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Archives for May 2007

Think Rich: Use Your Credit Card The Right Way

Charge

I hate to tell you, but that high interest rate you’re paying on your credit. It’s because of people like me.

I was reading about Andreas Bard’s credit card experience. I found a link to the post on Nate Whitehill’s Powerful Posts of the Week and I thought I’d weigh in on what’s good and what’s bad about credit cards.

The Two Camps Of Credit Card Philosophy

  1. They’re evil.
  2. Not really.

First, They’re Evil

Credit card debt has been growing massively over the last several years. The main reason for this is easy credit. Banks have lowered the bar on what kind of income level, credit history, and employment stabilty that’s required to get a credit card.

Ten years ago you needed to show a level of stability and responsibilty to get a credit card. You needed to show that you were a low risk. Today, you just need to show them that you have a pulse.

If you don’t have a lot of experience with money or personal budgeting, it’s pretty easy to get yourself in debt quickly with a pocketful of plastic. And once you get into debt with these little plastic miracles, you have to make a decision. Are they evil. Or did you just let yourself get caught in the money making machine that they are. Choose the latter.

So Two, Maybe They’re Not So Bad

I use my credit card a lot. But I pay it off every month, and I only use it on things that I’d normally buy. I don’t have any tendency to go crazy with the card because I make purchasing decisions based on my cash, not my credit. You always want to be aware of your cash position.

The advantage is, I use the banks money all month while my money is working for me. And then I pay them back at the end of the month. In full. Interest free.

Credit card issuers generally hate people like me because I cost them money. Which is why, if you’re in debt, you have to pay for that cost with a high interest rate. They’re high, mainly because it’s high risk credit. But you get the picture.

Break The Debt Cycle

To take advantage of the good things credit cards have to offer, you have to get out from under them first. Here are some best practices for turning the tables in your favour:

  • Budget. You need to track all your income and expenses. Every month. If you’ve got a paycheck coming in twice a month or every two weeks, then go through your budget that often. No matter how ugly the picture is and how much you don’t want to look at it, you have to. Don’t do it for a couple months and then stop. Do it until you die because no one cares about your financial situation more than you do.
  • Keep one card. All you need is one good credit card. Get rid of the rest, and focus on paying those ones off first. This makes it a lot easier to track and manage your expenses on an ongoing basis. There’s only one bill to take care of every month.
  • Consolidate. Go and get a line of credit from your bank. It’s a lot cheaper than credit card rates and you can consolidate all your debt into one bill. If you can’t get a line of credit, go talk to another bank and explain to them why you want it.
  • Don’t use them. No exceptions. You start to make some progress on paying them off, and then boom, the balance is right back up there. You can’t pay them off if you’re using them. Don’t use them. Like I said, keep one and do nothing with the others except pay them off. If you only have one card, then ignore the “keep one card” rule and don’t use it.
  • Shop consciously. Impulse buying is a killer. Force yourself to stop and make a conscious decision. Do you need this? Can you get it cheaper? Make the decision to leave the store, think about the purchase, and then go back later after you’ve thought it through.

So those are some good strategies. They work. And after you do the hard work, you can take advantage of credit cards and make them work for you.

Either your money is working for you or it’s working against you. There is no middle ground.

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Measuring Time: How Much Time Does It Take To Build a Business?

Wall Clock

There are a lot of ideas about how long it should take for a business to become financially self-sustainable. I’ve heard people say that it takes anywhere from 3 to 5 to 10 years to get a business off the ground.

Most of those ideas come about to justify the poor performance of a floundering business.

The other thing we have to throw into the mix is; what’s the definition of a success business? To that, I have to answer … cash is king. If you’ve got a positive cash flow, you might not be a runaway success yet, but at least you’ve got a stable foundation to build from.

Having a positive cash flow means the business is financially supporting itself, without the need to raise additional capital to continue operating. It doesn’t mean that you have necessarily recovered the entire initial investment injected in to get the business going. It means more money comes in every month than goes out.

Further injections of capital at this point are only needed for expansion and growth.

The Time It Takes To Build A Business

There’s an old axiom:

The first year you lose money, the second year you break even, and the third, you make money.

It’s an old axiom because it’s survived the test of time. It’s practical. Planning a business with the goal of reaching positive cash flow in 12-18 months is on the aggressive side of this axiom. And if you’re business plan says this isn’t do-able, you need a new plan.

It would be great to be profitable a lot sooner. And the sooner, the better. Next month would be great! But every new business has its own quirks and problems. There’s a huge learning curve when starting any new business, even when you have extensive experience.

And the bottom line is, you can’t go into this with so few resources that you have to fold up the tent after a month or two if you’re not a huge success. Cause chances are, that’s exactly what will happen.

The Danger Of Taking Too Long To Turn A Profit

Over time, all sorts of things begin to conspire against you. Here are a few:

  • You may run out of capital, and may not be able to raise more, or not in the quantities required to break through the barriers to profitability.
  • There’s a cost to capital. The longer you need to borrow money or tie it up, the more it costs.
  • Significant changes in the economy can occur over time such as inflation, changing interest rates, or market shifts. And technological changes can render a lengthy business strategy useless because it couldn’t possibly foresee or predict the changes.
  • Dwindling motivation and gradual acceptance of the status quo.

The Best-est, Simplest-est Strategy For Success

There’s another old axiom:

Go big or go home

This is a bad axiom for business. It’s a business killer.

Too often, businesses start too large. For example, they purchase or lease a building that is too large and too expensive for the amount of sales they are reasonably able to secure within the first year or two. Large capital assets like this are a huge financial drain.

Your purchasing has to reflect your real sales potential. It’s better to have the problem of having to move later, once the business has solid cash flow, than to fail because the sales are not growing quickly enough to pay the rent.

Everything you purchase should be sized and priced to fit your worst case sales projections for the first 12-18 months. Plan on suffering through the growing pains. If you don’t have enough space … perfect! If you’re pushing your equipment to the max … awesome!

These are the kinds of problems we like to have.

They mean you’re on the right track.

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The Way Forward Is To Frame Forward

Framing

There’s something terribly wrong with your business, your flagship product, and your team.

I know this, because nothing is perfect.

But no one wants to buy a barrel of rotten apples. And your barrel is no different than anyone elses. It’s really not. The only thing that’s different between barrels is how people see them. It’s perspective. And the people that sell a lot of apples. They have a great perspective.

They create imperative. They create a frame, and inside that frame everything is good. It’s where everyone wants to be. It’s where everyone needs to be. The frame is always open to new opportunity.

Building A Frame That Takes Your Company Forward

To create a positive frame that moves you forward, you have to tell a story. The story is already there. You just need to find it. And the way you find it builds a case for moving forward. The way you find it teaches you to believe that you can move forward. There are 3 steps to building your story frame:

1. Values

The values equal the impact of the results. The values relate a common belief that everyone can understand. “Pollution control is good for our environment”. That’s a value. It opens our story with something that everyone can relate to and the conclusions are natural ones.

2. Context

Through the context, you create the percieved results. The context is the situation at hand. “Coal fired powerplants are putting millions of tons of pollution into the air we breathe everyday”. It’s what’s happening. It’s the context of our story.

3. Issues

The issues are our deliverables. They’re the actual results. The core issue is what your story is here to achieve and it defines a specific course of action. “Our wind power generators are pollution free”.

How Positive Framing Is Used By Successful Leaders and Salespeople

You can see by the frame I created that it’s a good solid frame. It makes sense. OUTSIDE of the frame, windmills have some negative attributes. Like everything else, they’re not perfect. They’re expensive, they require specific windy locations, they’re a hazard to birds.

Inside the frame are the positives. INSIDE the frame, we can understand with great clarity that this needs to go forward. That it should and that it can.

Framing gets a bad rap because politicians tend to abuse it. But it’s purpose is:

  • To see problems as an opportunity to create innovative solutions.
  • To run towards something good, rather than away from something bad.
  • To open the door to new opportunities.

With positive framing you can separate yourself from the competition. Motivate your people. And you can see that even though your flagship product isn’t perfect, it’s more perfect than not.

It gives you a way forward.

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