Double standards

I was talking to the lawyer the other day. A contract on a property purchase I am negotiating has a few nasty special clauses. The contract called for a directors personal guarantee (to complete) should a corporate purchaser fail to complete. These clauses were once rare, but you can’t keep secrets in contracts, so they are more common.

Now in this case I am the director of a trustee company, for a unit trust I have no benefit in. This is strictly a fee for service gig, so I am effectively an employee. Why would I provide such a guarantee to a vendor for my employer? How much would I want to guarantee specific performance? Give me a moment to do the math…

Yup, as I thought. They don’t pay me enough.

I won’t even ponder the value of a guarantee from me. I don’t own anything. The smarter Marx (Groucho not Karl) said

I would never belong to a club that would have me as a member

. Should I do business with someone that would have me as a client? 😉 Lets leave that thought for another day.

OK so the lawyer explains that it is perfectly normal to expect specific performance and director liability. She tells me that I’d want the same certainty if the roles were reversed.

And that dear readers is my typically long-winded point. Always do deals in your own interest. I don’t give personal guarantees for entities I do not control. I expect personal guarantees from parties purchasing my assets. Yes it’s a double standard. “I don’t want to seem like a bad guy” is not a reason for a business decision.

Next article is on Win-Win versus Win-Lose strategies.

Flock of eagles

It’ll never work. Not now. Not here. And definitely not for you. It works “over there” but that’s different.

If you haven’t been spun a variation on this theme, click comment now and tell me your secret.

Even with the most supportive family, friends and collegues the world is full of people who tell you it can’t be done, and why. If they didn’t believe it they’d have to do something about their current situation wouldn’t they?

There is one exception to this, when I’m getting told that by someone who already did it. They may have a different perspective. But generally those guys will tell you why it made sense to them back then and how it’s changed. Rarely will they tell you that you can’t do it too.

This reminds me of the eighties slogan:
It’s hard to fly like an eagle when you’re surrounded by turkeys. 😉

Don’t get arrogant about it. It’s easy to interpret the lesson as advice to look down upon people with different beliefs or values.

Extraordinary returns cannot consistently be made by a pack (at least in my belief structure). I stack the odds in my favour by associating with other like-minded people. That association stimulates and motivates me to keep at it. I even learn something when I shut up long enough to listen to another.

Find a group of supportive people, meet regularly and listen to them.

Need to succeed

I received the following email:

Quick Question:: you had mentioned in one place, you build business.
What have you built? and how hard was it?

I am thinking of buying and building a business but a bit scared
(butterflies in the stomach and all that crap)..

Any guidance.??

Thriving business is the most fulfilling thing I have ever done. When things go wrong it is agonising.

I’ve run businesses in the fields of: book publishing; newsletters and subscriptions; half-way house management; IT and management consultancy; direct sales teams; marriage counselling and alternative dispute resolution services; coffee shop; dating agency and even network marketing.

Some were successful, some weren’t. Some were full-time, others were something on the side. All could have done better with a bit more time to mature or capital.

What you need to succeed – off the top of my head:
1) Guts – feel the fear and do it anyway.
2) Passion – love it or you can’t all that needs to be done.
3) Margins – it will cost you more, and you will sell less than you hope. Make sure your product/service has adequate margins.
4) Story – have a good angle or hook, otherwise you will be tempted to compete on price and that my friend is the toughest business.

Is that enough of a start? I’ll continue in the days to come and Thursday I’ll update the 3 small units story — it’s settlement day.

Finance update

The finance on the three small units is almost in place. What a cocktail it is! But it is not the size of the units that is the problem.

Normally I keep myself “ready to borrow”. Tax returns up-to-date, company trading accounts ready and stuff like that. Because I took Bookaburra over in July, none of that is ready. It was deliberately kept “open” to facilitate the asset purchase.

Then I found a deal too good to pass up. I wasn’t ready to finance. Hence all the hoops I had to jump through. I expect the finance to be unconditionally approved in three steps by Tuesday.

I’ll let you know the details once it’s in place.

Giving it away

I tithe. That means 10% of my income and capital gains is given away. That either occurs quarterly on trading income or on settlement for capital gains. I give sacrificially, if I don’t miss it I’m not giving enough.

Why? Because I think my gifts make the world a better place. I also believe that it is the obligation of the fortunate to contribute to society’s less fortunate. I also get better results when I’m tithing to when I’m not. The evidence for that is anecdotal and without scientific verification. 😉

The main reason I tithe right now is to answer the following question. When is the best time to start giving your wealth away? If I can’t give sacrificially today while I’m building the wealth how will I give once I’ve made it? And how will I know when I’ve made it sufficiently to start giving?

There is never a good time to start giving. Start anyway the discipline is worth it.

One learner at a time

When I learned to drive I was required to have a fully qualified driver in the front seat passenger seat. That “black licence” was required to be sober and responsible. That is good risk management on behalf of the community.

In poker if you can’t tell who the sucker at the table is, look in a mirror. That is good risk management on behalf of your wallet.

When investing make sure there is only one learner in the team per deal. Your team consists of you, your financier/broker, your lawyer and your real estate agent.

I made a mistake with these three units. I am breaking in a new broker, a new lawyer and it’s been a while since I bought three units at the same time — so I’m rusty.

I had a 75% LVR loan offer on the table from NAB as part of my professional’s package. But it needs me to tidy up some outstanding paperwork that is not good timing right now.

I heard of a broker who could organise finance for such small apartments easily. I casually mentioned this to another keen broker I know well, let’s call him Bob. Now Bob is a top producer for his firm. This guy writes loans. A lot of loans. This means he knows how to get things done.

But my requirements are outside the square. Bob is good, but he’s also new at it – a little over a year. So he doesn’t have huge vats of experience.

Bob tells me he can get me 80% LVR no probs. So I go with Bob. Three weeks later I get all the paperwork they want together and am running through the fees. Guess what? The extra 5% LVR will cost me 1% application fee, 3 months interest early repayment fee, 1.18% premium for the risk. So they’ll give me the extra 5% but take it back in fees! I pushed back and Bob found me another loan.

During the scary time in the middle of this I called the Experienced and Reputable Broker. He said 90% LVR, LMI 1.5%, three day approval, two week settlement. I’m meeting with him on Monday.

The lesson is one new driver at a time. Nothing is insurmountable providing there aren’t a dozen problems at once.

Hack Attempt #1

Someone tried to hack the site tonight. I don’t know whether to be angry or flattered. So if you show up one day and it seems like I’ve moved into the porn-biz you’ll know:
1) I’m 0wn3d by script kiddies (i.e. the site has been defaced).
2) Don’t hire me as your IT security consultant
Seeing as I don’t do any IT consulting anymore that should be enough warning.

That leads me to reinforce the message, this site is really for my own and your amusement. Therefore it is in constant flux and doesn’t really get a lot of “systems” attention. While I do wish I could find out what is slowing the computer down, I’m not putting a lot of resources into the server.

Credit Card Danger

I bought a strata unit with a credit card cash advance once. I’ve used the same technique for a deposit in a hurry. Until recently I was a fan of lots of credit cards with high limits — providing you knew how to manage a bank’s Debt Service Ratio (DSR) calculations.

You see, banks assume your credit cards are maxed out all the time and factor that into your borrowing limit. What if you listen to Paul Clitheroe, Robert Kiyosaki or other wealth advisors [like me? ;)] don’t carry a balance on your credit card? Surely that counts for something?

Often not. The major banks’ DSR assume you carry the limit because you can. Look up “contingent liability” someday. So if the DSR looks tight you might cancel or reduce your limits before applying for the loan.

Anyway I no longer favour lots of cards with lots of limits. You ask why (go on I’ll wait)?

Three little words…

…Fees, Fees, Fees.

I have been a Citibank customer for years. It gave me a nice feeling to have Big US Bank credit cards in my wallet. But US banks are “early adopters” of fees and then the Aussie banks follow.

In addition to annual fees and high interest rates, I have the priviledge of: late payment fee, over limit fee, foreign currency conversion fee and cash advance fee. Credit cards are not about convenience where a smart operator can take advantage of a system designed for balance-carrying sheep. The cash advance fee is 1.5% of the drawdown regardless of how long I keep the money.

Now Westpac is following suit with similar fees and my experience is the other banks can’t resist a good revenue stream.

Time to find a new source of quick cash.

Someone’s trying to screw you

I just go home from listening to Peter Holmes à Court give a casual talk at the Sydney Chapter of Young Entrepreneurs Organisation. I won’t reproduce his entertaining, inspiring and insightful comments here — if you ever get a chance to hear Peter talk, take it.

One point he did make was Someone’s always trying to screw you, don’t let it change you.

There is power in this zen-like state. There are crooks, opportunists, charlatans and even terrorists out there. We may be unfortunate enough to cross paths with a few. As a matter-of-fact it’s almost inevitable. But that doesn’t mean we must fret about it. We are big people now, with confidence to deal with whatever life throws up.

Take some risks.

PS Peter’s 10 points inspired a number of reactions in me. I’ll be posting on those reactions over the next few days.

Horse Trading

I sat in on an exchange between two very experienced businessmen today. What an education in five minutes. The Salesman and the Entrepreneur.

Entrepreneur: We bought these from you last time at $1.62. Why do you want $2.25?
Salesman: I have to pay MGM an 18% royalty on these.
Entrepreneur (grabs a calculator): $1.62 +18% (+10% for safety) that’s $2.10. How many have you got?
Salesman: I’ve got 20,000 now and another 15,000 on the water.
Entrepreneur: I’ll take the lot over 3 months and pay you slowly. I don’t want them showing up at my competitors. They’ll kill the market.
Salesman: Ok, deal.

I spoke to the Entrepreneur after. He was happy to get the product at a price he can move the stock. You make your profit when you buy and just collect it when you sell. But you don’t have to screw your supplier. The Salesman knows he’s got a reliable sale. Win-win all round. But the whole deal was concluded in 10 minutes.