Business or Investing?

It seems a little strange to focus on the topic of business when maybe all you really want to do is invest your money and receive a decent return. Fair enough, but let me point out one thing about investing. Whenever you step outside the boundaries of being merely an employee with a fixed paycheck and perhaps a mutual fund or two in a retirement account, then you are entering the world of business whether you want to or not.

So let’s talk about this concept.

Whether it’s real estate, stocks, gold coins, or tax liens, investing is both a business and an investment.

When I first began real estate investing I purchased a few informational products and I read as many books as I could find on the subject. From Carelton Sheets to Robert Allen, I read and learned from the experts. However, as I started actually buying properties I quickly realized that this thing called “Real Estate Investing” is actually a business. I had to keep track of expenses, such as mileage, training, books, repairs and management. Soon thereafter I even started to think about marketing myself with business cards and advertisements. Now, if that only sounds like investing and not running a business, then I guess I don’t know what business is all about.

For business training, I had to go beyond the real estate and stock market investing gurus and look to business training experts. One expert who built up a multi-million dollar business with over 500,000 customers and clients was the late Charles Givens. His organization taught me to think about practical personal tips that are at the very core of business, such as maintaining a proper filing system.

More recently I have immersed myself in Dan Kennedy books, which focus on marketing but also include tips on running a business. And as I recently wrote about, I consider Bill Bartman an outstanding business coach and mentor (see www.rogueinvestor.com/newsletter/billionaire_mentor.html).

If you haven’t already ventured beyond real estate or stock investing books, I challenge you to learn from other experts who have created businesses. And if you haven’t already noticed, the richest people in the world who haven’t inherited money are almost always business owners. Even stock market investor Warren Buffett actually runs and owns a business called Berkshire Hathaway. His product is selling shares of his company to the public and his service is buying large pieces of other companies at undervalued prices. In my mind, Warren Buffett is a business genius first and a stock investing genius second.

As well, “The Don” (Donald Trump) is really much more of a business owner than a real estate investor. Many of Donald Trump’s ventures fall well outside of real estate (e.g., The Apprentice). I also think if you look at his expertise in real estate it is concentrated primarily in Manhattan. Outside of Manhattan, most of his deals are joint ventures or selling his name to help promote other projects or developments. Again, he is a business expert first and a real estate expert second.

My point is this:

What we mistake as a great investor is really more of a great business owner.

Consequently, I want you to become a great business owner!

Sole Proprietorships

When you first start out with your concept of making money, whether that’s real estate, stocks, network marketing, lawn maintenance, daycare, or your own unique idea, you will be classified as a sole proprietor. What that means is you are the same as your business. You can name your business practically any name as long as it does not include “LLC,” “Inc.,” “Corp.,” “Ltd,” etc. Those terms are designated for formal business structures. You can even visit your local bank and fill out “doing business as (DBA)” paperwork on your existing bank account, which will allow you to accept payments in the name of your sole proprietorship.

There are millions of sole proprietorships set up each year and you really don’t have to do that much other than file your personal taxes and include your income and expenses of your sole proprietorship. You will be taxed at your personal income tax rate. And, as long as you are trying to make money, under the U.S. tax code you can file a loss and take a tax deduction in 3 out of 5 years.

Formal Business Structures

If this is so easy, then why create a business? The main purpose of a business structure is to protect your personal liability. When you operate as a sole proprietor, you and your business are the same and your personal assets are at risk.

However, before rushing out to your attorney, please consider the most important tenant of business:

“MAKING MONEY!”

If you are not trying to make money, then you are operating a hobby, not a business.

Therefore, it is more important to test out your business ideas(s), real estate project, etc. and make sure it is viable. If so, you can set up a business and switch from a sole proprietorship to a business structure, like an LLC. In the mean time, please consult with an insurance agent and strongly consider purchasing umbrella liability insurance or specific insurance riders. Of course, if you are purchasing real estate, you will want to purchase insurance for each property.

Please don’t get me wrong. I am not suggesting that you take on risk. I only want you to remember that you can get so caught up in setting up a business that you forget to make money and enjoy the benefits of having your own business.

Now, when you are ready to set up a business structure, consider the purpose of your business. For real estate investments, I personally believe limited liability companies (LLCs) are one of the best options. For more information on setting up a limited liability company, refer to this newsletter:
www.rogueinvestor.com/real_estate_newsletter/investing_newsletter_issue_11April06.html.

If your business has a service component, you may want to consider a corporation (S or C). An S corp. is a flow-through business like an LLC. That is, the profits and losses will flow through to the owners. As your business matures and takes on many employees, most experts recommend setting up or switching to a formal corporation status, known as a C corp.

I have set up numerous LLCs, an S corp. and a C corp. Although I am not an accountant or attorney, I would be happy to help you through the decision process of setting up your business during one of our training sessions this year. Please note that we do not have many workshops or seminars because we are on the front lines buying real estate, developing properties and managing rentals.

If you are planning to attend the Super Investor Tax Lien Workshop (August 23 – 25, 2008), I will provide you with a business template of either an LLC or an S corporation, depending upon your needs.

Also, I will go through how to create a winning business plan that will get noticed. If you have the right business concept, I will even put you in touch with private investors who have millions of dollars of funding available. Of course, I can’t guarantee that your business plan will be accepted by these investors, but I can tell you that I have personally raised millions of dollars using the template that I will show you.

I look forward to seeing you very soon.

Cheers to your business,

Michael Williams
1-913-381-4520 (Office)