Follow by Email

Monday, July 27, 2009

The Upside of the Downturn

This economic upheaval is a wake-up call for all of us to educate ourselves financially.

By: Kim Kiyosaki | 04/13/2009

Most people, I think, would label much of the change we've experienced in the past year as negative. If you take into account the banking crisis, the growing numbers of unemployed people, the double-digit losses in so many 401(k)s and retirement plans, and the number of cities and states whose budgets are upside down, it all paints a pretty dismal picture.

However, being the optimist that I am, I'm always looking for the positive lessons in seemingly negative events and circumstances. I've asked myself: What is the upside in all this? Today, I see two very powerful and encouraging things that could come out of this worldwide economic mess.

A Financial Wake-Up Call

Sometimes things have to get bad before we take action to fix them. This time in history could very well be our financial and economic wake-up call. Many pieces of this puzzle are broken, and it will take more than a new president, new rules for Wall Street and some crooks going to jail to fix it all. This is undoubtedly a global problem, and it will take resources from around the world to turn this around. This should convince our political, business and financial leaders that real and tough changes have to be made now.

There's an even more important wake-up call for each individual who is willing to address it--the absolute need for true financial education. We can't allow ourselves to remain so ignorant that we accept a well-crafted, seemingly sincere but greed-based sales pitch as education or financial advice, and then blindly follow that advice.

In the article, "Contemplating the Boobs We Were," Peter Applebome of The New York Times says:

"...a toast to us all--the boobs and easy marks who from time immemorial have mastered the art of buying high and selling low, investing in bubbles as transparent as an open window, making crashes and swindles as much as part of the human experience as love, vanity and bad breath."

He says there are many lessons to be learned from "this latest round of financial catastrophe" and suggests, "Maybe it's time we even start thinking about ways to teach (people)."

After reading the article I wondered whether the general public is finally beginning to recognize the vital need for financial education--from grade school upward.

I trust these cataclysmic events to serve as one giant wake-up call so that we become aware, educated and in control of our money. And in the bigger picture, I hope the same holds true for our cities, states and nations. Ignorance is not bliss--it's foolish, expensive and painful.

A Return to the Fundamentals

One of the things that created this financial fiasco is that many of us ignored the basics of sound investment and went off on a tangent of day trading, derivatives and the latest hot deals--without the knowledge of what we were buying.

So I trust that the outcome of this dilemma will be a return to sound and proven investment fundamentals. Here are seven basic investment rules for quick review.

1.Increase your financial education. My friend and CPA/tax advisor/investor Tom Wheelwright simplified the essence of financial education:

The greater your financial education, the lower your risk and the greater your returns. Simple.

2.Look at the overall fundamentals of an investment. Do they make sense? If you're buying a stock, is the company solid? Why should the revelation that the 55-year-old CEO smoked pot once in college affect the stock price? What does that have to do with the performance of the company? Are the financials, the management, the products and the market demand strong? If you're buying an investment property do the income, expenses and debt generate a positive cash flow? If you're investing in an upcoming business, have you checked out the management's track record, where the investment money is going and if there a demand for what it's selling?

3.Are you making decisions based upon facts or opinion? A fact is that you have three years of financials on Property ABC and know how well or how poorly that property is performing. The opinion is, "Rents are going up all over. You'll get a great cash flow on this property."

The facts about Stock XYZ: The company has strong cash reserves, no debt and has just signed three five-year contracts with companies K, L and M. The opinion is, "This stock is going to the moon!"

4.Know the difference between cash flow and capital gains. The average capital gains investor only makes money when the markets are going up. When the stock market or real estate market goes down, she loses. Capital gains investors only make money when they sell the investments.

Cash flow investors generally invest based on the fundamentals of an investment and tend to take a longer-view approach. They're not affected as much by the ups and downs in the market. They make money every month if they manage their investments wisely and continue to own the investments. The return on their investments is, to a great extent, determined when they buy the investment.

Neither strategy is right nor wrong, and each reacts differently to the changes in the markets. It's important to know which strategy you're pursuing.

5.Invest your time first, money second. Before investing your money, invest your time to research and understand the investment you're considering. You probably research a set of pots and pans before you buy it. Why wouldn't you research an investment the same way?

If the return on your investment sounds too good to be true, then it probably is. Do your homework. Don't blindly invest in a "hot tip." If the crowd is all running to A, head to B.

6.Management is key. Whether you are investing in a startup company, buying stock in a public company or purchasing an investment property, the success of your investment rests primarily on how well that investment is managed.

One vital rule of money is that money follows management. If it's a company or stock in a company you are considering investing in, then who is the management team behind the company? Does that team have the skills, the track record and the leadership needed for success? If rental real estate is your investment of choice, then it's the experience and talent of your property management person or team that determines the quality of your cash flow.

7.Stay neutral. This one is easier said than done for me. Once I see an investment I like, it takes everything I have to keep my emotions in check. Neutrality typically goes out the window. It's OK to be excited about an investment, but if I let my emotions take over, then that blinds me to the potential problems that can affect the true value, or cash flow, of the investment.

Keep it neutral. Calmly look at the pros and cons of the investment without bias. If you can do that, your success with the investment greatly improves.

It's Not Rocket Science

The world of investing is not nearly as complicated as many would have you believe. Good financial habits and fundamentals are as much common sense as they are education. It's time for us to get back to the basics of sound investing. Sometimes it takes a wake-up call to bring us to our senses.

Secrets to Surviving the Recession

By Kimberlee Morrison

According to a recent survey of about 2,000 California small-business owners, many entrepreneurs are seeing serious declines in profits, struggling with taxes and looking for help from the government to survive.

Joseph Benoit, a small-business banking executive for Union Bank, talks about the results of the survey, the financial challenges facing small-business owners and what they are doing to meet those challenges head-on.

How much of a burden are taxes on small businesses?

Well, I think that they are right up on top. Entrepreneurs are certainly looking for help, not only for tax relief, but relief in other things that have a direct correlation to the expense. Health care is obviously something that they're looking for help and some sort of relief on. Generally speaking, they’re looking for relief from either the state or the federal government. Not only in taxes, small-business owners are looking for any type of help they can get. So there’s a huge reliance, unlike any other year, on government agencies.

The survey indicated that the average size of these businesses is 13.5 people, and more than 50 percent said that health care isn’t really important. Or is it sort of split down the middle?

No, I think it is a big concern for those companies that provide health care. Just to be clear, there are obviously some companies that don’t provide health care and are looking for their employees to provide their own health care. Other companies pick up a portion of the health care expense, and I’m certain there are a few that are generous and pick up the majority--if not all of--that expense.

Which industries would you say are experiencing the most extreme declines in growth?
I don’t know that we really defined it by industry. I think that across the board. I think that there is probably no industry untouched by what’s going on in the current economic environment. But interestingly enough, in dealing with the entrepreneurs--and this might be one of the big ahas of the survey--about a quarter of the people we talked to were pessimistic about 2009 and expected their profits to decline. This is an increase over 2008. But we also found that 36 percent--call it one-third--expect 2009 profits to increase. So in this very difficult environment, you have this group of entrepreneurs, one-third of whom expected their profits to increase. And we sat back for a minute, scratched our heads and asked ourselves why?

These folks are risk takers. They have already made, in many cases, the tough decisions to decrease expenses, either through head count or through services they no longer needed or they are looking for alternative sources of revenue, in going out and trying to broaden their customer base and to do exactly what needs to happen for them to be profitable and successful.

That’s actually more optimistic than the survey looked . . .

Yeah. It was very interesting. Last year that number was 50 percent. So 50 percent of the people that we looked at last year said we expect 2008 to be better than 2007, and this year it's one-third . This year it's decreased, it’s one-third, but still I think that’s a remarkable number of people that literally are working six or seven days a week, 10 to 12 hours a day and creating a livelihood, not only for themselves and their families, but for a small group of trusted employees.

The survey indicated that 2008 was about accepting the downturn, 2009 is about survival and 2010 is about conscious expansion. Can you talk more about this concept?
I think it’s a hopeful concept. I think that the silver lining is that if the tough decisions need to be made and have been made in 2009, it will properly prepare and align these businesses for success, so then they can start rebuilding their businesses, possibly thinking about a larger piece of real estate and/or new equipment and/or going into hiring mode. So no one can predict--I wish we all had a crystal ball and could tell when we actually hit bottom and are on our way back up. But I think that it is probably entrepreneurial optimism to think that we will have seen the worst of this downturn sometime during 2009, and many of these businesses will feel like they're getting back on track in 2010 and beyond.

What can entrepreneurs do to put themselves on track for this growth in 2010?

I think they’re doing it today. They’re in survival mode. Many of these small businesses are doing what it takes to be very protective of their client base. It’s important to collect accounts receivable in a timely manner. To look at possible equipment that they're not using and maybe selling it to generate cash and help their cash flow. They’re making day-to-day decisions that will help them continue to prosper.

Read more:

6 Ways to Grow, Despite the Downturn

By: Lesley Spencer Pyle

The good news in this economy is that people are still spending, and they'll continue to do so. Businesses still produce their products and deliver services. So what can you do as a home-based business owner to make sure you're not left out?

Don't cut prices. Avoid the temptation to discount products and services in competitive environments. It can erode your profit and, ultimately, your brand. After all, if you cut your prices, does that mean you were charging too much in the first place? Price-cutting can also give the impression that you're desperate, which doesn't breed confidence. Plus, if you cut prices, your customers may sit around waiting for further discounts before buying.

Adjust marketing tactics. Increase your marketing efforts, even if you don't increase your advertising budget. While it may cost you additional time, you'll find that the investment pays off. "Initially, (the economy's downturn) was why I turned to Twitter and Facebook," says Sherri Morris, president of Digi Time Capsule LLC. "I was not real big on the social networking, as I had tried MySpace, but have found that Facebook and Twitter offer a much better atmosphere."

Ignore the doomsayers. Sometimes it pays to ignore all predictions of doom and gloom, and operate with full confidence. "I'm not doing business any differently," says Kassandra Vaughn, CEO of ROI Coaching. "I don't consider this a lean time. I know that some of the greatest, most successful businesses are resulting out of these times and I consider ROI Coaching to be one of them. We're a one-stop location for virtual and audio coaching, and our demand in the marketplace has not changed."

Add value. Just about every small business can find some way of adding value to its existing product or service. Consider adding a new line or service that costs less than your current offering. Consider adding free gift wrapping, a small bonus gift or a discount for a longer contract.

"I'm always looking for new ways to increase the value we offer our clients and customers," Vaughn says. "If you sell a service, bundle more features into the same price so customers get more and you add more value to your offering. You can also bundle complementary products together."

Find a mentor. Another option to survive tough times is to get help from people who have experienced the same struggles. There are volunteer programs such as SCORE, which is composed of mostly retired executives and entrepreneurs. There also are formal mentoring programs, such as the Athena Foundation and Helzberg Entrepreneurial Mentoring Program. Or look into professional organizations such as the National Women's Business Council.

Form partnerships. Now may be the best time to look for innovative partnerships and collaborations. Think beyond link exchanges and be creative. If you're a baby planner, look for ways to partner with a company that makes baby announcements or unique baby toys. Could you bundle gifts and services together? Take time this week to look into and start mutually beneficial partnerships.

About Me

My photo

Cathy Harris is an Empowerment and Motivational Speaker, Non-GMO Health and Wellness Expert, Self-Publishing and Business Coach.