Nobody is perfect, and everybody is busy.  So cut yourself some slack, and read up on What Do I Do Now (WDIDN) if you’ve had some financial indiscretions in your business during 08:

4 Financial Sins and WDIDN (What Do I Do Now?)

Sin #1:  Good intentions, lack of follow thru.
Did not keep up with the “books and records” part of my business.  Subscribed to Prosperity, but didn’t actually use it (I wanted to though!).

WDIDN? If you were more naughty than nice in actually using Prosperity last year, we do NOT recommend you go back and enter a full year of income and expenses line by line.  No, no, no!  Not unless you have nothing but time on your hands. Instead, make a commitment to fulfilling the “good books and records” requirement that IRS has for your business for 09…and move on.  In order to do your taxes, your accountant needs a comprehensive total of your business income and expenses.   If you would like to learn a work around in Prosperity so you can have “some” records for income in 08, sign up for our It’s Not Too Late for 2008 webinar or contact our education team support@prosperityapp.com 

Sin # 2:  Shoeboxes, ashtrays, and handbags, oh my!
I have business receipts stashed all over the place—junk drawers, shoeboxes, handbags, etc.

WDIDN? Envelopes.  Get 12 paper envelopes and label them January – December 08.  Organize the receipts by the month and stuff them into the right envelope. Make sure every receipt is clearly readable, and that it’s is noted with appropriate documentation about what expense category it is related to. Examples:  Supplies, Gas, Biz Meals, etc. Take each envelope and staple it to the corresponding bank statement for the year. April envelope stapled to April Bank Statement. 

Tip for 09: Hang an envelope somewhere in your house or office, and drop all your receipts into that one envelope all month long. After you’ve reconciled your account(s) in Prosperity, staple it together w/ your envelope for the month.  Take the Categories and Receipts webinar.

Sin #3: My business has been sleeping with my family
I have been co-mingling business and personal funds all year long; and I’ve used my business bank account to pay for personal things (like clothing, groceries, presents, etc.). Whoops!

WDIDN? Stop doing it right now! Your business is your business; your personal life is your personal life financially. They must be separated. Separate bank accounts, separate usage-rules, separate everything.   Think it’s negotiable? Remember this:  If your business is audited at some point, co-mingling will open you up to a personal audit too. Always assume the position as a business owner, “It’s not a matter of IF you’re audited, it’s WHEN.” 

If you have been robbing-Peter-to-pay-Paul or just didn’t know any better, here’s our advice. Make sure you have clearly noted books and records and don’t try to write off something that isn’t a legit biz expense (e.g. life insurance premiums) to compensate for it.  Take the Setting Yourself up for Success webinar or request some time w/one of our financial coaches to help you get set straight.

Sin#4: Filed my bank statement and did nothing with it.
I did not reconcile my bank statement against my own books and records—that’s kind of a grey area to me.

WDIDN? The #1 way that identity theft is caught is by reconciling your own books and records against your bank statement. Have you ever noticed funny little charges that you couldn’t account for? (we found one from a domain company this month.) You only find those things when you reconcile.  We find that most people don’t reconcile because they were never taught how and they think it involves something about writing on the back of their bank statement in all those boxes.  Reconciling your statement to your records in Prosperity is a cinch! It helps you know what transactions have cleared, and will help you recognize financial trends of your business. To learn how to reconcile your bank statements, take the Reconcile and Anti-Identity Theft Webinar

Financial sins are easily covered up or forgiven.  We are standing with you in 09 to help you be an angel w/your finances and to be wildly profitable.

Like you, I go to the gym in the morning and see the headlines splashed across the tv screens—I observe the people around me running a little slower, and elipticisizng (is that a word?) with less vigor as we watch the unfolding of an historic financial disaster.  When a hurricane happens, everyone understands that a big, nasty storm blows through one of our cities, that lives are in danger, and real estate is going to be damaged.  We understand that kind of disaster. I’m not so sure that we understand this kind of disaster.

Everybody has been calling, texting, and emailing me for my take on what’s going on out there. (Now y’all made me blush!) Most of us really don’t understand this kind of disaster we’re looking at, and what it means for us and what on earth it has to do with the Direct Selling business you’re building. So I’m going to unpack it in English for you! You already know that our passion here at Prosperity is to take all things financial, and turn them into something that makes sense to your worldview, the way you do business, and the way you leverage your greatest asset (your ability to generate income).  We are big believers in capitalism and we believe in the Direct Selling businesses.   

I’m not an economist, but I think that as professionals, we need to be empowered by knowledge so we can act appropriately.  With that said, let’s dive in…

The three minute summary of the Sub-prime, Fannie Mae, AIG, & WaMu Mess

 In Summer 07, there was an undercurrent of disaster brewing in the financial markets.  The financial markets are where money is sold—literally.  How can you sell money? 

It starts with the Federal Reserve (central bank for USA) saying to big banks, “Hey, I’m going to lend you money…but you’ll have to pay it back at prime of 2%. So then those banks take the loan, and re-loan it with additional interest points (a point is 1%). They loan money to businesses as investment capital, to home owners, issue credit cards, give car loans, etc. Banks started to get a bit greedy—especially in 2004- 2006 when the housing market was booming. The Democrat Party spearheaded a movement to have 70% home ownership among us. With interest rates at an all time low, this seemed doable and banks would profit huge. The pervasive attitude was that real estate always appreciates.  They started to offer mortgages to people who had bad credit, no credit, and sketchy income sources. Insult to injury—they gave bigger loans to people than they could afford (which artificially overpriced the value of homes).  After all, if real estate “always appreciates” there was little risk. Banks were blinded by greed.

With zillions of dollars worth of IOU’s (mostly mortgages) on the books, financial institutions started to leverage—a sexy way to say speculation—they started to buy these things called Credit Default Swaps.  They are demonic “investments” that supposedly offered insurance against a company or a pool of mortgages from defaulting.  It was a get-rich-quick investment that everyone in the financial markets jumped into with both feet.  AIG was the primary issuer of these pixy-dust securities (think of securities as stocks). They got in over their head, and were going to have their credit score reduced because they couldn’t pay when mortgages started going belly up.  Whether you’re AIG or LeAnne Ozaine-Smith, if your credit score is pillaged, you’ll pay prohibitive interest rates to borrow money.

Enter the Government Sponsored Enterprises (GSE) of Freddie Mac and Fannie Mae (the US Postal Service is another example of a GSE). These organizations sold securities based on pools of mortgages; that’s why their called mortgage-backed securities. When folks started to default on their loans, the value of these stocks went to hell in a hand basket.  The government was obligated to fix the problem because they basically own Freddie Mac and Fannie Mae.  No way around it. 

LeAnne’s Brief Soapbox 

As a culture, it is easy to abdicate responsibility to the banks, the Fed, CEOs of businesses, predatory lenders, and Wall Street.  We salivated at the American Dream, and bought more house than we could afford as if it was our inalienable right to live in a big, glorious home.  Or if we didn’t buy a big home, much like banks, we leveraged our families to the hilt with Home Equity Lines of credit and continued to borrow as if the supply would never catch up with demand.  We have no basis of financial responsibility and then wonder how we end up in hot water?  Seems pretty obvious to me.     

The $700 Billion Bail Out Bill—what the heck is that supposed to do?

It was the Government’s way of issuing a line of credit to the Treasury so that it could lend money to the financial markets in exchange for “warrants” in those companies.  Think of warrants as more than IOU, it’s a legal stake in that company.  They were trying to help companies dump their positions in stinky mortgage-backed securities.  Also, it should be noted that Wall Street firms would not have directly received the funds (thus the whole hype about executives banking off of it was hog wash).  The bill would have helped temporarily ward off a Firm’s creditors.  

I think this quote is extremely profound in an election year:

“Of the 38 incumbent members of Congress from both parties who are considered vulnerable in the coming election, 30 voted against the bill…”  (Without Bailout Plan, What will the Cost Be, Time Magazine, September 30^th, 2008) 

What in the heck does all this have to do with your business?

Everything.  Since 2003 my team and I have been loud-mouth advocates in the business community of financial responsibility in business.  We’ve exhorted you to manage your business with financial integrity so you can have financial peace in moments of history like this.  And we’ve made it a no-brainer to manage your business finances with Prosperity—found out www.spendonpurpose.com

Never before has it been more important to take all that you envision for being financially independent and make it reality.  Here are some practical tips to help you embrace capitalism, your God-given potential, and to bolster up your confidence.

A law professor , who specializes in financial products regulation (mortgages, securities, insurance, etc.) argues that trying to teach people how to manage money is a waste of time and money…she even implies that it’s “dangerous.”  She said, “Financial literacy classes give people the illusion that they can successfully manage their finances.” 

 Excuse me?  Did I read that correctly?  Thought you’d like to hear my steamy letter to the editor…  (I just couldn’t help myself.) 

Dear Money Magazine– I’m a financial planner and I own the company www.spendonpurpose.com an online budgeting resource for families and small businesses.  As an advocate and financial author, I can guarantee you that associate professor Lauren Willis is grossly misguided in her “research”.  In a couple days, I’m going on a 10 city speaking tour around the USA  doing exactly what she says may be “dangerous.”  Teaching people how to manage money.   I will have the privilege to speak  to audiences of hundreds of business owners who want to know how to, turn a profit in business by the careful mastery of income and expenses.  Unlike Lauren Willis (who probably hasn’t taught THOUSANDS of people how to budget, how to decimate debt, how to be financially enlightened) I have seen first hand what happens when someone begins to understand the potential within themselves to master finances.  I have watched people overcome fear around finances (money does not equal math).  As a Financial Planner,  I’ve seen average, hard working American’s turn their dreams into reality by diligently spending a little less than they  make and investing the difference. To Lauren Willis, I adamantly assert the following:   Educating people on how to master money (beyond the 4 day personal-finance-segment in social studies) is consistent with everything American.  It is an insult to a capitalistic, free society to imply that government regulation is going to “fix” the financial problems we have today.  To imply that teaching people how to handle finances, embrace the concepts of investing, risk protection, and budgeting is a “waste” is at best misguided.  Why improve ourselves at all?  Financially educating people does NOT mean that “we” are trying to turn everyone into a financial planner; and it’s not the same as sex ed…not even a little bit.  People are hungry to learn more about finances.  (check the subscriber rate to Money Magazine for a pulse on that one)  Oh, and  guess what? There are a lot of financial planners out there who DO have their best interests at heart.  I am just one of the many. 

 Sometimes, it may be better for the world if I were not a redhead.  But on a positive note, the magazine responded and asked if they could publish my comments…

·         15 gallons of gas @ $2.50 = $37.50 | Fill up 1x a week for 52 weeks = $1,950/year

·         15 gallons of gas @ $4.25 = $63.75 | Fill up 1x a week for 52 weeks = $3,315/year

The “spread” between them is about $1300

·         Most families got a stimulus check from the government for about $1200

·         Thankfully, the increase of gas prices will only “cost” most families about $100 more , or $8.33 more a month when you account for the infusion of money into the average American pocket book.    Perspective is everything.

 The hysteria you see splashed across your T.V. screen is news; the news is a lot like the Jerry Springer Show—they’re selling hysteria.  

Even though gas prices have come down a bit since July (sorry about the long absence on the blog, btw) $3.65 a gallon is still up from last September @ $2.80.  What is the cost to you when you consider the negativity that begins to raise it’s ugly, pervasive head in your business?  How is it affecting you when your conscious (and subconscious) mind takes in the hysteria you see on tv?  

My friend Teresa Romain is famous for saying, “Internals create the externals.”   My forte is NOT in psychology and human behavior around money, however I propose to you that you should be guarding you heart when you watch the news.

  Internals create externals.

Internal: “I’m afraid no one will buy because of the economy.” 

External:  I’m not going to get out there and promote myself/sell like I used to.

Bottom line:   Income decreases, expenses stay the same…no profit.

Internal:  “The economy is so bad that I people can’t afford to start a business with me.”

External:  I’m not going to offer my business opportunity to anyone.

Bottom line:   Income decreases, expenses stay the same…no profit.

I could keep going on and on, but I think you get the idea.  What you think about your circumstances will affect what you do.    Lack of income producing activities creates a lack of income; a lack of income  creates a lack of profit.

Stay focused.  My advice is ignore the news and the buzz you hear about the economy, and focus on the fundamentals of business.   Booking, selling, recruiting, generating income; then manage your money diligently.   

Have you signed up for Prosperity yet? 

Try it free for 30 days  http://www.directsellingleaders.com/store.html

Quickie History Lesson:

In 1973, when the gas crisis of the 70s began, the average income in America was $12,000/year, and a brand new house cost about $33,000.  A gallon of gas was $.40 , a new all-time high—and yes, they were freaking out about it!  The President (Carter) was distained by the public, and they were involved in a very unpopular war.  Sound familiar?  Just when they thought it couldn’t get any worse, 1979 rolled around and the word EMBARGO became a household word. 

Enter 1979 gas prices: they DOUBLED to $.86 a gallon, and a barrel of crude oil hit an all time high ($25’ish).   Talk about a climate for hysteria… lines of cars wrapped around blocks to get to the pump, and gas rationing! 

In the 70s folks were driving heavy luxury vehicles like Cadillacs and Buicks.  They were concerned then, like we’re concerned now, about what it cost to fill up a tank of gas, pay their bills, and feed their families.  America cried to government, “REFORM, FIX IT, WE WANT OUR CHEAP GAS BACK!”    When government let us down (big shocker!) the business community, capitalists, environmentalists, and average people pulled on our greatest strength.  We didn’t solve the problem by relying on government.  We the people, of the United States of America, are a formidable, industrious, smart, creative, determined, and stubborn group of humans. Change came when the pain of staying the same was just unbearable.  (Perhaps next time we ought to have story time and remember the gall of our roots, with great epics,  like The Boston Tea Party…)  They adjusted, and as American’s adjusted it created a need for ingenuity to fix the problem.  This ingenuity created smaller cars, that were more gas efficient.  Think of VW Bugs, Fiats, and even Honda Civic kind of cars… little cars to got them where they wanted to go.  This kind of ingenuity was birthed out of need.  When ingenuity is infused with capitalism and entrepreneurialism, great, great, great things happen! 

In my next post, we’ll talk about what the doubling of gas prices is really costing you.

Gas prices affect production at your Company’s manufacturing; gas prices affect how much it costs to deliver products to you so you can deliver them to your clients.   Gas prices affect how much it costs to pick and deliver food, which means you technically need to be more profitable than ever to just cover the basics.   Can anyone out there relate?    If you think I’m going to join the ranks of those exaggerative media-types, then I’ve got quite a surprise for you.    There has never been a better time to be in Direct Selling, and there’s never been a better time to be a recruiting machine for your Direct Selling company.  Over the next several weeks I’m going to try to bring some reasonable details to the table for you about what’s going on out there so that you can overcome the fear and greed that is gripping your customers and potential recruits.

 The perception that gas prices will “sink us” is gripping our national existence in a deeply rooted fear.   Fear is causing a chain reaction with consumers that is not truly based in reality.   Friends, the media throws the word recession around like it’s the word “and.”    I’d like you to consider these questions:    Do you honestly know what a recession is?  Do you know what a recession would actually mean to your life and your business?  If you’re like most, you probably think of recession as something you know it’s bad, and has historically served as a pre-cursor to things like the Great Depression.    Your perception of what a recession is will affect your activity.  It is my encouragement that over the next few weeks you educate yourself here at the DSL so that you don’t become immobilized by fear and lose the momentum you’ve worked so hard to create.   Businesses are still growing, people are still buying, most of us haven’t lost our homes, and you absolutely can be profitable…even now.  

What people perceive to be true, they believe to be true; what they believe, they act on.  You’re seeing the proof of this as “talking heads” on cable  news (reporters, anchors, etc.) spout off about every nit-picky economic factor in order to make the news.   Last week I was at a conference and had the privilege to hear Tucker Carlson, chief political correspondent for MSNBC speak about the upcoming election.  (he was hilarious by the way)  I stood in line to talk to him and I asked  my question with a very  tongue-in-cheek attitude, “Why do you guys sensationalize everything in the news…you guys are making things worse!”  Equally tongue-in-cheek he replied, “Because, that’s what pays us the big bucks!  That’s what we’re hired to do.”    

You see!  Reporters make the big bucks by taking the smallest detail and making it news; and they take the real news and sensationalize it in so that their new networks will attract viewers to watch the commercials their sponsors purchase.   They profit off of creating fear, hysteria, and skepticism.    Other than encouraging you to lay off the news a bit, what I’m trying to tell you is that by being a bit savvier than most, then you too can be wildly profitable in your Direct Selling business.

  Next Post:  We’ve Been Here Before (a look at Gas Prices)

I believe in leveraging business income and expenses to maximize profit in a business.   What irks me is that government believes that spending money is going to make us more money.  It’s a great example of what-not-to-do.    Don’t get me wrong, I’m all about tax-dollars (that would otherwise be wasted on big government, & inefficient bureaucracy) in my bank account!     But this is the classic panic button that businesses (and government)  push as a knee-jerk-reaction.      

Yes, yes, yes I understand that when consumers buy, they’re buying from a business, who buys from suppliers, who buy from wholesalers, who buy from raw-goods producers, who buy electricity and property from local resources.  I get that.  But leading with expenses is a no-win situation.

In business, spending money you have not earned is called liability.  The purpose of business is to create a profit; in other words, assets.  We’ve all heard (and probably said) “It takes money to make money.”   I agree with this.  But I think that as business owners we can become caught up in consumerism— buy, buy, buy.    In business, we justify it because “it takes money to make money.”   By doing this, we miss the opportunity to (as Teresa Romain calls it) “attract and retain” income off of the income we already have.   

When you spend a dollar on your business, treat it like an investment.  Expect and demand multiple dollars back for every dollar you “invested.”  Don’t let your good dollars chase bad results.  My recommendation is, take your Stimulus Check and invest it.  Put it into your Roth IRA;  invest it into your children’s education fund.    Stimulate your own wealth creation,  or use it to pay off debt.  Remember, debt is money you spent that you hadn’t yet earned.   Reducing your own economic liability, is about the best thing you can do for YOUR economy!   

If you are unable to convince IRS that you’ve been acting like a real business, then the chances are pretty good that deductions & losses will be disallowed (for current year and the past)  and the activity declared a hobby. (this equals pay back taxes, plus penalties, plus interest.)  The Internal Revenue Code clearly specifies that “the activities of [your Direct Selling Business] must be carried out with the intention of making a profit.”  In recent years, the courts have consistently ruled that there must also exist  “a reasonable expectation of eventually making a profit.”

There are several factors that the IRS will consider in deciding if the intent to make a profit is present in your Direct Selling business.

• Manner in which you carry out the activity (is it business like?)
• Expertise and knowledge in carrying out the activity
• Amount of time devoted to creating a profit (is it adequate?)
• Success of business (e.g. the taxpayer)  in carrying out the activity
• History of income or losses
• Financial status of the taxpayer (how much of ones wealth is tied up in this activity)
• Elements of personal pleasure or recreation involved
• Management of the finances of the business 

Whether you’re playing sports or cards, you just have to know the rules so you can win the game.  Vicky Collins, CPA (Deduction Expert on DSL) can help teach you all about what you can and can’t deduct.     You must always remember that if you want to take deductions, then you’ve got to know the game your playing, and whose rules your playing by.   Knowledge is power!

  What is spending on purpose?  It’s sitting down and pre-determining what you’re willing invest into your business—from the obvious expenses, to the less obvious one’s.      Spending on purpose is:

·         being purposeful, rather than accidental

·         telling your money where to go, so you don’t wonder where it went

·         you at the driver seat,  instead of the backseat

·         smart maneuvering, instead of hopeful maneuvering

·         knowing, instead  hoping

·         consistency,  instead of the financial rollercoaster

Just like when you get intentional with your time, amazing things happen.   When you get intentional with your money (where it’s going, where it’s coming from, etc.) wealth begins to follow.  I find that most of my clients know how to make money, keeping it is the challenge.    The “keeping” becomes a problem because expenses tend  to creep upward.  This is an issue for all businesses, not just Direct Selling professionals.  Spending on purpose puts intention into every dollar you invest to make a profit.

I will be contributing a great deal of material on this subject over time.   For now, I want you to grasp what it is so we can build on top of our 4 Cornerstones.