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Chris Koomey

ross perot

Where have you gone, Ross Perot?

Where have you gone, Ross Perot?

I miss Ross Perot.

I realize he was a wacky billionaire (we have one of those) with big ears (does big hair count?).  But he was driven by integrity and passion for his primary motivation of balancing our budget and improving the finances of the country so his grandchildren did not have to pay for the excesses of his and following generations.  His focus on this issue was the catalyst for allowing our budget to be balanced at the close of the 20th century.  

Returning to the present day, the fundamental irresponsibility of the Democrat and Republican Parties is that they have no regard for future generations.  Plus they have no regard for the primary drivers of growth to fund their irresponsibility.  

Where does economic growth come from?  Primarily from people who have an inspiration to apply innovative technologies and processes into new industries.  

As an Active Investor, there is not a current political party that supports our interests so don’t allow yourself to be taken in by their “Pro-Business” Siren songs.

The Democrats and Republicans have been funneling our money to large publicly traded companies.  The financial companies that received the bulk of this support ($1.4 trillion directly plus a monumental $13 trillion in guarantees) have been improving their fee income, shoring up their balance sheets and, to the extent that they actually lend money, they lent money to other publicly traded companies who dutifully used the low interest loans to manipulate their share prices through stock repurchases.

Why are we wondering why we are in a low or no growth environment?  We have provided funding to the most financially irresponsible businesses in the history of the earth.  What they did not keep for themselves, they lent to the corporate communists who run the large publicly traded companies.  Now that we tried that plan and know it does not work, we need another plan.

The general consensus is that small businesses provide most of the job growth in this country.  The more accurate statement is that newly formed small businesses account for most of the job growth in this country.

What do you need to start a newly formed small business?

First, you need some optimism – optimism that better results can be achieved in the future

Second, you need innovative technologies and processes.

Third, you need people with energy and drive.

Fourth, you need the government to support newly formed businesses (and Active Investors in them) plus protect them from existing businesses and onerous regulations

Fifth, you need financial and human capital that is comfortable taking on potentially risky ventures.

I am sure there are more but these are a good start to identifying the environment we need to support a growth economy fueled by Active Investors.

What else do you think we need?

In future posts, I will explore some of the specific policies that will support Active Investors driving us into the 21st century.

construction workers hanging out

Death of the 20th Century

What is going on in our country?

As a member of neither of the two popular political parties, I generally steer clear of offering opinions on policy and politics.  Regardless of the outcome of the election, each party will be rallying around certain wacky ideas which have no relevance to our modern life.  With this in mind, I am putting forth some policy ideas to free you up from the current political maelstrom so you can focus your brain on more productive thoughts for you and your business.

My brother Greg has pointed out to me on numerous occasions that we are not experiencing an ideological battle between Democrats and Republicans or left and right wing or conservative and liberal or Bare Bellied Sneetches and Sneetches with Stars upon Thars but a battle to the death between the 20th Century and the 21st Century.

We have one candidate who wants to relive the glory days of the 1990’s and another who wants to turn back the clock to the 1950’s.  Most of the policy ideas being discussed by the parties are throwbacks to the 20th century with little relevance to the current world we live in.  What’s on offer are half-baked ideas with a side of economic pandering.  We have intellectual chaos because we have a lack of leadership from those in the public eye.

Our political angst is usually attributed to our economic angst.  For the past 15 years, our politicians have aggressively pursued policies to funnel money from the many (us) to their favored industries and big companies (them).  The results of these policies have been a low or no growth economy which is projected to continue for the foreseeable future.  We have crumbling infrastructure.  The service level of many government services would embarrass many third world countries.  We have institutions which have received extreme largesse from the government who are committing fraud on their customers and then being indignant that people are upset about it.

Over the next 20 years, we need a growing economy to address the financial overhang of our policies up to this date.  According to the www.usdebtclock.org, for 2016 the US Government is projected to collect $3.3 trillion from all sources on a GDP of $18.5 trillion (17.8%).  $910 billion is paid out for Social Security, $272 billion for federal pensions and $592 billion for Medicare.  $520 billion is paid for Medicaid and $303 billion is paid for welfare programs.  The Department of Defense runs about $580 billion.  Interest on our debt of $19.5 trillion runs about $242 billion per year at current interest rates.  These expenses run about $100 billion over what the government collects.

What’s missing here is the $500 billion or so required to actually run the government.  This gets added on to our debt each year.  Just to make the point clearer, we could close every agency of government (excluding the DoD and IRS because we need them to collect taxes) and we would still be running a deficit each year and growing our debt.  The Budget outlays total $3.8 trillion which represents 20.5% of GDP.  For the current tax system to pay for our budget we would need our economy to grow to at least $21.7 trillion this year – a 16% increase – which is not anticipated in the next 5 years never mind the next year.

Over half the money collected by the US Government goes to retirees who are not exactly drivers of growth.  Another 25% of what is collected goes to social safety net programs.

You have to remember that the budget is the dog that wags the tax tail.  Presumably, the budget reflects what our bipartisan lawmakers believe we need to establish a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare and provide the blessings of liberty to ourselves and our posterity.

The only purpose of the tax code is to provide the funding for the budget.  There is a lot of anger directed at the IRS regarding the collection of taxes but your anger should be more appropriately focused on your lawmakers in Congress.

The two political parties and other political thought leaders have many new tax ideas that generally fall into the “Heads I Win, Tails You Lose” intellectual school.  When evaluating any of these tax ideas, keep in mind that in order to lower the tax rate, we need to expand the pool of funds eligible to be taxed to raise the same amount of money.  This pool can be expanded by allowing more things to be taxed (e.g. addressing the definition of taxable income) and/or growing the economy to provide more taxable funds.

When politicians or pundits start talking about changing tax rates and providing tax credits, they are usually totally unaccountable to the budget figure they need to raise.  They are just saying stuff to make them look smart and make people feel that they might be better off chasing this shiny object.  This is the equivalent of every high school president promising better lunches, more free time and less homework.  Remember every tax break for someone, raises taxes for everyone else because the government still has to raise the money to support the budget.

I know they want us to think the budget and taxes are complex, but it’s just math.  I realize that every tax acts as a disincentive and every credit or deduction provides an incentive for certain behavior but the reality is they need to figure out how much a program’s going to cost and how is money going to be raised to support that budget item.  Budget items are supported by current tax revenues or by promises to pay out future tax revenue (plus interest) in the form of bonds.  For every budget item that is not funded by current tax revenue, we will need to raise even more taxes in the future to cover the original cost plus interest.  Somewhere in our $19.5 trillion of debt, we are still paying off those $500 toilet seats from the 1980’s.

Assuming the current orthodoxy that payments to the old and needy, the DoD and interest payments are untouchable, just about every other policy of the US Government is funded by future tax payments (plus interest).

paying taxes

You Have to be in It to Win It

“The only difference between death and taxes is that death doesn’t get worse every time congress meets.”
– Will Rogers

Tax Code

In a wacky election year, a major disappointment is that none of the tax policies being discussed are original, fresh or even thought provoking.  The same old ideas get hashed and rehashed without much progress or thought as to what is the purpose of the tax code.

Every tax is a disincentive and any tax cut or credit is an incentive.  As long as we are talking about the same basic structure of the tax code, adjustments to rates have no impact on the inherent disincentives and incentives in our current tax code.  Given that no one is happy with the growth prospects in our current system, we should be looking at a system that creates new disincentives and incentives geared towards getting us growing in a healthy fashion.

In Plan to Not Pay Taxes, I identify strategies to take advantage of the incentives that Congress has laid out there for us to address our own looming retirement crisis.  This is grounded in the 5Ps, Prior Preparation Prevents Poor Performance.

Many of our existing taxes, cuts, credits and government payments are based on a world that no longer exists.   One example are the fees paid for grazing, timber and mining rights on Federal Land were set over a hundred years ago – my bet is that a market based system might spur more productive use of these resources.   Why do some farmers receive significant payments to grow or not grow certain crops while others are left out of the system altogether?  Why do some companies receive marketing support while others are left to fend for themselves?   Why are we subsidizing 20th century businesses instead of incentivizing 21st century businesses?  We should have a tax code that provides incentives for modern growth opportunities and disincentives for 20th Century policy objectives.  I would like to hear from you as to existing taxes, cuts, credits and government payments that you think are superfluous in our current environment.

An idea that always makes me chuckle was brought up to me by a friend in Greece as they grapple with introducing a modern tax code to incentivize people to pay their taxes.  In order to provide a greater incentive for people to pay taxes, why not give someone an entry for every dollar in taxes paid in a weekly $1 million lottery.  For the cost of $52 million dollars a year the government would dramatically increase their tax collections and people would have a little more enjoyment when they pay their taxes.  That’s called tax humor – not very funny but at least worth a chuckle.  N.B. We actually spend over a billion dollars per week on lotteries in the US – more than movies, books, sports and other entertainment combined. 

Remember, what the government gives, it must first take away.

Paying to Be the Boss

Paying the Cost to Be the Boss – Like Bruce Springsteen

Paying the Cost to be “The Boss”

“The avoidance of taxes is the only intellectual pursuit that carries any reward.”  – John Maynard Keynes

Fans of Bruce Springsteen know that one of his nicknames is “The Boss”.  Legend has it that Bruce got the nickname because he loved playing Monopoly backstage while waiting to play at his gigs.  Bruce was always the banker and because he knew the rules of the game so well he generally won and earned his nickname – the Boss.

In order to be the Boss of your own Active Investing businesses, you need to take the time to learn the rules of the game.  For your retirement businesses, your largest potential expense is taxes.  In Plan to Not Pay Taxes, I lay out the basic rules for you to live up to half of your adult life on a tax free basis.

Your first step in implementing your Plan to Not Pay Taxes is positioning your money in a tax free circumstance.  Some people have already done this.  Some can do it in a few days.  Others may need several years before being able to implement their Plan to Not Pay Taxes.  Patience will definitely be rewarded in this circumstance.

Once your money is positioned in a tax free circumstance you will need to establish a company that your tax free money can invest in.  Then you need to select which type of businesses make the most sense for you to generate tax free income in retirement:

  1. Cash Flow Businesses
  2. Real Estate Businesses
  3. Licensing Businesses
  4. Angel Investing Businesses
  5. Financial Trading Businesses

I know this will be disappointing to some but to successfully implement these strategies, you will need the skill to run these businesses as an Active Investor throughout your retirement.  That’s why we participate in the Active Investor Group on Linkedin.  At the appropriate time, you can then convert these strategies to passive strategies so you can sit back and sip on pina coladas at a beach of your choice.

You Have to Pay Taxes

You Have to Pay Taxes – But You Don’t Need to Leave a Tip

You Have to Pay Taxes – But You Don’t Need to Leave a Tip

I’m proud to pay taxes in the United States; the only thing is I could be just as proud for half the money.
– Arthur Godfrey

When I wrote my new bestselling book, Plan to Not Pay Taxes, the last thing I expected was the outrage of a few commenters about how not paying taxes was not moral and ethical or how important it was that everyone pay “their fair share.”  Other than in cases of splitting a piece of chocolate cake by allowing the non-slicer to choose their piece or in a call-it-in-the-air-no-touch coin flip, there are very few objective sources of fairness in life.  When it comes to taxes, the only logical source is the tax code itself which in this case involves the US Tax Code.  While I am not aware of many people who enjoy paying their taxes, most people feel that they are paying their fair share if they pay what the tax code tells them they owe. 

I certainly can’t tell you I understand the logic or motivations of the US Congress in much of anything they do.  However, in the provisions of the tax code that allow you to generate tax free income for up to half of your adult life, Congress is trying to help those that follow its guidance to overcome the looming retirement crisis in the United States.  Congress says it’s ok to plan to not pay taxes.

Whether you plan to not pay taxes but want to contribute some to the government or just feel like you are being taxed too lightly, you are entitled to send additional money to the treasury as a contribution to reduce the debt.  For those who expressed moral and ethical outrage at the idea of planning to not pay taxes, you can go to pay.gov to pay via credit card or electronic transfer or send a check to the Bureau of Fiscal Service, Attn Dept G, Bureau of Fiscal Service, PO Box 2188, Parkersburg, WV  26106-2188.  Since 1996, individuals have contributed just over $50 million to reduce the debt (about $2.5 million per year). During that time the debt has risen from slightly over $5 Trillion to over $19 trillion

For everyone else, Plan to Not Pay Taxes provides you a guide to not participate in your own retirement crisis.

Brexit Opportunities

Brexit Opportunities

Brexit Opportunities

Great Britain voting in favor of the Brexit from the European Union took a lot of people by surprise. Much of the discussion in the aftermath of the Brexit vote has been experts saying that Brexit is bad and they have no idea what is going to happen. While this is normal in the case of any market dislocation, as Active Investors, we want to figure out where is the best place for us to look for opportunities.

In 2012 or so, London surpassed New York City as the Global Financial Capital. This is why Great Britain opting to remove themselves from the Global Financial system, will have continued impact on the markets for the near term as well as over the next several years. Being that Global Finance is based on trust, the Brexit vote basically violated the trust of all who had been relying on Great Britain as the Global Financial Capital.

Even as there is talk of alternative outcomes, the Brexit vote will freeze transactions and will definitely remove London as the Global Financial Capital. While normally the fall of number 1 is good for number 2, New York has such strong ties with London linked with the impending US Presidential election I think there will be a reluctance to rush into New York for Global Financial transactions. Hong Kong (#3) and Singapore (#4) look well positioned to take over much of London’s lost Global Financial business. Also look for less established cities like Dubai and others to assert themselves as Global players in financial services supported by technology and growth in the Pacific Rim.

Knowing that Great Britain is the number one foreign investor in US based companies and real estate, anticipate that some of these British investors will be feeling a cash crunch and need to liquidate their US based holdings just to pay the bills back home. As Active Investors, research US based companies with investors from Great Britain and start evaluating potential acquisition targets. Also identify US based real estate that is owned by British investors which may be attractive investments for you.

Great Britain has served as a conduit for US manufacturers to export into the European Union. As the companies that support this will effectively be shut out, you may want to look to establish your own import-export business into the European Union. Estonia provides virtual residency for companies that want access to the European Union so may be a good business opportunity now that established relationships will be broken with British companies.

Another outcome of the Brexit vote is that the dollar is strengthening as investors flee from the British Pound and Euro. As your US Dollars strengthen over the next 3 to 6 months, you will have opportunities to buy distressed companies, real estate and currencies. This provides you with opportunities to convert your dollars into assets denominated in other currencies which provide a hedge in the event the US dollar reasserts its macro-trend and weakens as it has for much of the 21st century.

Due to the Brexit vote, there will be great opportunities for Active Investors to invest in companies, real estate and currencies over the next several months. What opportunities are you most excited about as an Active Investor?

Skreens investment

Skreens Investment Presentation Review

Skreens Investment Presentation Review

Skreens provides hardware that allows for display of multiple sources of video feeds on a single screen.  Think of picture in picture in picture with signals coming from any device with an HDMI output.  The screen can be controlled real time with touch screen technology.  Skreens holds a US patent on its technology.
Skreens has validated consumer demand via a kickstarter campaign which generated $500K with 1200 units purchased in a single month.  No specifics were provided as to management team or investment amount sought.

INNOVATION AREA:  Millennial Consumers

Skreens identified innovation area definitely provides a cool gadget, WOW factor but does not fall into one of my preferred innovation areas.  The Skreens technology would definitely be attractive to a millennial market which represents the largest and most powerful consumer force available today which provides macroeconomic support for the innovation.  The strength of the innovation would depend on having an experienced Intellectual Property attorney review the patent and similar patents to understand the power of the Skreens innovation.

INCOMPLETE

Size of the Opportunity

There is no question that first mover technology and gadget geeks will flock to Skreens and similar technology.  The challenge is can it get to the second group of users before competitors and knock offs flood the market.  Also as part of the patent assessment you would want to see if follow on products are protected or if this would be a one hit wonder.

There is a huge risk with hardware technology if global technology protection is not obtained.  International patents add costs and can potentially delay time to market in addition to providing hardware pirates with your blueprints.

INCOMPLETE

Inefficiency

Initial pricing seems healthy but is always at risk with hardware as knockoffs and competitors will flood the market of successful products.  Hardware companies need to continually innovate to maintain long term viability.  An investor would need more information as to future product plans.

INCOMPLETE

Business Godfather Commentary

I will definitely want to buy Skreens technology for my wife and my brother but I do not have insight into the power of the Skreens patent or the strategy for future product roll out.  Cool product but I would need more info to determine if it is a cool company to invest in. 

As an Active Investor you would want to receive an accelerated pay out based on units sold rather than being reliant on the long term health of the company as a way to mitigate your risk.

Caveats

This Presentation Review is my opinion based on extremely limited information – a 1 page write up and 5 minute presentation.  My assessment might change if I had conducted more thorough due diligence.  I provide this assessment for educational purposes in applying the Business Godfather Investable Business Analysis.  Entrepreneurs are always swimming against a universe of people who may not fully understand their true business innovation and that may apply to me.

ostendio investment review

Ostendio Investment Presentation Review

Ostendio Investment Presentation Review

Ostendio is a cyber security and risk mitigation company with an initial focus on healthcare.  Ostendio has a cloud based workflow purporting to be Salesforce for security.  Ostendio’s product has been operational since 2014.  Ostendio appears to have strong and experienced management.

Ostendio is seeking to raise $700K.

Innovation Area:  Big Data and Healthcare

Ostendio addresses two innovation areas.  Its focus on the workflow of managing security infrastructure differentiates it from the many assessment tools available.  The focus on security management provides opportunities for Ostendio to become an essential part of client operations which may provide pricing power.

GREEN

Size of the Opportunity

Ostendio’s initial focus on healthcare provides an industry that has significant security requirements and growth prospects but which also has been a challenging industry to enter due to the diffuse and heterogeneous nature of its participants.

Ostendio may benefit from branching into a non-healthcare arena so it does not get pidgeon-holed into a challenging sales environment.

Ostendio asserts the healthcare GRC market in North America is projected to reach $1.3 billion in 2020 which appears to me to be too small given the high number of competitors in the space and the complexity of the healthcare IT Sales Process.

RED if sole focus is Healthcare; YELLOW if broaden industry focus.

Inefficiency

Ostendio needs to address its current pricing model based on the data they provided.  Ostendio claims 1300 licenses sold and $325K in revenue combined for 2014 and 2015.  If the math is right a license costs $250 but their expenses appear to be closer to $500 per license.  Pricing would need to be adjusted closer to $1000 per license to make this an attactive opportunity.

Ostendio projects losses through 2018 even with receipt of funding which tells me they are going to be looking for more funding and fast.

RED

Business Godfather Commentary

Ostendio has experienced success in its initial implementation of its cloud based solution but needs to address its pricing model and its industry focus to make itself more attractive to me as an active investor.  Ostendio would benefit from providing potential investors with a clearer path to return of their investment and return on their investment.

Caveats

This Presentation Review is my opinion based on extremely limited information – a 1 page write up and 5 minute presentation.  My assessment might change if I had conducted more thorough due diligence.  I provide this assessment for educational purposes in applying the Business Godfather Investable Business Analysis.  Entrepreneurs are always swimming against a universe of people who may not fully understand their true business innovation and that may apply to me.

DisposeRX Investment

DisposeRX Investment

DisposeRX Investment Presentation Review

DisposeRX is a development stage company focused on the safe disposal of a leftover and/or expired drugs by providing a patented drug disposal technology.  DisposeRX asserts pharmaceutical companies have some responsibility to ensure safe disposal of unused prescriptions.  DisposeRX appears to have strong and experienced management.

DisposeRX is seeking to raise $500K.

DisposeRX INNOVATION AREA:  Healthcare

DisposeRX has identified a niche in the healthcare space.  More research is necessary to determine the level of responsibility on pharmaceutical companies to address the issue to determine the viability of the opportunity.  If responsibility is not mandated and associated with fines or other costs, this could be a classic case of failure of the commons as identified by Coase 50 years ago.

INCOMPLETE

SIZE OF THE OPPORTUNITY

DisposeRX asserts there are 3 billion prescription vials issued each year in the US.  Their solution retails for $0.11 per bottle so on its face this could potentially be a $300 million opportunity.  Absent a strong mandate the opportunity is likely much smaller than that.

INCOMPLETE

INEFFICIENCY

Success of this relies on market saturation and almost monopoly relationships being formed with pharmaceutical companies and/or responsible parties.  Commoditization seems inevitable.

RED

BUSINESS GODFATHER COMMENTARY

Full evaluation of DisposeRX requires knowledge of existing regulatory structure regarding disposal of pharmaceuticals.  Even assuming favorable analysis in that area the risk of commoditization is too great without some avenue to obtain cash faster as an investor – perhaps a piece of each product sold by the company.  Absent that there is not a clear path to this being an investable business based on what was presented.

CAVEATS

This Presentation Review is my opinion based on extremely limited information – a 1 page write up and 5 minute presentation.  My assessment might change if I had conducted more thorough due diligence.  I provide this assessment for educational purposes in applying the Business Godfather Investable Business Analysis.  Entrepreneurs are always swimming against a universe of people who may not fully understand their true business innovation and that may apply to me.

devensoft investment review

Devensoft Investment Presentation Review

Devensoft Investment

Devensoft Software provides a SaaS web based application that companies use to manage the complexities of Mergers and Acquisitions.  Devensoft automates tracking and provides a repository of documentation.  Devensoft allows for the measurement of synergies and financial performance.  Devensoft has been operating its product since 2014.  Sales more than doubled in 2015 and are projected to double twice by 2017.  Devensoft appears to have strong and experienced management. The Devensoft investment opportunity is $1 million in capital.

When I apply the Business Godfather assessment of whether they are an Investable Business for me I look at:

  1. The Innovation Area
  2. Size of the Opportunity
  3. Inefficiency Capture

Innovation Area: Big Idea

With Private Equity and established companies looking for opportunities the M&A market is booming.  Devensoft applies established innovations to a growing niche.  Companies generally have a poor track record of integrating acquired companies.

GREEN

Size of the Opportunity

While M&A activity is booming now, this traditional has been a cyclical market.  While the potential market includes businesses with significant budgets their is a somewhat limited universe of potential users.

YELLOW if general investment; GREEN if Strategic Investment

Innefficiency

Devensoft is clearly creating efficiency and value for clients.  Current Pricing is billed on a per seat basis on an annual pre-paid subscription.  The pricing strategy probably needs to be reviewed in an effort to improve profitability.  Exploring success fees may be a way to gain client commitment and combat commoditization of service.  Devensoft can provide great value as a strategic acquisition but there is danger that the service provided allows most of the value to flow to clients.  YELLOW – RED

Business Godfather Commentary

I would want to see a clear exit strategy as an investor because there is a danger that Devensoft becomes a commodity in a cyclical business which is not attractive.

Caveats

This Presentation Review is my opinion based on extremely limited information – a 1 page write up and 5 minute presentation.  My assessment might change if I had conducted more thorough due diligence.  I provide this assessment for educational purposes in applying the Business Godfather Investable Business Analysis.  Entrepreneurs are always swimming against a universe of people who may not fully understand their true business innovation and that may apply to me.

Rx Investment Review

Cyber RX Investment Presentation Review

Cyber RX Investment Review

A Cyber RX Investment – Cyber RX is an online measurement and analytical tool that helps companies quantify and manage their cyber security risks and improve their cyber security readiness.  The Cyber RX product allows for a quick assessment of a company or organization’s cybersecurity readiness based on the NIST cybersecurity standards and best practices.  The Company owns a trademark and has submitted a provisional patent application in May 2015.  Cyber RX appears to have strong and experienced management.

Cyber RX seeks $2 million in funding for product enhancement and sales and marketing.  

When I apply the Business Godfather assessment of whether they are an Investable Business for me I look at:

  1. The Innovation Area
  2. Size of the Opportunity
  3. Inefficiency Capture

Innovation Area:  Big Data

Cyber Security is an absolute growth area as more and more companies and organization use Big Data approaches and more and more companies and organizations fail to protect the Big Data systems they have created.

GREEN

Size of the Opportunity

Although Cyber RX cites the potential size of the cyber security market as projected to be $61 billion in 2019, Cyber RX is initially only addressing assessment and evaluation of systems which is a much smaller piece of this market.  The real opportunity is in the remediation and ongoing monitoring of the security issues unearthed by the assessment.  The better business opportunity is in using the Cyber RX tool to support a services business.  This approach would hamper the ability of the business to scale but would provide more predictable means of growth, funding and profit.

YELLOW

Inefficiency

The Cyber RX product purports to conduct a full assessment in hours rather than weeks and months.  In this case the benefits flow to the user and the cost is borne by the company.  It is not clear how much of the inefficiency Cyber RX is positioned to capture.  Pricing of the tool will likely get commoditized.

RED

Business Godfather Commentary

Cyber RX is in a growing industry but likely must rely on services to fuel its growth and profitability.  Cyber RX looks to be a strong business but not one that necessarily needs outside investment.  My recommendation would be for Cyber RX to pursue an organic growth strategy fuelled by the founding members sales efforts rather than spending too much time pursuing funding.

Caveats

This Presentation Review is my opinion based on extremely limited information – a 1 page write up and 5 minute presentation.  My assessment might change if I had conducted more thorough due diligence.  I provide this assessment for educational purposes in applying the Business Godfather Investable Business Analysis.  Entrepreneurs are always swimming against a universe of people who may not fully understand their true business innovation and that may apply to me.

Investable Businesses

Why Do I Deserve this Generosity? ISO Investable Businesses

Investable Businesses

When evaluating investment opportunities you always need to ask yourself “What did I do to deserve this generosity?” Despite the grandiose claims and the beautiful geometric growth projections contained in every startup business plan, the simple fact is that most of the companies out there looking for capital are not Investable Businesses.

By Investable Businesses I mean a business where a third party investor has a colorable opportunity to get a significant return on their investment in 3 to 5 years.  This does not mean they are not good businesses but it does mean there is not a compelling case for an outside investor to invest in the business.  Many startups are creating efficiencies for users but not capturing inefficiency effectively for themselves.  Many startups are aiming to capture too small of a market.  Others are seeking to position themselves in a way to never be profitable.  Some have viable business models that should be able to operate from cash flow rather than needing outside capital.

In evaluating whether a company is an Investable Business I look at:

  1. The Innovation Area
  2. Size of the Opportunity
  3. Inefficiency Capture

The Innovation area needs to be supported by favorable macroeconomic trends.  21st Century Innovation areas include food, water, energy, big data, transportation, healthcare and millennial consumers.  We don’t want to be investing in a company that is in a maturing industry.  We want a company and industry that is just entering the Innovation Cycle.

The Size of the Opportunity should be sufficient for you to get a 10 to 100 times return on your investment valuation.  If everything goes right and you are unlikely to achieve 10X return on your investment, you have tied up your capital in an unproductive asset.

The Inefficiency Capture that the business is capitalizing on is based on the Business Godfather Cost-Benefit Analysis where we look at where the costs are incurred and where the benefits flow.  We do not want a business that creates efficiencies for others and does not capture enough inefficiency for itself to be profitable and growing.  Profitable and growing businesses capitalize on inefficiencies.
Over the next few blog posts I will be applying this analysis to several companies that I saw present at a Tech2000 Connectpreneur event in March.

tax free business strategies

If It’s Free, It’s for Me: Tax Free Business Strategies

If It’s Free, It’s for Me: Tax Free Business Strategies

Once you have your money positioned for Tax Free Business Strategies as we discussed in our last post, you then want to identify potential high yield strategies for your Tax Free Wealth Assets.  These are high risk, high reward strategies so you need to limit this to an appropriate portion of your overall financial assets.  These strategies will provide tax free wealth and income for you after you achieve the age of 59 ½.  In order to implement these strategies you will need to break free from the financial services 401Ks and IRAs and have tax free vehicles which allow you to hold these specific types of assets.

Angel Investing

Think of the power of having an explosive startup and then not having to pay tax on the capital gains when you cash out.  Pretty cool.

Many business owners engage in Angel Investing in startups that hopefully have high potential.  We discuss how to identify high potential opportunities in The Business Godfather Treatment.  Angel Investing is definitely an area where you want to diversify across five or ten companies with investment amounts of between $10,000 and $100,000.  The basic rule of thumb for good angel investors is 2 out of 10 hit it big, 2 out of 10 provide some positive return and 6 out of 10 result in total losses.  If you are not good, it could be worse.

You can not pull a salary from these companies but you can serve as a Director and receive dividends from the company on a tax free basis.

Legacy Appreciation Corporation for Tax Free Retirement Income

I made up the Legacy Appreciation Corporation name but this strategy provides you with tax free income in retirement and a tax free business that you can hand down to your heirs.  This is less risky than the Angel Investing Tax Free Strategy and provides you the opportunity to leave a legacy for your family.  

To make this work, you need a business that generates cash flow without your day-to-day involvement.  You can not pull a salary from these companies but you can serve as a Director and receive dividends from the company on a tax free basis. Think of a convenience store franchise or some similar tested model that should stand the test of time.

Cash flow from the business can be used to invest in other businesses or can be distributed to you as Tax Free Income as beneficiary of the IRA once you are 59 ½.  You can then pass this on to an heir who can also be building up Tax Free Wealth that can provide them with a Tax Free Income stream when they reach 59 ½.  This is why I call it the Legacy Appreciation Corporation.  You will be leaving a legacy that your heirs really appreciate.  Who knows, they might build a statue to you or throw a parade every year on your birthday.

For specific guidance on the mechanisms, join the Business Godfather LLC Family or review  Swanson v Commissioner 106 T.C. 76  https://scholar.google.com/scholar_case?case=15277963416926279130&hl=en&as_sdt=6&as_vis=1&oi=scholarr

and

IRS Field Service Advice Number: 200128011 http://www.irafinancialgroup.com/IRAFinancialGroupFSA200128011.pdf

Real Estate Development and Improvement

Real Estate Development  and Improvement has built a lot of wealth over the years.  While generally holding rental real estate is preferable as a Taxable Investment due to the many deductions associated with rental real estate, if you are developing real estate or fixing and flipping real estate this can be used for Tax Free Wealth and Tax Free Income.

You will be restricted from directly benefitting from the real estate so no vacation homes or stuff like that.  You will not be able to draw a salary from your efforts either.  You will be able to pull out dividends and profits from the account once you are 59 ½.

Complementary Tax Free Income Strategies

Tax Free Income Strategies that can complement any of the three Tax Free Strategies listed above include medium risk, medium return strategies including Convertible Notes, Real Estate Tax Liens and Secured Commercial Lending.  Convertible Notes can be used to fund Angel Investments.  Real Estate Tax Liens can provide a cost effective way to generate income and acquire new properties.  Secured Commercial Lending can support any of the three strategies.

Harness the Power of Tax Free Wealth and Tax Free Income

Start harnessing the power of Tax Free Wealth and Tax Free Income Strategies.  The US government says you can do this.  No need to ask permission.  Just proper planning and preparation. Please let me know other areas you are interested in learning more about to build more valuable businesses for you and your legacy.

blood is a big expense

Blood is a Big Expense – But So are Taxes

Blood is a Big Expense – But So are Taxes

If I asked you what your biggest expense is for your business you would probably say people or products.  But what about for you personally?  For most successful business owners, taxes are probably your biggest expense, unless you are actively planning and working to reduce or eliminate your taxes.

This is true for your income but also for your wealth as you build more valuable businesses and even if you are squirreling money away in tax deferred vehicles like 401Ks and IRAs.  As it relates to your wealth, while you may not be paying taxes  each year, you may be growing a huge future tax liability.

There are four basic ways to hold and build your wealth from a tax perspective:

  1. Cash or Cash Equivalents
  2. Taxable Investments
  3. Tax Deferred Investments
  4. Tax Free Investments

For most business owners, their business assets would fall into the Taxable Investment category.  The most underutilized strategy to hold and build wealth is as a tax free investment.

Other than for the most civic minded of you, maximizing your tax free assets makes the most sense particularly as it relates to your wealth.  I understand one of the beauties of our humanity is we don’t need to be logical, however, developing Tax Free Strategies can help you get more benefit with little extra effort from the wealth you have developed as a business owner.

Before you can benefit from Tax Free Strategies, you need to position your assets in a tax free vehicle: either a Roth 401K or a Roth IRA.  The two basic positioning strategies are Contributions and Conversions.

Contributions

On an Annual basis everyone can contribute up to $18,000 after tax dollars in a Roth 401K provided that you make at least $18,000.  Additionally for those of you over 50, you can contribute up to $24,000 after tax dollars into a Roth 401K.  Plus your employer (you if it is a single owner company) can also contribute up to 25% of your earned income each year up to a combined $53,000 combined between your contributions and your employers contributions.  There are some special calculation rules for single owner companies so your maximum number may be lower depending on how much you make.  For more information, see https://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

Another bonus for those of us over 50, we can contribute $6500 per year and the rest of you under 50 can contribute $5500 per year after tax dollars into a Roth IRA.  By combining these strategies over a four to five year period you can position over $100,000 to be used for your Tax Free Strategies and even more for your Tax Deferred Strategies.

If you don’t meet the income limits for direct contribution to a Roth IRA, you can contribute these amounts to a traditional IRA with after tax dollars and build up your basis in this strategy.  You can then convert your traditional IRA into a Roth IRA at a later date.

Conversions

There is currently no restriction on converting tax deferred assets into tax free assets.  The reason is that this conversion is a taxable event to the extent that your converted assets exceed your basis in the tax deferred assets.  If you have been building up tax deferred assets with after tax dollars, there is not tax on what you have contributed – only on the gains that you have made in the meantime.

Once you have your wealth positioned in a tax free basis you can start developing your Tax Free Strategies.  I understand that there are many analyses that demonstrate if you use a passive, low-yield strategy used by traditional financial services you will net out about the same amount.  But our goal as business owners is not to use Tax Free assets in passive, low-yield strategies but in finding high yield wealth and income strategies

Our next post will outline some high-yield, Tax Free Strategies.