Finding the Right Business Partner
One of the best pieces of business advice I ever got was "You can’t do a good deal with a bad partner."
Having had many partners over the years, I can say that this statement holds true. So I thought I’d offer some personal experiences I’ve had with partners both good and bad.
All Play and No Pay
The first partner is a former CPA who does spectacular pro forma projections. His numbers on the future viability of a real estate project are always well laid out and convincing.
In fact, after first meeting him and his business partner, a Wall Street whiz kid, and looking at some photos of a property they were interested in and an architect’s rendition of what it would look like upon completion, I was sold. I became their money partner.
So far I’ve done three deals with this pair, and to date, we haven’t made a dime. The numbers still look neat and tidy every quarter, just the way a CPA should present the financials. The problem is in execution: The projects never finish on time or on budget. Something always goes wrong, and there’s always some kind of drama — problems with environmentalists, city planners, or banks.
Finally, after years of squabbling, his partner (the whiz kid) left the relationship. The projects of theirs that I invested in are still operating, but to date I haven’t made any money on them.
A Complementary Relationship
The second partner is Ken McElroy, a writer and personal friend. My wife, Kim, and I have made the most money with Ken. There are several reasons why:
• We share the same investment philosophy.
We buy, improve, hold, and refinance. We generally don’t like selling our properties.
• His expertise makes up for gaps in mine.
Ken owns the largest property management company in the Southwest, and his partner, Ross, is a real estate developer. Both men have nearly 20 years of experience in their respective fields.
Because of Ken’s years as a property manager, he has the experience and skill to evaluate the value of an existing property. And Ross has the know-how to bring the reconstruction of properties in on time and often under budget.
• We adhere to the same strategy.
Ken, Ross, Kim, and I like to put our money in, improve a property, bring in better tenants at increased rents, reappraise the property, and then borrow our money out and move the equity on to the next property. We then repeat the process.
A Near-Infinite Return
For example, we put approximately $2.5 million into a $9 million, 300-unit apartment house, and secured a construction loan to improve the property. A year later, due to attracting better tenants at higher rents and a lower vacancy rate, the property was appraised at $14 million.
With the higher appraisal, we refinanced the property with a new loan at a better interest rate, and were able to take out $4 million tax-free. The money is tax-free because it’s a loan, not profit. The debt service — the monthly mortgage payment — is paid for by the tenants.
With this investment strategy, our ROI is practically infinite. We have no money in the investment, yet we collect a monthly cash flow and still have control over the property. To me, this is better than buying a property, selling it, and having to pay taxes on our gains — or be in a rush to buy a new property just to avoid capital gains taxes via a 1031 tax-deferred exchange.
(A 1031 tax-deferred exchange gives sellers a certain number of days to move money from a sale into another property and defer paying taxes on the gains. The process is more complicated than it sounds, which is why I strongly recommend using an exchange agent to guide and assist you in the process. Most real estate brokers can recommend an exchange agent if you live in the United States; other countries have different rules.)
Lip Service
Finding a great partner like Ken is similar to finding a great husband or wife — you have to kiss a lot of frogs before you find the prince or princess of your dreams. I don’t know of a magic formula other than to keep kissing.
My rich dad often said to me, "You need to be a good partner if you want to find a good partner." Obviously, this is as true in business as it is in love. In my opinion, the best way to begin is by looking in the mirror and asking yourself, "What do I bring to the table? Am I the kind of person I would want to do business with?" It’s important to evaluate your strengths and weaknesses honestly.
One of the reasons Ken, Ross, Kim and I do so well together is because we all love real estate; we complement each other in terms of our individual strengths and weakness; and we’re all adept at raising money. We make a good team because there’s synergy between us, and synergy is money.
A Way Out
My most important partner is my wife, to whom I’ve been married for nearly 21 years. When Kim and I first met, I was deep in debt from a disastrous business partnership. Regardless, on our first date I asked her, "Do you have a problem with being rich?" It’s tough to get rich if your partner doesn’t share that goal, and I would never have become rich without her.
That brings me to my next point: All partnerships should have an exit strategy. My partner Donald Trump says that married couples should always have a prenuptial agreement. True, a prenuptial is important if one partner is much richer than the other before marriage, but Kim and I don’t have one. Instead, we have our own corporations that we control independently.
Still, Donald is right: The best time to think of an exit strategy is before becoming partners — that is, after you’ve kissed a few frogs and have found your ideal business companion. But remember: They sometimes turn back into frogs, and you can’t do a good deal with a frog.
Biography
Robert T Kiyosaki is a Hawaiian born author and motivational speaker. He studied in America, joined the Marine Corps and fought in the Vietnam war. Kiyosaki now lives in America and has risen to fame as a motivational author and speaker in the areas of personal finance, investing and business. His Rich Dad Poor Dad series of books have sold millions of copies worldwide and through his education programs he is reaching thousands of students with his financial messages.
Kiyosaki was born and raised in Hawaii of Japanese / American parents. After moving to New York and graduating from college, Kiyosaki enlisted in the Marine Corps. He become an officer and helicopter gun pilot, serving time in the Vietnam war. Upon his return Kiyosaki worked as a salesman for the Xerox printing and photocopying company.
His first success in the business world came with a company he started in 1977. Kiyosaki‘s company was importing nylon and Velcro wallets that went on to become associated with surfers, earning them the title of "surfer wallets" and making Kiyosaki good profits.
Eventually Kiyosaki went on to become an educator in the areas of business and finance. In the mid eighties he established an educational company where students worldwide could learn about his financial philosophies.
Kiyosaki developed a board game to educate people financially, while at the same time remaining entertaining. The Cashflow 101 board game went on to become very successful for Kiyosaki. Cashflow 101 is now also available online, where players are able to learn the basics of investing and personal finance.
Rich Dad, Poor Dad
Robert Kiyosaki‘s real success came with a series of books based on the rich dad and poor dad characters. Kiyosaki writes the books in an entertaining method where financial novices can remain entertained and at the same time learn his personal finance theories. The rich dad, poor dad characters are fictional people, loosely based on people in Kiyosaki‘s life. Basically, poor dad is the man that goes to work hard for his money in a government job, just getting by each week, paying the bills and feeding the family. Eventually going on to retire poor and unhappy. Rich dad is more of a risk taker and uses his money to invest in real estate and businesses, eventually leading to an abundance of financial wealth where he retires early with a large fortune.
The Rich Dad, Poor Dad series consists of more than 8 books based on themes of investing, real estate, personal finance and business motivation. Many of them have gone on to become best sellers in their genre with the most popular (Rich Dad, Poor Dad) selling more than 17 million copies.
Kiyosaki Critics
Robert Kiyosaki has created a loyal group of many followers world wide with his financial philosophies, but there are also critics of his teachings. Some critics have accused Kiyosaki of giving novice investors false hope and encouraging them to make financially risky investment decisions, especially in the areas of real estate.
Summary
Kiyosaki briefly retired at the age 47 in 1994. He remains involved with the Rich Dad educational company, aiming to spread his financial literacy message worldwide. Other founding members of the educational group include his Wife Kim Kiyosaki and Sharon Lechture, CPA (co-author of the popular Rich Dad, Poor Dad book).
Business Plan Basics
Chapter 3: Business Plan Basics
Winning business plans map out the major W’s of your proposed business – the who, what, when, why and where – to help you figure out that all important H – how. Who are the major players? Who are the owners, personnel, advisors, customers, competition, even the target audience for the plan itself? What do you want to achieve? What is your sustainable advantage? What do you offer? What do you produce? When did (will) the business start? When do you want to meet particular goals? Why are you in business? Why would customers want your product or service? Where is the business located? Where is the target audience? Where do new opportunities lie? And finally, how do you get from where you are now to where you want to be?
Ideally, a business plan is the intersection of everything inside the business (costs, products, services, personnel, etc.) and everything outside the business (competition, market trends, political forces, etc.) Forces inside the company meet those outside the company and a business plan is born.
Many entrepreneurs put too much emphasis on the inside forces and ignore the outside. No business is an island; no company operates in a vacuum. Even as you are tackling all the tiny details that need to be included in your plan, be sure to keep a grip on the big picture.
A winning business plan outlines goals, clearly communicates strategies and establishes plans for both the best and worst case scenarios (as well as any and all scenarios in between) that might befall your company. Seasoned entrepreneurs and investors know to expect the unexpected and at the same time anticipate the challenges inherent in each particular business.
In great business plans, you not only sell your business concept, you sell yourself. Your entrepreneurial spirit and passion are critical factors to a potential investor. Communicating your team’s experience, abilities and track record will take you even farther. The key is showing how your experience and abilities will support your business and help it to excel.
A good business plan can help you determine what you need to make your business a success – from personnel to financing, location to advertising. But to truly make your company succeed, you must pay attention to what you find during plan preparation. Don’t do the plan, figure out you need $300,000 and then try to wing it on $150,000. Be realistic in your planning, then be just as realistic in following the plan.
The hardest part of crafting a good business plan (or even a bad one, for that matter) is overcoming inertia. Most people have a great idea and fail to take action because of a fear of failure. A body at rest tends to stay at rest; a body in motion tends to stay in motion. Inertia is what keeps a body at rest (along with a comfy couch, a good TV night, a high-speed modem, whatever). Kick inertia in its thermodynamic behind, get off your couch and get started. Now. Don’t wait until you finish this book. Don’t even wait until you finish this chapter. Go now and grab a pen and a notebook and start taking notes. Sometimes the simple motion of moving a pen across a page is enough to get the rest of your body in motion.
Just as you must overcome inertia to construct a business plan, you might also have to overcome fear. A business plan sounds complicated. But it shouldn’t be. A complicated business plan is often worse than no business plan at all. Your plan should be understandable in its language (leave your thesaurus on the shelf); it should summarize where appropriate (leave the details for appendices); and it should truly describe your business (leave the boilerplates for metal shop). It needs to be short and to the point. Keep it simple, but make it complete. Treat your plan as if it is the only information a potential investor, lender or manager will have before making a decision enabling the success of your business.
Writing a business plan is a labor of love, but also an exercise in logic and forethought.
How Fast is Your Money Moving?
For years, I choked when I heard such a question. I choked because I was at a loss for words. I was at a loss for words because such a simple question does not have a simple answer.
So the answer I came up with was, "It depends."
I tried this answer for awhile and soon noticed that this answer was unsatisfactory not only to the person asking the question – but also to me…
Looking for a new answer, I came up with, "If you do not know what to do with your money, put it in a bank far away from you, with instructions not to let you touch it." I would add, "If you do not know what to do with your money, and you announce publicly that you are an idiot with money, many people will call and tell you what to do with your money…which is to give your money to them." This new answer was not a satisfactory answer, yet it was better than "It depends."
Today, I am happy to announce that I have a new answer to the same question and that answer is, "Read my latest book, Who Took My Money?" After years of frustration and unsatisfactory short answers, the answer to that simple question is now in a book and I am very proud of this book. I am proud of this book because it takes the time to answer the question, "What should I do with $10,000?"
The reason the answer to such a simple question is complex is because what a person should do with the money depends upon who the person is. For example, if the person has a limited financial IQ, then the person should definitely put it in a bank and keep the money secret and far away so no one; including that person, can touch it. If the person has a higher financial IQ, then he or she can invest, leverage, and speed up their money to achieve far higher returns than most people think possible.
In my new book, Who Took My Money, there are three different examples of investing $20,000. Using exactly the same parameters of 5% interest, and a 7-year period:
| Choice #1: | a mutual fund | $28,142 | 5.8% |
| Choice #2: | real estate | $101,420 | 58.2% |
| Choice #3: | real estate | $273,198 | 180.9% |
The difference between real estate in choice #2 and choice #3 is that financial velocity is added to choice 3. If you would like further clarification on the causes of the differences, you can find this example on page 118 of the book.
The point of this article is that a higher financial IQ does definitely pay off and that variable is why I have had a difficult time answering such a simple question. If a person has a very low financial IQ then, obviously, they should put the $20,000 in the bank. At 1% interest, the $20,000 would have grown to approximately $22,000. While not great, it is better than losing the nest egg.
One of the purposes of The Rich Dad Company is to continually improve a person’s financial IQ and this is an example of the pay off of a higher IQ. So keep learning and soon you will find your wealth increasing – not because you are working harder but because your money is moving faster.
Top Tips For Taking Control of Your Financial Future
1. To get where you want to go, you need to know where you are.
Complete your own financial statement. This is your first step in taking control of your financial future. How much passive income do you have today?
2. Pay yourself first.
Put aside a set percentage from each paycheck or each payment you receive from other sources. Deposit that money into an investment savings account. Once your money goes into the account, NEVER take it out, until you are ready to invest it.
3. Look for real estate "for sale" signs in your area.
Call on three or four and ask the brokers to tell you about the properties. Find a real estate investor (mentor) and ask them to visit a property with you to tell you what to look for.
4. Attend business opportunity conventions or trade expos.
See what franchise or business systems are available in your area.
5. Who you spend your time with is your future.
Surround yourself with people who will support you, not discourage you.
6. TAKE ACTION!
Put a little money down. Start small. It’s amazing how quickly you learn when you have real money in the deal. Make mistakes, learn from them, and then take action again!
7. Set a long-term financial goal for where you want to be in five years.
Also set a smaller short-term goal for where you want to be in twelve months. Passive income is the key.
8. How do you spend your spare time?
Commit five hours of your time each week to do one of the following:
- Read the business page and The Wall Street Journal
- Read financial magazines and newsletters
- Listen to the financial news on television or radio
- Listen to educational material on investing and financial education
- Play CASHFLOW® 101
9. Meet with a business broker to see what existing businesses are for sale in your area.
It is amazing what you can learn by just asking questions and listening
10. Find people in your area to play CASHFLOW® with or create your own circle.
Visit RichDad.com and click on CASHFLOW CIRCLES in the Message Forum to find people in your area who play CASHFLOW® 101
11. Join Rich Dad’s INSIDERS!
Plot your own course to financial freedom and surround yourself with people who will support you every step of the way!
12. TAKE ACTION!
Start small, learn from our investing mistakes, and continue your financial education.
