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The Millionaire Mind

To achieve financial freedom, you will have to think like a millionaire. Becoming a millionaire is not so much a culmination of a series of the right opportunities and the right timing, but being the right person with the right mindset in taking the right steps to financial freedom. If you are going to move to a higher level of life, you have to be willing to let go of old limited ways of thinking about money, how to manage money, and adopt new ones. How to become a millionaire then? You can recondition self limiting views of money and wealth first of all. Realize that money is simply a result. Money doesn’t define you, your power generates money. By power I mean really living in your natural state of abundance. You as a human being are capable of attaining what you truly desire. Everyone has access to attaining the wealth they want, if their motivation for acquiring money or success is not rooted in non supportive behavior and thoughts. It is a matter of conditioning this feeling of abundance and creative power, as well as learning from others – how to manage money, learning steps to financial freedom from other successful entrepreneurs. You can become the millionaire next door!

Begin by learn from the ones who are more successful than you – they certainly have defined the steps to financial freedom and how to manage money. For more detail on the millionaire mind set and how to think like a millionaire, I highly recommend the following link: Secrets of the Millionaire Mind

For me, developing that millionaire mindset meant starting with building and operating a business that produces recurring revenue based on a sustainable model – it is one of the most predictable means towards building asset appreciation – your nest egg. I was then able to build my ‘retirement’ assets from the profit of my company sale into a retirement nest egg, my golden goose. However these are only the first steps to financial freedom. To achieve financial freedom, you must also be able to mange money. What follows are manage money tips, passive income strategies, and how to utilize investment income.

Managing your Money is a different skill set than making it

After selling my businesses, I did not have a disciplined mindset for managing my funds, other than to say, I needed to quickly find investment vehicles. I was naïve in retrospect, believing all I had to do was to invest in some other opportunities similar to the businesses I had launched, sit back for few years, and reap a multiple valuation again. It doesn’t happen that way! Economic factors, ego, and perhaps impulsivity contributed to my first real setbacks as an entrepreneur. I went through a re-education process about finances. Get educated and be aware of your surroundings, keep current (more on that later). This led me to investigate passive income opportunities.

Passive Income – Key to Financial Freedom

Passive income allows you to create several different income streams that generate you cash while you sleep, play, or work. These are the other “geese”, businesses producing investment income streams for you. My problem with the first strategy I implemented after I had built my retirement assets was to rely on that main asset pool to make my long term investments from. Investment income is recurring revenue and is your key to wealth.

First, a word of caution. Have the courage to explore opportunities. Trust your intuition. If it smells like a dead fish, it probably is. Don’t let others convince you otherwise. Always educate yourself on the opportunity, its marketplace and potential risks. Once you feel you have made a good decision, complete what you start. The problem comes in the habit – most failures come when you fail to finish what you start, walking away from investments because you do not have your energy invested in them, or are not sure of the outcome because you have no control.

It is not the intention of this blog to neither recommend or advise on any of these opportunities, nor go into detail on the following examples. However, in my quest for financial freedom, I have engaged myself in studying many areas, participating in numerous seminars, and meeting other investors. I have without a doubt, met multimillionaires ( and a billionaire or two) in all of the categories below, but like anything else, these opportunities always open the door for aggressive individuals (polite for quasi scam artists), who make more money from selling their strategies than they did implementing them . Do your homework. If interested, I list a few resources on this blog under resources. These include:

· Infopreneur – This is an entrepreneur who disseminates information. Leverage your experience into mentoring others and/or disseminating information of your experiences through Webinars, Radio, creating articles (Ezines, Blogging, and writing eBooks for Sale). Your experience is valuable. Share it through innovative ways which will produce recurring revenue for you. Investigate the Internet to create revenue through Internet Marketing such as selling other professionals’ products. Evaluate Google AdSense and Click Bank products as well. These can all produce recurring revenue after they are set up and maintained effectively.

· Real Estate – Again, use your judgment here in evaluating potential ‘scam’ artists who profess to have the unique ‘get rich quick’ scheme. Also become expert in understanding market trends before you invest. But the upside potential of doing your research is a passive income stream which can facilitate your retirement. For example, build a portfolio of residential homes you have purchased under market value, with little to no investment for repairs, and then use a property manager to collect rent payments. This produces cash flow. When you decide to draw your equity from these homes, you now have added to your golden goose. You may decide in a given market, to look at commercial real estate for cash flow in rents as well.

· Licensing – This is for the forward thinking business (or individual) that may now have an innovative product or service (even a personal invention) that needs a market. Remember, an idea is just an idea until you market it, and people perceive its value. Securing licensing agreements with other firms to help you sell your product or idea, or to acquire some other product to assist the sale of your product can be very financially rewarding. It could be a long term strategy for creating marketing for a product or service, OR it can be a short term process for entrepreneurs to get visible, get out into the marketplace with a new product. For example, a small creative idea such as a caricature of an animal figure may result in a company such as Disney licensing the art to sell in all of its retail products. You may find yourself getting residual checks, or royalties paid for each product sold with your work of art on it. There are literally hundreds of areas where individuals earn recurring royalty checks for something they have created.

· Business partnering deals – This is an interesting topic, because it could have huge upside. I met an entrepreneur whose net worth was $9 billion – from facilitating several business deals between different parties (businesses and individuals) in transactions! The key here is to have a keen insight into how you can capitalize on an opportunity you might have the vision to see that no one else is viewing the same way. These are usually overlooked or hidden opportunities for a product or service. Look for areas in which these opportunities could provide specific performance improvements that could be measured. Leverage yourself as the person who controls the ‘deal’. I have seen several examples, in business, where at first glance, there seems to be no money making opportunity. I was told about one individual who was a client of a data research company who had tracked detailed information on a certain segment of customers. When this individual realized she could leverage that information to sell it to a specific large retailer, she created discussions between the retailer and the data research company. She facilitated the discussions and the closing of a revenue sharing agreement which eventually produced hundreds of thousands of dollars in recurring income for her. She did this by getting the right to be paid per transaction, per month. It was pennies on the transaction, but there were large volumes of transactions!

· Network Marketing – I know what you’re thinking (MLM scams?). No, there is actually a serious passive income opportunity in investing in quality products and services for distribution through a network marketing approach (such as quality wellness products which are in high demand). The key here is not to gather family and friends in selling out of your home, but to use your leadership skills to build a team (quality downline) and communicate and manage the process. The key strategy – to get a large group of people to do a few simple actions over a consistent period of time! The downside – it is about a 1-2 year process in developing the business to where it can really produce; however, the smart entrepreneurs are making $30k per month doing these businesses. Once they are set up, they require less input form you as you wait on commission checks.

In the next several weeks, I will write more in detail about each of these opportunities.

You may be an early stage or growth small business searching for investment capital. If you have not heard the adage “proven” teams with “proven” technology in a “proven” market get ready for the difficult challenge of identifying your company as one in order to approach venture capital firms for private equity venture capital funding, or VC funding. The problem is, when you are starting out, or even if you have been in business a short time, the Catch-22 principle applies. In other words, your intended outcome is to raise investment capital to produce revenue, and the venture capital firms (VCs) are using revenue criteria to qualify you in order to raise capital!

Preparing and presenting to venture capital firms , in what we call road shows, and the due diligence that ensues, take a tremendous toll out of senior management, and their direct reports, often times taking their eye off the daily operations. In all cases of the effort to raise capital, you will find a transition to short term thinking, decreasing revenues, and more operational problems resulting. And the chances of securing VC funding may seem analogous to playing to the odds of leaving Las Vegas with a fortune.

However, understanding the expectations of venture capital firms will go a long way towards creating a cogent strategy. One of the advantages of securing VC funding will be to force you to validate the authenticity of your business, to articulate your plan and to understand your desired objectives.

I have been working with venture capital firms for several years in my current investment banking role of due diligence and capital raise for energy technology companies, and there are specific criteria which serve to weed out the 99.9% of business plans that come across their desks everyday.

In reviewing a business plan, a majority of venture capital firms will look to add value (in terms of advisory or management expertise) to the small business under consideration in addition to capital. First, most of the larger, established venture capital firms will make a quick determination whether your operation represents a validated business model that can demonstrate a reasonable chance of achieving $100+ million annual turnover within 3 years; whether through organic growth and/or acquisitions. Here are some key attributes VCs look for in investing in businesses are:

1. OPERATOR –The small business owner and/or members of his executive team have a previous successful track record in small business development and profitability; Executive leadership has a strategic plan ; can envision , see the patterns, establish the order, and can clearly articulate the plan ; they can navigate beyond the technology; an absolute killer team that possesses the skills, passion and connectivity in their industry to execute the business plan and meet the priorities of all their stakeholders and most importantly, you have chemistry with them.

2. INTEL – The entrepreneur has established connectivity in their industry; they have a clear identification of customer’s pain; there is a clear identification of competition; they must be able to identify and detail - barriers to entry; What is their Product/Service similar to?

3. UNFAIR ADVANTAGE – there must be a clear identification of the customer’s pain (fulfilling a perceived need in a customer segment and understanding how the customer needs it to look and act) ; articulating a sustainable advantage in relieving pain better than anyone else; i.e., A clearly differentiated business model (a better mousetrap and why);

4. SKIN IN THE GAME – You have a vested interest in your business - not just sweat equity;

5. SUSTAINED REVENUE - Has trailing 12 months of revenue with cash flow and must generate significant revenue by delivering their products or services within 6-12 months of funding. A clearly defined and proven (albeit on a small scale) repeatable and sustainable revenue model.

6. EXIT STRATEGY You absolutely must know how you will cash out and get the big upside from building the business. You must be willing to do what it takes to get upside – consolidate, merger, IPO. VCs should look at 10 xs upside in 5 yrs.

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The art of small business financing is critical to your organization.
Financing your business may need to consist of creative strategies comprised from personal financing techniques or small business financing strategies. This article will focus on my experience in devising both personal financing and business financing strategies.

Factoring your Small Business Receivables

I want to introduce the concept of factoring, or factoring invoice. Once I had some recurring revenue initiated at Creative Business Solutions, I realized that some of my larger contracts were slow to pay. A large client of ours, a bank with several branches in the Caribbean, headquartered in San Juan, P. R., ( now a part of Wells Fargo Bank) , was an excellent client, and we delivered many successful projects and services to them over the years for accounting systems to track small consumer loans. One of the problems was that as we began billing over $100k per month for these services, and as we added additional resources, there developed a 90 day lag time in payment due to their procedures and the cycle of activity. I finally decided to “FACTOR” account receivables, i.e., I found a financing organization in Florida that would contract with me to deliver me 85% of what I billed (on the invoice) immediately upon my billing the client. The factoring group would receive my invoice, put their heading on it, and send to my clients (my clients all pre-approved this process). The factoring group would subtract their fee of 7%, and then charge us out of receivables, a 1% additional fee for each 30 days the client paid post payment terms. Though it sounds like a significant amount of charges, and some critics will detract from the efficacy of using factoring due to profitability concerns, factoring strategies alone enabled us to give us a much needed cash injection to grow our organization rapidly – due to the credit of our receivables, we began hiring needed resources and expanding our sales with large project proposals. Creative Business Solutions had about a 50% growth rate while factoring.

Small Business Financing from Community
Banks

Consider small business financing from banks - do what you can to establish a rapport with a local bank, or one that serves the community. They are more willing to look at you as a viable business. You may not be able to secure a credit line right away, as most banks will want to be able to issue a line of credit based on a steady track record (perhaps 3 years of receivables) before they will commit. But they may be willing to give you flexible checking privileges and a short credit line to begin with. I would avoid the large banks. One bank comes to mind here for me. I had been a customer of Bank of America when I applied for a small business line of credit and a business account. Bank of America completely lacked follow up to my requests, and eventually, I moved all of my banking to a local bank, Bank of Texas. Bank of Texas was founded by the family of a famous country western singer – Charley Pride, and their human values were reflected in the way they really focused on local small business.

Personal Financing

Using personal financing strategies such as applying for personal credit cards, personal credit card checks, etc., can save your bacon. At one critical juncture (read point of survival), I was faced with an impending shortage of funds for payroll (I discussed the student loan organization debacle earlier regarding non payment). I needed about $24 for the biweekly amount. This was before I factored or had established a credit line with the bank. I immediately wrote a personal check from the personal credit card account to my business account, and wrote up a simple IOU note to myself from the company, with interest only payments for the next year. I was able to repay it as we got on a more regular cycle from trusted clients. The point to remember here – this is YOUR Company, and as I had done, to engender values for success in your staff, you have to make a commitment (code of honor) to all of your employees to never let them down, or sabotage them.

Selling services or product in your small business obviously is the primary cash flow driver. With your small business, it is important to be realistic of where you are at and who you can afford in the beginning stages. As a small business entrepreneur, you are your own best salesperson in selling your small business service or product. Don’t hire first; become adept at selling. Hiring sales professionals comes later in the process. As a small business consultant and small business coach, I have confirmed through numerous engagements, how successful entrepreneurs have the courage to act first, hire later.

I can tell you from real life experience – avoid the pompous “talker” types with the ‘corporate resume’ – they won’t help you, at least starting out in the first few years. At Creative Business Solutions, we thought that, to help us immediately increase our sales, we would hire a vice-president type from a multimillion dollar services company, with an ostensible track record in generating revenue, and offer that individual whatever it took – including stock options. We hired “Steve” (not his real name). Steve had worked for the “large” firm out of Atlanta, said he was familiar with the small business operation, but then negotiated with us weekly travel expenses back and forth before he even made the move to Texas! The skinny was that Steve was accustomed to existing accounts to manage, secretaries, company cars and a cell phone account – the antithesis of our CBS small business reality! I cringe at the memories of our company in effect coming to standstill as we waited for Steve to ramp up sales. To add insult to injury, he disappeared around the holiday season without an update, and called us from Atlanta to tell us he had decided to resign. You see, in some cases (not all); these “smooth talkers” will be using your job offer as a cushion until the next big offer comes along. This way, they don’t have to step up to the plate to perform – they just use their status and resume - procuring work at executive salaries. I touch on factors to evaluate when building teams under a later chapter.

Thankfully, my intuition kicked in a few months before, and I inserted myself back into a solution selling mode, adding three new accounts while ‘waiting’ on him to build his sales plan. This lesson unfortunately was repeated for us several times over the next few years as we struggled to see the lesson in our ways. It goes back to my first comment on trusting your power. If you are paying others to trust their judgment, why don’t you trust your own wisdom?

I learned very quickly that clients entrusted me to their care – I decided to make the most of this, and up sell any opportunity I could find. I was able to quickly close projects, and realized we could make do without the ‘ready for prime time’ players.

In the beginning at least, you have the fire, the drive, the passion to make your business succeed and you are your own best salesperson. You are your business. If you can’t articulate and solution sells your business, perhaps you should not be in the business.

Your initial team

We looked for people with the right attitude to become part of a small family – an initial team. Those we hired were for the most part, light on experience, but had a yearn to learn, were primarily recent college graduates , and willing to work at a cheap price in return for future advancement. These people were malleable as to the context they could work in, the tasks they could be assigned, and invariably were more than happy to do extra tasks to help us with our operation. Once we achieved significant recurring revenue we hired supervisors with the big company experience. So, hire only what you can afford; build their expertise to make them a foundation for others to learn from and to grow from.

If you are a start-up or early stage small business, don’t wait for financing possibilities. Whether you are spending weeks perfecting your copious small business plan in order to then fill out more reams of paper for SBA submission and approval, OR you are preparing your executive summary for venture capital, OR spending inordinate amounts of your precious time at angel investor meetings, OR even flying to Vegas for the weekend to get a ‘high interest’ loan, you are initially wasting your best chance to get your small business started by acting. Successful entrepreneurs act first; plan as they go. As an entrepreneur, small business coach and small business consultant , I have seen that cash flow and cash strategies become critical to early stage small business longevity and survival.

Acting is doing; it’s testing your product or service; it’s quickly validating (more likely disprove) the hypothetical projections you have been forced to do, often better served by using a Ouija board. It is challenging at best, but certainly possible to Act first, AND build your company at the same time, by self financing strategies. It’s known in entrepreneurial circles as bootstrapping (symbolic of pulling yourself up by your own bootstraps). Cash Flow goes hand in hand with the concept of bootstrapping, and is my subject of discussion today. Bootstrapping is focusing on cash as a priority.

Total cash, including cash on hand (including monies received) divided by your burn rate (cost of operation) determines how many months your business can exist without folding or without receiving an outside cash injection. Your focus must be on cash flow at this point in your business - cash is king.

Since the likelihood of a cash injection is not as likely, focus on creating an environment where cash is in the bank AND cash is more than reasonably expected to be received based on actual billing, i.e., creating cash flow. At CBS , my professional services company, I quickly prioritized cash flow strategies to create billing and payment terms favorable to us , not the client. Here is how I started:

We implemented short payment terms as a condition of doing business – by negotiating price or rate discounts in return for terms of net 15; this way you are assured at least you can pay your bills with monies received in a 30 day cycle.

With every project or service we performed, we secured a recurring revenue contract for support and maintenance. At American Airlines, in addition to delivering my first small project to deliver an Applicant Tracking application, as part of the proposal, I inserted a support and maintenance agreement for twelve months, renewable automatically annually upon review by the client, in which I offered several hours of 24/7 phone (and in some cases on site) support for a set fee, payable upon acceptance of the contract, in monthly installments. This greatly assisted us in paying our recurring expenses, including payroll.

We included a request for retainer before initiating the actual service – We asked for 10% down on projects (which enabled us to receive steady in flows of cash). You can justify this if you can convince your client that they can delay the last payment of the contract until everything is accepted. This way, both parties put ‘skin in the game’. We also offered a 2% discount for early payment. Approximately 25% of our clients saw an advantage to this.

Try these strategies and tweak them to your requirements.

Next week: More Bootstrapping strategies

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