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Raising Money For Your Business or Project

Money being exchanged with a handshake

When I started my first few businesses I had no money.

When I started my fourth business I did and in case you haven’t had both experiences it’s 1000 times better to start a business with money than without.

Sometimes though you don’t have money of your own and you need to raise some money for your business or project.

Heck sometimes even when you do have money of your own you need to raise extra.

We devote a whole section and several lessons in our Scale ROI training to raising capital, determining what types of capital to raise when, working through common challenges, etc. but for now here’s a basic overview for you of how to raise money for your business or project if you don’t have it.

Lesson #1 – Raising Capital is Marketing

People sometimes paint raising capital as something special and it definitely has it’s own language terms like:

  • Debt vs equity
  • Security
  • Term sheets
  • Cap tables
  • Valuations pre-money and post
  • Etc.

The difference is you’re selling a part of your company (shares/equity) or a rate of return (debt). In some rare more modern cases you’ll crowdsource or do an ICO or something similar but most capital raising comes from debt or equity and if you’re talking about a very small company it’s almost always equity because debt is considered too risky.

Lesson #2 – Your Offer is EVERYTHING

There’s always smart money for smart deals.

A lot of people are either poor entrepreneurs with poor/non-existent reputations or have poor offers and then wonder why they are having a hard time raising money.

The best way to start making raising money easier is to work on yourself as an expert entrepreneur, build your reputation and improve the quality of your offer.

What is your offer?

It’s what you’re giving the investor or the perception of what you’re giving the investor.

If you’re talking about debt this is usually fairly simple you’ve got credit, you’ve got an asset, you’ve got cashflow, you’ve got security and you’ve got offered rate of return. You can improve the quality of the offer by improving any of these things.

If you’re raising debt then it’s about coming up with a better company, demonstrating better how it’s a no brainer success opportunity for the investor, offers higher ROI and you’ve giving them a bigger share.

Think about it do you want to invest in something pretty much sure to succeed or very risky? The former of course so come up with a plan with a very high chance of success think through everything that could go wrong and find ways to work around those.

Go a step further by demonstrating you know what you’re talking about and can actually execute, usually this is achieved by bringing on team members with a track record.

Would you rather invest in something that could be the next Facebook or best case will be the next local sandwich shop? The former of course so what’s the upside of your business? Paint a vision for what it will become but ground it in reality and immediate actions.

Where possible show traction and how it’s already picking up, signs of early success sell better than anything else.

Would you rather own 1% of the next big thing or 10% of the next big thing? The later of course. Now, obviously, you don’t want to give up too much this is like discounting your product but it will factor into whether people want to invest with you or not.

Lower valuation and higher percentage or better terms will both help you raising the money.

Bottom line if you make a really compelling offer everything else becomes 10x easier.

This should answer the question “What’s in it for them?”

Lesson #3 – Create a List of Possible People to Provide Capital

Getting investors is fairly straight forward in some respects. You need a list of people who have money (it doesn’t necessarily have to be a lot though you need to be mindful of capital raising rules wherever you’re raising money as the process is usually fairly regulated) who fit your criteria.

You can often start with your basic social circle here as well as asking around and/or looking for local angel investor groups.

You start by simply making a list of everyone you can think of or every capital raising hub you can think of.

To expand this list you ask those people and others you know who they know who might be looking for a business to invest in. Very often the people who are looking for investments know others who are looking for investments.

Ideally, those people can give you an intro.

Key Richucation tip here – many people have only one or two people on the list. You won’t close them all so it helps to have a lot of people you can talk to as it increases your chances of success and doesn’t make you as vulnerable to offers from any given person or group.

Final Richucation tip here – start building relationships with these people before you are ready to raise the capital. Keep them updated as you hit key milestones to build their excitement and interest in your project sharing the wins. By doing this when you call asking for money they are far more likely to jump in.

Lesson #4 – Communicating with Possible Investors

Knock off any intimation you might have about capital raising terminology it’s perfectly normal for new entrepreneurs and start-up founders not to understand the fancy investing lingo ask them to explain it to you instead.

Your focus should be on three things:

  1. Your company
  2. How you’re going to deliver results
  3. Understanding the hot buttons of your target investor

Understand each investor has slightly different preferences but they are all looking to invest money to get a return.

Some might say they only invest in real estate or tech or biotech or whatever that’s fine they aren’t your target ask if they know someone who might be a fit and stay in touch, learn what you can from them and treat them well.

You don’t know who they know there’s an expression “a dud can bring you a stud”. Maybe a little crass but true.

The most important point here is don’t get right into pitching your business instead take time to listen and hear what’s important to them then learn to pitch your business or project in the most attractive terms possible.

In a sense this is basic sales.

Entrepreneurs often fall in love with their company or vision but what’s in it for the investor?

What does the investor care about. You probably think your idea is amazing and the truth is it’s probably full of holes, it helps to identify those now rather than later but also don’t get discouraged.

You’ll probably get rejected a bunch of times, that’s normal learn from each pitch and learn to refine it accordingly. You don’t need to be articulate or charismatic to get the results look at the Google Founders or Mark Zuckerburg when they started, nerds!

Realize sometimes a no today just means you need to refine your offer, your pitch, your story more. Failure is feedback, take it and improve then come back once you’ve improved your offer.

Chances are they’ve also got more business experience than you so use this as a free education on things to consider and improve.

This being said don’t take everything they say to heart, opinions are like assholes everyone’s got one and they all stink. Focus on listening to the market more than the investors.

Pay more attention to what the investors say about HOW TO EXECUTE than what your product or service or business should look like that’s where they’ll have more useful and more universal experience.

If they have an objection try asking them how they’d suggest handling it.

Request permission to stay in touch and provide them with updates as you grow they can become valuable advocates.

Lesson #5 – Be Ready to Take the Money

Know what you’re asking for, what you’re giving in return and if they are ready to invest be ready to take the check.

They might require a particular corporate structure or some changes to your structure, it’s best to consult an expert on this it could be perfectly reasonable or could be a way for you to get screwed.

This is also where having multiple offers helps because you can compare them to each other.

Be aware one of the biggest questions almost everyone will ask and you need to be able to answer is “what do you need the money for/how will you use the money?” We call this “use of funds”.

You should have thought through what the money is going to be used for.

You should have thought through how much it will cost and not be asking for substantially more but probably a little more to offer a cushion because your estimates will probably be low.

The amount you’re asking for should usually be enough to bring you to your next major milestone.

Ideally find someone or a group who can provide you more capital if needed there’s nothing worse than running out of money shortly before reaching that next milestone.

What’s Next?

This is just a start your best advantage is going to be learning and there are 3 things to learn:

  1. How to be an amazing entrepreneur and build an incredible business – this will help raising capital more than anything else. This is something we can help with through our products and services if you’re interested check out our Advisory or Products section of the website.
  2. The Language and process of raising capital – this is a pretty quick study honestly, you can read a bunch in online articles, learn from the investors you talk to, as mentioned we cover it a lot in our Scale ROI training.
  3. Marketing in general – this will make your business more successful but will also help with finding great investors and pitching and comes back to point #1

Keep iterating and improving your business, your story, your pitch, your method of finding investors, and you’ll be in good shape.

This is a journey of continual improvement where the fastest learners win.

If you found this article helpful please share it with others who would also find it helpful or share with them what you learned here as it will reinforce your learning. Write a social media post, explain it in a conversation, or write someone an email.

If you’d like to learn more please check out our other articles, free resources, and programs we’re here to give you an unfair edge in being an extremely profitable entrepreneur.

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What Should You Do When You’ve Got a Cash Crunch? A Proven Method to Deconstruct and Solve Your Cashflow Issues

One of the most common challenges I hear from business owners is having cashflow issues.  The good news is often this comes from growing rapidly where you’ve got to put out money for inventory or services and are waiting to be paid but because of how fast you’re growing there’s a shortfall.  So long as you’re really profitable that’s a short term problem though it can still sink you.

Worse is when you’re struggling from a temporary downturn in your finances.

In either case it can be incredibly stressful, sometimes scary and overwhelming and in either case you need to take action.

The question becomes what do you do when you’ve tapped all the accounts and the well has run dry?

As with most problems in business and in life it becomes a lot easier not to mention less overwhelming if you can deconstruct it into small actionable pieces so here’s the formula I’ve used successfully again and again in my own life, with my own businesses and with clients and friends.


Step #1 – Separate Incoming and Outgoing

You have two parts of this equation what’s going out or supposed to go out and what’s coming in or what you can bring in.  In other words

  1. What can be done to lower your obligations?
  2. What can be done to bring in funds?

These are really two separate issues either one of which could solve your problem but most likely you’ll solve it through a combination of the two.

Your goal here is going to be to brainstorm and then apply solutions in each area and breaking it down helps you to brainstorm more options.

With that in mind you’ve separated out the outgoing from incoming but it helps to break it down further to determine possible solutions for each area.

Richucation Tip – Start by making a detailed list of all your obligations how much they are and when they are payable


Step #2 – Deconstruct Possible Solutions to Your Obligations

Though it might not seem immediately obvious…or maybe it is there’s a few different options in terms of how you can deal with your obligations in these circumstances.  You can deconstruct these into essentially two things that can be done:

  1. Reduce Expenses – in other words find ways so you don’t have as much you’ll have to pay out
  2. Push Back Expenses – in other words find ways so you can pay expenses that you can’t eliminate later than they are normally due in order to buy yourself breathing room and time to bring in more cash to cover those obligations

This is fairly obvious right?  You can address some of your cash shortfall by not having to put so much out at all.  Or you can push back those obligations until you’ve had time to bring in more money.  This later only works assuming you’re profitable in the long run, that you’ll be bringing in more money than you’re spending on a regular basis though sometimes it buys you the time to make more money.


We’re off to a good start but we can deconstruct the problem and brainstorm solutions even further.

There are basically three ways you can reduce your expenses:

  1. Finding unnecessary expenses and removing them – this should be a monthly practice in your business for you and all your managers to help keep expense from becoming bloated
  2. Negotiating to make expenses go away – this might look like calling up a creditor and saying “look I’m not going to be able to pay and going to have to default at which point you’ll get nothing, I can offer you 50% if you’ll take that instead”. Alternatively, you can call active suppliers and say “hey we’re shopping for better pricing if you want to keep our business I need you to come down on these numbers.  Often this can get you a 5%-10% discount if you’re a good long term customer who’s valuable to them and assuming you haven’t done this in the past.  Again, this is a practice you should be doing regularly in your business.
  3. Finding another place to meet the need without the cost – this is essentially a case of moving an expense from you to someone else. For example, maybe rather than providing employees with cell phones and computers they use their own along with their home internet connection and perhaps you reimburse them for any extra costs or help subsidize their cost so it’s a win – win.  Often, there’s someone else who already has the resource you need and you can use it without any real excess expense to them or split it with them for a win-win.  This can be particularly useful for women who are suffering from personal cash crunches as often guys will take them for dinner, give them rides, etc.

For a very personal example of this when I was at my brokest all my credit cards were maxed and had been frozen except one and I remember buying just over $19 of groceries and shaking as I scanned my last credit card not sure if it would go through.  During that time, I had to resort to eating my roommate’s Kraft dinner because I couldn’t afford my own thinking “I’ll buy him some when I’ve got money”.  I got packets to ketchup from McDonald’s and toilet paper from public washrooms, rides from friends to save on gas, etc.  Chances are you aren’t in that desperate a situation and hopefully never will be but it’s an example of how sometimes people have resources that you can get from them to temporarily decrease what you need to put out.

Richucation Tip – Refer to Richucation resources on the “3 Dimensions of Value”, “The Cost Halo”, “The 6 Resources”, and “The 5 Ways to Get Great Deals”.

We can also put you in touch with financial experts to analyze your expenses and help you cut costs.


In terms of pushing back expenses a lot of bills are due but you can get away without paying them on time if you’re desperate.  In my case because I couldn’t pay most of them when I was at my worst I’d figure out which ones I couldn’t avoid paying because they were going to cut off the services and I’d pay those while leaving the others.

One thing to note is often if you’re a good customer and call whoever you owe the money to they are happy to extend you terms so you can avoid paying for 90 or 120 days.  Not always possible but it’s often an option again to help buy some breathing room.  Costco literally builds part of their business model off of these terms because they’ll buy inventory on payment terms, sell it then invest the money to get a return before they have to repay.

This is very common when you take over a struggling or failing business.  For example, when I purchased a spa I met with the landlord and said “hey, the spa isn’t doing well, they’ll default on the rent unless I do something about it and you’ll lose out.  I need you to work with me here.”  It’s much better than the alternative for them so they’ll usually work with you.

Obviously, not all expenses can be eliminated or even pushed back but usually across all your expenses it can provide extra breathing room.


Step 3 – Breakdown Possible Options For Bringing In Funds

When you’ve exhausted all your options to cut expenses and push back expenses you’re left with bringing money in.  Once again there are lots of ways to bring money in and most people having dug deep enough into all the available options so breaking those down will help you become more resourceful.


Option #1 – Make Money

The first place to start when you need to bring in extra money is to ask yourself is there any quick cash I can generate?  In other words, can I make some quick sales and get paid right away?

When I was at my lowest for example I made a deal with a friend to sell some of his services and sold to someone I knew (close network so easy sale) then got the client to write a check to me.  I’d negotiated a 50% commission but needed to keep every penny because I needed it all and it was only after a few months that I’d regained enough to my friend his 50% share.  It wasn’t ideal but it helped me.

The important thing being “is there someone who needs something where I can provide a referral and get compensated for it for some quick money” (some kind of affiliate arrangement).  Can you do some sort of discount or promotion to generate rapid sales?  Or do you have a list of existing customers who you could offer something additional to?  I’ve done this with raising money for investments on a few occasions, as well as numerous other things.  I don’t believe it makes a good long term business model but for short term cash it’s useful.

This can actually help generate another revenue stream for your business if done well.


Option #2 – Sell Assets

I hate to do this one because whereas #1 is adding to your wealth to cover expenses after selling assets you’re impoverished.  That being said it’s a method of getting some quick cash in some circumstances.  For example, maybe you’ve got excess inventory or equipment you can sell off, maybe you’ve got investments that can be liquidated.  Maybe it’s possible to sell some things you own and rent instead (for example selling vehicles to generate cash and then leasing to replace them).

This is the least favourable and in fact the main danger of short term cashflow issues is that you need to sell assets at a loss in order to cover obligations, which is the reason for bank reserve requirements.  On the other hand, it beats being forced into bankruptcy, taken to court for obligations, etc.

In business perhaps the most common asset to sell is part of the business in trade for an equity investment.  This is sometimes a great way to go but also be careful it’s a long term obligation to a short term problem.  You want to ensure you’re getting long term value out of the investment.


Option #3 – Borrow Money

I’d rather not do this but sometimes it’s the only option and it’s worth exploring the options here.

The question of course is “from who and on what basis will they make the loan?”  Goodwill or unsecured credit only go so far where loans are concerned.

I’ve lent enough people money over the years to know that if it’s being lent based on goodwill unsecured I’m often at risk of not recouping my investment so if they are personal loans I’ll generally consider it a gift to help a friend and simply be grateful if I do get paid back or else make sure I’ve got some sort of security.

Richucation Tip – Contact us on advice for loan structuring to make sure you get paid back

This being said most people aren’t sufficiently creative here.  We’ve worked with clients who have cashflow issues and have credit that’s been destroyed or other outstanding issues that mean they can’t get money from a bank but we’ve been able to facilitate loans internally through the Richucation network.

The key here becomes “what can you offer as collateral?”

Very often people have latent assets they can borrow against in one form or another that protect the lender while allowing you to get the money you need.

Remember we were talking earlier about assets and not wanting to sell them?  Often, if you’ve got short term cashflow needs you can borrow against them instead.  Or you can sell them to someone at a discount with a lease to buy option in place so you’re both protected.  You get your cash short term; they get a rate of return but also an asset they can sell if you default and recoup their money.

Another example is the pre-sale of services.  A Richucation client early in his career approached a client and convinced them to lend him money for a venture based on providing services for the coming year.  I’ll do this in some cases where I’m extending private loans and concerned about repayment specifying that I can take repayment either as cash or services at my option.  I’m somewhat protected and the person gets the money they need, win-win.

You can also factor accounts receivables if you’ve got some steady or committed income.

Most of the time people who are looking for money don’t think enough from the perspective of the lender and the lender’s desire to protect their investment and earn a return.  They’ll make promises that aren’t necessarily realistic while at the same time failing to offer protection.  If you can offer protection to the lender that more than covers them, you can usually get someone to extend the loan.

Richucation Tip – Contact us if you need assistance determining how to borrow money

You’ll want to identify who might lend to you and what you can offer to help make the loan a no brainer for them.


Option 4 – Receive Gifts

This really applies primarily to personal cashflow issues as opposed to corporate ones but is still worth mentioning.  Although it’s usually not an option sometimes you’ve got people who are willing to help you out and ask nothing in return.

If you’re in a personal cashflow crunch brainstorm who all might fit in this category for you to help you get over the hump.  Sometimes it’s a bunch of people each making a small contribution, the movie “Cinderella Man” is a great example of this.


Step 4 – Use All These Strategies Together

Generally, if cashflow issues are serious no one strategy will work on its own so brainstorm solutions in all of them and then start implementing if nothing else you’ve got backup plans if one or two options fail.

As a basic rule prioritize making money and reducing expenses first, then pushing back obligations, then borrowing and only as a last resort selling assets.

Contact us for personalized assistance.


5 Essential Steps to Automating Your Business.

Can you make money while you sleep?

Why did you get into business in the first place?

There’s one answer I hear more than any other…freedom

And yet a lot of entrepreneurs end up working more than if they had a regular job.  Working longer hours, it destroys marriages, limits vacations and time with friends.

We tell ourselves these are temporary sacrifices for long term gain but when does it end?  When does this long term gain start?

I look around me and see people who have been in business for 20 or 30 years and still the end doesn’t seem anywhere in sight.

But it doesn’t have to be that hard, it doesn’t have to take that long once you know the formula.

Here are the 5 essentials that were laid down for me by a friend who did it and that I’ve used since then:


Profitable Systems that WORK

Lots of people talk systems but the key is having profitable systems that work.  If you systemize a bad process you’re just repeating inefficiency within the company so the idea is to refine the process first then systemize it.

Systemizing means three things:

  1. Lay Out the Workflow – all work proceeds in a series of sequential steps so you want to lay out what things happen in what order in order to get the result


  1. Build Templates – you want to eliminate as much repeat work as possible and make as much “fill in the blank” as possible so it’s done the same way. This will include checklists


  1. Document the Process – here is where you record (written, audio, video, or images, whatever works best) how to actually apply the process. It should be laid out so a 10 year old could follow it but be careful if it’s too cumbersome people won’t follow it so aim to make it simple

My initial mistake was systemizing too early, my second mistake was systemizing in too much detail (long manuals that were supposed to be helpful but just overwhelmed people and they wouldn’t follow them).  When I chopped out the unnecessary and made it paint by numbers I got the best results.

Make sure systems include where to put things and where to find them so everyone is on the same page.

profitable system

Technology that Accelerates

People misuse technology all the time trying to pursue the technology then build around it instead of the other way around, building a great process and then using technology to accelerate and streamline.  This is critical because the right technology will increase what your team can do several times over, make it easy to gather good data, and frankly just eliminate a lot of work.

Note, technology fits into your systems so those systems should include how you use the technology.

Each industry has its own technology but some really useful things pretty much everyone should take advantage of are:

  1. Cloud storage software – typically this means Google Drive or Microsoft Onedrive because they allow for real time collaboration, make sure everything is always sync’d so no information gets lost not doing so in this day and age is inexcusable


  1. Task or project management software – two free tools I often recommend to people and use a lot myself are asana.com or www.trello.com they don’t fit every business but they are highly flexible and allow you to keep track of things that need to get done, comment, get updates, share internally with the team as well as externally to clients, etc. Bottom line you need some way of knowing what needs to be done, by when, etc.


  1. Cloud accounting software – in this day and age you should be able to access real time financial data from anywhere and have it shared between yourself, your book keeper, and your accountant as well as anyone else who needs it. Modern software also reduces data entry a lot by pulling your bank and credit card statements directly into the software.  There are several that you can use but some of the better options are: waveaccounting.com ; www.freshbooks.com ; www.xero.com ; www.quickbooks.com


  1. Contact management software – this comes in a lot of different forms at the least you’ll want contacts sync’d to your phone and the cloud but typically you want an organizational contact list, which is in a lot of software it might be marketing automation software or a CRM or your point of sale software but having the availability of contacts and contact details is critical. Also consider auto-responder software in here.


  1. Scheduling software – you need some way of creating reminders, scheduling time for clients with location details, sharing those details, syncing them, etc. and this should all be available on the cloud


  1. Messaging software – you’re going to have to communicate with people so how will you do it? It might be email but today it’s more common to have other methods such as slack, Whatsapp, Google Hangouts, Skype, or maybe something internal.  Whatever it is you need a way to easily communicate with the team and keep everyone on the same page.  For email I recommend Google Apps for Business or Microsoft Exchange (I use the later in all my businesses)


There are a million ways you can use technology and it’s ideal if you can find technology solutions to problems rather than people solutions because the technology will scale.


Meaningful Metrics

In order for you not to be there you need metrics that will tell you what’s going on while you’re away and the sooner the better.  You want to measure two things here: activity and results.

There’s a risk that people will lie about these metrics so you want some controls in place to prevent this or at least some checks in place to make sure even if they are that performance doesn’t slip without you knowing fairly quickly.  For example, in my recruiting company there were signed agreements from clients.  This isn’t something they can easily fake so if they claim to be making sales but the signed agreements aren’t coming in then I know there’s a problem.

This is where technology can be very helpful for example you can see the date modified of documents within the cloud storage to see if there’s activity taking place, you can see emails sent and received, etc.

The bottom line is of course always the bottom line “what are you paying them for and what are they getting done?”  Each member of the team needs to be contributing profitably and that’s what you’re measuring.  You need to know you’re getting a return on your investment.

I recommend avoiding too many metrics but have ways of digging into the details.  What these metrics are might vary with the role some cases you might be paying piece work or commission (there’s a tendency of entrepreneurs to think commission is better, generally I prefer to avoid commission where the task is critical when you pay for someone’s time they need to do what you tell them whereas on commission this relationship is distorted).

Try to choose 1-2 activity metrics and 1 result metric you can look at for each employee and make it easy to record the metrics.


Accountable People

Ultimately nothing gets done unless someone does it and if you’re not going to do it someone else needs to.  If we have to boil the type of person we want down to just one criteria (frequently there are many) it’s accountable.  Someone who won’t place blame, who will take ownership for what they are doing and follow through.  To have freedom you don’t want to be chasing people.

The key here is delegate jobs not tasks.

If you’re constantly assigning tasks then you’ll have to keep delegating over and over which will take you time.  Instead delegate a fixed repeatable task with a result assigned to it.  For example, enter all the expenses into the computer and send out all the invoices.  This means if a new expense shows up they enter it if a customer needs to be billed they send the invoice.

By breaking complex tasks into smaller pieces you can hire lower skilled people for less and get better results.

The key here is training, which requires patience.  Training should happen as follows:

  1. Give them the procedure to read and have them read it


  1. Do it showing them how


  1. Have them do it and correct when they get it wrong…repeat this process over and over until it’s perfect, don’t fix it for them redirect them back to the procedure

Expect to spend a couple weeks training and getting zero results it’s a mistake to throw people into the deep end to see if they can swim.  Not only will you lose a lot more people but it will actually taken them longer to get up to speed.


Trust but Verify

Everything is now in place to step away so you need to trust others will do it and not be too concerned about the quality of their results they might be slightly worse than yours or might be slightly better but trust them.

Trust doesn’t mean ignore though keep your finger on the pulse of what is going on and check in with them regularly.  Even though you might only be looking at it 15 minutes a day they should feel like you’re present.  Be sure to give encouragement regularly and reprimand where things are slipping.


That’s literally it if you can do those things you can step away.  What this assumes though is that you’ve got a solid foundation of something that actually works in your business.  It should take a few hours per week to manage.  You can get away without managing at all for a few weeks or even months but every small business will gradually decline if not given some attention.  There’s a strategy to remove yourself entirely but that’s for another day.

Need help with specifics of how to apply this?  Contact us or join one of our communities.

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When The Cat Is Away The Mice Will Go Play

There is a holy grail of business pursued by many who don’t love what they do and that is the idea of a business that runs without you.

Arguably, a good business, a strong business, should run without the owner to a certain extent.

It’s possible to achieve this feat in even small businesses if you have well trained staff, strong systems and can easily keep an eye on details.

This is almost never truly hands off in the absolute abdication sense but can certainly become low maintenance requiring no more than  one to four hours per week to maintain.

Ironically, there’s a bit of a sweet spot it seems in most businesses where this can be achieved beyond which more energy is required and below which more energy is required.  However, what you’ll learn is it is never so straight forward on a sustainable basis.

Energy input is required for growth, you can either put it in yourself or you can have someone else put it in, but one way or another it is required and if it’s to be to your benefit you’d better provide at least enough energy to direct it.

This brings up a very important principle, not so much a rule because it isn’t always true, but it’s a generally wise assumption.

People will tend to act in their self-interest.  People also tend to fall into routine.  What does this mean for you?

If you ignore your business one of two things will tend to occur, perhaps not immediately, perhaps not universally, but in general it will take place.  Either people will get lazy doing what they can get by doing as opposed to pushing the boundaries to do better, or they will take advantage of what is given to them to benefit themselves.  Three real examples from businesses I’ve owned:

  1. Staff were given a list of duties to complete daily and standards to live up to, certain amounts of work they were expected to get done by the end of each shift, however, in the absence of an on-site manager staying on top of what was done and what wasn’t done they started to slip, they’d leave something for the next shift, they would fail to get it all done, they’d let the standards of how well they were doing one thing or another slip, all of which cost us money


  1. Staff would clock themselves in for additional hours, not that they were lying about being present but the company really didn’t need them if everyone was doing their job efficiently,the business had no policy to pay them for those hours, they weren’t authorized to come in during those hours and it would cost the company money for them to be there for extra non-revenue generating hours


  1. Some staff would steal clients for their own private work outside the company taking them for on the side services competitive with what the business was offering saying “the prices will be lower”

These are startling examples from just one company of the kinds of things that occur when you’ve got absentee management, when there isn’t someone actively in place watching the numbers, the staff, the performance constantly.  It’s sometimes under appreciated by small business owners just how much difference being on top of the details constantly can make in a business.  In the case of extra staff hours I audited the time sheets and discovered inefficiencies due in part to staff spending extra time beyond what they should be and partially due to inefficient scheduling was adding an additional 20% to payroll costs, all of which would be pure profit with the right management.  In the case of staff who slacked off the estimate was somewhere around an additional 5-10% boost in revenue if the staff were only diligent.  These are small examples but they are also short term examples, factors such as these erode and grow building momentum until they eat a company, a $10 000 monthly profit can quickly turn into a loss if not carefully monitored.

There’s an expression that “people respect what you inspect”.  It doesn’t necessarily have to be you doing the inspection but there is an enormous cost to not remaining on top of the numbers and the people, not constantly optimizing and tweaking.  When you are absent people behave differently, they think and feel differently, they start talking in ways you probably won’t like.

Bottom line, for any business to succeed at a high level it needs effective management, whether you or someone else make sure there’s a manager in place who takes ownership, has the will and the skill to make the organization thrive.

If you’ve got business management or growth or any other questions we’d love to hear from you.  Contact us with your questions.

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What is Credit?

Credit is used every day often without us even knowing it.  If you’ve got a tab at the bar they have essentially provided you with credit even though it’s very short term credit.  There’s an illusion that only banks can create credit and some conspiracy theorists who decry the unfairness of this system.  Nothing could be further from the truth.

Credit is incredibly important and in other articles we’ll examine how it works to create cycles within the economy.  The question is what is it?

To be clear, we’re not referring to credit scores here.  What we’re referring to is a means of payment.  You pay with either cash or credit, again not referring to credit cards in this case.  So what is it?

In any transaction there is an exchange a good or service for cash or credit.  Let’s consider what happens in a cash transaction (not referring to physical bills here but where there is no debt created).  In a case such as this I pay you money and you give me a good or service.  Look at our balance sheets.  At the start I’ve got an asset and you’ve got cash.  Then when the transaction goes through we swap.

Before the Transaction


Me You
Cash Goods

After the Transaction

Me You
Goods Cash

Now let’s see what happens if we change this process and instead of paying with cash.

Before the Transaction

Me You
Assets Liabilities Assets Liabilities
None None Goods None

After the Transaction

Me You
Assets Liabilities Assets Liabilities
Goods Debt (payable) Debt (receivable) None


Notice what happened here.  Instead of paying cash debt was created.  What is debt?  Debt is an asset for the person who is going to collect the debt and a liability for the person who has to pay the debt.

In other words, credit is when we create out of thin air an asset on one person’s balance sheet with a corresponding exactly equal liability on the other person’s balance sheet.  When the debt is paid off you’ll go back to the way it was in the cash transaction with just cash on the balance sheet of the person who was paid and no liability on the balance sheet of the person who paid.  What’s important about this?  A lot of people confuse credit for money because it can be used as such but credit, which can be issued to an unlimited extent within the confines of physical resources is not really the same as creating money.  It is treated as money in many cases to exchange goods and services but the difference is there is no net growth in wealth because credit cancels itself out.  What it does is it allows transactions to take place sooner, which can help to increase productivity and activate resources in the economy that would normally just be sitting.

Hopefully that gives you a basic understanding of what credit is and how it works.  There’s a lot more to it of course but we’ll cover those nuances in future posts.

If you’re interested in a deeper understanding of credit or any other business or wealth building issue please contact us and we’d be happy to assist you.

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How Do You Get Banks to Lend You Money?

Banks have fairly straight forward lending criteria; it can be as simple as a formula you learn (and you should learn it if you are looking for bank financing whether a mortgage, line of credit, or other financing).  On the other hand it’s amazing that someone who doesn’t know what they are doing can walk into a bank and ask for a loan and get turned down, then someone else can walk in representing the exact same business with identical needs and get the loan.  What’s the difference?

Your first assumption might be the individual in question has a relationship with the banker, might have better credit, more personal assets, etc.  Those things might all be present and yes in certain circumstances those can make a difference, but those are not the differences we’re talking about.  In this case (and this is an actual example I have personal experience with and have seen happen many times) none of those details were different from the original bank visitor, in fact the second individual was merely acting as a representative of the first.

When I or many others like me did this what did we know and how did we act differently than the first person who couldn’t get the loan?

The answer lies in understanding the language of the banks, what they are looking for, and being committed to getting the result.  When you walk into the bank you need to be focused on what they want in order to be able to give them what they want in order to get what you want.  Banks aren’t out to deny you loans; they’d rather give you the loan provided it meets their criteria.

What banks care about is security, they are generally asset lenders and their most important concern is the assurance not from you but from what’s backing you that they’ll get repaid.  In other words if things go badly how are they protected?  If you can make it next to 100% that they’ll be protected if things go wrong you’ll be very likely to get the loan.

Think about it what are the three easiest loans to get?  First, mortgages, why?  Because the value of the house is typically greater than the amount of the loan so worst case scenario they can sell the house and recover most of their money.  Second, collateralizing life insurance policies.  Again this comes down to the same thing they know there is a fixed value to the life insurance policy so when in doubt they can recover their money from the asset.  Third, loans backed by cash or GIC deposits.  In other words if you walk into a bank and put down cash or a GIC as security the bank will essentially always give you a loan based on that security because they are protected, it’s like they are lending you your money back to you and who wouldn’t make that loan?

First lesson put yourself in the shoes of the lender.  The lender makes money by making the loan so they want to do so.  The lender is generally in a better position when you repay since it’s a hassle to go through the collection process if you default.  The first most important thing to the lender is that you repay.

Second lesson banks determine whether you’ll be likely to repay primarily through three factors.

  • Assets as security such as: real property vehicles, equipment, land, cash, bonds, securities, etc.
  • Cashflow on the personal side this is measured by before tax income, in the case of a business it’s profitability. Keep in mind when it comes to cashflow you need to show track record again think as the lender they want to know it’s steady income and not one time income, in other words do you have the income to make the debt payments?  With this in mind there’s one more factor to consider when it comes to cashflow and this is the relative amount of debt.  In other words it’s all well and good that you’ve got a certain income but if you’ve already borrowed so much money it consumes your whole cashflow then it’s not safe for the bank to lend you more.  This is called the debt service ratio.
  • Credit is essentially a measurement of how likely you are to repay.

Some banks will work and get resourceful to help you and find ways but generally that’s not the case.  Generally, they won’t know what resources you have available at your disposal in terms of different profit centers, different assets, etc. to call on to provide them with what they need so it’s up to you.  You’ll need to understand what types of loans are available to you and how to qualify for them.  For example, typically, lines of credit are more difficult to qualify for than loans for vehicle or property purchases simply because of the security.  Sometimes you can restructure debt to improve your debt service ratio, other times you can provide cross company guarantees to provide more cashflow to support a loan, the list goes.  The bottom line is when you walk into a bank if you do so with the understanding of what they are looking for and what you have available as resources you can present them with plans A, B, and C about how they are going to get paid back, in essence remove the risk from the deal for them and then they’ll be able to do all kinds of great things for you.

There are lots of little things to know that vary from bank to bank, but the above points form the essence of it.  The moment I learned what banks were after and was then able to engage in conversations with them about what resources I had available that I could manipulate to give them what they needed it become comparatively easy to get approved for loans.  You won’t always be able to borrow money from any institution this way, there are times when you won’t qualify, but it gives you a massive advantage.

For further detailed training and resources on this matter please check out our Richucation training programs.

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Risk the Mother of All Bad Deals

Our second principle at Richucation is rich people love great deals, they love to be able to buy things for less than those things are worth.  There are many factors in this process such as knowing your true costs (a good friend once remarked it’s worth it to pay $200 for a shirt you like because the real cost isn’t the shirt, it’s your time to find one that’s perfect for you and you’ll spend more money in time trying to find a better deal or find another you love for a great price than you will save), knowing the accurate value of what you’re buying, etc. but ultimately we return to this as a foundational principle and our first lesson to new students.  Rarely accounted for though is the cost of risk and how risk undermines good deals.

Mark Cuban, the billionaire owner of the Dallas Mavericks, once remarked on his blog that the score comes not from what you extract from any single deal but what you end up with overall.  Put another way it doesn’t matter how an athlete performs in a single game, it is their average over time, the aggregate results.  Most successful companies lose money on various transactions throughout the year but in the aggregate those transactions are covered off by the profitable ones.  The key is knowing those numbers to ensure the winners more than cover the losers and then improving the statistics.

Nowhere is this more true or the dangers more insidious than when considering risk.

Risk is not a particularly popular word with entrepreneurs, by nature entrepreneurs tend to be optimistic, they also tend to as a group overlook failures and focus on successes and psychologically this approach has merit.  In terms of creating success you’ve got to look at the failures and the failure rates.

Let’s start by defining risk.  In this case risk is the probability of failure and its related cost.  It is most insidious because you don’t see it in the short term, it only shows up in the long term so you can have what appear to be great successes that ultimately turn out to be great failures.

Consider the example of the exempt market investment products industry.  Walk into in local investment office and ask them about their available products and they’ll tell you all about the MICs, the real estate development LPs, and many more.  They’ll frequently pitch returns ranging from 8% to 25% per year.  Consider yourself warned, Warren Buffett averages 20%/yr. over a long period, if you think these guys can get you a 25%/yr. return in the aggregate (meaning not by getting lucky during a small cross section of the cycle but when averaged across the whole cycle and repeated cycles) you’re probably deceiving yourself.  Are 25+% returns possible?  Yes, definitely, especially in small deals in limited timeframes by very skillful experts.  Buffett has actually remarked that he could get 50% on $1 million because the dynamics are different.  However, keep in mind that in order to return you 25% the company really needs to be earning probably 35% – 40% because they have to pay all their expenses plus etch out a profit.  Let me be clear, no one truly offers consistent long term returns of 25+%.  The only people who get that are people who are managing their own money often in their own business and other factors weigh in, you should probably be running from promises such as those.  But what about the lower end, a 10% return.  This is very respectable and certainly attainable so you can accept those numbers right?  Not really.  Those in the exempt market industry are fond of harping against the mainstream investment industry pushing mutual funds and GICs.  They talk of beating the market through the exempt market but the truth isn’t nearly so glamorous because the general market accounts for risk in its figures the exempt market does not.

When your mutual fund advisor tells you about the 5%/yr. returns a particular fund has averaged over the last 20 years that’s after accounting for all the ups and downs of those decades.  It might have been 15% one year and -15% another year but after all was said and done they managed to scrape together a 5%/yr. return.  When your exempt market dealer tells you about the 8%/yr. you’ll be getting that’s not an aggregate of results, that’s a promise made without security.  In other words there probably are some that will pay 8%/yr. just like a couple stocks in that bundle within the mutual fund will actually earn a 15%/yr. return.  The problem is people, including investment advisors and portfolio managers, are notoriously bad at picking those companies so to protect you from the risk they buy dozens and work the averages.  You can do the same thing within the exempt market but you’ve got to realize that’s how you’ll see your real returns and it won’t be pretty.  Of those 8%/yr. companies you might actually have a couple that lose all your money, a couple where you lose 20% of your money, a couple might actually pay 5%/yr. and a couple might even pay the full 8%/yr.  The problem is for you to pick, for your investment advisor to pick, for you to be able to bank on it is extremely unlikely.  Thus, you have to when you’re making your investments look at the probability of failure and account for those probabilities.

A simple example, if you’ve got a 20% projected rate of return with a 20% chance of complete loss (btw the chances of complete loss in the exempt market are very high, there’s rarely any cases where investors recoup only a portion of their money, they tend to get returns or lose it all) then what’s your real rate of return?  The real rate of return in the aggregate is actually 0%, meaning if you invest several times these will average out to a 0% rate of return.  You might get lucky and hit a winner without a loser; then again you might get unlucky and hit some losers without any winners (they tend to clump together because they tend to be based on the current stage of the market cycle).  Bottom line you need to be able to do the numbers and make decisions based on the probabilities not based on the projections or promises of advisors and sales people.

The same principle applies in business since all business is an investment.  A real example, I had a company where we’d run promotions with heavy advertising and at the end of the promotion period we’d calculate how we did when accounting for all the advertising expenses, cost of goods sold, wages, commissions, merchant processing, etc.  We’d look at the numbers, see we were pulling in a healthy profit and act accordingly run regular promotions to get the volume high enough to surpass breakeven.    At first, all looked good but there was a critical error in the calculations…the defect rate.  Not that often, but often enough we’d have a defective product that would need to be replaced.  When I’d become involved in the company I’d added warranty upsells so that helped to cover some of the cost and at first blush we’d figured it was no big deal because our margins were so strong, about 75% gross margins we had plenty of room to replace a few defective products and the high level of customer service we offered was good for business.

What was the problem?  First, we didn’t know the defect rates or account for them conservatively in our numbers so we’d walk away from a weekend seeing a $12 000 profit and in the short term that was true, in the long term it was not.  It got worse though, when we looked at the costs we were thinking in terms of a 25% cost, if we say had a 25% defect rate at a 25% cost we just needed to add an additional 6.25% to each product sold to account for these losses.  But what of the real costs?  We needed to pay staff to take the phone calls, to handle customer RMA requests.  We needed to pay for return shipping of the defective unit as well as shipping to the client of the replacement unit often times those shipping costs could exceed our cost on the product to begin with.  Even all those might have been tolerable but in many cases we were selling through a third party and we were hit with refunds.  Now in the case of refunds we needed to refund their full money, but we’d still incurred the shipping costs, we still incurred the staff costs to handle it all, and we now had an opened or defective unit we couldn’t easily resell.  In such cases it was a pure loss that needed to be accounted for.

The bottom line is these sorts of considerations exist in any business and you need to count the aggregate, the long term and the large numbers, not any one instance or sale and you need to turn that into a profit or the business model isn’t sustainable and scalable.

For assistance with figuring this out and developing strategies to mitigate this risk or any other business, investing, and wealth building questions please contact us by clicking “Ask a Business Question” in the lower right corner of the screen and we’ll be happy to assist you.

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How Money LIES

A little over a year ago I sat with a friend who extolled the virtues of his company.  He spoke of how profitable it was, all the great success they were having and how easy it was to make that profit.  He was working very little.  I’d previously given him the assessment that the business model was poor and unsustainable/unscalable.  Here we learn a valuable lesson of how money lies.

It was difficult for him, sitting with profits in his pocket to believe me, the money provided a sort of credibility, a sense of proof that it worked.  Six months later, looking over the financial position of the company he discovered something very different and though not all the factors had remained consistent during that period the basic truths behind the company, the same root causes of disaster, were dooming the venture.

The company and his assessment of the company and its prospects failed on two fronts:

  1. There was no repeat business – it was a one-time capital purchase with no related products the consequence being even if they could manage to sell the product profitably during a given period of time their lead cost and consequently customer acquisition cost would inevitably rise and ultimately erode the margins, which is exactly the opposite of what needs to happen in a sustainable business.
  2. Lying about expenses – the only expenses they were accounting for were the cost of goods sold and the advertising, they didn’t factor in cost of product storage, the cost of money to carry what amounted to huge amounts of inventory, didn’t account for the cost of excess inventory, the cost of product defect replacements, the cost of sales staff, accounting, merchant processing, legal, rent, etc. By lying about the expenses not to me but to himself he was creating the illusion of profit where none would exist in a comparable model at scale.

What needed to happen to make the business sustainable was to turn it from an organization that sold a product to a brand with relationships with clients to provide them with many products on a repetitive basis in order to grow those clients into long term profits.  It also required being honest about the expenses to plan scale and efficiency into the model, but it was only later when demands for capital in other areas forced a detailed review of the actual finances during the subsequent months and as sales began to fall as the market reached a saturation point that these factors became apparent and by then there was trouble.

It’s often said that when you have every reason to be proud and arrogant is the most important time to remind yourself to be humble, to ask the question “what am I missing?  What am I not seeing?”  Money in our pocket especially seemingly easy money flowing can mislead us in these cases.  It is very often that easy money shows up in a bit of a short term torrent and causes us to believe we are better than we are, it is why consistency in results over a long period of time are king.  Don’t be deceived by the short term wins someone experiences, keep in mind the fundamentals, diligence will pay off in the long term every time.

If you’ve got questions about the soundness or long term viability of a business model or any other business, investing, or wealth building question contact us by clicking “Ask a Business Question” in the lower right corner of the screen.  We’ll be happy to help.