

## The Little Big Small Business Book Vol. 2

### Not Everything Is As It Seems

### Micah Fraim

© 2018 Micah Fraim

Smashwords Edition, License Notes

This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. Thank you for respecting the hard work of this author.

### Contents

Introduction – "If I"

Section 1: Accounting, Tax, & Finance

Chapter 1: Analysis of the Tax Cuts and Jobs Act (Trump/GOP Tax Plan)

Individual Taxes

Business Taxes

Chapter 2: The ROI Multiplier: Debt

Chapter 3: Gold: The Fallacy of "Safe" Investments

Chapter 4: Siegel's Paradox – Laws of Loss Recovery

Section 2: Marketing & Branding

Chapter 5: Greenspan, Agassi, and How Others See Us

Chapter 6: What Have You Done For Me Lately?

Chapter 7: Low Price and Diminished Value

Chapter 8: What Sort of Customers Are You Attracting?

Chapter 9: Willful Ignorance: The Pitfall of Purchasing Double Standards

Chapter 10: No One Cares About You or Your Mission

Chapter 11: "Pestering" Prospective Customers

Section 3: Valuable Miscellany

Chapter 12: Obstacles or Excuses?

Chapter 13: We Aren't Special

Chapter 14: Our Struggles Aren't Special

Chapter 15: Relationship Dynamics: Employers vs. Customers

Chapter 16: Why I Fire Clients

Chapter 17: Fortune Teller Business Planning

Chapter 18: Coach or Rent-A-Friend?

Chapter 19: Expert or Impostor? Careful Whom You Take Advice From

Chapter 20: Are MLMs Scams?

Chapter 21: If You Wouldn't Say It to a Doctor: Rules to Avoid Unintended Rudeness

Chapter 22: The "Dollar Menu Economy" and How it Skews Our Perspective

Concluding Thoughts

Appendices

Appendix A: Gimme Shelter – Renting vs. Buying

Appendix B: Paying Off Mortgage Quickly? Not So Fast!

# Introduction – "If I"

In 2015, we published _The Little Big Small Business Book_. In the three years since, it has sold tens of thousands of copies worldwide, has consistently been the #1 tax book on a popular online marketplace, and was even chosen as one of Tai Lopez's Recommended Books.

I know, you aren't here to hear about me.

But starting on a new chapter invariably makes you think about the chapter you're closing. And reflecting on the past always has a tendency to make you think about the future. Whether the recent past has been full of disappointment or accomplishment – examining it makes a lot of us take stock of where we want to be.

This always reminds me of one of my favorite stand-up routines of all time: "If I" by Demetri Martin. It's well worth watching – funny, but very cerebral and an examination of his entire life and decision-making process. It covers his obsession with puzzles and palindromes, going to law school and dropping out in the last year, keeping an almost psychotic "points" system to score how he was doing each day in order to improve – among other things. The routine culminates with this formula:

"If I." That the person you are (I) is nothing more than the possibilities and choices over time. It's pretty simple, but the concept is powerful. We all have things about ourselves, our lives, and our businesses that we dislike and would like to change. The realization that who we are and become is largely in our own hands can be empowering – if we allow it to be.

This book, more so than the first volume, focuses on _mindset_ and thought processes. And how things are not always as they seem on the surface or as people expect for them to be (as you may have noticed from the book cover).

It is designed to help you make business decisions intelligently and reach your goals. As a follow-up to _The Little Big Small Business Book_ , it is structured in very much the same way as the original: providing small, easily digestible, easy to apply business lessons. We've also broken the book into the same three sections as Volume 1:

1. Accounting, Tax, & Finance

2. Marketing & Branding

3. Valuable Miscellany (good stuff for which I couldn't find a specific category)

So let's get started.

# Section 1:  
Accounting, Tax, & Finance

## Chapter 1:  
Analysis of the Tax Cuts and Jobs Act  
(Trump/GOP Tax Plan)

Congress recently passed the most comprehensive tax reform in three decades.

And suddenly, I'm a popular guy.

People who would normally cross to the other side of the street when seeing a CPA approaching them, or who would avoid me at parties – fearing death by slow boredom – are now wanting to talk to me. I'm sought-after, I'm a cool guy, I'm an A- Lister, I'm...

OK, slow down Micah. Taxes are still boring to most folks and you didn't become an overnight people magnet. But in my jesting, there is truth. Folks are seeking me out to ask three burning questions:

• What's in the new tax bill?

• Is it good or bad?

• What does it mean for me?

So three simple questions – for which there sadly, no quick and simple answers.

"But wait" you say. "This was supposed to be tax simplification! That's what they said!"

Yes, "they" did. And no, it isn't. Clocking in at approximately 1,100 pages long, and with more twists and turns than a cornfield maze, it is most definitely not simple. As to whether this is ultimately good or bad for you, I can answer with a confident and resounding... "maybe."

Longtime readers will recall that I often like to begin my business articles with some song lyrics to set the stage – keying in on a word or line in the song that addresses that day's theme. And as I pondered this matter and was thinking about songs, one word kept coming to mind that I wanted to find contained in lyrics: "confusion"

I thought about the classic Bob Dylan/Jimi Hendrix song "All Along the Watchtower" with the lines that seemed appropriate:

" _There must be some kind of way outta here_

Said the joker to the thief

There's too much confusion

I can't get no relief"

That one certainly works for today's discussion – given that this tax bill adds plenty of "confusion" and for lots of people provides precious little of the tax "relief" that was promised. (And we could spend some fun time discussing who in the massive political mess that this turned into were the "jokers" and who were the "thieves.")

As far as the bill itself, you may love it or hate it. You might be a winner or a loser under it. And you may think it will turn America into a utopian paradise, or conversely think will cause the entire world to catch fire and explode. But there is one thing that most people are not disagreeing on: this legislation does not simplify the tax code. The President initially promised tax returns so simple they could be done on a postcard and said that it would drive H&R Block out of business. I imagine most tax professionals across the country are rejoicing, because this legislation makes the tax code even more complex and convoluted than it already was.

(Side point: Would anyone with a modicum of sense have put sensitive financial information including their Social Security Number on a postcard had that pipe dream had come true?)

Historically, even minor changes in the tax code take a fair amount of time to fully understand and to strategize for. Given the scope of this legislation, accountants and tax attorneys – me included – will be digesting the changes and coming up with tax strategies for quite some time.

As such, this overview is not meant to be (nor could it be) a comprehensive guide to every caveat/nuance of the law. But it does cover the high points and makes it obvious how important good planning and strategy will be. So let's get started. We'll begin with changes to individual taxes and then cover businesses.

### Individual Taxes

Doubling the Standard Deduction

One of the biggest talking points of the legislation was the (nearly) doubling of the standard deduction. For individuals the standard deduction increases $5,650 ($12,000 from $6,350) and increases $11,300 ($24,000 from $12,700) for married filers. That sounds great except for the fact that it is almost completely offset by:

### The Elimination of Personal Exemptions

Under the old tax code you were able to claim a deduction of $4,050 for each person in your household. This was especially advantageous for people with larger households. This deduction was done away with under the new legislation. So on the surface that would be negative for parents, but is again somewhat offset by:

### The Expansion of the Child Tax Credit

Previously, taxpayers were eligible for a credit of $1,000 per child in the household. This has been expanded to $2,000 per child, and a new $500 credit for other dependents in the household has also been added. The phase-out thresholds have also been raised so more high income families will be able to take advantage of the credits.

### Inflation Index Adjusted

This change did not receive much fanfare, but in the long-term will likely be one of the most significant changes. Inflation-adjusted measures in the tax code are currently tied to the Consumer Price Index (CPI). The new rules are tied to "chained CPI" (C-CPI). This metric is generally considered to be more accurate, but it likely means tax increases. How?

Because while it is accurate, chained CPI is also a slower/lower measure of inflation. Just as an example, let's say that you receive a 2% raise every year, but the C-CPI only goes up 1%. Your income increases are outstripping the inflation index. And very slowly and over time, you appear wealthier to the IRS and get pushed into higher effective tax brackets.

### Elimination of the Alimony Deduction

For the past 75 years, alimony payments were tax deductible for the one paying and taxable for the one receiving. For anyone who gets divorced after 12/31/2018, this will no longer be the case. That means that not only will one spouse have to make the alimony payments to another, but they will still have to pay tax as if they still had that money. This is a huge shift and is likely to result in divorce settlements being even more contentious and complex, as it makes alimony payments all the more painful.

The real winners on this change? Divorce attorneys.

### Elimination of Moving Expenses

If you moved for work, those expenses used to be tax deductible. And they were especially advantageous because they were "above the line" deductions that reduced your Adjusted Gross Income (AGI) and did not require you to itemize in order to take advantage of them. This deduction has been eliminated unless you are a member of the military.

### Alternative Minimum Tax Threshold Increase

The Alternative Minimum Tax (AMT) runs parallel to the normal tax code and is designed to increase the tax wealthy people pay. Once people reach certain income thresholds, some of the deductions they were able to take previously (such as state and local taxes and home equity line interest) are disallowed.

One issue was that AMT was enacted in 1969, but did not begin to be adjusted for inflation until 2013. Because of this, an increasing number of middle class families have been paying it in recent years.

Under the old legislation, AMT began at $120,700 for individuals and $160,900 for married couples. The new plan increases those levels to $500,000 and $1 million respectively.

### Reduction or Elimination of Certain Itemized Deductions

Just by doubling the standard deduction, fewer people will be itemizing. But the bill also reduces or eliminates several deductions which will make it even more difficult to itemize.

Some key changes:

• **Reduction in the state and local tax (SALT) deduction.** Taxes paid to state and local governments (real estate, income tax, personal property tax, etc.) used to be completely tax deductible. This deduction has now been capped at $10,000 total. For some people this will not make much of a difference, but in states with high state income or high property taxes this will be especially painful.

• **Reduction in the mortgage interest deduction.** Interest payments on mortgages of up to $1 million were deductible under the old code. This limit has been reduced to $750,000.

• **Elimination of all 2% of AGI miscellaneous itemized deductions.** Under the old legislation, there were a number of miscellaneous itemized deductions available. In order to get any benefit, in aggregate they needed to exceed 2% of your AGI. All of these deductions have been eliminated. These deductions included:

• **Unreimbursed employee expenses.** If you were an employee and had a large amount of unreimbursed business expenses, you could deduct those costs. This was especially helpful for people in sales positions or ones that required a lot of travel/mileage.

• **Investment advisory fees**

• **Safe deposit rentals**

• **Tax preparation fees**

• **Casualty and theft losses**

• **(Temporary) expansion of the out of pocket medical expense deduction.** Up until 2013, medical expenses that exceeded 7.5% of your AGI were tax deductible. In 2013 this changed to 10% for most taxpayers. The new legislation reduces the threshold back to the 7.5% level for 2017 and 2018.

### Removal of the Itemized Deduction Cap

Under current law itemized deductions began to phase out at income levels of $266,700 for single filers and $320,000 for married couples. The new legislation eliminates that cap entirely. This will obviously only affect certain relatively higher income taxpayers. But particularly for some very wealthy individuals it will be quite valuable, especially if they routinely give large amounts to charity since those deductions are no longer limited.

### Individual Tax Rate Changes

The loss of all of those deductions is unfortunate, but (as seems to be a running theme with this law) this will hopefully be somewhat offset by the fact that tax rates for individuals have been reduced across most income levels.

### Estate Tax Exclusion Increase

The limit on the estate tax has once again been raised. In 2001, the exclusion (value an estate could be before it became taxable) was only $675,000 per person. That has been raised throughout the years to the point that in 2017 the exclusion was $5.49 million. In 2018 the exclusion more than doubles to $11.2 million.

### Repeal of the Obamacare Mandate

Since 2014 individuals without health insurance have had to pay a penalty under the Obamacare/ACA mandate. In 2016 this was $695 per adult and $347.50 per child in the household. This has been repealed – effective 2019.

### 529 Savings Accounts Expansion

Under the old legislation, distributions from 529 savings accounts could only be used for higher education expenses. The new rule allows for funds to be used for K-12 private school tuition.

### Permanent or Temporary?

There is some question as to whether or not these cuts will be permanent or temporary. Many are set to expire in 10 years, at which point they would revert to the old rates and regulations. Congress could of course extend them to stay in effect longer than that.

### Business Taxes

Pass-through Income Tax Rate Deduction

This is one of the more complicated provisions, but also the one that provides the most opportunity for strategic planning. Currently, pass-through entities such as S-Corps are taxed at the tax rates of the individual shareholders.

The new legislation allows for a 20% deduction on income received from pass-through entities. This has huge potential for small-business owners.

The rules are complex, and as with everything tax related, there are limitations. The deduction is capped at the greater of:

• 50% of wages paid OR

• 25% of wages paid plus 2.5% of depreciable capital assets

There are also income limits for professional service businesses (such as lawyers and sadly, accountants), with the phase-out beginning at $157,500 for single taxpayers and $315,000 for married taxpayers.

Not all companies and taxpayers will qualify, but the potential of a 20% deduction is absolutely gargantuan. Companies that do not currently qualify will likely attempt to restructure or merge with other companies in order to get this tax break.

Note: There are deadlines for forming/electing certain pass-through structures. If you need specific guidance on this, ask me.

Now in some cases businesses may restructure to C-Corporations because of:

### The Reduction of the Corporate Income Tax Rate

Unlike pass-through entities (which do not pay tax themselves but pass all of the income to their individual shareholders), large corporations (C-Corps) do pay tax. The top tax rate got slashed from 35% to 21%, which is a huge boon for these companies.

The bill also eliminated the corporate Alternative Minimum Tax.

Now, C-Corps do have major downsides which is why most small businesses are not structured that way. Not only does the corporation itself pay tax, but any distributions (dividends) paid to shareholders are taxable to those shareholders. So for most people, this still will not be a preferred setup.

But with the top corporate tax rate dropping to 16% lower than the top individual tax rate (21% vs. 37%) and along the elimination of corporate AMT, it is quite feasible to imagine situations where C-Corps become much more a viable option than they were a few weeks ago.

### Business Loan Interest Deduction Limited

Interest on business loans has been fully deductible without any limit. Under the new legislation, the deduction would be limited to 30% of a business's earnings before interest, taxes, depreciation, and amortization (EBITDA).

### Net Operating Losses Reduced

Under the old rules, net operating losses from business operations could be carried back two years and carried forward 20 years. The new legislation eliminates carry backs. Carry forwards are still allowed, but are limited to 80% of taxable income. Businesses with wide swings in profitability year-to-year are hurt by this.

### Elimination of the Domestic Production Activities Deduction

The Domestic Production Activities Deduction (DPAD) was a write-off for any business who made things in the US and provided up to a 9% deduction for qualifying activities. Farmers, domestic manufacturers, construction companies, and others were able to take this write-off. This has been eliminated by the new legislation. If you are involved in any of these business, this not good news at all.

### Research and Development Expenditures Adjusted

In one of the last drafts of the bill, the R&D credit was essentially killed. In the final version that language was removed. The one negative adjustment is that instead of being 100% deductible in the year they are incurred (as was the case with the old legislation), R&D expenses will now have to be taken over a five or more years. This provision is effective 2022.

### Historic Rehab Credits Payout Adjusted

Buildings in historic districts have been eligible to receive a 20% credit on any qualifying expenses. This (along with accompanying state credits) have been a major incentive to developers to rehabilitate older structures.

It appeared that this credit was going to be eliminated entirely. The credits have survived, but instead of being paid out in a lump sum will be paid out over a 5-year period.

The fact that they survived is very good news for developers, but the extended payout period is not inconsequential and it could hurt. Under current law, developers leveraged those payouts (oftentimes by syndicating the credits) to fund their next project. In other words, since these credits are transferable, the developer would sell them to someone who needed a tax break and get money in hand to move on to the next project. The 5-year payout provision will make these credits less appealing to potential buyers and make it harder for developers to resell them.

### Conclusion

Are you confused yet? You should be. And this short chapter doesn't even begin to scratch the surface on any of these items. Nor does it even touch the plethora of other miscellaneous changes such as the change of taxes to multinational companies, the new excise tax on large college endowment funds, limits on executive pay at non-profits, sexual harassment settlements no longer being tax deductible (why were they before?), or an adjustment to the excise tax on certain alcohol manufacturers. This legislation is nearly 1,100 pages of dense, complex policy – in addition to the 74,000 pages of tax code that already existed.

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Want to see how much the right corporate tax setup can save you? Go to FraimCPA.com/go and enter "TAX" for a calculator to show you the way.

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Now more than any time in the past 30 years there are significant **tax related risks** and **opportunities.** Making the _right moves can make you a tremendous amount of money. And making the wrong ones can cost you dearly_. Make sure you talk to your tax advisor to reevaluate your situation and strategize properly. There is a significant chance that yesterday's tricks won't work the same way they used to.

So...

Tax reform? In a sense

Tax "simplification"? Not on your life.

The "Tax Cut and Jobs Act"? Maybe, maybe not.

Mass confusion? Absolutely.

Here at my tax planning and business consulting company, we have decided to affectionately refer to it as: "The CPA Job Security Act."

## Chapter 2:  
The ROI Multiplier: Debt

" _Debt can be a very good thing. The calculations are pretty simple. Some people just seem to think I'm lying to them with math."_ – Me (Micah Fraim) – just now

People hate debt. It is almost universally viewed as negative – and in many cases with good reason. Certain kinds of debt (high interest credit cards, payday loans, loans for vacations and unneeded high-priced items, etc.) can be financially catastrophic. And some people can never seem to get out of debt, with some estimates showing that one out of every seven Americans have a negative net worth.

Even "good" forms of debt like mortgages are not without their own pitfalls (think 2008). And perhaps because of the difficulty of the past 10 years, people view debt as a danger and want to avoid it at all costs. Being debt free, perhaps now more than ever before, is many people's ultimate goal and their measure of true success.

And they have it half right. Avoiding consumer debt, not spending frivolously, and saving aggressively are all great.

But avoiding debt in all situations? In practice it ends up being quite costly. However, even when I demonstrate the math and reasoning involved when I am in advising clients, I sometimes find that the "all debt is bad" mindset is one of the most difficulty mentalities to break through.

So what are some situations where debt is actually beneficial?

### Home Ownership

Several years ago, I wrote an article on the merits of buying a house vs. renting (attached in the appendix of this book). One of the important components of that decision is debt. Real estate (in normalized markets) appreciates slowly. The article gave this example:

" _A home is a highly leveraged investment – meaning that for the vast majority of people borrowed money (a mortgage) is used. Because of this, the appreciation of a home increases the investment return –_ _the return on the actual cash put into the purchase for the down payment_ _– many times over. For example, let's say that a person has a $10,000 (10%) down payment on a $100,000 house and in the first year the house appreciates 2% ($2,000). Two percent doesn't sound all that impressive. But the owner of the house did not invest $100,000, they only invested $10,000._ _So they gained $2,000 on $10,000 – a 20% return!_ _Granted, this is before the costs of upkeep, taxes, and other legitimate costs. Still, this is a far higher return (on the actual down payment dollars) than is the historical norm for the stock market, and a home is (in most periods) a reasonably stable investment."_

Especially since most of us are not in a position to buy a house all cash (or would have to save for many years to be able to do so), it makes little sense to rent for years to avoid a mortgage on a house, when the mortgage itself is an important reason why a house is a good investment...at least compared to renting.

### Real Estate Investment

Every year I have people who come in to meet with me who want to buy investment properties in a straight cash purchase. Again, I understand why this sounds good in theory. You are avoiding paying interest on a mortgage...so your return on investment (ROI) should be higher.

It's not.

The example above outlining leveraged appreciation is part of the equation. But there's more to it with an incoming generating property. Let's look at two scenarios:

Scenario 1: Someone buys a $100,000 property cash and that the property shows an operating profit of $10,000 (from rents). Sounds great – solid ROI and they didn't have to pay any interest.

Scenario 2: Same property, but they get a mortgage and put 20% down. Their profitability is $3,000-4,000 less because of interest charges (in the early years of loan amortization when the interest charges are higher) – not even counting the cash outflow from the principal portion of the payments.

So $10,000 of profit vs. $6,000 of profit. Seems like a no-brainer, right? It is. But counterintuitively, the no-brainer is to go with Scenario 2.

One of the most underused metrics is return on capital invested. Or as I like to put it "return on MY money".

In Scenario 1, they got a 10% return ($10,000 on $100,000) on their money. In Scenario 2, they got a 30% return on their money ($6,000 on $20,000). That's not even counting the leveraged appreciation we talked about earlier. And Scenario 2 guy/girl still has $80,000 to invest elsewhere.

Of course, taking on debt does mean additional risk. Mortgage payments will continue even when a renter leaves or a major repair hits. You don't want to become "overleveraged" or not have adequate cash reserves to cover unexpected outflows. This has to be done intelligently. But still – the math speaks for itself.

### Superior Rate of Return Elsewhere

This is not always the case, but debt is pretty cheap right now. Choosing to avoid it can actually be an expensive choice. I wrote about this a few years ago on whether or not you should pay off your mortgage quickly (also attached in the appendix of this book:

" _Let's say your mortgage interest rate is 3.5% and the investment rate of return you might achieve over time is 8% (remember – there will be up years and down years, but we're using 8% as a reasonable average annual target return over a period of years.) Paying down your debt is actually costing you money in the form of lost opportunity to put that money to work achieving an investment return."_

### Liquidity

Sometimes avoiding debt altogether means that a person ends up with very little in the way of cash and other liquid, easily saleable assets. This works until an emergency or some unexpected bill pops up that leaves you scrambling. If you have access to backup sources of money (equity line, credit card), then it's an annoyance. If you don't have an emergency fund and don't have access to "emergency" debt, things can get a lot dicier.

### Bottom Line

A lot of people use debt irresponsibly and in excess. And certain types of debt are bad in all situations. But there are times when it's a bad choice not to use it.

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Not sure how much a loan will cost you? Go to FraimCPA.com/go and enter "DEBT" to get an amortization tool to help you run the numbers.

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## Chapter 3:  
Gold: The Fallacy of "Safe" Investments

I am far from an investment expert – and I've never tried to be one. I've always contended that a financial advisor has a very different skillset than an accountant – and that those who try to be both are rarely good at either.

But an image that came across my LinkedIn feed last week was so ridiculous that I just couldn't ignore it. Namely, this one:

This was created by a multi-level marketing company called "Karatbars" (a type of "business" whose legitimacy is discussed in Chapter 20). But even taking that into consideration, it is easily the stupidest thing I've seen in a while.

Two very basic issues with this graphic:

1. The "loss" of the dollar's purchasing power is adjusted for inflation and assumes you would have put the cash in your mattress or dug a hole and left it there. No investment in the stock market, no purchase of real estate, no interest from a bank, **NOTHING**.

2. The gold ROI is not adjusted for inflation. If it were, the increase would be closer to 259%...or an annual return of a **whopping 3%.**

That 3% becomes even less impressive when you compare it to the approximate 8% (inflation adjusted) return the Dow Jones Industrial Average has provided over that same period – more than double gold's rate of return.

And that becomes even more telling when you look at how much difference that rate of return means over time. Now, one might say that going back and talking about investment returns over an 84-year period (1932 to 2016) is meaningless, since very few of us invest over an 80-plus year time horizon. BUT, that's what the "experts" at Karatbars did with their gold pitch so let's put it in real numbers. This isn't inflation-adjusted – just a plain old "what would the money be worth today?"

Using Karatbars 4200% figure for gold – that means that a $1,000 investment in 1932 in gold would today be worth $42,000.

The stock market – including dividends paid – over that same period would have resulted in $1,000 growing to about $390,000. Hmm...$42,000 vs. $390,000.

(And before anybody raises this point, yes there would have been some taxes paid along the way on the dividends and occasional sales made due to changes in the index. But gold also has costs as well – storage, transport, and – when the time comes – potential big markdowns or dealer costs when you try to sell it.)

"But wait", you say. "The stock market is risky. Gold is safe. I heard that on the radio." (And of course, that's what Karatbars tells us too!)

I suppose you shouldn't expect better from an MLM whose business is selling gold bars. But claims about gold and other "safe" investments seem to pop up rather frequently.

Is gold a scam? Is it an inherently bad investment? Should you remove it from your portfolio? Absolutely not. Gold, like any other investment vehicle, has its place and should probably be in every portfolio as a hedge, since it may do well when gold or real estate or other investments are going through a declining period. But **like any other investment** , it is not without risks.

For example, consider two times when economic conditions were uncertain and gold price spiked: 1980 and 2011. In 1980 gold hit $850 and in 2011 $1,800.

If you invested in gold in 1980 it took you **25 years** just to break even. If you invested in 2011 you aren't anywhere close to getting your money back. In fact, your gold is only worth 70% of what you bought it for during a period where the Dow went up over 7,000 points. All from the "safest" investment.

I see this all the time when people talk about wanting to avoid risk. Even "risk free" investments like savings accounts or CDs can have serious opportunity cost. For example, assume you saved $1,000 per year for 45 years for retirement. You can't stand the idea of losing money, so you put it in bonds and CDs that yield 2% return per year. At the end of the 45 years you'd have $82,000. Not too shabby, we think.

Until you compare it to what you would have gotten if you had invested in the market and gotten an 8% return. In that scenario you would end up with nearly $420,000. There were periods where it likely would have gone way up and way down, but in the end, it still yielded a significant amount more.

And the biggest drawback to having all of one's investments in CDs or other safe-money instruments is that they do not generally provide much of a return, if any, above and beyond inflation. For example, you put $2 (the cost of a loaf of bread) in a bank and get an average of say 3% over a period of time. In 24 years at that rate your $2 is worth $4 – double. (And yes, it takes that long.) Now if inflation has also averaged 3% during that period...congratulations. You can still buy the same loaf of bread. You broke even. But there was no return above and beyond (the money for the peanut butter and the jelly.) When we are saving for retirement or other long-term needs it is vital to have a real return – over and above just the rate of inflation/price increases so that our money can really accomplish our goals. So even conservative investments are not without their own varieties of risk.

There are of course reasons and times to have lower risk, lower yield investments. It is important to have a portion of one's portfolio in liquid, safe, guaranteed instruments (CDs, savings accounts, etc.) to care for cash needs and unexpected occurrences. And sure, even some gold or silver for diversification may not be a bad idea – for the times when the market goes through a rough patch.

But don't let DIY financial "experts" try to convince you otherwise: this stuff is complicated. I know more than most people and I **never** try to tell people what to invest in. That's what qualified financial advisors are for. Find one or give me a shout and I can give you some recommendations.

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How risky does your investment need to be to get you the return you want? Go to FraimCPA.com/go and enter "ROI" to get a calculator to crunch the numbers for you.

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## Chapter 4:  
Siegel's Paradox – Laws of Loss Recovery

" _We don't know what it was but we had it_

We don't where it went but we lost it

And it may never come back again but I sure wish it would

We don't know what it was but it sure was good"

– George Jones and Tammy Wynette – "It Sure Was Good"

A lot of people have a "swing for the fences" mentality when it comes to investing. The general idea is that even if a lot of the investments lose money, that if one of them hits then it will hit big. They expect that the one success will more than offset the other losses.

And there are of course examples where that is the case. But even setting aside the fact that the market is fairly efficient (and that high-risk investments are often "cheap" for a reason), limiting losses is more important than some people realize.

There's an interesting phenomenon in finance sometimes called "Siegel's Paradox".

Let's say that you have $1,000 invested in a stock and it goes down 10%. What gain do you need to get back to $1,000? 10%, right?

Oddly enough – wrong.

The stock value went down to $900. So to get back to $1,000 it will now take an 11% gain on its present diminished value. And it only gets worse the deeper the original loss was. A 20% loss would require a 25% gain, and 50% loss would require a 100% gain, and a 95% loss would require a 1,900% gain.

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Upside down on an investment and want to know exactly how much you need to break even? Go to FraimCPA.com/go and enter "LOSS" for our cost recovery calculator.

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That makes sense if we step back and think about it. But we sometimes forget about the math. And for many, the first time they see it spelled out in cold, hard numbers is an eye-opener.

An investment's price reflects its current value in the market. What we paid for it is irrelevant to the market. The market simply doesn't care. So when investors say "I can't sell it for $____. I paid ___!" it is somewhere between funny and sad. There are times that limiting losses via taking a smaller manageable loss is preferable to digging one's heels in and letting the hit become so big that it takes a 1900% gain just to get even.

(It sort of reminds me of this: I always love it when you see listings on Craigslist in which people say they won't take less than a certain amount because of what they paid for it. "We paid $1,200 for this TV so we will not accept less than $800 for it." The TV is 10 years old and comparable ones are selling for $100. I really don't care what you paid for it, Susan. It's worth what it's worth.)

So when an investment is devalued, it will take a greater gain/appreciation for us to break even. And when the average market rate of return is about 8% per year, it is going to take us a long, long time to make up for that 50% loss. This shows why finance professionals are always so focused on implementing appropriate risk management strategies in an effort to minimize your exposure to losses.

To be fair, ultra-safe investments have their own risks and downsides – as we just discussed in the last chapter. But in all things – balance. Take appropriate, measured risk (or better yet, get a qualified financial advisor to do it for you), but don't throw money around with reckless abandon just hoping you'll hit the jackpot.

# Section 2:  
Marketing & Branding

## Chapter 5:  
Greenspan, Agassi, and How Others See Us

" _I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant"–_ Alan Greenspan

I remember being in a meeting a few years ago when the railroad unveiled their new marketing campaign. When everyone saw the commercial along with a fancy new tagline, people applauded. I looked around the room to see if anyone's facial expression matched my own (puzzled...surprised...jaw hanging open). But all I saw were smiles.

This was the new campaign:

That sounds fine, until you take a little trip down memory lane to 2001:

Now, I want to be very clear: **I am not implying in any way that the railroad engages in any kind of fraudulent activity.** That's not the point. What I am stressing though is that I believe this to have been a very poor marketing choice.

Seriously – how was this not caught? How did the very expensive marketing firm they hired not do any kind of research for slogans with synonyms of "infinite" followed by "possibilities"? I emailed the CEO and from the response I got back, I was the first to identify the similarly. And to be fair, Enron had one of the most famous _accounting_ scandals in history. Maybe its tagline isn't so well-known among non-accountants. But still – someone, somewhere in the approval process should have noticed this.

So what's my point in telling this story?

All of us care about our appearance and the image we are projecting to the world. This applies to our personal lives (our appearance, the way we speak) and most importantly in the context of this discussion – in our business lives. But sometimes we aren't the best judges of our own image and how we appear to others. (Case in point: the balding guy with the comb-over who thinks he's totally pulling it off. Or how about a mother daughter team I saw on the TV show "The Biggest Loser." Both were about 150 pounds overweight and one was a women's health nurse practitioner and the other was a dietician! Do you suppose they had some credibility issues in their work?)

I've worn outfits that I thought looked good, but that did not. ("Wait, you're telling me this fanny pack along with Crocs, fire engine red shorts, a Hawaiian shirt, and white knee socks ISN'T working??") We all have. But if the image our business projects is not what we believe it is, then the consequences can be significant.

Since we have a tendency to view ourselves through a skewed lens, we do well to have independent advisors tell us how we are really doing. What we feel our company stands for may not at all be what is being perceived by the consumer. Find someone who will tell you honestly and objectively how you are doing and what needs to be corrected – a trusted friend, a good customer, your spouse. Better yet, consult an actual marketing expert to advise you. The small of money you will spend is much less than lost sales from a poor image will cost you.

Professional tennis player (and self-marketer extraordinaire) Andre Agassi is famously quoted as saying "image is everything." In the business world image is certainly not "everything." Your expertise, hard work, abilities, and the value you bring to your customers mean more in the long run obviously. But if an "image issue" causes potential customers to turn to your competitors instead of you, then it becomes, if not everything, a big thing. A little polishing up of our images can go a long way toward the success of our business endeavors.

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Want to avoid costly mistakes in your business? Go to FraimCPA.com/go and enter "FAIL" to get your free Entrepreneur Toolkit

============================================

## Chapter 6:  
What Have You Done For Me Lately?

Years ago when I was first starting my business I picked up a client who'd had a series of terrible accountants. How terrible? The first accountant had made some material errors that cost him over $100,000 in tax penalties. The accountant after that seemed better...at least until I looked into prior tax returns. I discovered some errors in that accountant's filings and was able to recover the client over $30,000 by correcting and amending those returns.

The client was ecstatic and I felt pretty darn proud of myself. And, one would assume, I had a client for life.

Fast forward to a year ago (a few years after the $30,000 savings), and I received a notice from the client that he would no longer be using my services and had contracted another CPA. What went wrong? Had I made a huge mistake? Had I not saved him money on his tax returns? Had there been some vital oversight in my work?

No, there was absolutely no issue with the work itself. Instead, the client complained that I had not given them enough customer referrals during our time together. There's a clear fallacy in that reasoning – since my job (well-done I might add) is to keep clients out of tax trouble, run their business profitably, and help them to end up with as low a tax bill as is legitimately possible. I mean, I love to refer business to other professionals and do so whenever I can, but that was not my primary function as his CPA.

OK, that rant aside, that's not what why I bring it up the incident for today's discussion. Instead I wanted to talk about the mistake that I made in that relationship.

Because I was so new in business, I made business strategy error that is common among entrepreneurs starting out: I failed to charge an appropriate amount for the value that my services provide. My goals in not charging him what I should have were valid one in and of themselves. I wanted to:

1. Please the client and build a lasting relationship with him

2. Establish up a good reputation

3. Hopefully get referrals from the client

4. Provide a return that exceeded the price I was charging

There is nothing wrong with any of those objectives. But because of my overzealousness on the 4th point, I grossly (and I mean grossly) undercharged – despite the fact that I had provided tremendous (and by virtue of there being a dollar figure that I saved him, easily **demonstrable** ) value. I had the mistaken view that the savings I had provided my client in the first year would build a relationship that would last forever. I thought the lifetime worth of business that I would enjoy from that client would make up for the very large initial discount.

But just a few years later the quality of service provided and the low price charged were both forgotten. And to be clear, I don't say this as sour grapes. I bring it up because it serves as a valuable lesson. "What have you done for me lately?" is a well-known phrase for a reason. On the surface we all know the flaws with that line of reasoning, but it is basic human nature to think that way to an extent. We all do it – and sadly, so do our customers and clients.

Which is why every entrepreneur needs to charge appropriately for their services.

Every business should provide value to their customers. Every business should give a fair price. Every business should provide equal or greater value than price that was charged. But don't undersell yourself.

My prices are quite reasonable, but the longer I've been in business the more and more I realize that people aren't buying based on price. They're buying based on the value you provide and the benefits they are receiving. And if you are providing that value, you need to charge appropriately.

If nothing else, you never know when people will forget what you've done for them. And that's their right. They don't owe you anything aside from what you charge them. So make sure you're charging enough.

In the next chapter we'll talk about how the simple act of not charging enough can damage the actual number of individual customers you attract, not just the total amount of sales.

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Need helping growing and making more money? Go to FraimCPA.com/go and enter "10X" for some tools to help.

============================================

## Chapter 7:  
Low Price and Diminished Value

So the last chapter talked about the importance of charging appropriately for the services you render. The chapter focused on the common phenomenon of "what have you done for me lately?" and the corresponding need to charge properly (since a client's favor can sometimes be so fleeting).

But there is actually an even more significant danger to having your prices too low. It can actually have a negative effect on the _total number of individual customers_ we have, not just the average sale per customer. How? On the surface that's entirely counterintuitive. Price should function oppose of volume. If we charge less, we'll get more customers...right?

Not always.

For example, imagine there are two attorneys in town. Let's say that they're divorce or trial attorneys – so they're always going to be competing against someone else. One charges $500/hr and the other charges $50/hr. Who gets more clients coming through their door?

The $500 per hour attorney.

Every. Single. Time.

Why in the world would that happen? Because there has to be a reason they're able to command $500/hr. And if the other lawyer is even average, why are they charging so little? The automatic assumption is that there has to be something wrong.

And maybe there is. Or maybe not. Perhaps that $50 lawyer in our example just doesn't have good business sense or proper guidance when it comes to building his practice and pricing his services. But be that as it may, I don't know about you, but there is no scenario where I'm hiring the $50/hr person. Especially if I'm going to trial and the person I'm up against has the $500/hr behemoth by their side. At least based on the prices, most of us will assume that guy/girl to be 10x better and more qualified than our poor, starving attorney.

And who of us would be keen on a doctor whose ad said "Cheapest surgeon in town! Cut rate cardiac bypasses!"?

Sometimes this reflects the reality and sometimes it does not. But the market is generally efficient. And the price you charge is supposed to be reflective of the value you are providing.

Obviously, balance is needed. We cannot overcharge for our services. The market will not bear that either of course. But if we price ourselves too low, we're not just losing money from our current clients/customers base, we might actually be losing out on the business of new ones.

============================================

Ready to take your business to the next level? Go to FraimCPA.com/go and enter "SCALEITUP" to get your free Entrepreneur Toolkit

============================================

## Chapter 8:  
What Sort of Customers Are You Attracting?

" _He was a tycoon, then a cheapskate_

Went out looking for a keepsake

To tuck into his suitcase on Viceroy's Row

He had a satchel full of cash

And dishes full of ashes

He went from boom to bust

In the blinking of a lash"

– "Viceroy's Row", Elvis Costello & The Roots

So the last two chapters have focused on price and the need to charge appropriately for your product/service. The first one talked about how customers can sometimes be fickle _("What have you done for me lately?")_ , making it prudent to always charge properly. The last one went over how charging too little can diminish perceived value and can reduce the total number of customers you get (not just the average revenue per customer).

There is at least one other aspect that is worth discussing: the type of customers you are attracting. And I don't mean blue-collar vs. white collar, rich vs. poor, etc. Rather, I'm talking about their mindset and how they view you.

I started noticing a trend a few years ago. I talked to a number of business owners and they all said the same thing: the people who pay you the least want the most. Customers who get charged very little end up being the most demanding and often seem to be impossible to please.

Again, this is counterintuitive. The biggest clients (who need a lot of services and pay significantly more than the average customer) are by far most frequently the least demanding and are the most reasonable. Now of course, since they are good customers we do everything we can to give them the best service possible, go above and beyond, etc. But ultimately, they are the ones who most value the service that is given to them. They are pleased with the work done or the product sold and recognize its worth and your efforts. And they are happy to pay appropriately.

The reverse side of that coin is the person who works hard to pay you as little as possible while showing little appreciation for what you do for them. I'll use my business (a service business rather than a product one) as a for instance. Picture an imaginary/hypothetical client of mine who pays for $100 of my time or services and then ends up being impossible to please. They call all the time with questions, there is always some issue they've having – but they never want to pay. They think that $100 gives them unfettered access for the rest of the year for free.

And this is hardly an isolated phenomenon. The person who wants to pay $500 for a website is somehow much more demanding than the person who is paying $10,000. The guy buying a $1,000 Yugo expects, against all logic, a lot more than the guy buying the $40,000 Lexus. You name the product/service, it is a long-noted phenomenon in business that the people who pay or buy the least also tend to appreciate you the least – and expect you to cater to them the most.

Why? Because they ultimately don't value you. And they tell you that by just how little they're willing to pay you. The customers who value your expertise, value your time, and know your worth show it – every time they write you a check.

Talk is cheap. The truest expression of love (in business, not life!) is the degree to which a customer is willing to utilize your services or product to the degree that is accurately appropriate for them (not trying to get by with the bare-bones amount) and is willing and ready to pay you.

Thankfully there is an easy way to fix the problem: YOU must properly value yourself. Charge what you're worth, and all of these issues resolve themselves. The ungrateful bunch go away because they don't value you enough to pay appropriately. And you keep the wonderful, pleasant, fantastic customers who understand that value you bring to them. And you attract more just like them – people who want to pay for quality.

As Michael Scott would say "win-win-win". You'll ensure that you make the money you deserve. You'll actually have more of the type of customers you want coming through the door. And you will in turn value them, and be happy to work hard for them. Those customers are the ones that make your life in business pleasure-filled rather than pressure-filled.

Does it get much better than that?

============================================

It's not just what you make, it's what you keep. Go to FraimCPA.com/go and enter "SAVE" for some tools to give you a hand.

============================================

## Chapter 9:  
Willful Ignorance: The Pitfall of Purchasing Double Standards

" _Everyone loves a witch hunt as long as it's someone else's witch being hunted."_

― Walter Kirn

Every single one of us is guilty of some kind of hypocrisy. Try as we might to avoid double standards, we will all have some. After all, we're only human.

But the double standards that fascinate me are the ones that involve some degree of _willful_ ignorance. The situations where there is a serious lack of logic involved. Or at the very least a woeful lack of self-awareness. The times where the mental gymnastics required are so dizzying it gives the observer vertigo.

As an example, I knew a guy who would always make a point of ragging on other people's appearances. "Boy, you sure have gotten fat", "Wow have you gotten old", "Look at all those wrinkles on your face!" However, if he was ever confronted, he would say that he was just joking or teasing and that people shouldn't take life so seriously.

However, if someone happened to note that he was going bald, he would take **serious** offense. He would get super defensive, talk about how unkind it was to say that, how a person should never be so mean, etc.

Give me a break.

We can't have it both ways. We can't be jerks to people and at the same time be thin skinned. However we act, we need to be prepared for others to act the same way towards us. And whatever standard we are holding others to, we need to be prepared to be held to that exact same standard.

So how can we apply this to our businesses? What are some situations where we could be fooling ourselves and be the brusque yet thin-skinned bald guy as it were?

There are countless examples, but the one I see more than anything else is a disconnect between how business owners expect customers to purchase and the business owners' own purchasing patterns.

If you talk to small business owners and ask what differentiates their business, usually the first or second thing on that list will be quality. They will talk about how much better their product or service is from their competitors. Most will say that they are better than everyone else. And they expect for their customers to pay accordingly.

Very, very few will say that price is the core item that sets them apart. And yet...

When it comes to that same small business owner making their purchasing decisions, they start to sing a different tune. I cannot count the number of times I have seen those same people making requests for "cheap", "affordable", or "inexpensive" company for fill-in-the-blank service. I've been seeing more and more requests looking for services who are "reasonable", which seems to have become a new euphemism for cheap from people who do not want to sound cheap.

When considering some needed service, the first question they pop out with is "What does it cost?" Or they recount the tale of how they bargained a price down, hammered someone into a big discount, or shopped until they found the cheapest way to get something done.

(Odds are they ended up getting a poor product or not much service with that approach, but that's a discussion for another day.)

We just can't have it both ways. Live by the sword, die by the sword. We need to expect the same behavior from customers that we are exhibiting. If we are not willing to invest in quality over price, how dare we expect our customers to do so when it comes to our businesses?

============================================

Want to avoid costly mistakes in your business? Go to FraimCPA.com/go and enter "FAIL" to get your free Entrepreneur Toolkit

============================================

## Chapter 10:  
No One Cares About You or Your Mission

" _To love his maker, for he was SELF-MADE!_

Self-made, self-trained, self-willed, self-satisfied,

He was himself, his daily boast and pride."

– "Two Millions" by William Allen Butler

Last year I went to a conference at which most of the speakers were fairly big-time authors, coaches, and online marketers. In practice, those speakers are people who are selling their own brand and celebrity. Jack Canfield, Grant Cardone, Tai Lopez, and a fair number of other well-known names in the space were there.

Because of this, the audience was largely skewed towards people who were trying to do the same thing: sell online products and create their own brand. There is nothing wrong with that. Plenty of people do it and there are some who are quite successful at it.

But I don't think people realize how difficult it is or understand _why_ those big names are successful. After the conference I got a lot of requests on social media from other attendees. And based on what they were doing in their marketing it was clear that they didn't understand the process either.

All they did was talk about themselves – all day long, every single day. My inbox and feed were flooded with never-ending posts about who they were, what they did, and how amazing they were.

And to be fair – the top dogs will talk about themselves a lot too. It is easy to see what the wannabes were _attempting_ to emulate – albeit unsuccessfully.

What those attendees failed to realize is that those celebrities are successful because they have perfected a very difficult skill: to talk about THEMSELVES but make you think of YOURSELF. True – they talk about their success and accomplishments, but _only_ in a way that makes you think you could do the same thing. They project their stories of success onto you. They make you think that you can be just as successful as they are, but only if you buy their books and training courses (of course).

But in their imitation, those attendees missed that all-important second part of the equation. What were intended as business building activities ended up looking like exercises in vanity. Instead of coming across as marketing gurus, they better resembled duck-faced* teenage girls on Instagram.

You'll see the same thing in advertising and all over your Facebook feed. People talking incessantly about their company's mission, their passion, and why they're so great.

And again, I think we all understand the _intent_. But let's be very clear and frankly blunt: nobody cares about you, your mission, or your passion. Nobody. They may nod politely, but ultimately your customers only care about themselves and what you can do _for them._

And yet a disproportionate amount of marketing and conversations seem to focus on the seller rather than the buyer.

As business owners and businesspeople, if we are doing that then we should flip the script. Talk about the buyer. Talk about what they need. And let them know how we can help. Not only will it be more effective but we'll also be a lot more pleasant to be around.

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Need help growing and making more money? Go to FraimCPA.com/go and enter "10X" for some tools to help.

============================================

## Chapter 11:  
"Pestering" Prospective Customers

" _I call it push and pester, or grab and clutch...a guy who has less athletic ability can still block someone. There are some big people that are athletic that are good... But there are guys that aren't athletic that... are playing."_ – Pat Morris, agent for over 100 professional hockey players.

In business, when are we being properly proactive regarding prospective clients, and when are we being pests?

A few weeks ago I posted an ad on Craigslist to get some simple work done at my house. When I do this I like to wait a few days to see what sort of email responses I get – to determine which seem like someone I'd want doing work for me. So I typically don't email or call anyone back immediately. Usually people just respond to my ad once or perhaps send a follow-up a week or two later.

"Steve" was no such man.

• 1 hour after ad posted: "Call Steve XXX-XXXX"

• 1 ½ hours after ad posted: "Call Steve. Licensed and insured"

• 3 ½ hours after ad posted: "I'd like to look at your job this afternoon if you haven't found your man."

• 7 ½ hours after ad posted: "Still haven't heard from you. Call if you're still looking. I could probably do it tomorrow."

• Following morning: "You must not really be looking to have work done. Why do you even have an ad up?"

At this point I pictured Steve _stalking me and kidnapping my cat_ , so I marked the emails (through Craigslist's relay system) as spam to avoid my inbox being flooded with messages. And I **immediately** regretted it. Not because I was going to hire Steve, but because I had a strange and morbid curiosity as to how many more times would this guy email me? What were the limits of his irritation at not having someone immediately respond to his online message? Because of my hasty email flagging, I'll never get to find out.

To an extent I certainly respect his moxie. People often complain about not having work but are unwilling to go after it – and this person was **definitely** going after it. That on its own is admirable. But his approach was clearly not a winning one.

Of course, berating a potential customer is inadvisable. Even with clients with whom you have good and established relationships, any criticism or critique has to be handled delicately. Doing it the very start of your first interaction? There is no way that ends well. But this did get me thinking about the customer acquisition (sales) process of small business people.

Many business owners or those in the position to pursue new customer relationships tend to go the other end of the spectrum from "Steve." We feel that we don't want to bug people, we don't want to be that pesky, pushy salesperson.

However, we have to follow-up with prospects to turn them into paying customers. Different studies vary on the number, but you often hear somewhere between 7-15 "touches" (touches are phone calls, emails, letters, etc.) to convert a prospect to a customer. This can be a somewhat uncomfortable process for those of us who are not natural salespeople (or who like some professionals feel that sales are somehow "beneath them"). You can feel like you're pestering the person. But without some degree of sales follow-through a business will likely fail.

But it is an art – both in terms of tenor of the conversation and frequency. If you call once every year in a nonchalant manner, then you're going to be hard-pressed to gain any traction. If you call every day with a lot of intensity, you probably seem some mix of desperate and crazy. Five times in less than a 24 hour period? You come across as a little unhinged and I don't particularly want you knowing where I live. (I'm talking about you, Steve!)

Most of us err on the side of not harassing prospects enough. It can feel uncomfortable and obviously it's easier to just wait for people to come to us. But that doesn't always work.

What I always tell clients is this: be shameless, but do it with dignity. Don't allow the fear of a slightly uncomfortable interaction to stop you from pursuing a lead. Worst case, they decide to tell you they're not interested anymore and not to keep checking with them. Who cares? They probably weren't going to become customers anyway. But you also need to make sure to do it in a dignified manner, and thus have the parting be a cordial one so that your self-respect and professional reputation are intact. Going overboard can make you seem frantic for business – and no customer likes that.

============================================

Ready to take your business to the next level? Go to FraimCPA.com/go and enter "SCALEITUP" to get your free Entrepreneur Toolkit

============================================

# Section 3:  
Valuable Miscellany

## Chapter 12:  
Obstacles or Excuses?

" _I have tried to lift France out of the mud. But she will return to her errors and vomitings. I cannot prevent the French from being French."_ – Charles de Gaulle

Most of the people who walk into my office **work**. And work very hard. They put in long hours, come up with innovative solutions, and do everything they can to make sure their business or project succeeds.

_Most_ – not all.

There are some folks who come back every year to get their taxes done (or I'll bump into them around town) and all they tell me are excuses. There is always _some_ reason why their project has stalled. They couldn't find the right ____ consultant for the next phase of the plan. Family responsibilities got in the way. Money was tight. They got sick. _Something_ always just magically seems to get in the way.

All of these are things that in the short-term can of course be legitimate reasons for delays. But when they **keep** happening, the underlying reason becomes very apparent: the person does not have the motivation to really put in the work.

It reminds me of Chinua Achebe's _Things Fall Apart_. The protagonist Okonkwo (for whatever faults and shortcomings he had) worked exceedingly hard and enjoyed the fruits of that labor. His father, Unoka, however was a different story.

These two paragraphs have stuck with me more than any other part of the book through the years. Unoka went to the local priestess to plead his case:

" _Unoka stood before her and began his story. "Every year," he said sadly, "before I put any crop in the earth, I sacrifice a cock to Ani, the owner of all land. It is the law of our fathers. I also kill a cock at the shrine of Ifejioku, the god of yams. I clear the bush and set fire to it when it is dry. I sow the yams when the first rain has fallen, and stake them when the young tendrils appear. I weed–"_

" _Hold your peace!" screamed the priestess, her voice terrible as it echoed through the dark void. "You have offended neither the gods nor your fathers. And when a man is at peace with his gods and his ancestors,_ _his harvest will be good or bad according to the strength of his arm._ _You, Unoka, are known in all the clan for the weakness of your machete and your hoe. When your neighbors go out with their ax to cut down virgin forests, you sow your yams on exhausted farms that take no labor to clear._ _They cross seven rivers to make their farms; you stay at home and offer sacrifices to reluctant soil. Go home and work like a man."_

Sometimes it is just that simple. I've seen people succeed with ideas that sounded **way-less-than-ideal** on paper. But with hard work and ingenuity they succeeded. And they overcame significant hurdles to do so. They had to "cross seven rivers" and "cut down virgin forests" so that their plan would work.

And the other people "stay at home and offer sacrifices to reluctant soil."

It's entirely up to us which group we fall into. We shouldn't delude ourselves by blaming external factors for our lack of success.

============================================

It's not just what you make, it's what you keep. Go to FraimCPA.com/go and enter "SAVE" for some tools to give you a hand.

============================================

## Chapter 13:  
We Aren't Special

"' _Normal' is the cruelest of all insults"_

― Mike Snelle

That quote embodies the perspective that most of us have. No one wants to be typical. No one wants to be a simple cog in the machine. No one wants to be a faceless blob indistinguishable from the masses. All of us want to be unique.

There's a reason there is one almost cliché hero archetype in movies or books that is so successful. We've all seen this plot device used many times: the _seemingly_ ordinary guy/girl who begins to exhibit extraordinary abilities when push comes to shove. The everyday Joe/Jane who rises to the occasion and shows just how awesome they really are (as they defeat the bad guys, come off the bench to score the touchdown, foil the plot, beat up the bully, or win the girl/guy). It gives all of us hope that we too are special (or at least can be in the future) even if the evidence to date points to the contrary.

The problem is that probabilities are against us. In order to be markedly unusual, abnormal or extraordinary, a deviation from the usual/normal/ordinary is required. And statistically, it's just impossible for 95% of us to be truly unique.

And that's not an insult as the quote above suggests. It's math. All of us can accomplish great things and be wonderful people. And sure – of course we will still have our talents, propensities, and other unique traits. In all likelihood it just won't be while we are NFL quarterbacks, rock stars, superhero-level fighters, or some other variety of savant.

Not realizing this (or coping with it properly when we come to this realization) can cause several issues. In a widely circulated video, Simon Sinek talks about how depressed and disillusioned Millennials (those roughly in their early 20s to early 30s) are becoming once they enter the workforce and see they are not special.

(Perhaps this has more than a little to do with the constant "positive reinforcement" that has become the norm in recent decades and the "everybody gets a trophy" mindset and practice that has been adopted?)

Thinking we are amazing has the potential for us to become pompous pains in the rear as well. After all, who wants to be around someone who is in love with themselves?

It also prevents some people from starting a journey toward truly outstanding success because the initial steps are menial and monotonous. It's more pleasant to think that it will happen automatically because one is so very gifted than to acknowledge the amount of "blood, toil, tears, and sweat" that success will actually require.

I knew a guy who was always posting on social media about new projects he was starting. I can't even remember the entire list, but supposedly all of these things were occurring nearly simultaneously. And they were presented – not as dreams for the future – but pretty much as if each one was a _fait accompli_. It was in the bag. He said it is was happening, he was "special and extraordinary", so of course he was going to be successful. Here are all the things he "did":

• Comic book writer

• Fashion line designer

• Model

• Graphic designer

• Marketing consultant

• Web designer

• Photographer

• Professional dancer

Now, never mind the fact that you can't work on that many things and be particularly great at any of them. Let's take that out of the equation for a second. What steps did this comic book writing, dancing, graphic designing fashion mogul take? Did he get an internship at a web design firm? Did he shadow experienced photographers? Take dance classes?

You can guess the answer. He never did anything. He always talked about doing all of these things. But aside from a couple of random gigs from friends, he didn't actually do anything.

Because he was special.

And it wasn't that he was incapable of doing any of those things – and possibly at a high level I suppose. It was just that the path to getting to a high level would have to have been paved with tasks that were "beneath him."

Most all of us are normal. And that's okay. Being average actually allows us to develop character traits and work habits that we might not ever build if we were just naturally gifted or supremely talented. We can actually be better people and accomplish a lot more as a result of having to fight, scratch, and work for what we want.

But we just have to be real about it. We should never let self-deception or delusions of grandeur stop us from taking the steps to become successful.

The next chapter will talk about the opposite end of the spectrum: how we can fall prey to thinking that our challenges or negative circumstances are unique and how this can be a major hindrance to our success.

============================================

Want to avoid costly mistakes in your business? Go to FraimCPA.com/go and enter "FAIL" to get your free Entrepreneur Toolkit

============================================

## Chapter 14:  
Our Struggles Aren't Special

" _Gloom, despair, and agony on me_

Deep, dark depression, excessive misery

If it weren't for bad luck, I'd have no luck at all

_Gloom, despair, and agony on me" –_ From the TV Show "Hee-Haw"

In the last chapter we talked about how viewing our gifts and abilities as inordinately spectacular can be damaging. We noted that it's not that we cannot achieve success while being "average," but that we simply need to understand that success will more likely be achieved because of "above average" hard efforts and dedication rather than unusual innate talents. If we think too highly of ourselves, we might shirk the grunt work that would eventually lead to our success.

So today let's talk about the opposite danger which can be just as insidious: viewing our struggles and deficits as particularly unique. We just said that thinking too much of ourselves can be a stumbling block – shouldn't a healthy dose of humility and reality be just the fix?

_Sometimes_ , but we can always have too much of a good thing. When could this start to become a problem for us?

In the same way that we all know a braggart who is oh-so-quick to tell us all about their successes, we also probably all know someone who seems to be constantly complaining and talking about their struggles:

• Work stresses

• Family responsibilities

• Health problems

• Coping with depression and anxiety

• Exhaustion and fatigue

• Finding balance in life

• Etc., etc., etc.

OK, those are real things. And as we scan that list, some of them probably hit pretty close to home. But realistically, _none of those are even remotely unique_. I can almost guarantee you that everyone reading this is going through a minimum of half of that list right now – in addition to other problems that could be (and likely are) even more difficult. They might not manifest in exactly the same way and each person might deal with them differently, but we are all coping with something. Life is hard for all of us. There isn't much getting around it.

Look, we're not talking about true major league problems in the above categories – very serious illnesses, family tragedies, severe clinical depression, and so forth. That's a different ball game.

Rather what is being considered here are the challenges and obstacles that we all deal with. Not that these too aren't difficult. But the point is that these problems are not unique, and that we ourselves have not been plagued with a lot in life that is markedly different than what virtually everyone deals with.

So what happens when we fail to realize this and start to think that we are struggling in a way that no one else can comprehend?

There are some _general_ dangers. We can become:

• Pretty tedious to be around. No one wants to be around a Negative Nelly who is always complaining.

• Self-absorbed. This often happens inadvertently, but it's only natural. If we focus unduly on ourselves – even if it is just on our own problems – we stop thinking about other people.

• Unsuccessful people in general – be it personally, professionally, or whatever. To some degree perception is reality. The more we focus on bad things the worse our life feels (and is to us).

OK, let's be honest and acknowledge that many other people have worse than us in at least one area of life. So just look what can happen if we don't correct our own self-pity. If we perpetually complain about our problems then we could make some pretty tone deaf and insensitive comments to others – even unintentionally. If we are overly focused on ourselves then it can be hard to take a step back and realize that the person we are talking to is going through the very thing we are whingeing* and moaning about – except much worse.

" _I'm struggling like you wouldn't believe. I've gained 20 lbs., have a receding hairline, didn't get a bonus at work, and my 100 year old great-grandma has been a little sick lately"_...he said to the man who is 200 lbs. overweight, just started chemo treatments, lost his job, and whose mother died the week before.

None of us want to be like that. Being overly negative about our lives and circumstances can make us just as obnoxious as someone who brags and boasts.

Alright, so those are some ways we could be annoying in our life in general, but this is a business book – not a self-help book. How could this mindset hurt our business?

As always, there are many examples (with the most obvious being that you just don't get out of bed because it feels like the world is crumbling around you). But the one that I see the most, and that is less obvious, is that negativity and self-pity can make us inflexible.

How?

The more unique we think our business's situation is (even in a negative sense), the less likely we are to think that anyone else can understand it. So why would we take anyone else's advice? Why would we make any adjustments? Other people do not (and simply cannot) understand our "one-of-a-kind situation" and supremely unusual business problems. We convince ourselves that what we are doing in the business is already the best course of action. It just so happens that our situation is without any possible solution.

Yeah...sure.

But that is what happens. The "walls of self-absorption" go up and good advice goes in one ear and out the other. And the issues within the business continue – which is frustrating to think about when quite possibly very easy fixes were available and being provided.

We do ourselves and our businesses a favor when we ditch that mindset. Realize that we are neither so brilliant nor so downtrodden that others cannot relate to us. Keep our eyes and ears open, carefully consider all of the advice given to us, and make adjustments when sensible.

*Whinge: A British English informal word meaning "to complain in an annoying way about something unimportant." There, I just gave you a new word. That's a good thing. So be happy! Stop whingeing!

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Need help growing and making more money? Go to FraimCPA.com/go and enter "10X" for some tools to help.

============================================

## Chapter 15:  
Relationship Dynamics: Employers vs. Customers

" _Take this job and shove it_

I ain't working here no more

My woman done left and took all the reasons

I was working for

You better not try to stand in my way

' _Cause I'm walkin' out the door_

Take this job and shove it

I ain't working here no more"

– "Take This Job an' Shove It" – Johnny Paycheck

A while back a client – a business owner – came in because they had lost one of their main customers to a merger. We sat down to do some tax planning, budgeting, and most importantly to discuss how to make up for the lost revenue. During the discussion, they mentioned eventually looking for jobs as a very last resort. I completely understood the sentiment.

We started talking about working for someone else and we'd both had fairly similar employment experiences: while we get along great with our clients, we did not seem to have particularly successful relationships with bosses.

But why the difference between employer/manager and client satisfaction? Aren't they essentially the same thing? Both pay you money and your livelihood is (to some extent at least) dependent on them.

How is it I have hundreds of clients and we all get along quite swimmingly...but I was unable to have productive relationships with half a dozen old bosses/managers? (People seem to really like me compared to other accountants – although I suppose that is an admittedly low bar. It's sort of a "you don't sweat much for a fat guy" scale of likeability. Ha!)

So what _is_ the difference?

On the surface the relationships do appear to be the same. But if we dig into some key factors the differences become more and more apparent:

1. Choice

2. Control

3. Value

4. Equality

5. Difficulty in Termination of Relationship

6. Respect

_Note:_ _this is not a manual for good business practices/employee relations._ _Employees are oftentimes a company's greatest asset and should be treated as such. This chapter is more of an examination of the dynamics of the relationship and why, in many situations, it seems employees are not treated the way they should be._

### Choice

Let's start with choice. Theoretically, yes both the employer and employee have a choice in whether or not to work together – there isn't any forced servitude involved. But we all know it is not that simple. The employee's livelihood is tied to their job. It could very well be that they cannot find another job that pays as well, has a workable schedule, is in their geographic region, etc. So even if they are unhappy with their job, for practical purposes they can be trapped.

Contrast to a customer choosing to pay you for you services or product. They have the choice as to whether or not to work with you and you have that same choice. And even though every client is valuable, they are not so valuable that you are wholly dependent on them.

That distinction of true choice makes a significant difference and manifests itself in the others factors to be discussed.

### Control

Employers are hiring full-time employees, you know – full-time. The vast majority of the employee's productive hours have been "bought" by the employer. So understandably (and often, justifiably), the employer wants control and oversight over what the employee does and when/how they do it. But if not handled properly by both sides, this can become a tedious interaction.

On the other hand, customers expect much less control over vendors they work with. They want something accomplished. They want it done to a certain standard, by a certain deadline, and have other requirements along that same vein. But the need for oversight is significantly less – which is usually more enjoyable for both sides.

### Value

As mentioned already, an employer is hiring you for the majority of your time and providing the lion's share of your income. There are certain rights and expectations that come with that.

Customers provide finite value to you and expect finite value in return.

The difference in money provided (and more importantly than dollar figure the **percentage** of your time that is being purchased) drastically changes perception on both sides. An employer is buying 90% of your productive time throughout the year. The average client is buying far less than 1%. That makes a difference.

### Equality

This one is pretty basic: an employee is on anything but equal ground with their employer. The employer holds most of the cards in the relationship. Employees are always free to leave, but unless it is a rare situation where the employer needs the employee more than the other way around, the power dynamic is slanted heavily in the employer's favor.

Again, let's contrast that to the average customer relationship. There is nothing more important to a business than customers. **Nothing**. But each individual customer, taken in isolation, provides fixed value. Both sides know this, and tend to treat each other much more like equals than superior and subordinate.

_Another note/disclosure:_ _you can take that idea much too far, become ungrateful to all of your customers, subsequently lose all of them, and be in the same place as if a boss tells you "you're fired". The necessity of customers cannot be overstated. But again – this is a discussion of the differences between these two sets of relationships. It is not meant to be a suggestion on how to maintain customer satisfaction. That is a totally separate topic for another chapter._

### Difficulty in Termination of Relationship

Employers can feel trapped as well. Even if they are not completely enamored with an employee's performance, the idea of replacing them can be daunting. They have to fire the employee (which is never pleasant and is sometimes brutal), post a job listing somewhere, interview, train a new person, cover the terminated employee's responsibilities until someone else is found...and there is still no guarantee the new person will be any better.

It is much easier to tell a vendor you no longer need their services (or simply not hire them for the next job/order). You can hire a new cleaning company tomorrow after getting rid of your old one. Getting rid of your secretary is a much more laborious and unpleasant affair. An employee may not be the ideal person for the job, but may not be bad enough to warrant termination. This invariably leads to frustration for both sides.

### Respect

Respect is listed as the 6th factor, but it could really be categorized as the culmination of the other five items discussed. Repeatedly, the dynamics of the employee/employer relationship result in a certain lack of (or at least reduction in) respect. Employers know that:

1. Many employees have no choice but to continue working for them

2. They control how and what their employees do and when they do it

3. They provide most of their employees' income

4. They have the upper-hand in nearly every interaction

5. It is difficult and time consuming to fire an employee, so they may need to tolerate an employee – which can lead to resentment

Employers come to believe that they "own" their employees to an extent. Conversely, they are only "renting" time from their vendors. And those vendors have much more power:

1. While most businesses would love more customers, they do not need every single one. And many will happily turn down the "wrong" customers

2. Vendors perform a task or provide a product to a customer but choose how they do it and have much more control over the process

3. The amount of income provided is limited

4. Both sides are on _almost_ equal footing, assuming the business is financially sound and not desperate for income

5. The relationship is potentially temporary and it is relatively painless to terminate one vendor and hire another

This results in a relationship that exhibits much more respect and is more pleasant for everyone involved. And is among the many reasons why most of us who are self-employed could never go back.

============================================

Ready to take your business to the next level? Go to FraimCPA.com/go and enter "SCALEITUP" to get your free Entrepreneur Toolkit

============================================

## Chapter 16:  
Why I Fire Clients

" _Hit the road Jack and don't you come back no more, no more, no more, no more_

_Hit the road Jack and don't you come back no more."_ – Ray Charles

We just talked about how much better customer/vendor relationships are than employer/employee relationships.

But I fire clients.

Not with great frequency, and not on a whim. But I do fire them – and more often than you might think. More than conventional business "wisdom" would dictate.

Whenever I say that, people will always look at me surprised and in a bit of disbelief. About half will even ask me if I'm joking (I'm not). This process has become so second nature to me that I don't agonize about it, or spend a lot of time analyzing it anymore when it becomes necessary. But those shocked reactions by others make me realize what a deviation this is from the norm.

So why do it? Customers are what keep a business afloat, right? As business owners we expend significant amounts of time and money acquiring them in the first place. Customer acquisition and retention are critically important parts of having a successful business. So long as people are willing to pay, why on earth would you ever terminate the relationship?

A year or two back a business partner of mine started working with a very high-end business consultant. The consultant provided a lot of advice, but his main mantra (or at least the one that stuck with me the most) was a more colorful/expletive filled version of this key thought: "NO JERKS."

No jerks. Period. It does not matter how big a client they are or how much they pay you, they will cost you in the end. Cost you your time, your energy, and your sanity. And ultimately all of that costs you money. It does not matter how much money they are giving you, they will cost you more. Every. Single. Time.

Implementing that policy was an absolute game changer. And was one of the most liberating things I've ever done. In our office, we don't complain about clients we don't like because we don't have clients we don't like. At least not for long. I don't mean that if there is a minor disagreement or occasional tense moment in a business relationship that someone instantly receives the "J" label. But if a person is disrespectful or abusive to my staff, rude, insulting, demanding, or dismissive of our value and service...yeah, gone.

My mom always drummed this thought into my head: "When people show you what they are, believe them." If they show you they are jerks, believe it and cut them loose. And when I had my office in the same building as my dad's business he fired a prospective client for me. Before I even met the guy. The man arrived 20 minutes early for his appointment while I was still in a meeting with other people, and within 5 minutes started complaining that he was having to wait. He became rude and obnoxious. Dad gave him the boot. So...shout out to the parents.

(Side note: if you've never fired a Jerk Client, it is an absolute pleasure. People have lived in the world of "the customer is always right" and "I'd like to speak to your manager" getting them whatever they want. Telling them you refuse to work with them anymore absolutely blows their minds.)

Interestingly, despite semi-routinely having to tell a client that things just aren't working out and that they need to go find help elsewhere (we fired a dozen or so this past tax season), my firm's revenues continue to rise. Because we are only dealing with people whom we like and who like us (and respect our time and processes). This builds us up, motivates us (we love the clients we have so we want to do anything possible to help them), and energizes us. And that allows us to handle their needs and the needs of our other clients.

And I should explain: When we dismiss clients, we don't insult them. We don't say "Hey you jerk-face, get your jerk butt up out of my chair and walk your jerk legs out of the door! Oh, and did I mention that you are a jerk?" We approach it professionally, but firmly. If they (in their amazement over not having their poor behavior validated) want to argue about why they are being terminated, we calmly tell them the reasons. It's not a name-calling contest. But most importantly, it's not a negotiation.

============================================

It's not just what you make, it's what you keep. Go to FraimCPA.com/go and enter "SAVE" for some tools to give you a hand.

============================================

It was noted above that great customers – the ones we love and enjoy – inspire us to work harder and do whatever we can to help them succeed. The jerk clients have the exact opposite effect. They sap you of your energy and drain your motivation to accomplish other things. This cannot be emphasized enough: no matter how much they pay you, they will cost you more in the end.

So get rid of them. Life is too short to deal with people who are nasty and do not respect us. It will make your work life much more pleasant. And ultimately, you will actually make more money without them.

So, to paraphrase Ray Charles: "Hit the road, jerk. And don't you come back no more."

## Chapter 17:  
Fortune Teller Business Planning

" _I've gone into hundreds of [fortune-teller's parlors], and have been told thousands of things, but nobody ever told me I was a policewoman getting ready to arrest her." –_ NYC detective

Small business owners are some of my favorite people. I talk with them every day and they can be truly inspiring. Most of them are incredibly determined, work longer hours than any employee, and just love what they do.

They can also at times be the most **maddening** people to work with.

One of the things that draws a lot of us to being entrepreneurs is not having to answer to a boss. We get to call the shots. We are the masters of our own destinies. It is one of the biggest perks of the job. And it can be one of the biggest pitfalls.

Eventually, we can start to develop a less than ideal, sometimes dangerous mindset: we start to view our own **intuition** and opinion as being actual **research and planning.**

And to an extent that's understandable – you have to trust your gut. Every small business owner I know has some degree of ego...and that's almost by necessity. You can't run a business if you get struck with "paralysis by analysis" and second-guess every decision that has to be made.

But taken too far that mindset can have disastrous consequences.

I work with many, many business owners – and a lot of times we're meeting when they're starting a new business or making changes to an existing venture. In most of those meetings I will spot some potential issues, roadblocks, or even missed opportunities with the situation. Not things that can't be fixed, but things that, if not corrected, could create real problems for the business and jeopardize its success. That's what I'm in business to provide my clients. Most people listen and want the suggestions (they're paying for my time, after all) and we adjust and plan accordingly.

The meetings (and thankfully there haven't been too many of them) that I've found to be the most oddly fascinating were the ones when business owner just ignored everything I said– including hard calculations. I've had people come in with business ideas where the numbers just **were not going to work.** Fixed costs were going to be too high, margins too low, unrealistic sales volume necessary to be successful, etc. There would be serious issues that became obvious within the first 10 minutes of conversation, and were easily demonstrated with some quick projections.

And in these strange meetings, none of those people would listen. Why? Because they had solutions to the issues I saw? My calculations were wrong? They had some facts to disprove what I was telling them?

No, _they just "felt" like it was going to be successful._ They, in essence, fancied themselves legitimate prognosticators – real-life business fortune tellers. And they were willing to trust their feelings over the cold, hard facts. Sadly, most of those businesses have barely been able to generate a profit or have failed outright. And equally sadly, had they listened to what was being noted and suggested, they might have been able to make a go of it in the business (or in some cases, at least saved themselves what they ended up losing.)

Instinct is important. And having a vision (not a "vision"!) – about your business venture's future is actually a good thing. But this is not a substitute for true expertise in an area or hard planning and projections. None of us are experts at everything – we have no reason to be. That's why we all need to get professionals to help us for major projects. Or even just to consult and look at things periodically with a fresh set of eyes (that also have a different perspective than ours have).

This year I've paid an attorney, a marketing expert, information technology people, a sales consultant, an architect, an engineer, an insurance specialist, and a slew of other people for their advice and expertise. No one likes spending money – I'm one of the cheapest people I know and hate parting with the money as much as anyone. But trying to "save" money by doing things on our own can end up resulting in some of the most expensive mistakes we ever make.

We have to trust ourselves, but also seek out and accept outside help when it's needed. Otherwise we might be staring into a crystal ball and not noticing the handcuffs getting put over our wrists.

============================================

Want to avoid costly mistakes in your business? Go to FraimCPA.com/go and enter "FAIL" to get your free Entrepreneur Toolkit

============================================

## Chapter 18:  
Coach or Rent-A-Friend?

Leslie: "No Ann, please. I beg of you. Will you just shut your beautiful pie-hole? Just sit there, let me stare at you while you silently support me on this game plan."

Ann: "Leslie..."

Leslie: "Shh, Ann! Your quiet support means the world to me, as well as your tacit endorsement of all my behaviors."

– From an episode of the TV show _Parks and Recreation_

Over the past decade or so there has been a huge influx of professional coaches. They provide advice on every single aspect of life imaginable: business, health, lifestyle, organization, etc. You name it and there is a coach for it.

At their best they can be some of the best resources available – especially to a business owner. They bring in true expertise, set goals, provide accountability, and can use their knowledge to make adjustments in a business.

That is of course assuming they actually have expertise. But as my friend (and sales coach extraordinaire!) Mike Garrison often says, many of them end up being a "Rent-A-Friend". They'll be there for you, tell you you're amazing, and assure you that you can accomplish anything you want...but rarely _really_ say anything of substance.

Their advice mostly ends up being generic and general purpose "guidance." It is done to make you feel good about yourself, but little more. And when any advice is provided, it is notably vague. These coaches can never be accused of having given bad or wrong advice...because what they said is so open to interpretation that you are actually the one determining what they meant.

It reminds me of the "Noh smile" mentioned in the book _Memoirs of a Geisha_. The protagonist – the geisha Sayuri – was entertaining one of her patrons. The man mentioned visiting a small fishing down called Yoroido, which was Sayuri's hometown. This conversation followed:

" _Yoroido?" he said." You can't mean it."_

_I long ago developed a very practiced smile,_ _which I call my "Noh smile" because it resembles the Noh mask whose features are frozen. Its advantage is that men can interpret it however they want;_ _you can imagine how often I've relied on it. I decided I'd better use it just then, and of course it worked. He let out all his breath and tossed down the cup of sake I'd poured for him before giving an enormous laugh I'm sure was prompted more by relief than anything else._

" _The very idea!" he said, with another big laugh. "You, growing up in a dump like Yoroido. That's like making tea in a bucket!" And when he'd laugh again, he said to me, "That's why you're so much fun, Sayuri-san. Sometimes you almost make me believe your little jokes are real."_

It's actually a pretty genius position to put yourself in, isn't it? If you never actually give advice or come up with a plan, you can never be wrong.

Again, true mentors and coaches are invaluable. But find someone with the willingness to go out on a limb and give real suggestions and advice. And to be able to do these things effectively, they will normally have a specialization. They can't be an authority if they try to do everything. If they provide a bunch of ambiguous assurances and feel-good platitudes, it's best to stay away.

But even when the advice is specific, it's a good practice to take a look at the person giving it to see if their coaching really is coming from an expert. That's the topic we'll cover in the next chapter.

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Need help growing and making more money? Go to FraimCPA.com/go and enter "10X" for some tools to help.

============================================

## Chapter 19:  
Expert or Impostor? Careful Whom You Take Advice From

" _Advice is a peculiar commodity. Those who have the capacity to give good advice generally have too much sense to waste their time trying to get rid of it."_ – William H. McMaster

In the last chapter we talked about the epidemic of "Rent-A-Friend"-style business/career coaches – those people who give nothing but vague and generic advice, and who effectively are nothing more than professional cheerleaders.

A smaller percentage, however, do not fall into this category and will in fact provide specific advice. They come up with action plans, tell you what to do, and attempt to guide you along whatever path they have laid out. And that's a definite step up from the "rah-rah" folks.

But in those situations (as is the case when anyone gives you advice), it does warrant asking the question: why should you listen to them?

Simply being specific doesn't mean what they're saying is correct. And just because someone is _willing_ to give advice doesn't make it automatically make it good advice. As the above quote shows, oftentimes the people who are most willing to give advice are the least qualified to do so.

Ultimately, most of what advisors are saying is simply comprised of their opinions. And in those cases, it behooves anyone listening to look at the person speaking. Are they credible? Are they demonstrably successful? Does the life they are living match what they are pitching us on? Opinions and viewpoints can be valuable – but only when coming from sources whose opinions are based on expertise.

Let me give a few examples.

• I have met "life coaches" who were in their late teens or early twenties. They had recently graduated from school, had no professional work experience, and had experienced little to no hardship in their lives. They were also not able to sustain themselves on their coaching "businesses" and were working as clerks at grocery stores. But they wanted to charge thousands of dollars to "mentor" you and tell you how to live and succeed.

• People pitching MLMs (a topic covered in the next chapter) will often describe it as "life changing", promise huge amounts of easy money, tell you it is the path to financial independence...and yet most of them still have other jobs or sources of income. Curious, no?

• My personal favorite was a young woman that I met on a plane on the way back from a conference. Her niche was helping people start their own businesses and quit their jobs. But she worked full time...for someone else...as an employee. She was trying to get people to pay for something that she hadn't been able to accomplish herself.

You would think those incongruities would be enough to prevent these situations from ever occurring. Basic logic and minimal scrutiny would make the facade crumble apart immediately.

But examples like that abound because people love to give advice. Lack of expertise, credibility, or having "walked the walk" do not seem to be hindrances to them. If you don't believe me, skim the speaker lineup at some local events and look for people you know. I'm always fascinated by the number of people speaking as experts on topics that I know they have not lived firsthand.

Simply put: everyone loves giving their opinion. If you ask 10 people what you should do, it does not matter how ill-informed they are: 9 out of those 10 will happily tell you what to do.

So look at the advice giver themselves – especially if you are going to be paying them! Are they experts in the field they are advising? Have they personally done what they are telling you to do? Does their own life match what they are selling to you?

I've said it before: a good coach/consultant/advisor can be invaluable – a fantastic resource. They can help you to avoid major pitfalls and mistakes and they may even help you to take on an opportunity that you might otherwise not have done.

Good advice is priceless. Bad advice is the most expensive thing in the world. Take a hard look at the advice-giver before making any moves.

============================================

Ready to take your business to the next level? Go to FraimCPA.com/go and enter "SCALEITUP" to get your free Entrepreneur Toolkit

============================================

## Chapter 20:  
Are MLMs Scams?

" _An extraordinary claim requires extraordinary proof."_ – Marcello Truzzi

Everyone who is involved in Multi-level Marketing (MLM) will espouse the wealth and wonders it can bring to your life...but somehow those results are not readily visible to the rest of the world as far as the person who is pitching the idea to you. These people usually still have to have other jobs to support themselves – so the prosperity they promise doesn't seem to quite jibe with reality. That disconnect might be part of the reason MLM has an almost universally negative connotation. No one (aside from those involved) really seems to like it.

And yet more people get involved each and every day – presumably under the promise of quick money and easy earnings. And since I am actively in contact with people in the small business community, or those who wish to start a business, I see this all the time.

So as a small business advisor and advocate, I felt like it would be beneficial to write this chapter to talk about the reality of MLM. The good (there is a little), the bad (there is a lot), and some other caveats. We'll cover these basic questions:

1. Are MLMs outright scams?

2. Can you make money will MLM?

3. How much money?

4. Will you be able to make MLM your primary means of living?

5. How difficult is it to get people to buy your products?

6. How interested are people in joining your network/team?

7. How much competition is out there?

8. Would my time be better spent elsewhere?

9. Why are reps so dedicated to their companies?

10. If I want to get involved in an MLM, what factors should I consider?

The short answers are:

1. Rarely

2. Possibly

3. A very small amount (in the vast majority of cases)

4. Almost definitely not

5. Very difficult

6. Not at all interested

7. A ton

8. Usually

9. See below

10.See below

If that is sufficient for you, then stop reading here. **Note: I am not out to bash MLMs, because I think they are acceptable so long as the expectation is realistic.** Some people clearly have success in them and somebody has to be doing quite well for them to continue to pop up and grow. But in my experience, most of the people who get involved with them do not have a view that is in line with reality. And unfortunately, the ones who are most likely to be swayed by these inflated claims are the ones who can least afford the sign-up fees.

### Are MLMs Scams?

Most MLMs stay on the right side of the law (and avoid being deemed pyramid schemes) by ostensibly focusing on product sales rather than recruitment. Once recruitment (getting people under you in your network) becomes the primary focus then the lawsuits will follow – as happened with a 2015 FTC suit against Vemma.

However, the only way to be truly successful with MLM is by recruitment. That is where the "easy" money flows in and where the biggest growth potential lies. The third section in this discussion will outline why that is problematic.

Strictly speaking they are typically not scams – because there is some economic activity behind them. Pyramid schemes are designed to purely get more people to put in money with no underlying revenue stream/product/service. In an actual pyramid scheme there is no actual business to sustain them for the long term.

MLMs do have a product they are selling – so they are not inherently rip-offs. Unfortunately, however, although there is technically and truly a real product or service involved, in informal settings (translation: not in writing) the real focus does tend to be on "building your network," "expanding your team," and so forth. ("If you sign up 10 people and each of them sign up 10 people and each of them sign up 10 people...") They tend not to focus on selling the product itself nearly as much as they do on the supposed wealth-generating concept of having lots of people underneath you doing the selling. But if everybody is recruiting and very few are selling product...well, it doesn't take a Harvard MBA to figure out how that is going to end. So it is fair to say that the high expectations that their pitches typically give do not match reality.

### How Interested Are People in Buying the Product?

The cold hard truth is that most people are not interested in buying products from an MLM. The main reasons for this seem to be:

• They are usually more expensive compared to non-MLM competition. Every MLM company will argue that for the quality they are a great value. That's inherently subjective so we won't discuss it here. Maybe they are better than competitors and maybe they are not. But you will often pay more than you would for a typical retail equivalent.

• There are a million MLM reps out there already trying to sell their own products – which will often by the same as or competing with your product. So a large portion of the market that was/is interested in buying is already tapped. How many of "that crazy wrap thing" do people really need?

• Given the barriers, most MLM reps have to be very aggressive to succeed. They will be almost constantly talking about the product and the "opportunity" to be a rep for the company. Most people have already bought the products from someone else or are completely tired of hearing about them.

• How Interested Are They in Joining My Team?

• Are most people interested? Usually? Not even the tiniest bit. This is because:

• Every MLM has an initial investment/sign-up fee to join and some have ongoing fees. Any "job" that promises you unlimited earnings if you just shell out some cash first has an intrinsically bad vibe to it.

• They have heard all of the negative parts about MLM.

• They have had reps bombard them with products or harass them into joining their team and are sick of it.

• Again, with so many existing reps the majority of the population who would be interested is already signed up.

Some people will and do join – otherwise these companies would be going under. But it is a grind. I have a client who is doing very well with her MLM and was looking to pay for the sign-up costs of people joining her team. She was also willing to reimburse for event costs and offer other incentives. As MLM goes, this was absolute gold.

To call the response tepid would be generous. People thought it was nice she was paying the sign-up fee but didn't really care. They were sick of MLM and didn't want to get involved regardless of the circumstances.

And even if you do succeed in getting people to join, that is only helpful so long as they continue actively working on the business themselves. If they burn out, your residual/passive income from them goes away.

### How Much Money Will I Make?

There will always be people who do very well with MLMs. They are great salespeople, great recruiters, and can sell shamelessly without it coming across as obnoxious. Someone will always make great money with these systems.

But most people will not. Take for example this disclosure from World Ventures: "27.7% of all Independent Representatives ("IRs") earned a commission or override, while 72.3% did not. The average annual commission or override earnings of all IRs, including those who did not earn a commission or override, was $344.28." They also note that "these figures do not represent Representatives' profits; they do not consider expenses incurred by Representatives in the promotion of their business."

So 72% of reps didn't earn any commission and the average payout was $344...before expenses. And those expenses should not be discounted:

• In addition to the sign-up fees, many companies have monthly maintenance fees just to maintain an active rep account.

• Some companies require you be an active customer to keep your affiliate account open.

• You are responsible for buying your own samples, promotional tools, and everything else associated with the business.

• Many companies push you to buy their training and go to their seminars in order to have a "successful" business. One Amway rep spent $10,000 on their training and seminars to teach him how to be a great rep. How much did he make with all that training/"invaluable" knowledge? $500.

A study posted on the FTC's website found that 99% of all MLM reps lost money. That's quite a contrast from the promotions featuring financial independence and easy money. And while I specifically mentioned Amway and World Ventures, I want to be clear that I am not singling out these particular companies. Other companies have very similar stats.

### Would My Time Be Better Spent Elsewhere?

Given the realities above, making an MLM business successful takes a lot of dedication and work to be successful. Most successful reps will tell you just that: it is a job. It's a far cry from the life of leisure promised in the promotions. You can be successful, but it will take a lot of time and a lot of energy for that to happen. And since it does require so much effort, it does warrant looking at the opportunity cost. Would your time be better spent in other endeavors?

As the figures above show, the answer is "yes" in most situations. Many of these reps could take their efforts and be much more successful in launching a business or venture that they actually own.

Part of the appeal of MLM is that they are providing you with a product that they say is in hot demand. That is attractive because many people who think they would like to start a business have difficulty it trying to figure out what product or service they would offer if they did so. It all depends on your situation and skillset – but pretty much any other business will have less saturation than MLM.

### Why Are the Reps So Devoted?

Given the realities of MLM and a lot of the challenges that are faced, why do reps end up being so doggedly loyal to their companies? Why do they continue to push them so hard and try to pull other people into the company as well?

This devotion seems to be tied to an almost...cult-like indoctrination process that many reps undergo. From the seminars with inspirational music and promises of glory, there is a "gospel" that often gets reinforced.

The article on Amway (where the rep had spent $10,000 on training) had this interesting note:

"' _The first part of the brainwashing,' says Kyritsis, 'was that 'there would be no success without the system.' What's the system? The system is a series of seminars, recordings, and books that claim to be a guaranteed path to master salesmanship. Following Amway's guidelines successfully is seen as the only path to success, so if you aren't making money, it's because you're not "working the program" properly._ _Any success is due purely to their teachings, any failure is due to you not following them hard enough."_

All of the meetings, training, seminars, coaching, etc. almost deify the companies. They become infallible teachers, undeniable sources of wealth, and failsafe strategies. The products are better than anyone else's, the system is better than everyone else's, everything about them is superior in every way.

And with constant repetition from coaching and other training – those mantras start to feel true. So even when their individual businesses are going poorly, many still cling to the superiority of their particular MLM.

### If I'm Interested in MLM, What Factors Should I Consider?

With four pages of negative commentary on MLMs, you probably think I am totally against them. I'm not – I just think it is very important to understand the realities involved with them. I think they have their place so long as the expectation is realistic.

So if you are interested in an MLM, what factors should you investigate? I would consider the following:

1. Do they place undo emphasis on training that you have to pay for? Training is rarely a bad thing, but if they continue to try and push paid training and seminars on you, then you might come to the realization that the company's reps are actually their main customers.

2. What is the potential for automatic reordering? Products that are consumable with an automatic reorder have a very real advantage over catalog products in my opinion. A cosmetic, lotion, supplement, etc. that will be used every single month and automatically reordered makes the potential for residual income much higher. Having to book a new Tupperware party to show off the new inventory might make you a living, but it's going to be a lot of work.

3. Are there ongoing maintenance fees? Almost every MLM has a sign-up fee to get a starter package, but there should not be any reason for large ongoing fees.

4. How many of their reps appear to be making their primary living from their earnings? And how much hours do they appear to work? Does their overall financial situation match the story they are telling you?

5. How much do their average reps make?

6. Review their compensation plans. Many organizations will outline their plans and your earning potential. If they do not, you might wish to reconsider.

7. How many other distributors are in your area?

8. How much competition is there in that product's space (health, beauty, etc.)?

**Bottom line** : MLMs are okay if you are looking for a hobby and maybe a little bit of play money. And there's always a small chance that if you recruit someone they will be very successful and you will be substantial residual income from that – which is a fun prospect, however unlikely it is. But it should never be looked at as a way to support yourself full-time. If it happens, that is fantastic. But studies have shown just how rarely that is the case.

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It's not just what you make, it's what you keep. Go to FraimCPA.com/go and enter "SAVE" for some tools to give you a hand.

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## Chapter 21:  
If You Wouldn't Say It to a Doctor: Rules to Avoid Unintended Rudeness

" _I'd like to pick your brain. Let me take you out for a beer" – many generally well-meaning individuals_

In Chapter 18 we talked about how everyone loves to give advice – irrespective of whether they have any idea what they are talking about or not. Most people love to pontificate to anyone who will allow them to – and do so completely free of a charge. Someone listening to them is payment enough.

Perhaps it because of that trend that there is an unintended act of rudeness by people asking for free advice from someone whose business is to charge for that same advice.

As an example, I have some clients who do high-end business consulting ($20,000+ minimums per consulting contract). With surprising frequency they get messages along the lines of the quote above. In some cases people have even admitted to not wanting to or being able to pay their fee while asking. "I can't afford to pay you $20,000, but would love to buy you a beer and talk to you."

On the surface, that might not seem offensive. It's a pretty innocuous request to hang out with someone and ask some questions, right? But let's take a step back for a minute.

The entire livelihood of the professional being asked to do this is based on people paying for the exact thing someone else is now requesting for free. A person who is clearly successful at what they do and whose services the market has put a nice premium on – services other people value enough to pay the full price for. And this person is probably pretty busy.

A good rule of thumb in these situations is this: if you wouldn't say it to a doctor, do not say it to anyone. Imagine these having conversations:

• "Sorry, doc. Your appointment fees are pretty steep. Could we talk about it for free once you're out of the office?"

• "I can't pay you for surgery. But I would love to buy you dinner to just get a quickie operation on the house. I'd really appreciate it."

• "I have an issue I really need to talk about but just can't afford to pay you. How about you call me once you're done with all your paying patients? I know it normally costs $200, so here's a $10 Starbucks card as a show of gratitude"

Any one of us would be horrified to say any of that to a doctor. So why should we feel comfortable saying it to any other business?

Really, treating someone like a doctor is pretty good advice for most aspects of our interactions. We wouldn't cancel an appointment at the last minute, pull a no-call/no-show because we couldn't be bothered to put it in our calendar, speak down to the doctor, talk to them as though they work for us, etc.

A portion of that has to do with financial consequences (late cancellation/no-show fees from the doctor) but the other piece has to do with respect. We respect physicians because they have expertise and perform a service that we are unable to perform ourselves. So most of us treat them accordingly.

And when we ask someone to give us something for free or in exchange for a beer, we are pretty much saying: "I don't respect you." Or at least that we don't respect them as much as they are charging. Depending on the price of the meal we are offering vs. the cost of the service – we are basically saying that we place a value on their services somewhere in between 1-20% of the sticker price.

And if that's the way we feel, that's fine – no one is forcing us to buy their services. But it is an odd thing to in essence "say" while asking them for a favor.

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Want to avoid costly mistakes in your business? Go to FraimCPA.com/go and enter "FAIL" to get your free Entrepreneur Toolkit

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## Chapter 22:  
The "Dollar Menu Economy" and How it Skews Our Perspective

" _Something for nothing, a bargain, a steal_

Used cars on credit card, lost another wheel

I'd like to get it for free

It's what the price should be

I just wanna pay less

I just have to confess

Quality and value, always wanting more

Tip my hat to the taxman, the revenue does pour"

– Anvil "You Get What You Pay For"

An uneven (and at times recession-impacted) economy over the past decade has really spoiled us – since those factors have kept prices in check and bargains relatively plentiful. Coupled with cheap imports on certain items and competition on the internet, it seems like we don't want to pay for anything anymore. I'm no exception – heck, I might even be the prototypical example of it in some instances. I can't go into a store and buy an item. I have to go online, research it, and scour around for the best deal. If it isn't the lowest available price for that particular product, I rarely feel good about it.

A lot of times we become accustomed to this without even trying. For example, in 1955 a McDonald's cheeseburger was $1.65 adjusted for inflation. But I don't even want to pay $1.65 for a **double** cheeseburger at McDonald's anymore (...or buy McDonald's food at all, but that's another point altogether). Pizzas that were $12-16 a few years ago are $5-10 now. There are tons of things you can find on eBay or Craigslist that would cost you 5x as much in the store.

That's great, but what it has a tendency to do is to skew our perspective away from value. We start to confuse **price** with **value** , but the two are very distinct things. I can't tell you how many times I've bought multiple "cheap" items only to have them break and exceed the cost of a single quality one. The things we buy fall apart, the fabric on the cheap clothes rips, and whatever "meat" is used to create a $1 double cheeseburger starts to make our body rebel against us.

Or as the old expression goes: "the bitterness of poor quality remains long after the sweetness of low price is forgotten."

Or more bluntly: "you get what you pay for."

Cognitively we know this. But we start to get dollar signs in our eyes when we think about how much we can "save". And in most things, there really isn't much harm. We blow a few dollars here and there because we keep having to replace the junk we bought on a budget. No lasting harm and no real foul.

But when it comes to the things that really matter in our life, how cheap do we really want to be?

Do you _really_ want to leave large degrees of uncertainty with the things that are the most important to us?

Not everything we spend money on is an expense. Some things are investments. Medical, legal, financial, and a slew of other areas are not the places and yes – financial and tax matters are not the areas to be "penny wise and pound foolish." Mistakes are too costly. So make the investment. Hire the appropriate professionals to help you and make sure things are done right.

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Need help growing and making more money? Go to FraimCPA.com/go and enter "10X" for some tools to help.

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## Concluding Thoughts

At the outset of this book we talked about "If I": the formula that who you are and what you accomplish are both almost entirely up to you. We'll wrap up the book with a quote from another, equally mature and adult source:

" _The power is yours"_ – Captain Planet

Now – more than any other time in history – it is easy to make money and be successful. Thirty, twenty, even ten years ago the barriers to entry were much higher and required larger commitments of time, money, and other resources.

In those times, there were legitimate limiting factors. And while those still obviously exist today and some people will always have advantages over others, those factors are smaller than ever before.

You will absolutely be successful – if you want to be.

Learn lessons from successful entrepreneurs, take the lead from thought leaders, and avoid behaviors of those who make excuses and have no desire to grow.

# Appendices

## Appendix A:  
Gimme Shelter – Renting vs. Buying

" _Oh, a storm is threatening_

My very life today

If I don't get some shelter

Oh yeah, I'm gonna fade away"

– The Rolling Stones, "Gimme Shelter"

While The Rolling Stones certainly didn't write "Gimme Shelter" to address housing questions, the need for a roof over our heads is one of the basic requirements of all people – being one third of the proverbial "food, clothing, and shelter." We all need some place to live, obviously. Less clear though is the decision whether we should buy or rent our "shelter."

Traditional wisdom has always held that owning your home is the best decision over the long term; however the real estate bubble-and-burst of recent years has more people reconsidering that choice, and has prompted a new breed of "pundits" who are recommending renting instead of buying a home.

Over the past few years I have seen an increasing number of articles stating that buying a house provides no true return on investment (ROI) and that renting is a better choice. Now that the housing market has started to recover these articles are finally less in vogue, but they still pop up from time to time. To justify their viewpoint, so-called financial experts cite that the rate of return for blue chip stocks are higher than the appreciation for houses – especially after mortgage interest and taxes are taken into account. They point to the volatility in the housing market and recent declines. They note the costs associated with repairs and upkeep of a house. All of these are valid points. But they use them to come to this conclusion: buying a house provides a neutral or even negative return on investment and that renting is the better choice. The problem? Their basis for comparison is all wrong.

As Dostoevsky said in Crime and Punishment: "'We've got facts,' they say. But facts aren't everything; at least half the battle consists in how one makes use of them!" In other words, the facts cited by the renting-is-better proponents aren't inaccurate – in and of themselves. It's just that they are being improperly analyzed, only partially examined, and being used to support erroneous conclusions.

The issue with the argument is three-fold. First, many people do not do well saving money on their own. Unexpected bills, reckless spending, and lack of knowledge on how to make or stick to a budget all create a situation where people not only do not save but stay in high-interest credit card debt. The most effective way to encourage saving is for it to be "forced". 401(k)s, portions of income being drafted into other secondary accounts, and mortgage payments all provide an automatic, thoughtless saving that most people will not do consciously.

Second, a home is a highly leveraged investment – meaning that for the vast majority of people borrowed money (a mortgage) is used. Because of this, the appreciation of a home increases the investment return – the return on the actual cash put into the purchase for the down payment – many times over. For example, let's say that a person has a $10,000 (10%) down payment on a $100,000 house and in the first year the house appreciates 2% ($2,000). Two percent doesn't sound all that impressive. But the owner of the house did not invest $100,000, they only invested $10,000. So they gained $2,000 on $10,000 – a 20% return! Granted, this is before the costs of upkeep, taxes, and other legitimate costs. Still, this is a far higher return (on the actual down payment dollars) than is the historical norm for the stock market, and a home is (in most periods) a reasonably stable investment.

NOTE: This discussion could take a different turn with a different conclusion if one were comparing an all cash purchase of a home – in this example for $100,000 vs. investing that $100,000 in the financial markets and then renting a home – since historical returns for the stock market are higher than for residential real estate. But obviously, very few home buyers are in the position to pay cash for their home.

The third point is the more important piece: they should not compare buying a house with investing in the stock market. That is not the choice (see "note" above). The choice is between buying and renting. People have to spend money for a home – either by renting or by purchasing. And all of the supposed analysis in the aforementioned articles – and their comparisons to stock market investing – somehow bypass that. They say "repairs and mortgage interest costs coupled with lower rates of appreciation make stock and bond investments a wiser choice. So don't buy a house, rent one." How spurious of a correlation is that? The ROI on stocks has nothing to do with the merits of renting vs. buying a home.

And when it is broken down solely between those two options, the decision is much simpler. While costs are associated with home ownership, equity is being built up in the process. Renting is a straight cash outflow with no benefit to the renter. Mortgages stay constant over the term of the loan while rent only increases over time. Housing values do increase in the long-term while renters only see this reflected in those increased lease payments. And mortgage interest, real estate taxes, and some other costs of home ownership have tax benefits.

This isn't to say that in the very short term that owning a home is a money maker. But over the longer-term, isn't the choice clear?

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Not sure how much a loan will cost you? Go to FraimCPA.com/go and enter "DEBT" to get an amortization tool to help you run the numbers.

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## Appendix B:  
Paying Off Mortgage Quickly? Not So Fast!

" _Debt is the slavery of the free."_ – Publilius Syrus

I used that same quote in the first The Little Big Small Business Book for a chapter on excessive corporate debt – highlighting how burdensome and crippling excessive debt can become to a business. I did note in the same chapter that debt can have some very real benefits and that using "OPM" (Other People's Money) can be the appropriate course of action in many situations.

However, most people view debt in a negative light – and by and large that is a correct assessment. Many kinds of debt (credit cards use what we might call "spending debt" for example) serve no constructive purpose and charge outrageous interest rates. **Even "good" debt can become ruinous if not managed properly.** So, especially as it relates to personal/spending debt, we view being debt free as one of the ultimate financial goals. How can I say this subtly? PAY OFF YOUR CREDIT CARDS AND LOANS AS SOON AS POSSIBLE AND DON'T LET THIS HAPPEN AGAIN! (That was subtle, right?) At that point your assets are free and clear and you do not owe anything to anyone. And each month there is money freed up that once was earmarked for making those nasty loan payments. It's a nice place to be.

From a financial perspective, however, this might not always make sense. There are possible exceptions to the get-out-of-debt-ASAP rule. One area where this could be true is your home mortgage. Now obviously very few of us are able to pay cash for a home purchase. We need to obtain a mortgage loan. However, the question that arises is "should I pay off my mortgage early by making extra payments?" Intuitively, that seems to make sense. However, given the historically low interest rates for mortgages over the past few years, it might make a lot of sense not to pay down your mortgage more quickly than is required.

Why?

1. Mortgage interest rates are lower than they have been in years (like 50 years!) This means that while inflation and investment market rates of return increase, the rate of your mortgage stays constant. Let's say your mortgage interest rate is 3.5% and the investment rate of return you might achieve over time is 8% (remember – there will be up years and down years, but we're using 8% as a reasonable average annual target return over a period of years.) Paying down your debt is actually costing you money in the form of lost opportunity to put that money to work achieving an investment return.

2. Mortgage interest is tax deductible if you itemize your deductions.

3. The money you put into your house is not accessible unless/until you sell the house or perhaps get a home equity line. Let's say you need some money quickly. It's much easier to pull $10k out of your investment account than trying to pull equity out of your house.

At its most basic level the formula would be this:

If: (net investment total return after all related expenses minus income taxes paid on the investment return) is greater than (mortgage interest paid minus tax benefits) then you would not have made a good financial decision if you were to pay down your mortgage more quickly than is required.

(Note: the 8% annual investment return used in this example is not a guaranteed rate – particularly as it applies to shorter periods of 1-year, 2-years, etc. As mentioned above, there will be up years and down years in even the best-managed investment portfolio. But a mortgage is a long-term instrument, so looking at longer-term investment averages is not an unreasonable exercise.)

It's important to note that this is an analysis from a financial standpoint. There is however an _important behavioral perspective_ to consider. Mortgages are a type of forced savings – with the bill coming due every month. You do not have a choice whether or not to pay it. So if you are considering an investment program instead of paying down the mortgage, the following questions need to be posed – and answered honestly:

• What will you realistically do with the extra money if you do not pay down your mortgage? Will you put it in an investment or retirement fund or will you buy a new TV and take a fun trip?

• On the flip side if you pay down your mortgage at an accelerated rate are you truly going to continue to use that money (the previous mortgage payment amount) each month for savings and investments once the mortgage is paid off?

• In which scenario are you more likely to save and will you have the discipline to actually invest the funds as opposed to viewing it as "found money" to be used for unproductive spending?

• The answer to these questions trumps everything else we've said so far. Projections and analyses regarding saving and investing are only worthwhile if you actually follow through on them!

There is no perfect answer. It all depends on the situation and individual. However, the way you approach this can amount to literally hundreds of thousands of dollars for retirement or other long-term goals.

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Not sure how much a loan will cost you? Go to FraimCPA.com/go and enter "DEBT" to get an amortization tool to help you run the numbers.

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