The 45-Minute MBA

7/29/2019 The 45-Minute MBA

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The 45-Minute MBA

This eBook is ree and does contain ailiate links. Share it with the world under the Creative Commons

Attribution-NonCommercial-NoDerivs 3.0 Unported License

Copyright 2012 Scott Mackes

Edited by Ray Elderd
http://creativecommons.org/licenses/by-nc-nd/3.0/deed.en_UShttp://creativecommons.org/licenses/by-nc-nd/3.0/deed.en_UShttp://www.linkedin.com/in/rayelderdhttp://www.linkedin.com/in/rayelderdhttp://creativecommons.org/licenses/by-nc-nd/3.0/deed.en_UShttp://creativecommons.org/licenses/by-nc-nd/3.0/deed.en_US


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Table of Contents

What Youll Learn in the Next 45 Minutes.....................................................................4

How to Make Money Without a Job ...............................................................................5

Purpose of an Income Statement ...................................................................................9

How to Read a Balance Sheet ...................................................................................... 11

Advantages of a Cash-Flow Statement ........................................................................ 14

The $40 Self-Directed MBA Finance Course ............................................................... 17

Bond Basics .................................................................................................................. 21

How to Pick Winning Stocks ........................................................................................24

The Secret Every Millionaire Knows ............................................................................27

How to Destroy the Competition (Without Competing) .............................................28

5 Ways to Make Loads of Sales (And Create Massive Opportunity) ...........................30

Business Law ................................................................................................................33

What Do Jesus, Mike Krzyzewski, and Jimmy Buffett Have in Common? .................36

The One Year Self-Directed MBA Program .................................................................39


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What Youll Learn in the Next 45 Minutes

You can get help rom teachers, but you are going to have to learn a lot by yoursel, sitting alone in a

room. Dr. Seuss

Thank you or your interest in The 45-Minute MBA. This eBook contains a collection o articles that Iwrote on my blog Margin o Excellence in pursuit o teaching you everything I learned in business school

(in less than 45 minutes o reading). With the cost o ormal education skyrocketing, I want to provide you

with a sel-directed alternative that will cost you less money and provide you better results.

The eBook contains 13 articles on topics ranging rom accounting to leadership. In each o the articles,

I provide a unique perspective on the subject matter and show you how to apply the concepts to real

lie. In the last article, The One Year Sel-Directed MBA Program, I leave you with a series o action

steps you can take to acquire the important business skills you need to survive as a business leader and

entrepreneur. This program will cost you much less time and money than a ormal MBA, yet leave you

with tangible assets and experience that you cant get in the classroom.

I created this guide to serve as a roadmap or your business success. I spent a lot o time and money

on my ormal business education only to realize that my real learning, development, and growth occurred

outside the classroom. I hope my ideas open your mind and help you realize that true business success

is well within your reach. You dont need a burden o debt and a ancy title to get it.

In the next 45 minutes, I hope Im able to make a dierence in your lie.

Expect Excellence,

Scott Mackes

Margin o Excellence

www.marginoexcellence.com

Easton, Massachusetts

USA
http://www.marginofexcellence.com/http://www.marginofexcellence.com/


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6 | The 45 - Minute MBA

Franchise investments range anywhere rom $50,000 to $5,000,000. There are many dierent types

o ranchises ranging rom hair salons to restaurants and beyond. I you can think o it, somebody has

ranchised it.

I youre interested in buying a ranchise, I highly recommend you check out-

http://www.entrepreneur.com/ranchises/

Entrepreneur.com provides a wealth o inormation on many available ranchise opportunities.

What if I dont have the money to invest in a franchise?

OK so what i you dont have the money to invest in a ranchise business? What i you dont want to

take the nancial risk? Let me give you a risk-ree idea that you can pursue right now so that you can

start your own business.

I you look around my website you can see that Im creating a community by writing articles about what

I do every day leadership. Im an employee o a company (an expense) but Im building equity byconverting the knowledge and experience I have into articles that are readable by thousands o people.

The articles are here to stay and Im attracting new visitors, ollowers, and subscribers each day. I even

converted my articles into this eBook youre reading today.

You can do the exact same thing right now with your unique talent. You just have to identiy your

interest, create content, and then distribute your content to the world rom your website. You can do this

or a minimal investment and you dont have to know a lot about technology to get started. You can buy

your domain and have your site hosted or less than $10/month. I use Bluehost and Im extremely happy

with their service. Ater you create your domain you can download WordPress to build your site. You

literally dont have to know anything technical to get started.

*For more inormation about how to build a website check out myBlog Building Kit.

How do you turn your website into a business? You can make money rom your website by

advertising, ailiate marketing, and selling your products and services. The opportunities will present

themselves once you establish yoursel as an expert in your eld and build your online community. Even

i you dont make money directly rom your site, youll open doors to opportunities that will help you

advance your career.

*The $100 Startup by Chris Guillebeau is an excellent book about creating a business rom a modest

investment ($100 or less in most cases).

*Pat Flynns Smart Passive Income blog is a great resource or learning how to build a protable

website.

2. Invest in Real Estate. Real Estate has made more people millionaires than any other type o

investment. As my avorite real estate guru William Nickerson said, the road to riches is paved with

borrowed money. People will always need homes to live in and companies will always need oices and

storeronts or their businesses. Banks will eagerly lend you money to invest in real estate because its an

asset that stands the test o time.
http://www.entrepreneur.com/franchises/http://www.marginofexcellence.com/bluehosthttp://www.wordpress.org/http://www.marginofexcellence.com/wp-content/uploads/2012/06/Blog-Building-Kit.pdfhttp://www.marginofexcellence.com/100dollarstartuphttp://www.smartpassiveincome.com/http://www.smartpassiveincome.com/http://www.marginofexcellence.com/100dollarstartuphttp://www.marginofexcellence.com/wp-content/uploads/2012/06/Blog-Building-Kit.pdfhttp://www.wordpress.org/http://www.marginofexcellence.com/bluehosthttp://www.entrepreneur.com/franchises/


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Scott Mackes | 7

Think about what youre able to do when you purchase real estate. You literally borrow money rom other

peoples savings accounts so that you can buy a property or yoursel. How about that or leverage? The

bank will lend you money or real estate any day o the week as long as youre nancially qualied and

have 20% to invest in the property.

How do you make money from real estate? You buy it. You rent it. You x it up. You sell it. Repeat.

As a real estate investor, you also have Uncle Sam on your side. He wants you to invest in real estate

and will let you deer taxes on your capital gains as long as you ollow the guidelines. This is called

a 1031 exchange.

For more inormation on real estate investing I highly recommend:

How I turned $1000 into Five Million in Real Estate in My Spare Time by William Nickerson

Ive read at least a dozen books on real estate investing and this by ar is the most inormative. In the

book, the author walks you step-by-step through the real estate investing process and teaches you how

to build a million-dollar real estate enterprise. He oers no gimmicks, no nothing down strategies, noget-rich quick schemes - just a proven method that stands the test o time. Read the reviews on Amazon,

they speak or themselves.

3. Invest in Stocks. Every day, people buy and sell shares o companies on the stock exchange. Some

days the deals are great and some days theyre not. Every day you have the opportunity to become a

shareholder o a company.

When you buy a stock you become a partial owner o that company. As the companys earnings grow,

the stock price ollows. You dont have to create products, attend meetings, or even report to work. You

just sit back and let the hard work o others pay you dividends. Not a bad deal at all.

The downside is that it takes a long time to build wealth in stocks because youre missing out on one

o the important necessities o making money - leverage. A bank will not lend you money to purchase

stocks. You can still make money rom stocks; it just takes longer because you cannot leverage your

capital. Stocks are a great place to park the money you make rom your business and your real estate.

Stock market investing is a subject Im passionate about. Ive been managing my money or the last 10

years using strategies I learned in these books:

The Intelligent Investor I you own one book on stock market investing, it should be this one. This was

originally written in 1949 by Benjamin Graham, who was Warren Buetts teacher and mentor.

Security Analysis This was also written by Ben Graham and provides a more detailed analysis on stock

selection. It reads more like an encyclopedia but its a good book to read i youre serious about investing.

The Little Book that Beats the Market In this book, Joel Greenblatt provides you a systematic way to

select stocks. Ive ollowed this strategy or the past 6 years.

You Can Be a Stock Market Genius - Joel Greenblatt discusses how to make money in stocks by

investing in special situations mergers, spin-os, bankruptcies, etc which can be a protable niche.
http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031http://www.marginofexcellence.com/nickersonhttp://www.marginofexcellence.com/nickersonhttp://www.marginofexcellence.com/intelligentinvestorhttp://www.marginofexcellence.com/securityanalysishttp://www.marginofexcellence.com/littlebookhttp://www.marginofexcellence.com/stockmarketgeniushttp://www.marginofexcellence.com/stockmarketgeniushttp://www.marginofexcellence.com/littlebookhttp://www.marginofexcellence.com/securityanalysishttp://www.marginofexcellence.com/intelligentinvestorhttp://www.marginofexcellence.com/nickersonhttp://www.marginofexcellence.com/nickersonhttp://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031


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One Up On Wall Street This is one o the rst books I read about stock market investing. It was written

by Peter Lynch whos one o the greatest mutual und managers o all-time.

Other great resources are Warren Buetts annual letters to shareholders and Jeremy Granthams

quarterly letters (you must sign up or a ree subscription). I read these letters religiously as theyre

released. These investors oer great insight as to what is going on in the economy, they shoot straight,

and theyre not in it to sell books.

It has taken me many years, many mistakes, and a lot o reading to provide you with the advice and

resources listed in this article. Its my greatest hope youll learn something that will make a positive

dierence in your lie.

Let me end by saying theres no easy way to make money. There are no shortcuts. Like anything, it

takes hard work, persistence, and a good strategy to become a skilled money-maker.
http://www.marginofexcellence.com/oneuponwallsthttp://www.berkshirehathaway.com/letters/letters.htmlhttp://www.gmo.com/America/MyHome/http://www.gmo.com/America/MyHome/http://www.gmo.com/America/MyHome/http://www.gmo.com/America/MyHome/http://www.berkshirehathaway.com/letters/letters.htmlhttp://www.marginofexcellence.com/oneuponwallst


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Scott Mackes | 9

Purpose of an Income Statement

In the next 3 articles, Ill teach you how to read nancial statements. As a leader, its important or you to

have a strong understanding o how your business is perorming nancially.

I have the opportunity to see how a company perorms rom two perspectives rom both the insideand the outside. As an investor, Im on the outside looking in. I see i the company is nancially sound,

I learn about the business, I punch some numbers into my calculator and then I make an investment

decision.

As a business manager, Im involved in the daily operations o my company. I eel the pain when we dont

collect our receivables, when our costs go up, and when our competition slashes prices. Those things

orce me to make decisions that aect the nancial perormance o my company. As a manager, Im in

the ght rather than watching the ght like an investor.

The Income Statement

The rst nancial statement were going to look at is the income statement. The income statement is a

report that allows you to see the protability o your company. Listed below is an income statement or

Apple, Inc (AAPL).

(Yahoo Financeis an excellent resource to get a nancial overview o a company. I youre looking or

more detailed inormation, visitSEC.gov to look up a companys quarterly and annual reports)

Denitions for income statement terms :

Gross Sales: The total amount o sales a company had during the specied timerame, aka the top-

line (the term sales is used or products and revenue is used or services).
http://finance.yahoo.com/http://finance.yahoo.com/http://www.sec.gov/http://www.sec.gov/http://www.sec.gov/http://finance.yahoo.com/http://www.marginofexcellence.com/wp-content/uploads/2011/12/income-statement.jpg


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Apple sold over $108 billion worth o products in 2011. As youre probably aware, they have multiple

product lines that they sell worldwide. What do you think their best perorming product is?

Cost of Sales: Your inventory cost o the items that you sell, aka Cost o Goods Sold (COGS). This is

the cost o the materials and direct labor required to produce a product. This doesnt include any selling

or distribution expenses.

Gross Margin: Lets you know i youre selling your products or a prot. Gross Margin = Gross Sales

COGS.

Operating Expenses: The cost to run the normal business operations o your company. These are all

the other expenses that your business incurs outside o any costs related to physically building a product.

These costs include R&D and SGA.

Operating Income: Your protability beore you deduct any nance or tax-related expenses. This is how

you gauge the health o your core business. Operating Income = Gross Margin Operating Expenses.

Net Income: What your company earns ater all expenses. This is thebottom line.

Take Charge of Your Money

Its important or you to spend some time with the nancial statements o your company and o those

companies you invest in. Have you ever bought a stock without looking at the companys income

statement? I have. Sometimes we put too much aith in the recommendations o our riends and

advisors. Its your money; take charge of it. Dont be araid to dig in and get your hands dirty. Thats

how you make and protect your money.

How many managers out there spend their day running around in circles and not ocusing on their

companys prot?

My Success Story

Ive told this story several times already on my blog but Im going to tell it again, because its important.

Earlier this year I was struggling to get results at my company. I was working hard but I was spinning my

tires. I decided to dig deeper into why I wasnt achieving results, which is a large part o why I created

this website. Ater studying the subject o time-management, I decided to change the way I spent my

day. I eliminated distractions and dedicated a ew hours each month to ocus on my companys nancial

statements.

What happened?

I came up with two ideas that signicantly increased our net-income. When its all said and done,

my ideas will increase our protability by hundreds o thousands o dollars. Thats the direct result o

understanding how to read an income statement and how to manage my time eectively.

I guarantee you that the same types of opportunities exist at your company. Its up to you, as the

decision maker, to ocus whats important and to deliver the results to your company.


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Scott Mackes | 11

How to Read a Balance Sheet

In the previous article we looked at the income statement o Apple, Inc (AAPL). Now were going to look

at their balance sheet.

The balance sheet displays a companys nancial position at a given point in time. It shows thecompanys assets, liabilities, and owners equity. Assets are the economic resources o a rm such as

cash, inventory, and equipment. Liabilities are the rms debts. Equity is a claim by the owners on the

assets o a rm.

The relationship between assets, liabilities, and equity is:

Assets = Liabilities + Owners Equity

Heres Apples balance sheet rom September, 2011 (in thousands):
http://www.marginofexcellence.com/wp-content/uploads/2011/12/balance-sheet1.png


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Denitions o balance sheet terms :

Since its extremely time-consuming or you to look up each o these denitions individually, I organized

them on one page or quick and easy uture reerence. I streamlined the process so you can ocus on

what matters most making decisions to capitalize on the inormation.

Assets: The economic resources o a rm. Assets are divided into two categories current and non-current.

Current Assets: All assets expected to convert to cash within 1 year.

Cash: Physical cash on hand.

Short Term Investments: Investments that expire within 1 year.

Net Receivables: The amount customers owe you.

Inventory: Raw materials, work in progress, and completed saleable goods.

Non-Current Assets: Assets not expected to convert to cash within 1 year.

Long Term Investments: Investments your company plans to keep or more than 1 year such as

stocks, bonds, real estate, and cash set aside or specic projects.

Property Plant and Equipment: Assets that cannot be liquidated easily such as buildings,

urniture, oice equipment, vehicles, and machinery.

Goodwill: The dierence between the price paid or a company minus its net assets. Typically

comes into play ater an acquisition.

Intangible Assets: Assets that cannot be seen, touched, or physically measured. Includes

copyrights, patents, and trademarks.

Liabilities: The claims by creditors on the assets o the rm.

Current Liabilities: Debts or obligations due within 1 year.

Accounts Payable: How much your company owes your suppliers.

Short-Term Debt: Loans due within 1 year.

Non-Current Liabilities: Debts or obligations not due within the present year.

Long Term Debt: Loans and nancial obligations lasting over 1 year.

Deerred Long Term Liability Charges: Tax liabilities to be paid ater this year. Can also include

orward contract obligations like swaps and derivatives. Its best to look at the ootnotes in the

nancial report to better understand their composition.

Stock Holders Equity: The owners claim on the assets o the rm. For a publicly traded company like

Apple, its the amount o cash received in return or shares o the company. It also includes retained


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Scott Mackes | 13

earnings (dened below) a company is able to accumulate over time.

Preerred Stock: A class o stock having a higher claim than common stock on the rms assets in

the event o liquidation. Preerred stock pays a dividend, however the price doesnt appreciate as

ast as common stock. Preerred shareholders do not have voting rights.

Common Stock: Common stock has the lowest priority level claim on the assets o a rm. Thecommon stock price typically appreciates aster than preerred stocks and bonds. You probably

own common stock in your investment portolio.

Retained Earnings: Earnings that are reinvested back into the business.

Treasury Stock: Shares o stock that a company keeps in its own treasury. Oten rom a buyback

or never issued to the public.

Capital Surplus: Equity that cannot be categorized as stock or retained earnings. Typically stock

that was issued at a premium over par value.

There are a lot o pieces to the balance sheet and you may be a little overwhelmed as you read through

each denition. Dont worry; were only going to ocus on a ew o these items when we analyze a

business or investment. With that said, it is important you understand a businesss nancial organization.


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Advantages of a Cash-Flow Statement

So ar weve looked at the income statement and balance sheet or Apple, Inc. The last nancial

statement Im going to discuss is the cash fow statement. Cash fow is the change in a companys cash

balance during a particular time period.

Examining the cash fow statement is the most important way to gauge the health o a business. The

cash fow statement shows you where the cash is coming rom and where its going.

The cash fow statement breaks down your cash transactions into three separate categories: Operating,

Investing, and Financing Activities. Heres Apples Cash Flow Statement rom Sept, 24th 2011 (amounts in

thousands):

Apples cash fow statement was compiled using the indirect method. With the indirect method, you start

with net income, make adjustments or non-cash transactions (depreciation), and then make adjustments

or all cash transactions.

*Take a moment to compare Apples net income (at the top) with ree cash fow (at the bottom). These

are two signicantly dierent numbers. Despite having earned nearly $26B in 2011, their cash balance
http://www.marginofexcellence.com/wp-content/uploads/2012/01/Cash-flow.jpg


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Scott Mackes | 15

dropped almost $1.5B rom the previous year. As an investor, this would pique my interest and prompt

me to take a closer look.

Cash Flow From Operating Activities

The best way to explain cash fow rom operating activities is to show you how its calculated:

1. Start with net income

2. Add depreciation

3. Add deerred income (the cash received up ront or a sale that hasnt billed yet)

4. Subtract the increase in accounts receivables and inventory (i receivables and inventory go up,

cash goes down and vice versa)

5. Add the increase in accounts payable (i payables go up, so does cash balance)

This calculation will provide you with the cash fow rom operating activities.

Cash Flow From Investing Activities

The capital expenditures and investments that Apple made are accounted or under cash fow rom

investing activities. Capital expenditures are payments or property, plant, and equipment. Investments

include the purchase and sale o marketable securities.

*Ater closer examination, it appears that Apple has negative cash fow this period because they

invested a signicant amount o cash in marketable securities. According to their annual report on SEC.

gov, they purchased $102B o marketable securities and received $70B in proceeds rom sales, resulting

in a net dierence o $32B in negative cash fow or activities related to investing. This provides me withsome comort as an investor. Id much rather this be the reason or negative cash fow vs. not collecting

receivables or selling inventory.

Cash Flow From Financing Activities

Financing activities include the payment o dividends, sale or purchase o company stock, and borrowing

activity. Apple issued $831M shares o its own stock and paid a $520M nance charge in 2011. They

dont pay a dividend to shareholders.

As you can see rom above, Apple nished the year with negative cash fow o $1.446B. According to

the balance sheet, their cash balance dropped rom $11.261B in 2010 to $9.815B in 2011. Ater taking

a closer look, we realize Apple invested a signicant amount o cash in marketable securities which

resulted in negative cash fow or the year. Despite having a negative cash fow, Apple still nished the

year with a nearly $10B cash balance.

*I youd like to view the actual nancial statements o a publicly traded company like Apple check

outSEC.gov. Just type in the company name or ticker symbol and click on the report youd like to view

(the annual report is led as 10-K).
http://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.html


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Learning to read nancial statements was one o the most important subjects in my MBA program.

Hopeully, in the 9 minutes or so that it took you to read my 3 articles on nancial statements, I was able

to teach you how to do this.

Quick Story

Beore I sign o, Id like to leave you with a quick story. About 10 years ago, beore my ormal businesseducation, I bought my rst stock Sirius Satellite Radio (SIRI). This was prior to the merger with

XM Satellite Radio. A riend o mine recommended that I check it out, so I did. My research involved

reading a ew paragraphs about the company and thinking it over or about 30 minutes beore I made the

purchase. I bought 2000 shares. Ater all, this stock was going to make me rich.

I held the stock or a ew years until I attended my rst business school class on how to read nancial

statements. I distinctly remember going home one night ater class and looking up the nancial

statements or Sirius Satellite Radio or the rst time. My heart sunk as I scrolled through their nancial

inormation.

Ater reviewing the statements, I realized that I invested most o my lie savings in a company that had

never made a prot! It was a horrible investment.

I immediately signed on to my online brokerage account and sold the stock.

I couldnt wait or the market to open the next day so that I could nd some poor soul to buy my shares.

Thankully, I liquidated my position and walked away without losing my shirt. It was a close one.

The reason why I tell this story is because you may be in a similar position as I was. You may rely on

your riends and advisors or nancial advice. Do yoursel a avor: ater you read this article, take a

look at the stocks you own. What are the names o the companies? Do they have a history o positive

earnings and cash fow? Do they have an excessive amount o debt?

I you see any red fags, I encourage you to pick up the phone and contact your trusted riends and

advisors and ask them these same questions. Chances are they wont have the answers.


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Scott Mackes | 17

The $40 Self-Directed MBA Finance Course

Today Im oering you an exclusive opportunity: Ill teach you everything I learned in my $2000 semester-

long MBA Finance class or just $40 and a ew minutes o your time.

There are 2 parts o Finance: calculations and analysis. In this article Im going to ocus oncalculations. Ill discuss analysis stu in my next article.

Beore I teach you about nancial calculations, Im going to tell you about the most important business

tool you need to have in your arsenal.

The Financial Calculator

The nancial calculator is critical to your success in applying MBA knowledge. This was the rst thing I

bought on the way to business school. There are all sorts o makes and models, but they all do the same

thing. A decent calculator will cost about $40. I was able to download an app or my iPhone thats a

mirror image o the nancial calculator I bought in the store, the HP 10BII, rom iTunes or $5.99. Its so

convenient I rarely use anything else!

There are also many ree online resources that can help you make nancial calculations. Most o them

are designed to provide a specic output such as return on investment, mortgage payment, or car loan

payment. Bankrate.com and dinkytown.net are excellent resources or these types o calculators.

The Most Important Financial Calculation

99% o the time youll use the nancial calculator to calculate the time value of money. This is the most

important and most practical nancial calculation. You can calculate everything rom mortgage payments

i youre buying a home to the uture value o your retirement account. I use this calculation almost daily

to make nancial decisions.

Now Im going to teach you how to calculate the time value o money using a standard nancial

calculator. Please reerence the picture below i you dont have a nancial calculator. This is a picture o

the keypad on the HP 10BII calculator iPhone app.
http://itunes.apple.com/us/app/10bii-calc-hd/id382452060?mt=8http://www.bankrate.com/calculators.aspxhttp://www.dinkytown.net/http://www.dinkytown.net/http://www.bankrate.com/calculators.aspxhttp://itunes.apple.com/us/app/10bii-calc-hd/id382452060?mt=8


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There are 5 variables associated with the time value o money calculation and theyre listed on the top

row o the calculator in the picture above. They are:

N Number o time periods

I Interest rate or time period

PV Present value o your account

PMT Payment made each time period

FV Future value o your account

The easiest way to explain this calculation is to give you a ew examples

Time Value of Money Examples

First Ill show you how to calculate the uture value o your retirement account.

Lets say that the present value o your retirement account is $10,000 and you plan to invest $1000 per

year until you retire in 30 years. You expect an annual return o 8%. How much will you have when you

retire?

To nd the uture value (FV) o your retirement account, you enter the ollowing inormation into the

calculator:

N= 30

I = 8

PV = 10,000
http://www.marginofexcellence.com/wp-content/uploads/2012/01/10BII.png


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Scott Mackes | 19

PMT = 1000

FV = ?

Ater entering the values into the calculator, you can see that the uture value (FV) o your retirement

account will be $213,909.78 ater 30 years.

Now lets say that you want to retire in 30 years with an account balance o $500,000. What would you

need to invest each year to reach your goal?

N= 30

I = 8

PV = 10,000

PMT = ?

FV = -500,000 (you must enter this as a negative amount)

The answer is $3525.44. See how it works?

More Time Value of Money Problems and Solutions

Heres another example: lets say you want to buy a new home and youre trying to gure out how much

monthly payment you can aord. You like a house that requires you to borrow $300,000 or 30 years at

6% interest. How much is your monthly payment?

In this problem, since we pay the mortgage monthly, were going to convert all time periods to months.

N = 360 (30 x 12)

I = .5 (6/12)

PV = 300,000

PMT = ?

FV = 0

Ater entering this inormation into the calculator we nd out that our monthly payment will be $1798.65.

What i your budget is $2500/ month, how much can you aord?

N = 360

I = .5

PV = ?

PMT = -2500 (you must enter as a negative amount)


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FV = 0

Youll be able to borrow $416,979 to say within your budget.

I preer using a physical nancial calculator vs. a specialized online calculator because I can use that

single equation or any type o time value o money calculation. I can calculate everything rom auto

loan payments to investment return by using the 5 key variables on the top row o the keypad. I can alsocreate what i scenarios to help me make better nancial decisions.

OKready to learn about that $40 course? Here you go!

Head over to Staples, buy yoursel a nancial calculator ($40), and read the instruction book (30 min).

I guarantee youll learn just as much as I did in the 50+ hours I spent in my $2000 proessional MBA

course.


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Scott Mackes | 21

Bond Basics

In my previous article I discussed the importance o having a nancial calculator. I taught you how to

compute the time value of money and walked you through a ew examples. Today Ill teach you about

bonds and how to analyze them using your nancial calculator.

3 Ways Organizations Raise Money

Beore we get into the technical details about bonds, lets discuss what they are. When organizations (like

companies and governments) need to raise money, they have a ew options. The rst is to get traditional

nancing rom a bank by taking out a loan like you or I would to buy a car or a house.

Organizations can also raise money in the public marketplace. They do this by issuing bonds and/or

stock to public investors in return or cash. Stocks are an equity security (a piece o the company) and

give the investors ownership and voting rights. Bonds are a debt security enabling investors to become a

creditor to the organization (the company owes the investor that debt plus interest).

4 Types of Bonds

The 4 types o bonds are: Treasury, Corporate, Municipal, and Foreign. Although some o these bonds

have common characteristics, the dierences in the contractual eatures and underlying strength o the

organizations backing them result in major dierences in levels o risk.

Corporate Bond Ratings

Corporate bonds are independently rated to show the level o risk to the investor. A lower bond

rating means a higher risk and a higher interest rate or the investor. The 3 major independent rating

organizations are Moodys, Standard & Poors (S&P), and Fitch. The table below shows the dierent

bond ratings.

To better understand bonds, its important that you become amiliar with the ollowing terms:

Par Value The amount o money the investor will get back when the bond matures. Corporate bonds

typically have a par value o $1000.

Coupon Interest Rate The bonds interest rate when issued.

Maturity Date The date the bond matures and the holders principal is repaid.

Yield to Maturity The rate o return an investor will receive rom the purchase date to the maturity date.
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We can calculate these values with a nancial calculator using the same variables we used to calculate

the time value o money: N, I, PV, PMT, and FV. Here is a picture o the HP 10BII nancial calculator app

I have on my iPhone. The top row contains the unctions you will need to calculate bond values.

N = Number o payment periods until the bond reaches its maturity date

I = The bonds Interest rate

PV = The bonds Current (Present) Value

PMT = The Payment issued to the bondholder based on the coupon interest rate (coupon rate * par

value)

FV = Par (Future) value o the bond

Lets do a calculation.

On January 1, 2012, Caterpillar, Inc. issued a series o bonds at par ($1000) that pay 10% interest and

mature in 30 years. What will the price o the bonds be in 5 years assuming the interest rate alls to 8%?

Heres the inormation you enter into your nancial calculator to get the answer:

N= 25 (30-5) years

I = 8% (Current interest rate)

PV = ? (Present Value in 5 years)

PMT = $100 ($1000 Par Value * 10% interest)

FV = $1000 (Par Value)

Ater entering the inormation into your nancial calculator, you nd that the current price o the bonds (on

January 1, 2017) is $1213.50.
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Scott Mackes | 23

Lets try another one.

Its 2020 and Caterpillars bonds have 12 years remaining until maturity. The bonds have a $1000 Par

Value and a coupon interest rate o 10% paid annually. I the bonds sell at $850, what is their current

yield to maturity?

N = 12 (years remaining)

I = ?

PV = -$850 (current price, expressed negative because the cash is an investors outfow)

PMT = $100 ($1000 Par Value * 10%)

FV = $1000 (Par Value)

Ater entering the numbers in our nancial calculator, we nd that the current yield to maturity is 12.48%.

Why would you buy a bond?

Compared to stocks, bonds oer less risk because they have a higher priority claim on a companys

assets. I a company has to liquidate its assets, the bondholders will get paid beore the stockholders.

Bonds also oer a steady payout (interest) to investors.

How do you buy a bond?

The best way to buy a bond is through a brokerage company. I have an online brokerage account

with Scottrade where I can buy and sell bonds. Scottrade provides useul inormation that helps me

make better investment decisions. Here is a Moodys bond report or Caterpillar that I downloaded rom

the Scottrade website.

Treasury Direct is a good resource i you want to buy treasury bonds (bonds invested in US government

debt). The website allows you to buy bonds directly rom the government (no middle man!).

Treasury bonds are a good place to park your money i you want little-to-no risk. Your return will

be lower than i you invest in corporate bonds or stocks, but your money will be guaranteed by the US

government (which carries lower risk).

I youre looking or a higher rate o return then you might invest in corporate bonds and stocks. These

are good investments or people with a longer investing horizon that allows them to ride out the ups and

downs o the market.
http://www.scottrade.com/http://www.marginofexcellence.com/wp-content/uploads/2012/02/Caterpillar.pdfhttp://www.treasurydirect.gov/http://www.treasurydirect.gov/http://www.marginofexcellence.com/wp-content/uploads/2012/02/Caterpillar.pdfhttp://www.scottrade.com/


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How to Pick Winning Stocks

Theres a lot o inormation out there about investing in the stock market. There are books, news articles,

websites, even Jim Cramer screaming at you through the television camerawhom do you trust?

My advice is to trust yourself.

In this article, I will teach you how to pick winning stocks and oer you a ew simple straightorward tips

that will help you become a better investor.

What is a stock?

A stock is an equity security that gives investors ractional ownership in a company. Since 1871, the

stock market has returned an average o 8.88% annually. I you invested $1 in the stock market in 1871,

that dollar would be worth $161,302 today.

Despite solid average returns over extended periods o time, stocks are extremely volatile. In the past 17

years, the Dow Jones Industrial Average surged rom 4,000 in 1995 to 11,723 in 2000. It then droppedto 7,286 in early 2002 (ater the terrorist attacks o 9/11) and rose to 14,164 in 2007. In early 2009, the

Dow ell to 6,547 ater the mortgage crisis. Today the Dow is at 12,862 (February 2012). What a roller

coaster ride!

The good news is that these stock market fuctuations oer great opportunities to capitalize on the

temporary mis-pricings o companies. With the ups and downs in the market, there is no way companies

are always priced eiciently. But, in order to capitalize on these opportunities, you must rst identiy the

criteria or your investment decisions.

Im here to help you turn that match into cash. First Id like to share with you my 3 personal investing

guidelines.

#1 Invest with a Margin of Safety

In investing, I value a Margin o Saety above all else. This phrase was coined by Ben Graham, Warren

Buetts mentor. It means leaving enough room or error to minimize the chances o loss. Always look at

the downside and protect yoursel rom it.

#2 Only invest money you wont need for the next 5 years

Choosing individual stocks without any idea o what youre looking

or is like running through a dynamite actory with a lit match. You may

live, but youre still an idiot.

Joel Greenblatt
http://en.wikipedia.org/wiki/Margin_of_safety_(financial)http://en.wikipedia.org/wiki/Margin_of_safety_(financial)


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Scott Mackes | 25

A volatile stock market means there is a good chance you could lose a signicant amount o money in

the short-term. Give yoursel enough breathing room to stay strong during the down times and recoup

any losses you might incur.

The best investors actually look orward to down markets the same way you might look orward to a sale

at your avorite department store. This is a great time to play oense and buy your avorite companies on

sale while everyone else is running or cover.

#3 Diversify in Numbers

There are 2 types o risks when investing in stocks: Market risk and non-market risk. Market risk is the

risk associated with market volatility (ups and downs). The only way to avoid this is to keep your money

in your pocket when the odds arent in your avor.

Non-market risk is company-specic and is prevalent when a companys products dont sell, workers

strike, or costs increase.

As an investor, its impossible to know everything about a company. To protect yoursel rom these risksyou need to diversify in numbers.

In his book You Can Be a Stock Market Genius, Joel Greenblatt says owning 2 dierent stocks eliminates

46% o your non-market risk. Owning 4 stocks eliminates 72% o the risk. Owning 8 stocks eliminates

81%; 16 stocks eliminate 93%; 32 stocks eliminate 96%; 500 stocks eliminate 99%. The more stocks you

own, the less eect the perormance o any individual company will have on your overall return.

How many stocks should you own?

My rule o thumb is to own between 6-8 stocks at a time. There isnt much to gain by owning more. Instead,

your portolio will likely become watered down i you own too many stocks. Why incur the trading costs oowning 50+ stocks when you can own an Exchange Traded Fund(ETF) and get a similar return?

Now that you understand the basics, here are a ew steps to help you get started.

Step #1 Determine the Price

As easy as it sounds, youd be surprised how many people stumble on this. Most people think about

stocks in terms o share price: Apple is trading at $460/share; Ford is trading at $12.80/share. Share

price doesnt mean much unless you know how many shares a company has outstanding.

When you think about Apple or Ford, you should ask: What is the price (market capitalization) of the

entire company?

A companys market capitalization is its share price times the number o outstanding shares. The

current price o Apple is $428B, the Ford corporation is selling or $48.6B.

This is where you begin.

Step #2 Analyze the Investment

Once you know the price o a company, there are all sorts o metrics that you can evaluate to decide i a
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company is a suitable investment. These metrics are derived by comparing the price o the company to

the data obtained in the companys nancial statements. Remember these earlier articles?

Purpose o an Income Statement

How to Read a Balance Sheet

Advantages o a Cash Flow Statement

Ah, there is a method to my madness!

Dont worry; you dont have to do all the calculations yoursel. There are a ton o online resources that

publish these nancial calculations or you. Yahoo! Finance is a good place to nd this inormation.

Here are the top 5 things I evaluate before I buy a stock:

Price/Earnings (P/E) This is Market Capitalization divided by Net Income. The average P/E ratio in the

stock universe is about 15. I shoot or a number below that.

Price/Average Earnings for the past 7 years To better understand a companys earning ability, I like

to look at its record or the past 7 years. I take the companys current market capitalization and divide it

by its average earnings or the past 7 years. You can look up historical earnings on Yahoo! Finance and

in past annual reports led at SEC.gov. I preer this number to be less than 25.

Return on Equity Calculated by dividing Net Income by Shareholder Equity (which is Assets

Liabilities). This will tell you how much prot a company generates compared to the shareholders

investment. This indicates how good a company is. I preer an RoE that is at least +30%.

Debt vs. Cash I preer a company have more cash than debt. Both o these items are easily ound on

the Balance Sheet.

Free Cash Flow I require this number be positive. You will nd a companys Free Cash Flow in the

Cash Flow Statement.

Using this inormation I determine pretty quickly i I think a company is cheap, good, stable, and suitable

or investment. I a company doesnt meet these criteria, I move on.

Theres no need to make this complicated. You dont need a super high IQ or any crazy charts to pick

winning stocks. You just need to dene good metrics and be consistent. I you invest with amargin o

saetyin 6-8 stocks or a minimum o 5 years, chances are youll outperorm most proessional money

managers. Trust yoursel; nobody cares more about your money than you.

What if you have no interest in picking stocks?

I you have absolutely no interest in picking stocks you can buy an Exchange Traded Fund (ETF)

that tracks the S&P 500 or most any other index. This allows you to take advantage o the long-

term perormance o the stock market without having to do a lot o work and calculations. ETFs are not

actively managed like a mutual und which means you pay minimal ees. SPYis an example o an ETF

that tracks the S&P500 index.
http://finance.yahoo.com/http://finance.yahoo.com/http://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://finance.yahoo.com/http://finance.yahoo.com/


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Scott Mackes | 27

The Secret Every Millionaire Knows

It amazes me how much we value our money. We argue about it, ght or it, heck, wars are even started

over it. We hoard and protect the little money we have because we dont understand how to create it.

In this article I will break down the money creation process and show you how to use the process to youradvantage. This is an Economics lesson you dont want to miss.

The Goldsmiths.

Early traders used gold to pay or goods and services. Ater years o lugging it around and weighing it

beore each transaction they realized this system was very inconvenient. So, they smartened up and

in the 16th Century began depositing their gold with goldsmiths who stored their gold in a vault or a

ee. In return, the goldsmiths would issue the trader a paper receipt showing the amount o gold on

deposit. The traders used these receipts as credit when conducting transactions with other traders in the

marketplace. Hence, paper currency was born.

Initially, the goldsmiths only issued paper receipts equal to the amount o gold physically deposited in the

vault. One day an observant goldsmith realized that the owners rarely redeemed their receipt. In act,

the amount o gold deposited ar outweighed the amount o gold withdrawn.

Then they changed the economic system forever!

The goldsmiths got clever and started issuing paper receipts in excess o the amount o gold physically in

their vaults. The goldsmiths would put these receipts (which were redeemable or gold) into circulation by

making interest bearing loans to the traders. The borrowers were willing to accept the loans because the

receipts were a credible orm o payment in the marketplace.

The goldsmiths found a way to create money.

Now ast orward 500 years

The only dierence between the goldsmiths o yesterday and the banks o today is the actual currency. Today,

our money is not backed by gold, but rather by our aith in the monetary system we have created. Banks lend

money in a ashion similar to the goldsmiths, by keeping on reserve only a percentage o the money they lend.

This sounds a bit scarybut think o the opportunity?

I banks can create money, why not take advantage o it? Every day banks create money and lend it to

people with ideas. These people present their ideas to the banks along with a plan or repayment. I the

bank approves, the person signs a promissory note (a gloried IOU) in return or the money (plus interest).

Thats it. All you need is an idea and a plan or repayment and the bank will create the money or you.

But what i your idea doesnt require a signicant amount o capital? Or what i you dont like the idea

o leverage? Thats ne too. You can skip the bank and take your idea straight to the marketplace. My

point here is that money need not be a limited resource. Its printed in machines and distributed to the

people with the best ideas.

What is your idea?


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How to Destroy the Competition (Without Competing)

Lets ace it; competing is tiresome. It wears on you. It always results in a win-lose situation. But

you have to compete to survive right? The marketplace depends on competition; competition provides

consumers with choices. Without competition our economic system would be ineicient.

But as a leader, should you focus on competing?

As human beings, its our natural tendency to worry about what everyone else is doing. Case in point:

how many times have you checked your Facebook page today?

At work, we worry about our competitors. What are they doing? What is their pricing? Have they

launched any new products?

Theres a saying in gol: Play the course, not your opponent. While you certainly want to be aware o

how your opponent is playing, its important to avoid the trap o being swept up by the emotion o the

match.

The same holds true in business.

The key is to concentrate on your situation and your competitive advantage to achieve your desired

results. When you ocus internally, you come up with new and dierent ideas. You create.

Leaders focus on creating. Leaders create new products, services, production methods, and marketing

strategies that change the way we do business. Leaders change the way we think. And along the way,

they destroy the competition.

*Creative Destruction: The creation o new products and production methods that completely destroy

the market positions o rms that are wedded to existing products and older ways o doing business.

Creating is un, exhilarating, and provides you with a sense o accomplishment. Creative actions lead to

breakthroughs that lead to windalls o opportunity.

How do you create?

You might be thinking you dont have a creative bone in your body. Maybe your work situation hasnt

aorded you the opportunity to think outside the box. Maybe you came up with a new idea and someone

shot it down, along with your condence. The good news is: thats not true. We were all born to create.

The better news is: when you create, awesome (I mean AWESOME!) things happen.

To help jump-start your creative mind, I came up with 5 action steps you can take right now to help

unleash your creativity.

5 Action Steps to Unleash Your Creativity

1. Simplify. Reduce your objective to one sentence. For example: I want to make more sales, I

want to write a book, or I want to start a business. When your objective is clear, it is easier to

create ways to achieve it.


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Scott Mackes | 29

2. Write. Every time you write (or type) an original thought you are creating. Writing enables you to

clariy your thoughts and express yoursel. Otentimes while writing, I nd holes in my reasoning

that cause me to research my topic more thoroughly. As I research my topic I discover new ways

o thinking.

3. Focus. In order to create, you must eliminate the distractions around you and ocus. Turn o your

music, cell phone, and email alerts and ocus on what you want to achieve.

4. Think. I recommend dedicating 30 minutes a day to think. Think about where youre going and

what you want to accomplish. Think about your crat. You will create your best ideas during this

time.

5. Give yourself a deadline. Theres nothing like inducing a bit o ear in yoursel to spark creativity.

Every Friday, beore I leave or work, I have to publish an article on my blog. Period. Friday is my

deadline. Without this deadline, my work would linger on and go unnished. This deadline orces

me to nd the time to create the content I deliver to you. The deadline induces creativity.

Remember that an idea without action is just an idea. Start with Step #1 and write down one goal you

want to achieve and spend a ew quiet minutes thinking about it. Thats an action step you can take right

now to start down the path o creativity.

When you create, people will ollow you (including your competitors). You will become the leader that

everyone looks up to and will never be short o opportunity again.


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5 Ways to Make Loads of Sales (And Create MassiveOpportunity)

Selling is one o the most important skills a business leader must master. Selling can also be extremely

diicult. Lets ace it: rejection sucks. To become an eective salesperson, you have to overcome the earo rejection.

You also have to know how to conduct a sales call. First you prepare. Then you meet with the prospect

and build rapport, present your product or service, handle objections, and nally ask or the business. Its

not easy. It takes a lot o time and eort to make an eective sales call. It also takes a special skill-set.

But Im not a salesperson, why should I care about selling?

Maybe you dont have a product or a service to sell per sebut have you ever interviewed or a job? That

was a sales call.

Anyways

This post isnt about overcoming rejection or making an eective sales call (although those would be

great topics). To be honest, Im not great at either o those things.

When it comes down to it, sales success is directly linked to the number o interactions you have with

decision makers. More interactions = More success. Period.

Todays post is about how to massively increase your interactions and jump straight to order taking.

Because thats what matters, right?

Remarkable Selling

What separates an average salesperson rom a remarkable salesperson is marketing. By marketing,

I dont mean handing out fyers and business cards. I mean establishing yoursel as an industry expert

and creating powerul systems that generate a lietime o leads and opportunity.

The good news is: anyone can create these systems. It just takes time, perseverance, and a bit o

hustle. These systems will give you the necessary leverage to interact with massive amounts o people.

By massive, Im talking about 100s to 1000s o people daily.

Here are 5 ways to make loads of sales (and create massive opportunity):

1. Teach a Class. Teach a class to your co-workers. Teach a class to your customers. Teach a class atyour local trade association and/or local university. Teach, teach, teach! This is a great way to become

an expert, connect with others, and provide value all at the same time.

Want to teach a class to 1000 people?

Conduct a Webinar! GoToWebinar enables you to hold a live webinar or up to 1000 people at the same

time. Identiy a topic, create a lesson plan, and invite everyone on your mailing list to attend. This, my

riends, is leverage.
http://www.gotomeeting.com/fec/webinarhttp://www.gotomeeting.com/fec/webinar


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Scott Mackes | 31

For more inormation on conducting a webinar, check out:

How to Conduct (and Master) a Webinar with Lewis Howes rom LewisHowes.com by Pat Flynn.

Ive mentioned Pat beore on my blog, primarily because hes such a valuable resource. Above is a link to

an article on his blog that oers some great tips on conducting webinars.

2. Deliver a Speech. Most people attend local networking meetings and trolll or leads. I you ollow this

strategy, you will be lucky to collect 5-10 business cards that oer little to no value to you or the people

you interact with.

But, i you are the guest speaker, deliver value, and become the main attraction, business will ollow.

Organizations are always looking or guest speakers. Volunteer to be the guest speaker at your next

Rotary meeting or trade show.

When I was a senior in college I was ortunate enough to be the guest speaker at the annual Boys & Girls

Club awards banquet in my hometown. I spoke or about 30 minutes to about 500 people. I was even

mentioned in a local newspaper article the next day. The speech took 3 hours to write and 30 minutes todeliver. My total reach was in the thousands. Not bad or a 3.5 hour investment o my time.

Here are some great resources to help you become a better public speaker. I have read and recommend

both these books:

Stand and Deliver: How to Become a Masterul Communicator and Public Speaker by Dale Carnegie

Training.

The Quick and Easy Way to Eective Speakingby Dale Carnegie.

3. Create a Blog. A blog is a great tool or a number o reasons. You can create and share helpul

inormation with thousands o people. A blog also orces you to create. As I mentioned in my last article,

magical things happen when you create.

It takes me a ew hours to write a blog post, but it never goes away once I publish it. I can go o and do

other things while my content remains viewable to anyone wanting to read it. Its a great orm o leverage.

For more inormation about creating a blog check out my Blog Building Kit.

4. Create a YouTube Channel or Podcast. These are some other ways to deliver content to your

audience. YouTube is the #2 search engine in the world. Video allows your audience to see and hear

you which adds a personal touch to your work. It also provides your viewers a deeper connection to you.

Video brings you to lie!

A Podcast is a way or you to deliver an audio recording to your audience. Its like having your own

personal on-demand radio station! Many people listen to podcasts while driving to work or exercising in

the gym. iTunes makes it super-easy or your audience to subscribe to your podcast.

I youre interested in creating a podcast, check out this helpul link:

http://podcastanswerman.com/learn-how-to-podcast/
http://www.smartpassiveincome.com/how-to-conduct-a-webinar/http://www.marginofexcellence.com/standanddeliverhttp://www.marginofexcellence.com/quickandeasyguidehttp://www.marginofexcellence.com/quickandeasyguidehttp://www.marginofexcellence.com/wp-content/uploads/2012/06/Blog-Building-Kit.pdfhttp://podcastanswerman.com/learn-how-to-podcast/http://podcastanswerman.com/learn-how-to-podcast/http://www.marginofexcellence.com/wp-content/uploads/2012/06/Blog-Building-Kit.pdfhttp://www.marginofexcellence.com/quickandeasyguidehttp://www.marginofexcellence.com/standanddeliverhttp://www.smartpassiveincome.com/how-to-conduct-a-webinar/


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5. Dominate Social Media. Create a Facebook page or your business. I you dont own a business,

create a page anyway. I youre a Financial Planner your page could be Joe Smith Financial Planner; i

youre a realtor: Jim Johnson Realtor; i youre a manager: Henry Brown Leadership. Get the idea?

Heres a helpul link to learn how to set up your own Facebook page:

http://www.acebook.com/pages/create.php

You can set one up in 5 minutes. Theres no excuse or not doing this.

Next, create a Twitter account. Twitter is another outlet to connect and distribute your content with others.

In todays business world, its important or you to have a presence here.

Want to get Twitter followers fast? Check out Tweet Adder. This is a program I use and endorse.

Ater that, create a LinkedIn page. LinkedIn is the #1 business network in the world. I share every article

I publish to various groups on LinkedInand its where my highest quality traic comes rom.

Some other great social media tools are Rapportive and Hootsuite. Rapportive displays everything about

your email contacts right inside your inbox. You can see what social networks they belong to and you can

connect with them instantly. Its pretty slick.

Hootsuite is a program that enables you to schedule message delivery to your various social media

proles. Write a message, schedule a time or it to post and BAM! Hootsuite takes care o the rest. No

need to log into your various accounts to communicate with your ollowers. You can schedule your entire

social media campaign in one sitting.

Take Action!

I you take action on any one o these high value activities, your lie will change. You will become anexpert in your eld, connect with a massive amount o people, and make loads o sales (as long as you

have a way to get paid). Imagine what can happen i you take action on multiple ideas?

As powerul as these systems are, none o it matters unless you build trust with your audience. At the

end o the day, its not about how many sales you make, but rather, how many people you help. Its about

relationships. Teach a class, give a speech, create a blog put yoursel out there. Help someone.

Good things will happen.

I promise.
http://www.facebook.com/pages/create.phphttp://www.marginofexcellence.com/tweetadderhttp://rapportive.com/http://hootsuite.com/http://hootsuite.com/http://rapportive.com/http://www.marginofexcellence.com/tweetadderhttp://www.facebook.com/pages/create.php


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Scott Mackes | 33

Business Law

As a business leader, its important to become amiliar with the dierent types o business entities. You

probably dont need to be a legal expert, but you should know the dierent types o businesses and their

advantages (and disadvantages). In this article, I will discuss the various types o business entities and

provide an overview o each.

Beore I continue, a quick disclaimer: Im not a lawyer or certied public accountant and nothing I say

or write should be considered proessional legal advice. I youre looking or such advice, I recommend

consulting with a lawyer or CPA. Thanks!

SoWhy start a business?

1. Liability Protection. A business (with the exception o a sole proprietorship) oers its owners

liability protection. I the business is sued or goes bankrupt, the owner is not personally liable or

the loss.

2. Tax Advantage. Businesses are allowed to write o expenses. Your business can pay many

everyday expenses as business expenses so long as they are needed to run the business.

3. Professionalism. A business provides a proessional image. Your customers will take you more

seriously i you operate as a business. Banks are more likely to loan money to a business.

Lets look at the dierent types o businesses.

Sole Proprietorship

The simplest orm o business is the sole proprietorship. In this orm, there is no legal distinction between

the owner and the business. Anyone who has a business without having created a separate businessentity with the state is operating as a sole proprietorship by deault.

The primary advantage o a sole proprietorship is the ease o set up. Sole proprietorships require very

ew legal ormalities. You just have to register your business name (DBA) with your state.

Another advantage is the owner receives all the prots. There are no partners to split prots with and no

corporate taxes to pay. A sole proprietor only pays personal income taxes on the business prots.

A major disadvantage o a sole proprietorship is that the owner is not protected rom lawsuits or nancial

losses incurred by the business; he or she assumes unlimited liability. The owners personal assets are

at stake when operating as a sole proprietorship.

Another disadvantage is the sole proprietors limited ability to raise capital. It is more diicult or an

investor to ormalize a loan to an individual than to a business entity such as a corporation or LLC.

Sole proprietorships are most advantageous to entrepreneurs such as reelancers (writers, web

designers, photographers, etc.) who have limited exposure to potential liability and a limited need or

capital. Upront costs and legal obligations (such as shareholder meetings and annual reports) are

minimal. Its the cheapest and easiest type o business to start.


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Corporations (C-Corporation, S-Corporation)

A corporation is a distinct legal entity that can open a bank account, borrow capital, buy property, and

conduct business, all under its own name. The board o directors (who are elected by the shareholders)

chooses a team o oicers responsible or running the day-to-day operations o the company.

The primary advantage o a corporation is the owners are not personally responsible or its debts and

liabilities. I the corporation goes bankrupt, the creditors cannot (in most cases) recover the loss rom the

shareholders, directors, or oicers.

Corporations can also provide benets such as retirement plans and medical insurance. They have greater

limits or retirement and lie insurance contributions than the other types o business entities. They also

have greater access to capital rom banks because they are a widely recognized type o legal entity.

C-Corporation vs. S-Corporation

There are two types o corporations: C-Corporations and S-Corporations. The dierence between the

C-Corp and S-Corp is the tax structures. The C-Corp aces double taxation meaning the corporationitsel pays taxes beore dividends are distributed to the shareholders. The shareholders then have to

pay personal income tax on the dividends (this is a double taxation). In an S-Corp the prots pass

through the business to the shareholder directly without being taxed (i.e. there is no corporate tax). The

shareholder only pays personal income tax on the dividend received.

An advantage o the C-Corp over the S-Corp is the ability or the owner to income shift. I the owner

o the corporation pays a higher personal income tax rate than the companys corporate tax rate, he

can choose to retain the earnings in the corporation and pay the lower corporate tax on the business

earnings. This strategy is relevant to smaller companies that pay a low corporate tax rate.

Limited Liability Company (LLC)

Like a corporation, an LLC is a legal entity oering its owners protection rom the potential liabilities o

doing business. LLCs have become extremely popular because o their hybrid structure. They combine

the personal liability protection o a corporation and the tax advantages o a sole proprietorship, S-Corp,

and partnership. An LLC is taxed as a pass-through entity meaning that the prots only get taxed once

(there is no corporate tax).

Advantages of an LLC (over a corporation):

1. LLCs have ewer corporate ormalities. They are not required to hold regular meetings o the

board o directors or shareholders, keep written minutes, or le annual reports with the state.

2. LLCs dont have ownership restrictions. S-Corps are limited to 100 shareholders and each

shareholder must be a U.S. resident or citizen.

3. Members o an LLC are able to place their membership interests in a living trust.

4. Deduction o losses. Members o an LLC can deduct their operating losses rom their personal

income (to the extent permitted by law).


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Scott Mackes | 35

5. Tax fexibility. An LLC is treated as a pass-through entity meaning prots are only taxed

once. Or an LLC can be taxed like a C-Corp i that is more advantageous.

Disadvantages of an LLC:

1. Salaries and prots o an LLC are subject to Medicare and Social Security taxes, which today are

a combined 15.3%. With a corporation, only salaries (not prots) are subject to these taxes.

2. Owners must immediately recognize prots. A C-Corp does not have to immediately distribute

dividends to its shareholders. This means Corporations prots are not always taxed.

3. Unavorable state taxes. In some states (like Caliornia and New York), an LLC must pay higher

taxes and ees than a corporation o the same size.

4. Fringe benets. Employees o an LLC who receive ringe benets such as health insurance must

treat these benets as taxable income; C-Corp employees do not.

LLC vs. Limited Liability Partnership (LLP)

LLCs and LLPs have many o the same characteristics. In terms o ormation, LLCs and

LLPs are essentially the same. Both LLCs and LLPs are created by ling Articles o Organization with the

appropriate state government agency, typically the Secretary o State. Both types o entities oer similar

legal protection to the owners.

Note: the owners o an LLC are called members and the owners o an LLP are called partners.

The tax benets are also similar or LLCs and LLPs. Prots pass through the entity to the owners

without being taxed.

So why form an LLP?

In some states, local laws prevent some businesses rom operating as an LLC. One reason large law

and accounting rms operate as LLPs is they can orm this entity in any state.

Are you ready to form a business?

Legal Zoom is a service that enables you to easily orm a business entity online. I recently went through

the process o setting up an LLC and it took about 15 minutes rom start to nish. It was almost as easy

as creating an email address (although a bit more expensive). Prices start at $99 (or the economy

package) plus state ling ees. The only inormation you need is your company name, names o

members, and business address. You ll out a questionnaire and Legalzoom takes care o the rest! Thisis a simple and straightorward way to set up your business quickly and eiciently.

I youre interested in setting up an LLC (or any type o business) you can nd out more here.

I hope you nd this inormation helpul. Setting up a business can be intimidating, but there are tons o

resources available to help.
http://www.marginofexcellence.com/legalzoomhttp://www.marginofexcellence.com/legalzoomhttp://www.marginofexcellence.com/legalzoomhttp://www.marginofexcellence.com/legalzoom


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What Do Jesus, Mike Krzyzewski, and Jimmy Buffett Havein Common?

As much as I enjoyed business school, I think many programs all short in teaching leadership.

Leadership is one o the most important skills you can have. Leaders set direction. Leaders change theway we think. Leaders change the world.

Todays discussion is about 3 leaders and how they changed (are changing) the world. While these

leaders are very dierent rom one another, they share a common thread that has made their leadership

journeys truly special.

Jesus, Mike, and Jimmy

Jesus, without question, is the most popular person who ever lived. Hes the central gure o Christianity

and is regarded as an important prophet o God in Islam.

During his lie, he impacted thousands o lives through his ministry and teachings. He spread hope andinspired people to believe and have aith. He became such a popular leader during his time that he

became a political threat and was eventually executed. Hes the main character in the Bible, the most

popular book ever written.

Mike Kryzyzewski (also known as Coach K) is the all-time winningest coach in Division I mens college

basketball. To date he has coached Duke University to 4 NCAA championships, 11 Final Fours, and 12

conerence titles. He was the coach and leader o the USAs gold medal-winning 2008 Summer Olympics

mens basketball team.

Jimmy Buffett is a singer-songwriter, lm producer, and businessman. Hes best known or his musical

talent and has released 30 albums: 8 gold and 9 platinum or multi-platinum. Buett has written 3

best-selling books and he owns 2 successul restaurant chains: Margaritaville and Cheeseburger in

Paradise.

Besides having impressive resumes, what do these 3 leaders have in common?

They built tribes.

Tribes are groups o people united under a common purpose. They challenge authority and the way

people think. Tribes change the world.

Seth Godin, author o the best-selling book Tribes: We Need You to Lead Us oers this denition:

Jesus, Coach K, and Jimmy Buett connected people to an idea. They built tribes.

A tribe is any group of people, large or small, who

are connected to one another, a leader, and an idea.
http://www.marginofexcellence.com/tribeshttp://www.marginofexcellence.com/tribes


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Scott Mackes | 37

The Christians

Jesus is the ounding ather o Christianity, a religion practiced by more than 2.2 billion people today.

Every Sunday, people congregate in churches around the world to worship and spread the message

he preached more than 2000 years ago. Jesus built his tribe one-by-one, rom Galilee to Jerusalem,

preaching to anyone who would listen. He challenged authority and spread hope throughout the land.

He gave people something to believe in, gave them aith, and as a result built the largest tribe in history.

The Cameron Crazies

Coach K has a tribe too. While not quite as big as Jesuss, it is pretty sizeable nonetheless. In a college

sports era marred by scandals and lacking a ocus on education, Coach K built a basketball program

based on undamentals and sound principles. Although many o his players went on to have successul

careers in the NBA, he coached 19 seasons beore a player let school early to pursue a proessional

basketball career. 19 seasons!

His dedication to excellence has garnered him many awardsand a tribe! Duke University named the

foor in their basketball arena Coach K Court in his honor. The grassy area outside the arena is

titled Krzyzewskiville. Duke also named the new basketball practice acility ater him: Michael W.

Krzyzewski Center Dedicated to Academic and Athletic Excellence. His tribe members include the

Cameron Crazies (members o the student body who organize cheers at the games), ormer players and

sta members, and the alumni and ans o Duke Basketball. Nine o his ormer players and assistant

coaches became head coaches at other schools. Three ormer players now work or him as assistants at

Duke. His program has produced more leaders than any other college sports program.

The Parrotheads

Jimmy Buett united his tribe under the concept o island escapism. He created Margaritaville, a

place or his listeners to escape the hardships o everyday lie. His tribe, the Parrotheads, comes

together at his live perormances to indulge in and celebrate the island liestyle. Typical attire or a

Parrothead includes a Hawaiian shir t, board shorts, and fip-fops or men or a grass skirt and coconut

bra or ladies.

Buett built his tribe through his catchy tunes and magnetic personality. His idea has helped him sell over

20 million albums, sell out concert venues, and orm the Parrothead tribe.

Your Turn?

Everybody has a story to tell, a movement to start, and a tribe to lead. However, very ew people believe

in themselves enough to speak up, organize the group, and lead. There are people out there, on the

ringes, who share your belies about how to make the world a better place. They need you to speak up

and lead them. They need you to orm the tribe.

How to Form a Tribe

A group only needs 2 things to become a tribe: a shared interest and a way to connect. Here are 3

steps to help you start a tribe:


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1. Determine your interest. Your interest is what you spend most o your day thinking about. Its what

you read about. I youre not sure what your interest is, look at the books on your shel. What are you

reading about? They may show you what your passion is. Pursue your interest, ollow your passion, and

get people excited!

2. Tell a story. Stories help connect people to your interest. They spark curiosity. People want to be

part o a story. There are many ways you can tell a story. One way is to write a book. Write about how

you got where you are today. Another way is to start a blog. Come up with an idea, something you want

to achieve, and write about how you are going to make it happen.

3. Share your story with the world. The internet is a antastic (and low cost) way to share your story

with the world. Publish articles on your blog. Write an e-book. Create a You-Tube channel. Create a

podcast. These are great ways to connect others to your idea. Spread the word.

I want to leave you with a speech that Seth Godin delivered at a TED conerence a ew years go. I hope

this inspires you to take the next step, to speak up, and lead your tribe.

Enjoy!

Seth Godin: The Tribes We Lead
http://www.marginofexcellence.com/2012/06/29/the-un-resume-19-life-changing-benefits-of-a-blog/http://www.ted.com/talks/seth_godin_on_the_tribes_we_lead.htmlhttp://www.ted.com/talks/seth_godin_on_the_tribes_we_lead.htmlhttp://www.marginofexcellence.com/2012/06/29/the-un-resume-19-life-changing-benefits-of-a-blog/


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Scott Mackes | 39

The One Year Self-Directed MBA Program

Pursuing an MBA requires a huge commitment o both time and money. I attended an evening program

and struggled to balance my ull-time work schedule and the programs requirements. I studied

during my lunch breaks at work, attended 3-hour classroom lectures at night, and spent many Sunday

aternoons inside doing homework. It was a huge challenge!

I receive many emails rom readers asking i they should pursue an MBA

Is it worth it?

I learned the most important lessons about business by applying what I was taught in the classroom

(the same concepts I discussed in the series) to real lie problems. You learn by doing and taking

action. Theres no other way.

Since you learn by doing, I thought it would be helpul to provide you with a series o action steps you can

take to apply the concepts I discussed in the 45-Minute MBA series. Im certain that i you ollow theseactions, you will see tangible results in your business career. You may not get a diploma or a bullet or

your rsum, but you will create something o lasting value or yoursel.

The One Year Self-Directed MBA Program

-Read The 45-Minute MBA. Cost: $0, 45 minutes.

-Read the Wall Street Journalevery day. Cost: $150 annually, 30 minutes daily.

-Become procient at Microsot Excel. Cost: $0, 10 hours.

-Read Compensation by Ralph Waldo Emerson. Cost: $0, 1 hour.

-Watch Warren Buetts MBA talk. Cost: $0, 90 minutes.

-Read Warren Buetts letters to shareholders (1977- Current). Cost $0, 30 minutes weekly or 35 weeks.

-Read The Intelligent Investor by Ben Graham (particularly chapters 8 and 20). Cost: $15, 10 hours.

-Open an online brokerage account and invest $1000 in the stock market. Cost: $1000, 30 minutes. I

youre looking or an investing strategy read The Little Book that Beats the Market by Joel Greenblatt.

Cost: $15, 5 hours.

-Read How I Turned $1000 into $5,000,000 in Real Estate in My Spare Time by William Nickerson. Cost:$50, 10 hours.

-Start a blog. Cost: $100 (or hosting and domain), 1 hour. Post 1 article per week. Cost: $0, 5 hours

weekly.

-Read the Blog Building Kit. Cost: $0, 15 minutes.

-Buy the Empire Building Kit by Chris Guillebeau. Cost: $149, 15 minutes weekly.
http://office.microsoft.com/en-us/excel-help/CH010369467.aspxhttp://www.marginofexcellence.com/wp-content/uploads/2011/09/Emerson_Compensation.pdfhttp://www.youtube.com/watch?v=DfuXKpMFUjchttp://www.berkshirehathaway.com/letters/letters.htmlhttp://www.marginofexcellence.com/intelligentinvestorhttp://www.marginofexcellence.com/littlebookhttp://www.marginofexcellence.com/nickersonhttp://www.marginofexcellence.com/bluehosthttp://www.marginofexcellence.com/wp-content/uploads/2012/06/Blog-Building-Kit.pdfhttp://www.marginofexcellence.com/empirebuildingkithttp://www.marginofexcellence.com/empirebuildingkithttp://www.marginofexcellence.com/wp-content/uploads/2012/06/Blog-Building-Kit.pdfhttp://www.marginofexcellence.com/bluehosthttp://www.marginofexcellence.com/nickersonhttp://www.marginofexcellence.com/littlebookhttp://www.marginofexcellence.com/intelligentinvestorhttp://www.berkshirehathaway.com/letters/letters.htmlhttp://www.youtube.com/watch?v=DfuXKpMFUjchttp://www.marginofexcellence.com/wp-content/uploads/2011/09/Emerson_Compensation.pdfhttp://office.microsoft.com/en-us/excel-help/CH010369467.aspx


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-Listen to the Internet Business Mastery Podcast. Cost: $0, 1 hour weekly.

-Create a logo, Facebook page, Twitter account, and order business cards or your new online enterprise.

Cost: $150 (or logo and business cards), 1 hour.

-Create a product to give away or ree. Then create a product to sell. Launch the products rom your

website. Cost $0, 20 hours.

-Attend a weekly networking event (Chamber o Commerce, Rotary, Lions Club, BNI, etc). Cost: $500

annually, 1 hour weekly.

-Create a business mastermind group and communicate weekly. Cost: $0, 1 hour weekly.

-Take a millionaire to lunch. Cost: $50, 1 hour.

-Read The Eective Executive by Peter Drucker and Tribes by Seth Godin. Cost: $30, 10 hours.

-Sign up or Toastmasters and attend a meeting each month. Cost $100 annually, 2 hours monthly.

-Watch Steve Jobs 2005 Stanord Commencement Address. Cost: $0, 15 minutes.

Total Cost:

Sel-Directed MBA: $2,309 / 2 hours daily or one year

Cost o my ormal MBA: $25,000 / 2000 hours over 2+ years

The Difference

Ater completing the sel-directed program you will have a business, a nancial strategy, and a strong

proessional network. You will also acquire important business skills that will help you survive as anentrepreneur. This will cost you much less time and money than a ormal MBA, yet leave you with

tangible assets and experience that you cant get in the classroom.

Think About Your Goals

With the price o college education going through the roo, I urge you to think hard about your goals and

what you want to do in your proessional lie. I your goal is to make more money and build long-term

wealth, you do this by:

1. Owning a business,

2. Owning real estate, and

3. Owning stocks.

I your goal is to get promoted at work and climb the corporate ladder, you do that by:

1. Delivering superior results to your current employer and

2. Building a strong proessional network.
http://internetbusinessmastery.com/podcasthttp://www.marginofexcellence.com/elancehttp://www.marginofexcellence.com/effectiveexecutivehttp://www.marginofexcellence.com/tribeshttp://www.toastmasters.org/http://www.youtube.com/watch?v=UF8uR6Z6KLchttp://www.youtube.com/watch?v=UF8uR6Z6KLchttp://www.toastmasters.org/http://www.marginofexcellence.com/tribeshttp://www.marginofexcellence.com/effectiveexecutivehttp://www.marginofexcellence.com/elancehttp://internetbusinessmastery.com/podcast


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Scott Mackes | 41

Im convinced that you dont need an MBA to meet any o these goals.

Avoid the Herd Mentality

Your counterparts are focking to graduate programs because theyre scared. Theyre out o work or

underemployed and araid they dont have the skills to get a better job. Theyre spending tons o time and

money to get the skills they thinkemployers are seeking.

While your peers are stuck in the classroom, now is the perect time or you to capitalize on this

opportunit

Documents

The 45-Minute MBA