to loan it out again. Whenever my account gets to $25 in repayments I make another loan. Many times I add enough additional cash to make up a second new loan, so my loan portfolio grows. It makes you feel good inside.

You’ll just have trust me that being generous and helpful to less fortunate entrepreneurs will result in positive benefits for you; financial and otherwise. What you send going around truly does come back around to you!

Thursday, January 26, 2012

Contracting Rates Through Agencies

Establishing appropriate consulting rates is always a challenge. As you know I own Brock & Associates, a minor IT consulting firm in Calgary. I've been in the racket since 1991. This is a common issue for new consultants.

As a first time consultant you will likely use agencies as your primary channel for marketing your services. Invariably, the agency will ask you for your expected rate. That is because there are so many factors to determine a "correct" rate. They need to know your preferences to be able to effectively market your services. However, as in any negotiation, the person who puts a price on the table first is in the highest risk position. That is why the recruiter prompts you for your price first. Theoretically then if you are too low they can take more of the pie from the customer or if you're too high they put your resume at the bottom of the pile so they don't waste time on trying to sell you. I said theoretically. In reality if the agency is reputable and experienced they will behave better than that.

You will soon find out if they are not reputable. If so, you won't be using them in the future. If they are that shortsighted they don't stay in business long. That is why most agencies that have been around awhile must be somewhat reputable.

On a tangent thought: All good agencies are actually very well aware of market rates. They must be by necessity. When they submit their allotted maximum of candidates to the client (usually around 3) they are competing with all the other agencies in town. The submitted rate is your rate + their gross margin rate. If the submitted rate for their candidates is too high they will never win any business with the client. If they are too low, all their consultants will be bailing out to other agencies and they wouldn't have any "resources" to sell. It is always important to remember we are simply btheir "inventory" of products to be bought and sold! Imagine they are a shoe store we are just their stock of shoes. If they have no shoes... they have an unprofitable shoe store.

I mentioned the theoretical scenario, but the reality scenario is a bit different. If the rate you initially respond to the recruiter is too low, the recruiter would raise a flag. I say that because the agency margin with the client is determined from the base rate. For example, suppose your "correct" rate band should be about $60-$70/hr. The agency gross margins generally vary from about 12% to 20% of your rate. So 20% of $70 is $14/hr maximum profit to the agency for a perfect fit candidate. So if you quoted a crazy low rate of $40/hr in the first place, their margin would only be $40 * 20% = $8/hr. There is a big difference in their profit on this deal between $14/hr and $8/hr... so it is in the agency's self interest to say... "Oh $40 is too low; I think I can get you $55". They wouldn't necessarily put you all the way up into you "correct" band for two reasons.

i) It gives this agency a bit of a price edge in presenting you to the client. If you are a good resource (meaning comparable in skills & experience to resources submitted by another agency) but you are $5 cheaper, then the client will take you and a deal gets done. So that's good for you.
ii) The are lots of contractors out there that believe they are entitled to a "pay raise" every so often (and I strongly disagree with this practice... I'll explain in some other post). That $5 left on the table allows the agency to give that $5 raise and still be acceptable to the client.

Of course, this all changes once you have some credibility with a particular agency. They can begin to trust you when the following becomes evident:
i) You're reliable, you do good quality and you don't screw the client in any way... Don't forget the agency has to work very hard to have a good collection of customers so they can sell you (and other people) to this client in the future. They want to know you won't screw up that relationship on them.
ii) You aren't a prima donna; always looking for unjustified rate increases. They need to be out knocking on doors to find new clients or helping existing ones. That is the next deal for consultants like me and you. They shouldn't be wasting their time having to deal with a client about some naive twit who thinks he's worth another $10/hr right now. Incidentally, agencies don't mind asking for a justified rate increase now & again. Reasons such as changing market conditions, increased skills, changes in job description are a few examples. Just be reasonable with the agency. Their clients can be idiots about rates too and they have to manage that relationship as well.
iii) when the recessions come and the markets collapse, you will understand that your rate must go down too. It is referred to a rate band for a reason. In recessions you're at the bottom of the band. In a boom, you can be near the top of the band.

So if you ever quote a rate to low in your intial discussions and you are offered a position at that rate, my suggestion is:

1/ Finish the contract, be very happy with the rate you suggested. (at least outwardly)
2/ In the meantime while you're on this first assignment, put some effort in finding out varying rates for different jobs in your field in your market. I know this isn't easy... people don't blab their rate to everyone. You need to be paying attention to any clues that come your way. Be a detective (in an honest fashion with integrity... not a sneak) Just like we expect agencies to know the rates... you should also be aware of your rate band. After all, you are a consulting firm; it just happens to be a very small one!
3/ Presumably your first underpaid asignment will only have a 3 month term. If you think your rate is too far below "correct", you should just go to your agency at about the 2 month mark and ask them to start looking for your next assignment for you. Tell them this: "You always see assignments through to the end, but want to expand your skills & experience at another client" i.e. Use a little advertising with your request... DON'T tell them you're unhappy with the rate because you would be complaining about your own misstep in the first place! It is always good practice to never complain about things... just work to improve them.
4/ In your new search you can then quote a price from your "correct" band.
5/ Alternatively, you can stay at the assignment for a year at a low rate and then approach the agency for a rate increase after a year. This is not my preferred strategy.

As an aside, I still sell myself as Project Manager on occasion. My rate band in Calgary currently is about $90 to $120. I consciously sell myself at the low end. I have been in client sites where some circumstance will happen and the client just machine guns all the contractors at the high end. It is called the "Tall Poppy Syndrome"... all the high ones are cut down to size. Remarkeably, all the consultants with their heads down below the threshold "high rates" are left alone. And if you haven't figured it out yet... your utilization rate is significantly more important than your bill rate. The concept goes by a few other metaphors such as "Slow & steady wins the race" or "a bird in hand is worth two in the bush".

I think that is enough unconventional thinking for this post.

Sunday, December 11, 2011

Structuring Your Business

There are 3 traditional ways to operate a business in Canada;

i) a sole proprietorship
ii) a partnership
iii) a corporation

I’ve alluded to incorporating in my past but not provided any basic information. While there isn’t much in the way of unconventional wisdom in this post, I have found new entrepreneurs approach this whole discussion with fear & trepidation. I hope the following discussion will assuage those apprehensions. It really isn’t a big deal and no matter what you do you can’t cause irreparable damage with your choices

Technically as soon as you sell something, you are in business. This is a sole proprietorship and any profit you make is reported on your personal income tax return. The degree to which you grow from that point is just a measure of desire. You can stay at that level if you want. Of course CRA doesn’t spend too much time chasing people who have a garage sale or somebody selling quilts & crafts to friends. In fact, if your revenue is under $30,000 they don’t even expect you to charge GST. To be blunt, you’d be considered a nuisance more than a source of tax revenue.

Since you report any income from a sole proprietorship on your personal tax return there are two impacts, one is bad and the other is good.

Firstly, the bad one; your profits will be taxed at personal tax rates. For those who haven’t been paying attention to my previous posts, the reason it is bad is because governments charge much higher taxes to individuals than to businesses (but that’s another post).

The second impact is the good one. As a sole proprietor you are still considered in business so you will be recording all your business related expenses and deducting from your business income just like any other incorporated or partnership business.

The sweet spot is that if your business expenses exceed your business income in any given year you are allowed to deduct those leftover business losses from income on your personal tax return, specifically employment income! In other words CRA allows people to “grow” into their business as a part-time activity while still maintaining their regular 9-to-5 job. I recommend this option as a risk mitigation strategy.

The survival statistics on start-up businesses are not good. It can take a number of years of investing in these losses before a business can have all the pieces working well to make it successful. So CRA views this allowable support for a few years as a smart thing to help you out. Of course, don’t expect to run up continual losses over many years without any taxable profit. CRA is not that stupid.

To operate a simple part-time service as a sole proprietor doesn’t require much at all. You may need to get a municipal licence, or other certificates & approvals depending on your line of business. These may include registering physical store-front premises, parking, health & safety, employees and other considerations.

The one thing I recommend from Day 1 for any size business is to out-source your accounting and taxes to a good bookkeeper and/or accountant.

I won’t dwell on partnerships much. In some respects they are taking the limitations of a sole proprietorship and layering on the complexities of multiple decision makers. Many entrepreneurs often get started with peers and associates. Teamwork & collaboration is instrumental in building a successful business. However, I just think a partnership requires more skill and leadership to manage than a corporation. Many inexperienced entrepreneurs are intimidated by the concept of incorporating and feel a partnership is “simpler & easier”. I’ve seen many potentially good businesses flounder because the owners are spending so much time on the politics & stress surrounding management of the partnership instead of applying their efforts to decisive, proactive leadership in the business. I suggest you avoid the aggravation and start your venture yourself. If you need certain skills you can initially bring in those same people as vendors & suppliers to your business. Gain some leadership and business management skills first. Allow yourself the opportunity to see how things perform in an entrepreneurial environment before you hand over the keys. You can always invite additional people to join you as an equal or subordinate peer later. I would add a special caveat to family members and spouses. The stress of managing a business together can sometimes ruin good family or marital relationships.

Once you have a good understanding of business and acquired solid leadership skills there are some benefits of partnerships that are worth investigating, but for new entrepreneurs I recommend you start your journey with either of the simpler options; the sole proprietorship or the corporation.

Don’t let the word, the concept or your own fears prevent you from considering this. Once you start to seriously grow your business; once you are beyond being a dabbler for beer money; once you think you need help to keep up with sales; once you leave your employment position to work full time on your fortune; you should incorporate! In my opinion the benefits far outweigh the drawbacks. I prefer to discuss the drawbacks in worst case scenario; in other words; “Why wouldn’t you incorporate?”

The costs - this is often trotted out as a good reason not to incorporate. The truth is you can incorporate anywhere in Canada for $500 or so. There is a myriad of online services, including the federal government’s own website that can set you up as a corporation in hours or even minutes. The annual fee to keep them going is in the neighbourhood of $25 a year to file a piece of paper. So if your whole business venture is a flop, you are out-of-pocket $500. That is a throw-away cost. I would guess you probably burn that much running your car for a month. If anybody can afford to incorporate, then it isn’t much of a downside risk. What else could it be?

The financial record keeping - In my opinion anyone in business (excepting perhaps the handmade crafts people) have to pay taxes whether you’re incorporated or not. Anyone who has looked at paying taxes knows good financial record-keeping is essential to minimize tax. So whether you’re incorporated or not you should still have a bookkeeper and/or accountant handle that part for you. So paying an accountant to reduce your taxes is the same whether you are a sole proprietor or a corporation; that can’t be the reason.

The extra legal paperwork & administration – To keep your corporation running, the government only wants three things; i) you must pay your taxes ii) you must file your tax returns so they can confirm you are paying your taxes and finally iii) a piece of paper (& fee of course) that provides contact information in case they want to chase you for not paying your taxes! Do you see the common theme? Your accountant will look after i) and ii) leaving you with iii). You’ll spend longer waiting in your dentist’s office every year than filling out that form and mailing it with a cheque. The incorporation service or lawyer you selected for getting the corporation set up will have probably given (or charged ) you a little binder. It contains all the legal & administrative paperwork. In most cases, it is put in a drawer that day and will never again see the light of day. In theory, you are supposed to hold a meeting with yourself once a year and write some things down (meeting minutes and resolutions etc). In all practicality, I can’t think of anyone who would want to review those meeting minutes. My suspicion is you will go to your grave with that binder still in the drawer. The only exception will be those partnerships where one partner or spouse is suing the other for breach of their partnership agreements. In those cases you need to have all these documents formally kept up to date… primary proof that partnerships are more complicated than corporations!

The benefits of incorporation are numerous. The primary benefit is the provision of specific legal protection from liability. Corporations live forever; so if your business holds assets in United States, you will simplify the issue of US estate taxes. Corporations allow you to income split between family members who are shareholders; significantly reducing taxes. Corporations allow you to determine specific dates for payment of income to yourself to further reduce taxes. In my PHSP business alone, a corporation has unlimited room for eligible deductions whereas sole proprietorships have CRA-specified limits. In 2011 that limit is $1500 per adult.

And as for closing corporations down, you just have to ensure you’ve paid your last taxes and let them die. You can file paperwork and pay a fee to have them dissolved, or if you don’t file the paperwork for a period of time, they are simply placed on the defunct list. Done!

I have opened and closed dozens of corporations in my little empire. They are cheap, fast and easy to utilize. I don’t see any significant risk in a worst case scenario and they have significant upside.

Of course, when you are setting up your business you should talk to a credentialled expert in this field. My unconventional wisdom suggestions fit my risk profile but may not fit yours.

Thursday, December 1, 2011

Trans Border Credit & Financing

This is a longer post than usual because the steps are so annoyingly elaborate for what is a relatively simple process. My business partners and I are investing in US real estate during the 2008-2010 recession. This is what we did to handle the finance side of it. I streamlined some of the steps and eliminated those steps we took that resulted in a dead end. So you are already benefiting from our experience.

1. Start doing some research about candidate city & state in which you would like to invest. Continue doing this for some time but you eventually need to decide to make a purchase at some point. Nothing is perfect. We selected Dayton, Ohio in 2007 because
a. The GM plant had closed over a year prior so the bad news was behind us
b. There is a major US Air Force base and two universities there to provide some stable baseline employment
c. It is a significant city but not a major metropolis so deterioration of urban infrastructure was not overwhelming
d. It is close enough for commuting to two major cities – Cincinnati and Columbus
e. It is not a tourist destination with fickle rental markets

2. Open a personal Royal Bank of Canada bank account; separate from any other account you have. This is your US property investment account. It will morph into a business account.

3. At the same time set up a US account at RBC Bank USA through the same Royal Bank branch. This is not a simple US dollar denominated Canadian account. It is a bona fide US bank account with US cheques encoded for processing in the US cheque clearing system. You will be selecting a physical branch in the US where the account will exist. Wells Fargo is the only other financial institution that offers this to normal Canadians, as far as I know.

4. Link the two Royal Accounts to move money seamlessly and immediately

5. Initially, get the RBC Bank USA cheques personalized in your name with your CDN home address on the face. They will take some time to arrive. Only order the minimum

6. Deposit a token amount of money in your Canadian Royal Bank account

7. Transfer a little money to your RBC Bank USA account so you have funds in each account

8. Over the next few months make more deposits and transfers. Don’t worry you will need your funds in US dollars for the property purchase so start sending it down now.

9. This activity will also generate monthly statements so you can confirm all the bank correspondence arriving at your home address from both accounts is switched to online. You cannot be receiving paper from the branches, as you will be changing the mailing address in later steps.

10. Incorporate a company (I will call it Alpha Co.) in your CDN province with you, your family and/or your business partners as shareholders. If you don’t know how to do this I’ll be putting up a blog post in the near future.

11. Incorporate a second company (I will call it Bravo Co.) in your CDN province with Alpha Co. as the only 100% shareholder. This is to avoid having Alpha Co. declared a sophisticated company because of an ownership of foreign US stockholding. It allows Alpha Co. to retain its qualification for the small business tax deduction (lower tax rate) as it will earn active income from this company rather than from being a passive asset owner. Money will move through Bravo Co. but never remain in it as it would be taxed at a higher rate. You can later sell or transfer shares in Bravo Co. to investors or family members without affecting any property ownership (land transfer taxes), US estate tax, or deemed income tax implications. You may want to do this to raise cash from outside investors or redirect your income streams. Never sell more than 49% so you always retain control and the ability to roll-up the revenue to your master company.

12. Incorporate an LLC (I will call it Charlie Co LLC) in the state where you will be doing business as a landlord – use an online service or a local lawyer.
a. Pay for it using your RBC Bank USA account
b. Have the only shareholder as Bravo Co.

13. Pass Director’s Resolutions in all the corporations to agree you will use the personal accounts for business purposes to reduce costs and facilitate low cost transfer of funds. All transactions between companies will then be accounting entries.

14. Now you can go shopping for US rental properties – We bought houses at first but found small apartment buildings more effective. It gives you diversification in the revenue stream

15. When you make the purchase, file the title in the name of Charlie Co LLC

16. Hire a property manager with whom you can work – This is tedious trial & error process or perhaps a referral if you’re lucky. You want someone who does it full time; not a realtor who does property management as a sideline. They need to provide reliable and credible monthly financial reports and have a capability for advertising, evictions & screening tenants as well as maintenance monitoring.

17. Get property insurance on your property

18. Arrange with the Property Manager to transfer the balance of your income to RBC Bank USA account each month. This will be your gross operating earnings; it is net of their fee, the float held in their account, and any other expenses

19. Set up automated withdrawals from your personal Royal account for
• Municipal taxes on your property
• local utilities on your property
• property insurance on your property
• any loans you used to acquire the properties

20. If you used an online incorporation service, ask your property manger to be the registered representative of your company in the state. You want to have a physical address in the US where you can have mail received if anything ever comes up. If you used a lawyer, it is likely included in his fee.

21. You will need to run like this for a while, say 6-12 months, until you are reasonably satisfied with your property manager. You are about to establish a strong link with him so be absolutely sure before you start changing the physical addresses.

22. Apply for an Employer Identification Number (EIN) so Charlie Co LLC will become an entity with the US IRS for taxes – don’t try to avoid US taxes.

23. Once the EIN is approved file the conversion to a Type “C” corporation from an LLC

24. By now, you should have confirmed online banking and no documents come to your home address each month. With your property manager’s permission, switch your bank account physical and mailing address to be your property manager’s physical address in the US.

25. Once your RBC Bank USA account has been open awhile, fly to your bank branch for a personal visit. (Ours is in Naples, Florida and the trip is a business expense!)

26. Ask to open a companion business account in corporate name with the same physical address as your personal bank account (i.e. remember the address is the same as the property manager). This may not work for you so you have to be creative about a physical US address.

27. Apply for a credit card in your personal name (or preferably business name if possible) to establish some business credit history in the US

28. Apply for a small LOC on your business name. (if possible) to establish more credit history

29. Transfer all automated debits & credits from your personal account to your business account.

30. One your first annual property visit you’ll be fly to your state. Purchase a cell phone for your business locally in that state. Register your address as the property manager physical address but have the cell bills sent to your online email address

31. Have that business phone forward to your cell phone in Canada with some sort of low rate plan

32. Set up a 1-800 number for your business terminating to that cell phone in your state; establishing more business credit.

33. You are now well on your way for credit building for future mortgage capability so you can purchase assets in the US directly. You will have credit bureau account references to your business name with a physical address (your property manager) from the following entities:
• Bank
• Credit card
• Civic municipality
• Electric power utility
• Gas heat utility
• Water utility
• Property insurance company
• Property manager
• Cell phone provider
• Toll free provider

34. Get your DUNS number from Dunn & Bradstreet

What you will have at this point is:
• A tax friendly Canadian corporate structure in which you can change ownership with your investors of any components of the enterprise without generating a costly transfer of physical property assets in the US
• The physical investment property will be forever owned by Charlie Co LLC meaning US estate taxes and any land transfer taxes are eliminated.
• You have limited your liability through the Charlie Co LLC corporate entity in your state where your properties are located to protect you from lawsuits
• You have a US Internal Revenue Service account with an EIN; it will be filing regular tax returns as a full bona fide C corporation
• A Business Bank account in the US with US cheques to facilitate payments in the US banking system and you can pay for any services you need in the US with US cheques
• You can now move money between countries without fees (other than exchange rates).
• You own a business in the US linked to a US physical address with a US business phone number
• You have some credit history in the US with which you can at least approach some lenders for mortgage financing directly within the US

Monday, November 21, 2011

I just got laid off. How can I make more money?

That question is the holy grail of society. Substantial sums of money, it seems, is equated to a successful life, although the philosophical debate continues about that. I don’t think there is a person alive that hasn’t asked themselves that question at one time or another. Of course, there are unspoken extensions to that question. One or more of these adverbs could or must be added depending on the questioner’s circumstances; easily, passively, without high input costs, legally, quickly, and so on.

Primarily for me the answer lies in asking a supplementary question of context; “Where does the money come from”? I was listening to a tape of Tony Robbins and he said “Your income is in direct proportion to your contribution”. That should inspire you to say “If I contribute a lot I should earn a lot”.

Some people suggest; do what you love and the money will follow. In some respects that works. However, I don't necessarily think it is the passion for some specific idea, concept, service or product that is essential. I'm not particularly passionate about some of the problems I'm solving for my customers… I just know I can do it effectively. I think it is more about embracing a philosophy of what you're doing to contribute.

By extension of logic then the following becomes true. Since I'm not thinking about "my" issues (and for most people asking this question, "my" issue is financial), then the business focus truly is on the customer. My marketing does not need to pressure them and is more sincere. My problem solving efforts are to make the business run more effectively to help customers even more. With that approach my customers can sense the sincerity. Consequently, sales just keep growing. The growing sales have the collateral result of putting more money in my pocket. It's like an upward spiral.

I have a consulting practice, two web based service businesses, a product manufacturing/wholesale business and a real estate investment business. They are the end result of answering that question by figuring out how to contribute more.

This question usually comes up when you hit the wall. Your company just laid you off in the middle of a recession. I don't want to sound patronizing but as an employee I have been laid off in the middle of recessions… numerous times, and sometimes for a long time. I had nothing with which to start a new venture. The pressure is on and I felt so incapable of getting ahead. The only thing I can offer immediately is the knowledge that the recession will end. You will survive and you will struggle back up again.

When I was in that situation, my way out was to realize I had to start preparing for the next recession right then. I eventually got another regular employee job to put bread on the table; you will too. But the key step at that point is... immediately I started getting my first business (IT consulting) organized. Although it was fully functional for the next recession, it was still only able to partially pay me a decent living through that second recession. So then I started the second business in 2005 (an Internet based service company). This 2009 - 2011 recession hasn't impacted me at all. In fact, I've added the last two businesses (real estate business and another web service company) in 2007-2009 right into the face of a recession!

So, to answer the topic question, in order of increasing ease & cost of set-up, my suggestion for businesses fall in these categories:

1/ A website selling a service is cheap and fast - no inventory, very limited fixed assets, scaleable with additional clerical staff. You just need a superior website, intelligent advertising and solid service delivery. You can compete globally with international conglomerates if your service is a better mousetrap. My first service website was pretty rudimentary when I look back now. I am amazed that within 2 years it was doing over a million in revenue. Before you get too excited that is revenue; the net earnings were still small.

2/ For a consulting practice, you just need your educational credentials, excellent service skills and what I think is the key ingredient... the savvy to run it like a business instead of a high priced employee job. Some, and I'd say perhaps even lots of, people can convert their existing job into a consulting practice with some concerted effort. I get ecstatic when someone says their employer wants them to become a contractor. And I sigh with resignation when they don’t recognize a golden opportunity dropped in their laps. The revenue for consulting starts flowing almost immediately depending on the time lag of your invoices getting issued and paid. I’ve been doing this the longest because to move from employment to consulting is not a major contextual leap. In other words it was simple to grasp and start the additional revenue coming in. I posted earlier about why I still think this is the best first step.

3/ A product based business - This is definitely harder to do, more risk and more activities to manage. The profit margins are thinner but potential scaled-up volume can put you in the big leagues if you have designed a better mousetrap. I'd say purchasing a small one that is already operating is the practical way to get started in learning this type of business.

4/ The last and IMHO the hardest is definitely the one that attracts most people as a simple & easy solution; investing. It is a high input cost activity – both cash and brain power. I’ve traded various types of securities for 30 years, I’m an ex-stock broker, have been involved in investment clubs and taken formal courses in all sorts of sophisticated trading strategies. In the beginning it isn’t a simple passive activity. And, it requires serious money to be put in before any serious money comes out. It wasn’t until I got the earlier businesses stabilized that I had the real money to fund this stage. Many people want to jump to this stage and take on the world alone. I’ve come to the conclusion the only reliable way to get serious cash is either long term savings or creating businesses that generate good cash flow. Savings is a concept seemingly lost by today’s governments, and citizens. Everybody seems to be running a deficit. So thinking you can get ahead consistently by shuffling paper assets around is a forlorn hope. So that leaves operating a business.

In summary, my advice is to keep your eyes open; look around to see what problems people are having. Most people are incessantly complaining about something, so there is no shortage of potential ideas. If you can address just one of their problems, your whole business venture and financial outcome just falls into place. I'm not religious but I heard a biblical quote from Jim Rohn that is appropriate... "find a way to serve the many, for service to many leads to greatness".