Archive for January 3, 2008

Bootstrapping for Income and Wealth

January 3, 2008 · Filed under Uncategorized

Before Christmas I had written a couple of posts looking at the reasons that people bootstrap their businesses. Lack of money and the desire to keep control were the first two reasons I wrote about in previous posts.

Another important outcome of effective bootstrapping is that it increases the income and wealth that entrepreneurs can realize from their businesses over time. Generally business owners get paid only after all of the expenses have been covered. Therefore, the ability for an entrepreneur to receive income from the business is a function of its cash flow. Since bootstrapping can improve cash flow from the business it is a means of ensuring personal income for the entrepreneur. By improving cash flow, bootstrapping increases the amount of cash the entrepreneur can take out as personal income from the business.

Additionally, much of the wealth that an entrepreneur is able to realize from the business is based on its valuation at the time the business is sold. The value of a business is based on the expected cash flow that the buyer believes the business can generate into the future. The most common valuation method for privately owned businesses is based on a multiple of the free cash flow the business generates. The multiple is based on several factors including historic growth of the venture, strength of the industry, strategic advantages of the company, and specific industry valuation standards. The degree to which the entrepreneur is able to improve cash flow through bootstrapping techniques the higher the value that can be created for the business. Bootstrapping is therefore not only good for the health of the business, but also personally good for the entrepreneur in terms of income and wealth.

Source:

As a former entrepreneur now completely burned out and working for the government, I agree that everything that the business owner can do to add income and value to the business is good with a couple of caveats:

1. Work with, not against, your strengths.

You may say “Great. Now explain what the hell you mean by THAT.” Well, look at yourself as you would a prospective employee. What are your strengths? What are your weaknesses? (Oh, you want to tell me you have no weaknesses? You LIE like a rug.)

What are the things that you can do you do better than (almost) anybody else for your business? Some people have specific skills in inspiring and leading people, others have phenomenal sales successes without ever having the benefit of a marketing degree, while others have an ability to keep an eye firmly on the bottom line and the company solvent.

All those skills are essential, but they rarely come in one person. All I’m sayin’ is that if you have, say, unparalleled technical knowledge for your particular product and love sharing it with people that might have a need for it but hate, despise, and procrastinate on doing the accounting, you would be far better off paying somebody to take that chore off your hands.

2. Being indispensable can be a bad thing.

“But how is this possible?” you may whine. “Being indispensable means that nobody can take my place!”

Congratulations on that, Einstein. So what happens if you become disabled, die, or wish to sell your company? Less drastic, what about if you want to take a relaxing vacation with your significant other? What if you get called for jury duty for a long trial? If you are truly indispensable, you won’t be able to. Take it from me, whose days away from the grindstone for 25+ years consisted of 3-day weekends, being indispensable sucks.

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In Pursuit of Happiness

January 3, 2008 · Filed under Uncategorized

I was talking to my momma about my youngest brother, a boy I used to know well in our youth but time, family committments, and physical distance had eroded our ties to just the occasional inquiry as to how the other was doing.

“Did you hear from Duane over Christmas? How is he doing?” I inquired casually.

“No”, said momma. “He always calls and sends a card and this year, I didn’t hear from him at all.”

“Something’s bad wrong, then”, I stated bluntly. He ALWAYS calls and at least sends momma a card. Something was happening that he didn’t want to trouble her about, because momma isn’t in the best of health.

“I called him because I was worried. He said that he was fine and had been spending a lot of time by himself, just playing his guitar.”

“That’s IT? No other explanation?”

“That’s really all he said, but I suspect that there may be some tension between him and that wife of his over her children as he told her that if she wanted to get iPhones for all of her ungrateful children, she better get a job and pay for them herself.”

My youngest brother was the opposite of me in so many ways. Where I was volatile and could fly into a snit fit with no notice, he was always calm and controlled. Where I accepted a proposal of marriage from a man I’d seen for less than a week, he and his high school sweetheart had a long engagement. Where I immediately started a family (though not by plan), they saved, bought a house, had a nursery completely set up, and could afford to live on one salary when they decided to have children. Where my children were grown about the time of the “mid-life crisis” when you take stock of everything in your life, his were still young when he looked around one day and decided that a kid-centered life in suburbia was boring, and his wife wasn’t any fun anymore.

Up until that point, I envied the way my brother navigated through life with a plan. Mine was all unscripted. Our lives were spent in working in our own business, whereas he sought the security of working for a company. We had spectacular ups and downs in finances, being (on paper, at least) millionaires one year and losing spectacular sums of money the next due to the volatility of the industry we were in. He had a steady income and lived in upper class suburbia several states away. We lived in a rural area and our next door neighbor was no stranger to prison life. When my spouse had a mid-life crisis (what am I doing? why am I here?), he got a degree in education and went to work teaching while I ran the business. When my brother had a mid-life crisis, he got an apartment with a younger woman and a divorce.

Perhaps it was because our work life was so unpredictable (and, with kids and their various interests with cantankerous horses and jumping for the daughter and bands with the son, our home life was fairly chaotic as well) that we didn’t suffer from boredom. Ulcers and stress, definitely, but never boredom. My brother’s sweet young thing didn’t stay around very long once she found out the new vehicles and nice home and paying child support do not go together. His ex-wife re-entered the work force, though with her natural beauty (did I mention she is beautiful?) and sweet nature, she was quickly courted and married by a man that knew her value.

The next thing we knew, he had married a woman that looked startlingly similar to his ex-wife except for the silicone enhancements (his ex-wife didn’t need any help in that area). She had 4 children. I had my doubts about this. After all, he had divorced the ex-wife for being a responsible parent and not wanting to go out and have fun at all hours of the evening, particularly on a school night. To support the new wife and kids and child support for his 2 kids, he was working 2 jobs and getting older. When he was in his 20s, working 16 hours or more at a time would have been easy. In his 40s, it gets a little tougher day in and day out. To step kids, you are the interloper, the outsider that has stolen the affections of their mother. Step kids with an attitude that always want something and treat you with contempt is something hard to take. A wife that wants you to provide everything for her kids and is unwilling to work for it is also hard to live with after the new wears off.

So now my brother sits in the dark, strumming his guitar, and considering what to do next.

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