Free Advice

FreeThrough the years, I’ve given lots of free advice. I’m beginning to realize that’s been a very bad character trait.

Advice: the wise don’t need it and fools won’t heed it.

Free: the perception of something worth nothing.

So, this week, when I said “No, thanks” to an opportunity of continuing in my tradition of offering free advice, the response was enlightening. Well, I was enlightened. The person making the request was shocked. They were shocked that I would, could, should, and did say, “No.”

Engaging in a mutually beneficial relationship (two-way street of offering and receiving) is different from demanding a response (one-way street of taking).

We get what we allow. For years, my immaturity was assuaged by giving free advice. The act of giving appeared noble and it made me feel like a hero. After all, Trusted Business Advisor is the moniker of the CPA profession.

There is a very fine line, though, between an act of commerce and codependency. Commerce recognizes “Yes and No” as the two sides of the same coin. Codependency is defined as doing for others what they could, should, and would do for themselves, if we simply said “No.”

In fact, this most recent request for free advice was related to purely business matters. The resources for the answers to this new series of questions had already been given in response to an earlier request.

While my earlier gift of free advice was taken with no expression of appreciation, my offer to provide Advisory Services for a fee was berated and ignored.

Never give advice. The wise don’t need it and fools won’t heed it.

The individual asking for advice has every right to express their choice to do nothing by saying, “No, thanks.” Freely offered and freely rejected. That’s the way commerce works. Change nothing; nothing changes.

However, a price is paid for everything. To choose This, we forego That. Every thought and every action involves some measure of time, or money. Asking anything of anybody involves either an act of commerce (exchange of money), or sacrifice (offering of time).

Regardless of the relationship, giving respect to the person responding to our request is a valuable courtesy, and currency.

Asking is more than OK; it is our responsibility to ASK. The issue: There is a price to be paid. Are we willing to participate in the payment of the price (commerce), or do we expect something for nothing (sacrifice)?

As for me, I’ll continue to engage in commerce and sacrifice. I will choose, though, which it is.

www.kimfoard.com

Conversations

We all love to talk.

Yes; some more than others.

The expressions of our thoughts, opinions, and stories give definition to who we are.

More than that, by expression, we fully feel our existence and a desire to share that aliveness.

Acknowledging the value of every conversation, there are only two types:

Conversation without Price is a social exchange.

Conversation with Price is an introduction to dynamic results.

Every syllable, sentence, and paragraph of personal conversations is of benefit in acknowledging the value of two individuals: the Talker and the Listener. Since communication is what the listener does, the social exchange works best with feedback. The listener becomes the talker and returns a volley of thought.

All we do begins with a thought.

What is required to transform thoughts into actions?

Answer: Price.

There are only two elements of any contract: Mutual Assent and Consideration. In other words, there must be an Agreement about Price.

What’s the difference between Cost and Price?

We’ve all heard of “Opportunity Cost.” I propose that we take a look at the other side of the coin, which is “Actionable Price.”

It is true; we are encouraged to “count the cost” before we begin. Otherwise, we begin things without finishing them. We, then, become the objects of ridicule for the sidewalk superintendents.

It’s one thing to avoid failure. It’s quite another to pursue success.

Costs are the inputs, the disposables, and the everyday consumption of resources. For example: utility expenditures to keep our homes comfortable. Price is the investment in a long-term benefit, which is either tangible, or intangible. For example: the asset of our homes; or, our educations, experiences, and relationships.

We can suffer Costs by passively doing, absolutely, nothing. In fact, opportunities can come and go, inflicting a heavy cost on body and soul. Or, we can run around in circles, with our hair on fire, billowing black smoke, and incurring tremendous amounts of expense, with absolutely nothing to show for the effort.

On the other side of the coin is the Price we pay for every action. By choosing this, we forgo that (all of that, every other option). Over time, the Price of our choices represents the investment we have made in ourselves and what is important to us. It is the value representation of every brick in the structure of who we are.

Whether simple cabin, or splendid mansion, we are the result of every choice we, individually, have made.

All we do begins with a thought.

Now, when sharing our thoughts with others in conversation, remember:

Conversation without Price is a social exchange.

Conversation with Price is an introduction to dynamic results.

We can banter to our hearts content. To accomplish the desires of our hearts, we must always consider the Price and offer it for Acceptance.

Then, we can expect mutually beneficial dynamic results. The catalyst for committed and disciplined actions are the two elements of mutual assent and consideration; an Agreement about Price.

Let the conversations begin!

www.kimfoard.com

Build Something

Build SomethingThis is more than another B.S. musing. A bright financial future is waiting, if you will accept this encouragement to Build Something Special (B.S.S.).

Let’s begin with that extra “S”: the Special one. Yes; that is YOU. You are one-of-a-kind, broke-the-mold, and a special creation with a unique set of gifts. You are of great value and have much to offer others. The world is anxiously waiting for you to Build Something Special for our mutual benefit.

You’ve heard the expression: Preparation plus Opportunity equals Success.

This is even more powerful: Preparation is guaranteed to produce Opportunities resulting in Success.

There is absolutely no need to wait around for an opportunity. The encouragement to Build Something Special is really an exhortation for us to focus on what is within our, individual, control. Answer the Why, How, and What of YOU and the world is your oyster.

Why do you exist?

How can you make a difference in the lives of others?

What is the medium for delivering the very best YOU to the world?

By thinking about the Value inherent in YOU, a choice manifests for you to become a Master Craftsman and Build Something Special.

Lift your dominant hand up and forward. Carefully, look at the thumb and fingers. Those five digits are the number of steps necessary to Build Something Special. There is a matched set of tools on your other hand. That, my friends, is the extent to which we are in control. Plenty to keep us busy, though. Let’s begin!

Step 1 ~ Establish a Fair Price

A fair price is one which is good for You and your Customer. The question begging to be answered is, “Price of what?!” Glad you asked, because the question provides the opportunity for YOU to answer it. The secret to finding your way out of this Riddle is to answer the Why, How, and What questions, above.

Define your passion in life and the Why will be obvious. Inventory your abilities and the How becomes evident. Then, you will know, exactly, What you need to do to Build Something Special. You will fully understand whether you will be offering a Service, or a Product, to the marketplace.

You have the responsibility to establish a Fair Price for your offering. As long as the Customer perceives Value greater than Price, they will believe the price is fair. Naturally, the Customer’s perception can be enhanced by offering Value many times greater than Price, which is also mutually beneficial in achieving a Fair Price for You.

In the simplest of definitions, a Fair Price for You is one, which: enables You to provide for your Family.

(For a complete narrative and solution of The Magic Formula for fair pricing, see the detailed examples in the articles Price We Pay and 5 Minute Business Plan.)

Step 2 ~ Ask for Acceptance

Unless the Customer wants what is being offered, the price is irrelevant. We, all, want what we don’t have. The secret to acceptance, then, is to provide options which satisfy what the Customer wants. The only way to know that is to carefully listen. Yes; listen with care to discover what is of Value to the Customer.

By beginning with the end in mind, we can negotiate mutually acceptable terms and expectations. Simply: Who is going to do What by When.

Step 3 ~ Plan the Work

An old Proverb best communicates this powerful principle: Do your planning and prepare your fields before building your house. In other words, every successful venture requires planning and bountiful harvests are necessary for nurturing our families.

The purpose of Blueprints is to Build Something Special on paper, first. By doing so, we consider the required resources of Time and Money. The best use of resources is to proceed from Start to Finish, without interruption.

Step 4 ~ Deliver on Promises

This is the time for action. We have a quality offering; the Customer has a want in need of fulfillment; terms have been agreed upon; and, resources allocated. Preparation has generated Opportunity. Get-er-done is our mantra as we push forward to Success.

Step 5 ~ Enjoy the Celebration

As with any party, Ribbons and Bows showcase the gifts. You have exceeded the Customer’s expectations. They are all kinds of excited. It is appropriate to celebrate with them. Do a Walk-around. Let them express their Appreciation for spectacular Results. Listen for the Opportunity to provide even more to them in the Future. Accept their willingness to Pay in full for Value beyond Price.

Experienced builders know the secret to success is to Begin and Begin Again. Five digits at the end of a strong arm. Five steps to Build Something Special. The sweetest surprise: a passion for the Why of your existence; an understanding of How to touch lives; and, the What of your gifts.

Preparation has created Opportunity and Success.

You did it once.

You can do it again!

Build Something Special

www.kimfoardcpa.com

Price and Value

Branding IronsThere is a chorus from a song by the Zac Brown Band that might be apropos to the discussion of Price and Value:

“Save your strength for things that you can change; forgive the ones you can’t. You gotta Let It Go!”

Our frustration comes from believing that we are in control of Value and that customers are in control of Price. Quite simply, that is bass-ackwards. Value, just like reality, is our (Customer’s) perception of it. Only, they can see Value in us.

Saving our strength for the more powerful of the two, Price is where we can make our mark on the world, by Riding for the Brand. Although chic in our business terminology, a Brand is multifaceted in design and purpose.

What is ours?

From the earliest days of cowboys in Montana, brands marked possession, of cattle, mostly. Yet the ranch brand was found above entryways, chiseled into fence posts, worn on belt buckles, and otherwise displayed to the world.

Are we so bold?

When brands are applied to the hide of cows and horses, there is pain: to the animal and to the cowboy. Hair is burnt, skin is scarred, and the cowboy grits his teeth to apply the mark artfully. It is a permanent relationship between him and the animal.

Are we as caring?

Before the application of Price, there has to be a Vision. One which is crystal clear of: why we are in business, what we represent, who we want to serve, how we intend to do it, where our boundaries are, and when we intend to begin: Riding for the Brand.

www.kimfoard.com

5 Minute Business Plan

BlueprintsBlueprint For Success

A seasoned carpenter shared this secret to success: “You must begin; and begin again.”

For the dreamers among us, the question is: “Where do I begin?”

The purpose of this article is to provide the parameters for a quick analysis of an idea to determine its possibility, and probability, of actionable success. As with any legitimate construction project, we build it on paper, first.

This is our blueprint.

Owner Compensation
The concept of beginning here is novel for a Business Plan. Yet, this number will keep our attitude right and provide the Retained Earnings for business expansion. One of the principles of success is: Begin with the End in Mind.

Debt Service
Unless adequate funds are available for start-up, the early years will include a Banker for a partner. The goal is to buy them out as quickly as possible to retain their share of profits, paid out of our business as Interest.

Taxes
Self-employment, Federal income and State income taxes must be paid timely. Because of severe penalties for non-compliance, governmental entities are a bad source of financing.

Overhead
This is the delivery system of providing value to the marketplace. It is everything from the brick-and-mortar to indirect expenses; it is the price we pay to have a Company.

Direct Costs
Each project and customer will want, and need, something different. The flexibility to “Wow!” them requires additional expenditures.

Productive Units
All of the above is accomplished by understanding the finite number of units available for distribution. For service enterprises, this will be a reservoir of “Hours”; for a products company, this will be the capacity of the “Shop”; and, for an inventory business, this will be the “Goods”.

Formulas:

Net Income = (Owner + Banker) / (100% – Tax Rate)
Value to Customers = Net Income + Overhead
Sales Price = Value to Customers + Direct Costs

Example Variables:

Owner Compensation: $80,000 ~ [For the Family, after taxes]
Debt Service: $40,000 ~ [Loans $200,000; 5 Year maturity]
Tax Rate: 40% ~ [S/E 15.3%, FD 20%, ST 4.7%]
Overhead: $144,000 ~ [Ads, Insurance, Rent, Utilities, Etc.]

Solution:

(Owner $80,000 + Banker $40,000) / (100% – 40% Tax Rate)
Is same as: $120,000 / .60 = $200,000 Net Income
$200,000 Net Income + $144,000 Overhead = $344,000 Value

For those providing Services to the marketplace, the final step is to divide Productive Units into the Customer Value. Full-time employment is 2,000 hours per year; entrepreneurs will work more than that, with only a percentage actually billable to Customers.

If our Start-up Enterprise team can be 86% productive, after allowance for those duties of internal and external management, it has an annual reservoir of 1,720 billable hours.

$344,000 Value to Customers / 1,720 Hours = $200 per Hour: Price for Value

Those providing Products, or Inventory, for sale to customers, will factor in the Direct Costs. In fact, they will consider the number of meals (if a restaurant), or suits (if a boutique), as their Productive Units and establish their Mark-up, accordingly.

Now, step apart from the crowd and consider the most important variable of all: “What is my passion: the one unique thing about me, for which the world waits?”

The rest of the story from our successful builder, quoted at the beginning of this article: “Find something you love to do and do a lot of it.” If we are able and willing to tap into that passion and grasp the foundational principles of a Business Plan, quite literally, we are 5 Minutes away from a new beginning!

www.kimfoardcpa.com

Price We Pay

The Magic FormulaBy eliminating variables, we arrive at one thing certain.

This is a story of three entrepreneurs: Eric the electrician, George the geek, and Lorna the landlord. The mystery for us to solve: Although unrelated by blood and marriage, how can they all have the same big sister, Iris, who requires their support?

Lucky for us; we have The Magic Formula as a guide to the answer. It is available by clicking the image above, or this Link. Much more than a guide, the Magic flows from an awareness of our resource choices: Time and Money.

Eric is an industrious fellow, who has a passion for service. He has completed years of formal training; has worked his way through the ranks of Apprentice, Journeyman, and Master Electrician; and, now wants to live the dream of being his own Boss. Captain of his own ship, Master of his own destiny, a Servant of the people: taking care of his very own Customers.

Since Eric has all of the tools and seed money necessary for starting his Company, there is no need for a Banker, as a partner. Based on the household budget, he knows that his family needs $40,000 per year, after taxes.

As a self-employed individual, he will pay both halves (Employer plus Employee) of Social Security and Medicare taxes, for a combined rate of 15.3% on all net profit of his business. Much trickier are Federal and State income taxes, which are calculated on a progressive scale. At the lower brackets of income and with benefit of tax credits under current law, income taxes are of minimal concern. He anticipates an effective total tax rate of 20%.

In business, Overhead is a gracious way of saying: There is a price for Eric’s dream. Technically, Overhead is the delivery system of value from provider to consumer. For the joy of having that magnetic sign on the side of his truck and walking into his shop each morning to switch on the lights, at a minimum, Eric will pay $60,000 each year.

Now we’re ready to do 4th Grade math. We will simply Add, Subtract, Multiply and Divide.

Because taxes take 20% of Eric’s total Net Profit “pie”, his after tax $40,000 must be 80% of that same pie. Thus, we Divide $40,000 by .80 to know that Eric needs $50,000 of Net Income for the year. To prove that this target is accurate, we double-check the numbers: First, we Multiply $50,000 by .20 to find that, indeed, Taxes are $10,000; then, we Subtract $10,000 from $50,000 to breathe a sigh of relief in knowing Eric has $40,000 for his family.

Before Eric even gets to Net Profit, he must first make Sales to Customers of $60,000 each year, just to cover his Overhead and “keep his lights on”. Therefore, we Add the amount of Net Income ($50,000) to Overhead ($60,000); Eric knows exactly his sales target for the year, which is also a representative value of his time to provide quality services: $110,000.

Remember that needy sister, Iris? Your suspicion is right. Her nickname is IRS, the Internal Revenue Service; the one in need of that $10,000, above!

Now, the fun really begins, because we are to the point of this story: Who pays taxes? Is it, really, Companies and Businesses, as the Governor of the State of Montana believes? What happens when Big Sister decides she “needs” twice the amount of support and will use new tactics to take it?

Let’s answer these questions by reviewing the components of The Magic Formula. Does Eric need $40,000 for his family? Yes. Is the effective tax rate under current law approximately 20% for those in Eric’s income bracket? Yes. Does every business have expenses of Overhead in delivering value to the marketplace? Yes. Since these are all accurate variables, we find ourselves with the ultimate question: From where does the money come? Answer: Customers.

Who are customers? That would be: You and Me.

We pay Eric for the value he provides to us: the value of understanding the dynamics of electricity and how to bring it into our homes for the benefit of our families. He, in turn, shares portions of this Price with Vendors, Government and his Family.

At this point in our story, some may ask the question: “Why doesn’t Eric just keep on working for his current Employer?” For those individuals who are unemployed, the answer is obvious. For the ones still employed, the answer is two-part:

1.) Eric has discovered a better way to light up the lives of Customers, which his current employer is unwilling to accept.

2.) Because of the Universal Financial Principle above, Eric’s base compensation from any company is limited to, approximately, one-third of what he produces for an employer; Taxes and Overhead take the rest.

Prices are not arbitrarily set by businesses. Every business wants to be competitive in the marketplace and they know Price is one measurement of Value, subject to the perception and judgment of Customers.

Now, what happens when big sister, Iris, wants more? Not just a little more, a lot more!  In fact, she wants to double her consumption. Let’s do the math.

Eric still needs $40,000 for his Family and he still has Overhead to pay. So, by using the structure of The Magic Formula, we can solve for the amount of Taxes and the new Price his customers will pay. $40,000 divided by .60 is $66,666 (Net Income) multiplied by .40 is $26,666 (Taxes), which leaves $40,000 for Eric and his family. If all of Eric’s business expenses (Overhead) remain at the $60,000 amount, his Customers will need to pay $126,666 for the value of his services.

From $110,000 to $126,666, we (Customers) pay $16,666, more!

Remember the rest of our cast of characters: George and Lorna? George provides computer services to Eric; and, Lorna provides the building space for his shop. What do you think George and Lorna will be doing to the price of the value they offer to the marketplace?

If they want to stay in business, they will be doing what Eric was forced to do: raise their prices, too. George and Lorna are part of the $60,000 in Overhead that Eric needs to pay each year. When that $60,000 amount increases, who pays? Yes, once again, the answer is: We the People!

This is for certain: We pay a price for everything.

www.kimfoard.com