Ask Uncle Bill

JOB SEARCH FUN(?)

When we last left Margot she had just told her old boss to take this job and shove it.  I was in full agreement.  Margot had found out what she didn't like--crummy bosses, weak markets for the company's product, and, most importantly, she had learned a lot about figuring out a company's culture.  As an ex-hard boiled finance guy, I view 'company culture' as worthless Human Resource buzz words like empowerment, mission statement and job enrichment.  And they are.  HR people spend careers sitting around thinking up these things and when the concept doesn't work out they quit and become authors or consultants.

But culture is somewhat borderline and each company has one.  Margot wanted (who doesn't?) a place where she could work hard, learn a lot, and build a career.  Pretty vague but we're getting there.  She also learned she really is project oriented and detail oriented.  Getting warm.  Margot looked backwards and realized she really liked being a DJ on the A&M radio station and then head of marketing for the station.  Got it.  Entry level job in public relations, advertising, radio or TV.  Margot and everybody else.

We also had economic issues to deal with, like the rent.  Samuel Johnson wrote, "Nothing concentrates like a hanging."  Or a rent payment.  There was, of course, a solution--me.  But Margot is an independent sort (thank God) who likes to be on her own and hates to ask for money. 

So, united by economic and family ties, Margot and I became a job search machine.  And we went about it like this.

Punch up the resume.

Check out the ads.

Analyze the Houston business structure.

Get the word out.

Use the Texas A&M network.

Look for temp work that could turn into full-time stuff.

Sounds pretty routine but that is the way people find jobs and the big unknown is you don't where or what will generate the job lead you want.  SO, you have to cover all the bases.

First, the resume.  Negatives and positives or, more importantly, turning negatives into positives.  We decided to keep her first job experience on the resume.  Negative--the job only lasted two months.  Positives--shows future employers she had gotten a job, she had showed up and worked in a for profit environment, most hiring managers know recruiting is tough, and she could explain the 'work environment' once she got in the interview.  Telling somebody the Hurricane Rita story or the firing two employees after one week on the job story would be enough to paint the boss as a whacko. 

Check out the ads.  That was my job.  Went through the Houston paper and any other website that came along with Houston jobs.  You guys today have it so easy with the Internet.

Analyze the Houston business structure.  Who actually does business in Houston?  Quick visit to the Houston Chamber of Commerce website generated a lot of information about large, medium and small companies along with addresses and  websites.  One thought I had was a letter writing campaign to all the companies hoping for a strike.  Most people think that approach doesn't work.  I know it does--a long time ago at The Quaker Oats Company we got a resume that came over the transom, mild interest, interviewed and hired the guy.  He ended up his career as Senior Vice President and Chief Financial Officer.

Get the word out.  Most jobs result from some kind of personal contact, a variation on "it's not what you know, but who you know."  This should really be, "it helps in the beginning to know somebody, but eventually you better know what you are doing."  And everybody knows somebody.  We started sending e-mails and resumes to everybody.  Who is everybody?  Put your heads together and throw out names of anybody, anywhere you know that has any link to commerce.  And that is quite a few people.  And then contact them because 1) you don't know where the job lead is going to come from and 2) people want to help.

Use the Texas A&M network.  For those who are unfamilar with A&M the best way to describe the place is not as a university but as a cult.  Aggies are weird but they stick together and the network runs deep.  There is an A&M club in Houston and Margot started going to the meetings.

Temp jobs.  Enough said.

This all sounds cheery and easy.  It's not.  Hunting for a job is a job.  A hard, unrewarding, door in your face job.  But we did ok.  More later.

 

Why A Bad First Job Is Good For You

Graduation is six or seven months ago or five or six months ahead but either way, recent grads and soon to be grads are thinking about or experiencing their first jobs and it is scary.  First jobs are usually awful and there seems to be some mystic force that makes them that way.  First jobs are not designed to grant immediate life fulfillment.  First jobs are designed to make you figure out WHAT YOU DON'T WANT TO DO. 

Some people know what they want to do after college and have known since they entered middle school.  These people end up as Certified Public Accountants or mechanical engineers.  For the rest of us, there is a great terrible void, or swamp, out there that scares us to death because it is uncertain (like life itself is not uncertain.)  So the best thing to do is do something, anything--get in the car, drive to a city where you don't know anybody, take the first job that comes along.  You might as well get it over with and experience your first lousy job because it will be terrible but it will 1) define and crystallize what you don't want to do and 2) bring into focus what you do want to do.  Doing nothing only makes the situation worse.  A case study.

My daughter, Margot, graduated in August from Texas A&M University with a degree in marketing.  To an employer this is good and bad news.  The good news is she was smart enough to get into the business school and smart enough to graduate.  The bad news is marketing is one of those wishy washy degrees--not as bad as history or political science but not easy to place like accounting.  Margot had some vague idea about getting into the music industry but what 22 year old doesn't?  Graduation came and went and a job popped up on the A&M career center website--Houston, recruiter for tech jobs, client list including Halliburton, Baylor Medical and a bunch of other Houston biggies.  Recruiting is a tough business but some people make a lot of money at it so why not?  Lifestylewise, Houston is away from home but not too far, there are a lot of A&M alums around, and only two hours from A&M so close for seeing friends and football games.

Got the job, got an apartment (nice, right downtown, relatively cheap by big city standards, bus to work), and I financed a four hour visit to IKEA. 

Set up and ready to go and...hated it.  Work from 8 in the morning to 7 in the evening.  Two other women started the same week and got fired on Friday.  Yikes.  Told to work on Saturday which was ok but told at 4pm on Friday afternoon--that is really unprofessional.  And no business since the market is so tight that if tech people want more money they just walk into their bosses' office and ask.

But Margot hung in there until Mother Nature came calling.  After Hurricane Katrina, there was Hurricane Rita and Houston shut down.  I called Margot on Wednesday and told her to get out of town, fast.  Her boss said stay till Thursday.  I overruled that and for once Margot agreed with her dad and got out of town to College Station.  The trip took 2 hours.  The next day, Thursday, the trip took 14 hours because everybody decided to get out of town at the same time.  Margot had had enough.  Back to Houston after Rita hit somewhere else, called her boss and quit.  Two months of a rotten job BUT Margot had learned a lot.

She learned that 1) she likes to work, 2) she likes getting up and having a place to go and earn money 3) she is good at managing multiple projects 4) she is a fast learner as she didn't get fired in the first week 5) she presents herself well over the phone and in person 6) she can relate to people and get them interested in talking to her.  Margot knew all that stuff, the job just verified what she thought.

She also learned she didn't like unreasonable bosses and organizations (who does?) that are, at best, dysfunctional and wanted to avoid them.  In summary, she found out what she didn't want to do and got a pretty good idea of what she wanted to do.

So what happened?  Find out tomorrow.

 

    

TXU--I Don't Get It

Well, here is one thing I do get about the purchase of TXU by private equity groups--the removal of shares from the market makes the market go up.  As supply goes down with the disappearance of shares due to their purchase by equity groups, the shares of the existing players in the market should go up because as supply goes down, demand goes up. 

But what I don't get is why are the private equity groups interested in TXU.  For those that don't know it, TXU is the leading provider of electricity in Texas.  And it is very, very profitable because it has high rates because it has had lots of price increases under a regulated system.  Now the system is unregulated which means prices should fall.  That's the theory anyway.

High rates should attract competition and it has.  I just switched from TXU last week.  Not so much because of their high rates but because I couldn't get through to a human to discuss options.  Screw 'em. 

But KKR and the Texas group are not dummies so why do they want TXU?  An analyst on the radio said this morning that they want to reduce demand for electricity by encouraging people to use energy saving devices.  You make money by having people use less of your product?  Huh?

Then the buying group got environmentalists to go along with the deal by shelving the plans for 8 of 11 new coal burning power plants.  Admirable but how are they going to produce more energy?  Nuclear?  Doubt if the greenies will go for that.

Maybe we are entering a new age.  Private equity groups hooking up with the Sierra Club to get us to ride bikes and take fewer showers?  Doesn't pass the smell test for me.

I still don't get it.  Maybe it will come out in the wash but right now I don't get it.  Don't have time to think about it anyway right now--I have to go see my plumber about putting a solar water heater in my new house.

Go Hollywood

PROGRAM NOTE:  GOT AN EMAIL FROM INQUIRINGMIND.  TRIED TO RESPOND BUT KEEPS BOUNCING BACK.  NEED YOUR HELP AND ADVICE ON SOMETHING SO PLEASE SEND ANOTHER MESSAGE OR USE AN ALTERNATIVE EMAIL ADDRESS.  THANKS.  BILL

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I like Ben Stein.  He cracks me up (loved Ferris Bueller) and he is smart.  He also 'made it' in Hollywood which isn't easy so when he writes something I usually read it.  Here is how he found success in Hollywood and how you can apply it to any job situation.

Learn a Useful Skill

You get paid for applying makeup or writing a script or lighting a stage or catering a crew's lunch. You have to have a specific skill that Hollywood needs, and you must have developed it to a level that makes the studios or networks want to hire you.

Make Yourself Invaluable

Do your work with such zeal and quality that your employer realizes he or she must have you at work every day to get everything that he needs done in a day accomplished. Don't be a slacker or waste your boss's time or anyone else's. Do your work so that when you leave, your employer says, "How did I ever get along without her?" Be that good every day, and you'll become invaluable -- and you'll get paid as if you were.

To Serve Is to Rule

This was suggested to me by my friend Barron Thomas. If your work on behalf of the costume department head is so good that your boss looks great and can brag about her department, you gradually become not the servant but the master. If you're a beginning chanteuse and your agent wants you to sing Hava Negila at her son's Bar Mitzvah, do it -- and do it so that everyone in the room is on the floor dancing. Then you'll get nightclub gigs.

The agent serves the client. The writer serves the producer. The hairdresser serves the star. The producer serves the studio -- and most important of all, the studio serves the audience. "Everybody's got to serve somebody," as Bob Dylan, the greatest poetic genius of our era, sang. If you serve well, you eventually become the boss.

There Is No Quitting Time

If you work at the Postal Service, there's a quitting time. If you work in a coal mine, there's a quitting time. If you work at Tara in "Gone With the Wind," there's a quitting time.

But you don't have a life outside of Hollywood. Hollywood is your life. Your career is your life. You work until you've done as much as you possibly can, then you read a script, and then you go to sleep. That's your life.

Connections Are Everything

You don't get ahead in Hollywood by taking the Hollywood SAT's. You get ahead by being noticed by the people who are already ahead. You can go to the best film school in America and get super grades, but if you're not a pal of the movers and shakers, you can just forget about everything you've learned inside the ivy-covered walls

The landscape architect who does a great job on the studio boss's pool area and has a script has a much better chance than you do coming from New York University's film school without a friend in town. (Of course the best film schools often provide connections as part of the degree, but not always, as I can assure you.) You'll do better as a waiter who serves the big-shot agent his pepper-crusted tuna piping hot at Morton's than as the winner of the acting contest at a Big 10 University.

Make connections any legitimate way you can, shine them up nicely, and you'll be a happy guy or gal.

There's No Such Thing as Being Too Likeable

Remember how it was in high school? The friendliest, most self-confident kids got to be chairman of the student council and had a crowd hanging on them. Well, it's exactly like that in real life in Hollywood (or anywhere else). Men and women gravitate to those who are likeable and easy to be around.

Think of your own bad self. Who do you like to be around? Sourpusses or friendly, encouraging, smiling people? That's how it is in the workplace, too.

Your likeable self is the self who gets ahead. Remember it, and win in Burbank, Beverly Hills, or Bergen County.

Well, that's enough for now. I'll give you more in my next column. Remember, I have seen this, and it works. The people who have the Aston-Martins and the houses in the flats of Beverly Hills know it, even if the wannabes at Starbucks don't.

WELL, HERE IS THE NEXT COLUMN.

As you will recall, class, last session we were discussing how to succeed in Hollywood...or any other business, based on my long years -- 30 years as of June 30 -- toiling here in Lotus Land.

Here's Part 2 of my tips on how you can advance in your career -- with the strong admonition that for most of us, how much we earn by our labor is far more important and a larger sum than how we earn with our investments. Thus, it pays to maximize your utility (as we economists say) by working smart.

Stay in the Game

Don't let temporary pique or anger toss you off your horse. People will be rude to you. They will cheat you. They will disappoint you. Nevertheless, stay on your horse -- or get back on it -- and stay in the game. Unless you have an excellent alternative -- a better way to pay your bills and fulfill your dreams -- stay in the game. This takes a lot of forbearance and swallowing of pride, but it's worth it in the long run.

However....

Don't Work for Insane People

Yes, you will have people who yell at you, demean your abilities, or boss you around even though you're a lot smarter than they are. But that's totally normal. That's called "life in the workplace." Expect it, and roll with the punches.

But if a boss calls you a racial epithet, casts slurs on your family, touches you inappropriately, or screams at you and calls you at home to yell at you over something you did or didn't do at work, tell him politely that you don't want such treatment. And if it persists, then quit. Life is short. It's far too short to waste working for someone who's mentally sick enough to think he owns your soul and that you have no dignity just because he gives you a paycheck.

You'll find this kind of person extremely frequently here in Hollywood: Little Caesars, little Napoleons, little dictators who will treat you like a slave. There are a great many sick people here with serious rage problems. If one of them is your boss, politely but firmly take your leave. A boss who treats you with respect means fewer sleepless nights and a lot more possibility for making a name for yourself.

Keep Your Eyes on the Prize

That was the name of a great civil rights song. It means to get through the small, aggravating stuff today and then go on to look at the big glittering gold cup down the road. Or, one might say, focus on the long-term goal you have in mind, and forget the piddling little detours on the way.

Just keep in mind a question, "Will this in any way get me closer to where I want to be?" If the answer is "yes," then just do the babysitting, Xeroxing, or whatever it takes to get you to the next step.

Don't Talk Endlessly About Yourself

No one wants to hear it. It's boring. It creates negative utility and wastes your colleagues' time. If you need to talk about yourself, get a shrink and talk to her. Or talk to your dog. But no one wants to hear every detail of your life, and it will just make your employers hate you. When you get to be boss, you can talk about yourself endlessly. On the way up, listen. Don't talk.

Get a Rabbi

No, I don't mean to convert to Judaism. I mean a get a leader, guru, or guide who will help you with your goals and your journey. Get someone up above you on the ladder. Listen to his war stories. Listen to his boasts. In return, get his advice, get his contacts (contacts are everything in life), get his words to a friend, get him to boost you up the ladder. Everyone in Hollywood needs someone who's been there, knows the right people, and can and will make the call that pushes you up the ladder.

In return, you'll be a faithful companion, cheerleader, and admirer of your rabbi. But get one, and do it soon. You really can't get ahead if you don't have someone ahead of you working the angles for you.

Look the Part, and Look Good

We're judged by how we look. If we're ridiculously slobby or dirty, if our clothes are old and tattered, if our hair is a weird color or shape, we will make a bad impression.

People assume you're what you look like, so appear at your best all of the time. Wear clean clothes. Stand straight. Look alert and business like. No piercings. No tattoos. No strange hair. No looking like a prostitute. Look like a business person or a writer or an actor. But always look neat and clean and well organized. For a few dollars, anyone can look good. You don't have to wear Prada. You just have to look good.

Stand Out for the Excellence of Your Work

Do good work. Don't allow the word "sloppy" to be heard near your name. Let people know you by the quality of your labors and work product. There are so few good workers out there that you will soon make a name for yourself.

There are more rules, but these will hold you for now.

Next time, back to investments. But again, for most of us, we're our own largest asset. Make good use of it, and you'll be a happy guy or gal.

Words of wisdom from Ben.

Outed by the IRS

PROGRAM NOTE:  GOT AN EMAIL FROM INQUIRINGMIND.  TRIED TO RESPOND BUT KEEPS BOUNCING BACK.  NEED YOUR HELP AND ADVICE ON SOMETHING SO PLEASE SEND ANOTHER MESSAGE OR USE AN ALTERNATIVE EMAIL ADDRESS.  THANKS.  BILL

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Got this in my in box.  Yikes.

Dear Uncle Bill:

How about considering this item (see below) for your Web site.

Thank you for your consideration,

J B
SB/SE CLD External/Product Development Branch
31 Hopkins Plaza, Room 940
Fallon Federal Building
Baltimore, MD 21201
Tel: 410-962-9025
Fax: 410-962-2572
e-Mail:

**********************************

IRS Starts e-Newsletter Just for Small Businesses

The IRS has started a news service, e-News for Small Business. Distributed every Wednesday, it brings timely, useful tax information right to your computer, including, but not limited to:

·         Important, upcoming tax dates

·         What’s new on the IRS Web site

·         Reminders and tips to assist businesses with tax compliance

·         IRS news releases and special IRS announcements

           e-News’ convenient format will put IRS tax information at your fingertips. “Useful Links” brings you quickly to some of the most useful information on IRS.gov for large and small businesses and the self-employed.

To start your FREE subscription to e-News, just go to IRS.gov at http://www.irs.gov/businesses/small/content/0,,id=154826,00.html, type in your e-mail address and submit.

I didn't know they were reading.  Big Brother...

Anyway, give it a look and see what you think.  Actually, I have found most IRS people pretty reasonable.  It is our friends in Congress that make up the stupid tax law and try to use the tax code as force for social change and the poor folks at the IRS have to grind it into code and make it work. 

Enough of the commerical.  I have done my bit for the IRS.  Now I have to go do my tax return. 

Paying For A Business

PROGRAM NOTE:  GOT AN EMAIL FROM INQUIRINGMIND.  TRIED TO RESPOND BUT KEEPS BOUNCING BACK.  NEED YOUR HELP AND ADVICE ON SOMETHING SO PLEASE SEND ANOTHER MESSAGE OR USE AN ALTERNATIVE EMAIL ADDRESS.  THANKS.  BILL

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OK, so the owner wants $500,000 and the banker will only lend $200,000 because of the hard assets.  Better yet, let's just say the bank won't lend anything.  They are out of the picture.  Bankers will lend money when you don't need it.  When you have lots of assets they will lend you the money but not before.  Mark Twain said a lawyer is a guy who will lend you his umbrella when it's not raining. 

But you really want this business because the seller is old, but smart, has built it up but isn't pushing it right now because he's old so there is potential and you are young and bright and smart and going nuts working for a bunch of other nuts.  But you have no money.  So you start looking around and the guy that comes to the rescue first is the business broker that is probably doing the deal.  He has a long list of non-bank lenders who will, maybe, perhaps, do the deal--for an interest rate that would make a credit card company blush. 

And you will talk to them because they will give you an idea of the feasibility of the business.  If they are willing to do it, you probably have a viable company to buy.  But adding their interest expense to the project may sink it and then they get the company and you get the boot.   They also may not do it because you are young and inexperienced.

OK, what do we do?  If you haven't figured this out yet you should probably reconsider buying your own business because you have to think.  So think. 

Who has the money?  Who has the opportunity?  Who knows the business?  Who has the willingness to lend you the money?  That's right--THE OWNER.

He won't want to.  He wants his money now, he wants to quit, get out of Dodge. 

But he also has a bunch of incentives to finance your purchase and they are--

1.  Better tax treatment because he receives his money over time, in installments.  He pays less tax because the IRS allows this and it is know as an installment sale.  Those guys at the IRS have a way with words.

2.  He gets more cash.  He charges interest.  Not credit card interest but a better rate than a money market.

3.  He gets a better price because you are willing to pay more to get the financing.

4.  He gets the business back if you screw up or default.

What you get is the money, the business, and a mentor that will steer you away from screwing up the business.

Go for it.

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ANOTHER PROGRAM NOTE:  TOMORROW A WORD FROM THE IRS.  I'VE BEEN OUTED.

Buying A Business

This is something I always wanted to try but haven't--

Put a half page ad in the local paper saying sincere, hard working entrepreneur wants to buy existing business.  Any industry considered.  Please call ---.

I've looked at a lot of businesses and almost bought one once but didn't and now glad I didn't.  But this approach might be interesting for someone, perhaps like you, that is sick of office politics and measly annual pay increases and just working for the Man.

Here's why you might want to consider buying a business rather than starting a business.  An existing business is already started.  It has a track record, probably makes money and may be positioned for growth.  A wise man once told me that people who want to start their own business are investing in dreams.  Buying an existing business is buying a proven, but perhaps underperforming, asset.   

Why?  Because a business is nothing, the management is everything.  Well, I mean you don't want to buy a business with an obsolete product--nobody wants to own the eight track market.  but products usually don't go obsolete.  Their owners do when the owner get old or bored or sick or tired.   And they are usually stuck.  Here's why.

Let's assume a successful smallish company throwing off a decent living for the owner.  But it is hard work or maybe it isn't.  Like I said maybe he/she is bored, tired or sick.  Wants out, but how because most of what he has is in the business.  Or maybe he has a lot but knows the business is worth a lot but can't find a buyer.

Why wouldn't a viable business be able to find a buyer?  Oh, they can but not for the price the owner wants.  Not in cash, anyway, because most businesses don't have assets to justify a high price.  Huh? 

A quick finance lesson--if a company makes $100,000 in operating income it will sell for between $400,000 to $800,000 because a broker will say this business should sell for, say, five times earnings or $500,000.  Or four times or eight times.  Let's also say the company has hard assets--plant, property and equipment, receivables, inventory--of $200,000. 

So the buyer wants $500,000 but the hard hearted banker will only give the buyer $200,000 to buy the business because there are only hard assets of $200,000.  Actually, this banker is a bad one because really hard hearted bankers will lend only a percentage of the hard assets.

So how is the seller going to sell his business for $500,000 and how are you, you who don't have a dime, going to buy it?

Easy.  I'll tell you tomorrow.

   

Being Your Own Boss--Your Best Friend, the IRS

Well, somebody liked last Friday's post--

Being your own boss is so exciting. You can do whatever your heart tells. Of course before doing whatever you want you must consider making some cash flow plan otherwise you won't be your own boss but your own slave.
With good planning everyone can succeed being own boss.
Thank's for this good article.

Note the part about "...consider making some cash flow..."  A lot of people forget about that part.

Let's do some other negatives about owning your own business just to get the ugly stuff out of the way--

No free internet (but nobody's monitoring it if you own it)

No 401k

No free, or nearly, free medical insurance

No free, or nearly, free life insurance (which you don't need anyway)

No free parking

No free coffee

No expense account

No car allowance

No country club membership

No bonus

That's about it.  The last ones don't apply to you anyway at this point so don't worry about them.

Oh, one other thing you will be missing out on is EXPERIENCE.  I am going to assume you are working for a profit seeking organization now so look around and figure out what makes it work.  The product, the service, the management, pure dumb luck?  What is it? 

I would advise anyone considering going out on their own to spend at least 2-5 years working in a for profit company.  If you don't you won't know what to do when you start up and if you don't survive the start-up, you are doomed.

But you do have one 'friend' when you start up and they will stick with you through thick and thin--the IRS.  Yes, folks, the Internal Revenue Service. 

Here is the biggest difference between being an employee and owning a company.  If you are an employee, the IRS taxes you on GROSS INCOME, income before deductions.  Well, you do get a break for 401k contributions and medical insurance but you get whacked pretty quickly after that. 

If you own a company, a business, it is taxed after deductions.  So Sales minus expenses equals taxable income.  A simplification but accurate. 

So what, you say?  A big lot because most small business owners have a tendency to mix personal and business assets.  So does your company--do you think they are not deducting that free coffee you get?  Believe me, they do.

Only small business owners do it with a vengeance.  Here are some of things I have seen 'deducted'

owner's car

owner's wife's car

vacation home

landscaping of personal residences

country club membership due

meals, like all of them

clothing

magazines, book, movies

internet

computers

travel

conventions

medical expenses

any and all insurance

I went over the books of one business lady and she reported income of $16,000.  After adding back all the 'personal' stuff, her income was pushing $100,000.

I'm probably just scratching the surface but think of everything you pay for that may be considered a business expense.  If you don't come up with much, you're not trying.

Am I advocating fraud?  No.  But the IRS and small business have kind of a truce--Don't push too hard and we won't lean on you.

Why?  Because the IRS knows that running a business is risky so the tax code, in one small nod to capitalism, gives the business owners a pass.  Plus, there is not much glory in a IRS auditor  stringing up Mom and Pop.  The owners and their accountants will go to their congress people and scream bloody murder.  And it works.  The IRS got a lot of black eyes a few years ago and doesn't want more.

So, sure, starting a business is risky but you do have one ally on your side--the IRS.

Finally, maybe you shouldn't start a business.  Maybe you should buy one. 

We'll look at that tomorrow.

Being Your Own Boss

I must be getting soft hearted but almost agreed with Suze Orman on a few things.  Guess she is ok if you just have to read her stuff.  Watching and listening is pure torture.

She had an article on starting your own business and who hasn't sat there and dreamed of owning their own business?  No more busy work and no more office politics.  Maybe. 

Here is the article http://finance.yahoo.com/expert/article/moneymatters/24050 and here are the good parts.

• Figure out the replacement cost of lost benefits.

If you leave a corporate job, you probably leave behind plenty of benefits, too, including health insurance, life insurance, flexible spending accounts, and company matching of your contributions to a 401(k). Exactly how do you expect to pick up the slack and cover those costs yourself?

If you have a big financial cushion, then you're sitting pretty. But most people quit their jobs and give themselves six months to get their new venture up and running, and it isn't until after they quit that they sit down and tally up the cost of all the bills they're now 100 percent responsible for.

The result is that they run through their emergency cash fund at about double the speed they anticipated. Pretty soon they have no savings left, yet their new business is still far from breaking even.

In addition, it's almost a given that in the first two or three years of being self-employed, people give themselves a retirement break: they tell themselves its OK that they aren't setting aside any money while they concentrate on getting their business off the ground.

That's a costly gamble. If you were contributing $10,000 a year to your 401(k) and receiving a $1,500 company match, that's $40,000 or so over three years that won't be compounding for you. This is fine if you're incredibly successful (and diligent) and manage to catch up with big retirement contributions once your business becomes solvent, if it becomes solvent at all.

Actually, this is about all the good advice she gives and in your case it is not that big a deal.  If you have all your fingers and toes and no real medical problems, health insurance is pretty cheap at your age.  Figure $60 a month for a high deductible policy.   Life insurance you don't need.  Flexible spending--get all your eye stuff and teeth stuff done and forget about it.   401k--assume your new career will more than make up for it.  Her last sentence is kind of a bummer but is something you have to think about. 

But thing about this first--if you are unwilling to give up your life insurance, your cozy health insurance, flexible spending and forego your retirement planning for a while, you are probably not entrepreneur material anyway.

You can probably ignore this part to as you won't have much.

• Don't access retirement savings.

Your 401(k) is not a business-financing tool. Even those who are at least 55 and thus can make penalty-free withdrawals after leaving a job are reckless to touch their retirement savings.

Let's say you use $50,000 to live on in the first year of your new business, and plan to "replace" the money once the business takes off. What if it doesn't take off? You've just siphoned off a serious chunk of your retirement security. Consider that if the $50,000 had stayed invested for another 10 years and grew at an annualized 8 percent, it would be worth nearly $108,000. That could cover a lot of retirement expenses.

The no-raid policy is just as important for those in their 30s and 40s. Not only will they be hit with the 10 percent early-withdrawal penalty (as well as the regular income tax everyone pays on 401(k) distributions regardless of age), they're throwing away precious compounding time.

Leaving $50,000 untouched for another 30 years would result in it growing to more than $500,000, assuming an 8 percent average annual return. Withdrawing it at age 35, however, means you'd be lucky to have $30,000 left after paying the penalty and tax.

But she is right.  If you have retirement savings, try not to use them as you pay tax and the 10% penalty.  But if you are really serious and really want to do your own business, that money is there.  One last dash of reality--you cannot borrow against your retirement savings.  At least not from a bank.

This doesn't count for much either as you probably have little, if any, equity built up.

• Keep the home-equity tap turned off.

It's the height of financial lunacy to tap your home equity to finance a startup. Even if it's relatively safe to assume that your business is going to be successful, you're still converting what was an asset (your home equity) to a debt.

Can your new cash flow cover the extra cost of that home equity line? If not, you could lose your house. And who's truly prepared for the cost of the home equity line of credit to go up every time there's an uptick in short-term interest rates? Based on what I've observed over the past year, very few homeowners anticipate their interest rate going up two, three, or four percentage points, and many are now experiencing extreme mortgage stress.

This is getting sillier by the minute but we will include so we can't be accused of missing something.

• Don't rely on credit.

Even if you get a great low-introductory rate on a credit card, it's going to be incredibly hard to keep that rate low for very long. Many introductory rates adjust after six months to a year, and in the meantime the credit card company is scrutinizing your every financial move to see if it can come up with an excuse to boost the rate even sooner.

If you insist on financing some of your startup on your credit card, please give yourself a set-in-stone conservative limit you will not exceed. Remember, you can pull the plug on your business, but if you have $20,000 or $30,000 of credit card debt you're going to be paying for that for years to come.

Don't expect to just walk away from it: It's never been harder to qualify for bankruptcy, and besides, if you go that route your credit is going to be awful for at least 7 to 10 years.

Ok, the closer.

The Responsible Route

So how can you responsibly afford to venture out on your own?

Start planning for it today. Set aside separate savings that will cover your family's finances for at least a year if you decide to become an entrepreneur. If you can't imagine where to come up with the money, it's time to get back to basics: Scour your spending and make sacrifices so you can build up your entrepreneurial financial cushion.

You might also consider taking a part-time job while you're launching your own business. I realize you want to devote all your time to your own business, but keeping some money coming in will go a long way toward giving you and your family financial breathing room.

I always say finance is simple.  Suze can't say that because she would be out her job but every once in awhile she hints at it.  For those that missed it, here it is again.

Scour your spending and make sacrifices so you can build up your entrepreneurial financial cushion.

Put another way--spend less than you make and save the difference to fund the business. 

Next week we will take a look at why you should think about starting your business--NOW--and some things that will make starting a business less scary.

 

Taxes-Country by Country Redux

Because I am under the gun to finish the editing of the book here is a rerun.  Hey, if ABC can do it...

There will be a lot of debate in the next few years over taxes.  Some tax cuts expire in 2010, I think, and two--the 15% tax on capital gains and 15% tax on dividends-- have been extended for at least two years.  People get all exercised about taxes with the fat cats not paying their share (actually 5% of the taxpayers pay about 50% of the taxes) or somebody yelling about taxes killing them.

So when things get complicated, I go looking for simplicity.  And found it.  I have long held the premise that the higher the tax rate, the lower the productivity.  And I am right--nine times out of ten.  Forbes (another unabashed commercial for the best business magazine) has compiled the Tax Misery and Reform Index.  Basically, it takes a countries various tax rates and adds them up.  The components are:

-Corporate Income Tax

-Personal Income Tax

-Wealth Tax

-Employer Social Security

-Employee Social Security

-Value Added Tax or Sales Tax

Obviously, the higher the number, the higher the misery index.  And the winner is FRANCE with a misery index of 166.8.  Rounding out the top ten are:

Belgium

Sweden

Italy

Spain

Argentina

Greece

Germany

Brazil

Not exactly economic powerhouses.  There is one surprise as the list above totals only to nine.  The country that is actually Number 2 in the Misery Index is, and this is a total surprise, is China.  Forbes says China is up there because 'of its extraordinry social security and pension rates.'  I don't want to appear too cynical but China may have high rates but, in reality, nobody pays them.  Just a guess.  But the bottom line is that the countries with the highest tax rates are pretty much economic basket cases.  One could argue about Sweden and, while certainly not a basket case, it is not an economic powerhouse.

So if the top ten in taxes are not economic powerhouses, one would think the bottom ten would be and so let's take a look.

The top ten, with number 1 having the lowest misery index, and then so on are:

-United Arab Emirates

-Hong Kong

-Singapore

-Russia

-Taiwan

-South Africa

-Indonesia

-India

-USA (Texas)

-South Korea

Some pretty good economies and some with real potential like Indonesia, South Africa and Russia.  Direct links between taxes and growth are difficult because there are a lot of other variables.  But as one of my bosses put it, if the numbers go your way, use them. 

And I will.  Lower taxes make for stronger economies. 

And one final note.  Please note that USA (Texas) is number 9 in lower taxes.  USA (New York) was number 13 in higher taxes.  Which means if you live in New York and want to lower your taxes, move.  Welcome to the Lone Star State.