Cuesta College Business Seminar


– [Woman] Welcome. – Let’s get started. My name is Gary Rubin,
and thank you for coming. We have three hours together,
we will take breaks. This is about starting a
business and growing a business, and I try to pack as much
as I can into three hours, but three hours is only three hours and there’s a lot that we
can learn about business that we’re not gonna get
through in three hours, but we’ll get through as much as we can. Just a little background and then we’ll get
right into the material. I’ve been teaching at Cuesta since 2002. I teach courses in the
business administration area and in the law area. I’ve been practicing law since 1985, and I kind of can’t make
up, you know, my mind what I wanna be when I grow up, you know, I go back and forth and I
just do both simultaneously. But 29 years or so of teaching experience from third grade to Cal
Poly College of Business, and five community colleges in between, between here, San Diego, and Chicago. And my law practice predominantly has been with regard to businesses. For 11 years I did it
full time, where I had maybe 20, 25 different
business clients at a time. Everything from a mom and pop store to the largest was a company
that had 200 employees. And I would do anything
and everything they needed and it got to be where I was
doing more than legal work, I was doing marketing plans with them, I was doing refinancing,
anything and everything that they said, hey can
you help us with this, I would jump in and help them with it. So I started becoming more
like a business consultant, not just their lawyer. And it would help me
learn about their business and take care of their legal issues too, but it gave me a good education. But this course, this started with an
idea a year or more ago that I had that at the
community college level to serve small businesses. My opinion is, and based on my experience, my own as a small business owner for 10 years owning a law firm, you don’t have time as
a small business owner necessarily to get the education you want. You might want to learn about
accounting or marketing, but you don’t have time
to take an 18 week course for three or four hours a week, because your business
is pulling you to work. And you have family and
sometimes you just can’t make it. So my thought is, I would like
to see more short courses, seminar format, for
the business community, where you can get in and out in one day. You know, or maybe two
successive Tuesday nights for three hours or something,
not a whole semester long, no books needing to be purchased, but more kind of continuing education for the business owner. So that’s been my mindset trying to develop those types of courses. And talking with my colleagues I was encouraged by Gayla Jurevich. Gayla is our deputy sector
navigator statewide. There are 10 Gayla Jurevichs, but Gayla’s right here in the back here. Gayla encouraged me back
in September of last year to attend a conference in San Diego. And it was by invitation
of 60 business faculty throughout the state
and community colleges, and we were asked to go this conference. First Gayla says, it’s a great conference on entrepreneurship, I
said, okay I’m interested, you know, I’ll hear what they have to say. Then after I signed up for it, she says, no you’re not gonna
hear what they have to say, you’re gonna be working
and creating curriculum for two days, it’s a working conference. I said, okay, thanks Gayla. So what it was about
was we developed teams and over two or three days,
we created short courses for people in career technical education and I was in the automotive group. So like students who were
studying automotive technology they don’t necessarily
take any business courses, but maybe they want to open
up their own repair shop, they need to know
something about business. So we created like six or seven courses that were each a half unit or one unit for the automotive students,
to learn a little bit about marketing, a little bit about law, a little bit about accounting. And the idea state wide is,
what I was really inspired by is to do what exactly I
was thinking of doing here, that’s what the push is state wide. Let’s start putting more
business courses in short format out there for the business community. So I came back here and Gayla said, why don’t you apply for this grant? You can create the course,
and we’ll put little money on the table for you and for the college. And I said, okay, let’s give it a whirl. And I found out about it four
days before the grant was due, but I went home that weekend
and I put together an idea of, I would create this course,
and the outline you have is in front of you, I just
finished it yesterday morning. This is a course, this outline, that we’re not gonna go through
that whole outline today, but that would be the basis of a half unit or one unit course. And when I mean half unit or one unit, to put that in terms,
you know, you can vision, one unit is 18 hours in a classroom. So that outline you have, I
could spend 18 hours easily on that 46 page outline you have, and go through the
material a little deeper, much deeper than we’re
gonna go through today. Or maybe a nine hour half unit course, like one day in and out, like we do now a lot of Saturday customer
service courses we have, in at eight out at five, you’re done. So that’s what I’m gonna
try and work towards. But I also then want to
then take this course and the material I’ve
prepared, and share it with other faculty in the
college in various areas. In essence say to them,
kinesiology instructors, you have faculty there who maybe have some business experience, maybe they were a personal trainer, is the self-employed personal trainer. You have students who want to be self-employed personal trainers, they need to know
something about business. Create a business course
for them, I’ve done it you, here, you can teach it, I’ll
be your coach or your mentor. Same thing like in early
childhood education, or automotive, anywhere
where somebody might consider being self-employed, I want to
see the faculty in that area consider taking this material
and adapting it how they want, but you have the basics
here of what you need for a business course in any arena. And then we see about,
you know, spreading it to, I mean, throughout the
community as much as we can too. So a couple acknowledgments,
Gayla inspired me, go to this conference, it
was a excellent conference. Chuck Eason is the statewide business sector lead for the whole state. He led this conference,
he then was the one who awarded the grants, and
I was awarded this grant based on this idea I just described to you of preparing this course and
then spreading the course throughout the campus. The grant was between
Ventura, Santa Barbara, and San Luis Obispo counties, so I thank Chuck Eason for
granting me that grant. And that gave me the funding
to put this together. We have three excellent
chamber of commerce here in the north county. And we have the Hispanic
Business Association. Maria Garcia is here from the
Hispanic Business Association. Where’s Maria? – [Woman] She’s outside. – She’s outside ushering people
in, you might have seen her, she’s out there helping. Linda Hendy from Atascadero
Chamber of Commerce. Gina Fitzpatrick from the Paso
Robles Chamber of Commerce. And Sarah Maggelet from the
Templeton Chamber of Commerce. Sarah took care of all
the reservations for this, but all four of those
individuals helped me promote it to the community, which is the goal, get people in the community who aren’t necessarily
a college student here, which most of you I think
are, so, thank you to them. Thank you also to Ritchie Bermudez and all the marketing team here. Ritchie’s in the back videotaping this. The outline that you have will be online so you don’t have to go in
and type in all those links. We’ll get that outline online for you, you can just download it,
click on whatever you want, all those resources I put in there. This video will be online if you want to review it again, okay? So thank you to our marketing
team at Cuesta College for all their support and help. We will take breaks for questions. I have in the slides, I
have 45 PowerPoint slides. We’re gonna go through this material in fairly quick fashion, but
we will take breaks so that you can ask questions, I’ll
answer them as best I can. And then if you need restrooms, women’s restroom right out the door here, men’s just a little further
across the hallway, okay. If you need coffee or water, help yourself in the back there. But I expect we’ll take maybe two breaks over three hour timeframe, maybe an hour, hour and
fifteen minutes into it we’ll take a ten minute break, and then again later on, okay? Alright, any questions so far? Let’s get into it. My clicker’s not working, that’s not good. So this is what we’re gonna cover. I tried to think about like what’s the basic basics you need to know. Some stuff in business
we’re not gonna cover, you notice I don’t have
anything up there about intellectual property,
trademarks, patents, copyrights. I might touch on it just a little bit, but that’s a whole ‘nother
topic we could go into. There’s a lot of things
that aren’t in here, but this is meant to be the basics. So if you have a question about something that’s not up here, feel free to ask it. If I can answer it I will quickly, but this is what we want to get through, this is the main material that
I thought you need to know. And some of it we’ll spend
a little more time on than others, like the permits
and licensing, I don’t expect to spend more than five
or 10 minutes on that. I have a, you know, great
website you can look at, figure out all your permits and licenses for any business in the state,
and then I’m gonna move on. We’ll spend a little more
time on marketing, promotion, choice of entity is a pretty hairy area, we’ll get into that fairly well. And I’ll be weaving in tax tips and other tips as you saw in
the outline maybe already, I put like close to 60 tips. As I’m preparing this material
I don’t want it just to be like textbook, you know, read
it, figure it out on your own. I put these tips in there to
say, here’s what I suggest, here’s in essence something
for you to think about. You know, it’s kind of like
the consulting part of me is coming out saying, or the
counseling part is saying, here’s something you want
to really consider, okay? So let’s, I clicked that, or
you clicked it, oh sure. So let’s start of, the
entrepreneurship mindset. You have to figure out, if you’re thinking of going into business, what is motivating you
to go into business? I mean there’s a variety of reasons, and could follow along if you want, I’m not gonna read off anything, but I’m kind of following
along the outline you have. But, you know, it could be
that you want independence. I mean, sometimes there’s people who say, I don’t want to work in an
environment where I gotta, you know, interact so
much with other people, I want to be away from people. That kind of independence,
like I want to be by myself. Work at home, do my own
thing, not have to dress up, not have to play the
political games at work. I want to kind of disassociate. That’s fine to a certain
extent because you can get away from the office protocols and, but you can’t get away from people. Even if you’re just
doing an online business you have to deal with
customers at some point, even if it’s not face to face, it’s still some communication,
you know, online or phone. You have to deal with
your suppliers, I mean, it’s something where
that’s gonna be a goal that’s gonna be hard to accomplish fully. But look at what your purpose is. A lot of people say, I want
to have control over my time, my life, my destiny,
and I mean, that’s true, you can have control, but be careful because sometimes it
starts to control you. If the business becomes very successful, and you’re really into it,
it’s gonna take a lot of time and energy and you need to
have your family behind you, you need to have that
support, because otherwise it could lead to ruining
your personal relationships. You’re putting so much
time into your business that the family starts
saying, well where’s mom, where’s dad, where’s you know,
where’s my significant other? You have to have everybody
in your life kind of on board that hey I’m going into this adventure, it’s gonna maybe take me, you know, out of our usual social norms here. We have to kind of say,
are we behind this, can I put in a Sunday if I
need to at work, or a Saturday. I mean, when I work sometimes
I’m working seven days a week or sometimes it’s like you just have to do what you have to do,
because you set a standard for your business, here’s
what I need to accomplish, and then sometimes you
don’t necessarily have all the help that you would
want right then and there ’cause of cashflow, you have to manage how many employees can I hire, sometimes I have to do it myself. So you have to kind of look and see, why am I going into business? When you know why you’re
going into business, write it down, revisit
it, constantly, okay. Because when you get
into the tough decisions, you have to go back to that and say, this is why I’m doing this. And you won’t quit then, you’ll say, this is what I’m trying to accomplish, am I accomplishing it? Am I getting my independence? My first business was,
that I had employees, I mean, I actually was
self-employed at 10 years old. I was shoveling snow and
I wanted to make money, that was my goal. And sometimes that’s fine. People say you have to have a passion, if you don’t have a passion you’re not gonna be
successful in your business. I did not have a passion for
shoveling snow at 10 years old. I really didn’t like it that
much, but it made money. I mean, I grew up in
Chicago, and it made money. I mean, I had good snow fall,
I could go out and somebody, this is 1969, when a pack of
baseball cards cost five cents. And I could get $2 for a job
that took me maybe a half hour in shoveling snow on a 30 foot wide lot, five foot wide sidewalk,
steps, the gangway, okay, so there’s some serious
money out there to be made. I don’t like shoveling
snow, I don’t like the cold, that’s why I eventually
moved to California, but I did I ’cause I could
make money doing this. And I could buy things with the money, you know, that I want. So when you’re going into
business, figure out what the, what is it you’re getting out of it. Why are you doing this, okay? And could be just money sometimes, it doesn’t have to be passion, everyone says if you’re not
passionate you won’t succeed. I don’t know about that, I don’t necessarily agree with that. There are a lot of entrepreneurs who look at a business
opportunity dispassionately, objectively, and they say, here’s a trend, or here’s a business opportunity
that could be profitable. I don’t necessarily have to
love the work of shoveling snow or whatever the business is,
but I see that it’s profitable. I could hire people to help
me move this business along. Eventually sell it if
it’s too much of a bother, I don’t want to deal with it, but I could make money at it, alright? So sometimes, you know,
we’re not necessarily always gonna be the owner
operators of a business. Sometimes, you know, entrepreneurs
are starters and leavers. You know, get it going, sell it, move it on to somebody else. But you can see that there’s a trend, there’s a way to make some money here, you put that team together,
you put the resources together, you built it, you move on, let somebody else take it over then. You are building, creating,
not necessarily because that’s your love of that particular job, maybe it’s just your love
of building, creating and moving on, and doing
another one, right, so do what you want to do for yourself, but keep revisiting that, okay. The purpose, it’ll help you
in making decisions, okay. That’ll guide you, that’s
like your way of saying, here’s why I’m doing this, okay. Success rates, business starts. I’ve done a fair amount
of research on this, you see all kinds of statistics. Half the businesses will
fail in their first year. You see numbers all over
the place, you know, what’s credible, what can you believe? Well, there’s all kinds
of stuff out there, but here’s one I think
that’s fairly reliable but I could even poke a few holes in this. But this is from the,
let’s go right to it, and then we’ll come back, let’s go right to this link
please here, Heidi, okay. So this is from our United
States Department of Labor. Go up to the top just again a bit. Bureau of Labor Statistics, okay. Now these are survival rates of businesses that were started from 1994
all the way through 2015. Okay, so you could see here,
if a business started in 2010, okay, 51% of them are still alive five years later, through 2015, okay. If you started it in 2013,
almost 80% were still alive in 2015, two years later, alright. So based on these statistics, roughly 80% success rate for two years. 50% success rate, roughly,
for five years, okay? Now scroll down a little
bit, Heidi, please, okay. Businesses that started in 1994, 20% of them still around in 2015, okay. That’s a pretty good run,
that’s a really good run. Click on this chart here, please. And scroll up just a bit there, get the whole chart in
picture, good, okay. So, number of establishments
less than one year old. So these are business starts. You can see here, 550,000 started in 1994. Kept going up, here we
are 2001, recession. Fewer people start a
business in recession, but here’s a tip, consider starting a business in a recession. Why, because you get a good
deal on anything you need, okay? Watch when there’s a recession, all the banks have inventory
that they’ve repossessed from people who can’t
make their loan payments. Go here locally, Heritage
Oaks Bank, Wells Fargo, any of the local banks,
back in 2009, 10, 11, if you looked at any of their websites, you could have bought all
kinds of equipment, Maseratis, if you wanted to start a
restaurant in 2010, 11, most people would say you’re crazy. Nobody’s going out to restaurants now, they’re not spending money,
they lost their jobs, they’re losing their houses, why would you start a business now? I mean, most people said
no, don’t start it now, there are fewer starts in the recessions. Look at this, boom, big
drop from over 700,000 to in 2009, 10, 550,000. But what would it cost to
get a commercial kitchen, really nice stainless steel if
you’re starting a restaurant. 70 to 120,000, okay, he had one such one that was just started a year earlier. They put in brand new $110,000
worth of stainless steel, brand new kitchen, borrowed
money on it, lost it all. They couldn’t pay their
loan, he repossessed it. What am I gonna do with the
kitchen, he says, I’m a banker. Right, asked the landlord,
can I leave it in your space for a while, might help
you rent the place, might help me sell it without
having to hire somebody to pull it out, store it, pay
storage costs, then sell it. I’m a banker, I don’t want to
deal with this stuff, alright? He wound up selling it for like $8,000. I mean, somebody walked right in and said, I’ll open that restaurant. And the landlord said,
great I’ll give you a deal, and guess what, I got a banker who will give you a deal on
the equipment, the kitchen. A year later, $110,000
kitchen was sold for $8,000. – [Woman] Wow. – That restaurant is still in business, I won’t tell you which
one it is, but they opened right in the depth of the recession after their predecessor bottomed out. It’s timing, so sometimes
you can get a deal starting when everyone else is running if you’re looking for equipment, okay. And you need equipment, look
for the re-possessed equipment. Well you can see, we’re on
the upswing here, right? I mean, 2015, we’re getting
close to our all time high here. We’re getting back up there
to number of business starts. The economy has been fairly
good, it’s going along. Interest rates now are gonna start rising like they have been. December 2016, Fed raised it a little bit, December 2015, they raised
it, they’re probably gonna raise it again today
or tomorrow a little bit. So, it’s getting a
little more, like, steam, the economy, so the Fed thinks, and they’re gonna put the
brakes on it a little bit, but. One more chart, please, Heidi, thank you. So, click off of that, yeah, thanks. So here is, by number,
the chart we just saw. And if you could scroll down, Heidi. So you could see here
each year the starts. So the highest year was 2006,
just before the recession. Late 2007 the recession hit, 2008 it really tanked,
the real estate market. So the real estate market tanks in 2008, and it’s starting to drop, then it drops more than 10% the next year. Almost another 10% the next year. It starts coming back
2011, 2012 nice jump, kind of flat 2012, 13, back on the move 2014, 15, okay, so, we’re in fairly good times
based on these stats, okay? Okay, let’s go back to the PowerPoint. Okay, and I’m getting my
clicker working, I think. Yeah, I think we’re doing
good, let me, yep, we’re good, okay, just needed to
warm up a bit, okay, so. When you’re going into
business and you see, you know, businesses failing, I mean, I don’t know if you
have ever known somebody who’s been in the business
and they’ve failed. And there’s different
definitions of failure. If you look at the small
business administration’s definition of failure and
other entity’s definitions, some will say a failure is a business that took out financing and
then had to close the stores before paying off its business loan. That’s a rather narrow definition
of failure in my opinion, because what if you didn’t
take out any financing, but you put 50,000 of your
own money into this business, and a year or two or three
later, you didn’t make it, you lost all that 50,000. Most of us would say,
that’s a business failure, I lost 50 grand, I didn’t make it, okay. But the SBA would say it’s
not a business failure because you didn’t take
out a loan and then close. So what’s the big thing about
business and failure and risk? First off, there is risk,
there’s more risk in starting a business than in being an
employee, for the most part. I mean, it’s not as
secure being an employee as it was 20, 30, 40, 50 years
ago, like when my father, you know, the, you know, pre World War, the mature generation,
you know, we call them. Or the traditionalists, you
know, born before 1944, 43. When they got a job, they had that job for their career, okay. Baby boomers like in
my, you know, bracket, you get people who are like
two, three, four careers. You know now, youngsters, you know, they’re gonna be doing
four, five careers easily. So the job market isn’t as like steady secure as it used to be. I think that’s the reason
somewhat why people decide I’m gonna start my own business. It’s not like I have oh this
job that’s gonna pay me well, I’m gonna have a great, you know, income for the rest of my life. Nothing’s that secure anymore usually. So people are considering it more. How do you minimize your risk of failure? This is my opinion here, these three. First, you education yourself,
like you’re doing now. You learn about how not to
make the most common mistakes. You learn a little bit about cash flow. You learn a little bit about marketing. You don’t just say, oh
I’m gonna open my doors and people are gonna come
to me, you have a plan. So you then have to have, in my opinion, along with the education, you
have to have some experience or you’re really laying some big odds. People who say, I want to open up, I have students in small
business management classes that want to open up a business. In a marketing class they’re
opening up businesses, I mean there are people in
their 20s, 30, 40s, 50s, and 60s, and 70s I get in
classes here every semester who are opening a business,
and they’re saying, I want to open up a
women’s clothing boutique, small shop here in Paso. I say, great, okay, economy’s doing good. What’s your experience in that industry? I love to shop. Okay, so you’ve had
experience as a consumer, but have you ever worked in
a small shop or a large shop, have you ever worked in
the clothing industry? No, but I like to shop, I’ve
been to a lot of stores, I know what a good store would be like. Okay, you know one side of the equation, you know the consumer side of it. You’ve never dealt with suppliers, you don’t know what
the profit margins are, you’ve never dealt with employees, having to manage them, hire ’em, fire ’em. Marketing your store, there’s a lot more that you don’t have the experience of. Go work for one of these places. Lady says, I’m 45 years old, I’m not gonna go work
minimum wage job in retail. You know, I don’t want to do that. Well, you’re gonna then
learn on your own dime. You’re gonna make
mistakes in your business that you could have made
working for somebody else. While they’re paying you minimum wage, you’re there for the training, okay. I went into teaching full
time after practicing law from age 25 to 37, I said, I’m
gonna be a teacher full time. I had been teaching already while I was practicing law full time at
four colleges in Chicago, the City College of Chicago
and a couple suburban colleges, I taught business classes while
I was practicing full time. And even though I had seven or eight years of part time college teaching experience, I said I’m going to teaching full time. I’ll go get a job as a fourth
grade teacher, I don’t care, I want to just teach full time. And that’s what I did, I went back to school to
get a teaching credential. When I went back to school, I took a job at the Solvang Elementary
School as a teacher’s aid for $7.05 an hour. This was 1996, 97, January 97, 20 years ago. And I said, I want to learn teaching. That’s my next job, that’s my next career, that’s my next business. And even though I’ve been doing
it for seven or eight years, I never did it with kids, I
did it with adults all these. I’m gonna go try and do
it with kids full time, I’m going to take classes for it, I want to be in the
classroom as soon as I can on somebody else’s dime,
making the mistakes while I have a teacher there who’s knowing what they’re doing, I watch. And I wrote home, you know, to my parents, they thought this is like, midlife crisis. I went from making $165 an
hour having my own business to making $7 an hour. You know, I sent home my
paycheck, look at, you know, but I did what I wanted to do,
you know, so, but I learned. I was able to be in three
different teachers’ classrooms. And I observed, here’s what
they do that I could agree with, here’s what I would do differently. I did the same thing before
I started my business, my law firm, I went into
law school thinking, I’m gonna open my own shop when I get out. And then I almost did
right when I got out. But I thought, let me learn a little bit from somebody else first. And I went to work for a small firm in Escondido first, right out of school. I went to law school in San Diego, I went to work for a two lawyer firm, I was the third lawyer. Did it for one year, I did
business deals with them, some litigation, and I realized, I don’t know enough about tax. On these business deals
there’s always a tax angle, and the boss would send
me to two other lawyers who were like tax specialists. And I worked with them, and
I had accounting undergrad so I knew something about tax, I took some law school tax classes, but I didn’t know as much as these guys. But I knew more than the guys at my place, so they said you’re our tax, business guy, you’ll figure it out with the
real tax guys if you need to. But so then they told me,
you want to do business, you got to get more tax background. Go work in a big eight
firm, accounting firm, now it’s big four, in the tax department. I said, okay, he said,
just do that for one year, and just do nothing
but tax law for a year. Then you go back into the law, you’ll have a good grounding on taxes. I took their advice, that’s what I did. And then I went back to
work in another law firm, a regional firm with like 13, 14 lawyers. And as soon as I walked in they said, I was two years out of law
school, I was 27 years old, they gave me a dozen
files, they said, here, you’re selling this business
that’s worth a million dollars you’re doing it all yourself. Your handling this litigation,
all business and tax stuff. IRS is suing this client of
ours, you’re defending him. You got this to do that, I was like, okay. You know, learned quickly on their dime. Okay, I mean I learned in three years from three different firms. Real small firm, international
firm, regional firm. And I started my own,
I was up and running, I knew how to handle things. I don’t know that I could
have got that much experience in three years on my own. So work in the industry,
get some experience on somebody else’s time and dime, okay. We’re gonna look at each of these. You have to be able to make decisions. Business is decision making. It’s like in a way playing poker, okay. If you play poker you understand,
and that’s just a game, it’s decision making. It’s putting yourself
in the best position. And getting out of the way when you’re not in the best position. It’s also bankroll management, okay. It’s about knowing when to say, okay, this is a risk worth taking, this is a risk not worth taking. That’s decision making,
you have to be able to make good decisions in business. You’re gonna increase your
probability of winning and decrease your probability of losing. It’s no guarantee, but you have to be a good
decision maker, okay? Let’s talk about decision making. There’s many decision making models. You might have heard of
the term critical thinking. Critical thinking is used in the law. It’s used in science, remember
back in the seventh grade, the scientific method, let’s
test this hypothesis, right. It’s in a marketing research arena. But in a lot of areas,
critical thinking is used, and always, always, always, the first step in any critical thinking
process is, ask the question. What are we trying to decide? Are we trying to decide whether
to hire a second employee? Are we trying to decide whether
to offer a new product line? Are we trying to decide
whether to spend $3,000 on this radio commercial
that’s gonna run for two weeks. You have a million
decisions coming at you. This is a model for helping
you make better decisions. So the first thing is, ask the question. Know what your focus is, what
are we trying to decide here? One question at a time,
and then maybe you have to join it up with another one,
ones contingent on another. But you take one question at a time. Set parameters, parameters
are limits or guidelines. If you say, I’m thinking
of hiring a new employee, I don’t know if I should or shouldn’t. My busy season’s coming up, spring time, maybe you’re a wedding planner
or you’re a caterer, okay, so should I hire a full time employee, should I keep using
independent contractors, that’s your decision,
you ask the question. Set parameters, time and money in business are very often the parameters
that you have to be aware of. I have to make this decision
if I’m gonna hire somebody within the next 30 days, ’cause then my season starts heating up, I’m gonna have to do without them. I have to then just
concentrate on my work, I don’t have time for
interviews and all that. I only want to spend X amount of dollars. How much could I pay, what can I afford, time and money are very
often your parameters. You set those guidelines and parameters to kind of put you in the zone of okay, here’s where I can make a decision and once I start doing
research it’s out here, oh it’s gonna cost me more, well I can’t get it
done in that timeframe. Easy, you’ve set your limits,
now it’s easy to say no, I can’t go there, ’cause
I’ve set my parameters. You don’t let yourself go astray, that’s not good decision making, okay. So after you set parameters you say, where am I gonna get some information to help me make this decision. You don’t just go out
and start gathering it, you make a plan. Oh I’m gonna look online, I might consider putting
ads on Craigslist, I might talk to some of my competitors and see how they hired somebody. Where are you gonna get
information about hiring someone? Maybe I’ll talk to the community college, they have some student interns. You’re gonna make a plan for
getting information to help you analyze whether it’s smart
to make this hire or not. Then you go out and get it, get that information, do the work. You might find after you
analyze that information you have to go back, oh wait a minute, I didn’t even think about this, I got gotta go ask something
else of somebody else. So you may have to retread,
sometimes you have to even reframe the question. So, hey I didn’t realize
there were interns, maybe I don’t need to hire somebody. They give me intern for free,
hmm, maybe that is an option I never thought of that, so you go back and reframe the question should
I hire somebody and pay them or should I hire an intern. Okay, so more info coming in makes maybe a more difficult decision, okay. So at some point you make a decision. You have to be able to
pull the trigger and say, yep, I’m going this way,
or no I’m not, okay. If you decide to hire
somebody, or not hire somebody, you review that decision maybe at the end of your busy season. Maybe comes October you go, fooph, don’t want to do that again, next time we’re gonna
be ahead of the game, we’re getting somebody hired. Alright, we have to, we lost business because we didn’t have
enough people here, whatever. Okay, but you need to review, okay? So let’s take a question or two here, I know I have in here some
other spots for questions, but we have a couple here, yes. – [Woman] When hiring an intern, hasn’t California law changed
that you still pay them? Because if they’re there to
benefit you and your business so therefore they now become employees? – The question is, under California law, do you need to pay the intern? I am not completely up
to speed on the rules, but I know that we place
interns in the community and they are not paid. The qualifying comes from
the Department of Education, Federal Department of
Education, I believe. If they can be placed with
some educational benefit the employer doesn’t have to pay them. We have students who
are placed for 18 weeks in businesses as interns,
they’re not paid, we get a commitment from the employer that they’re gonna get
some kind of training, we can define some kind of plan that here’s what they’re
gonna learn on the job, our instructor goes there
maybe once during the 18 weeks, visits with the employer,
they meet the requirements they don’t have to be paid, okay? Confidence, okay, so you’re
making this decision. And it looks like, hey
it’s all lining up, right? This is a good employee I
found, the price is right, the timing’s right, but
sometimes you get cold feet. You can’t, you know, say let’s do this, you just don’t have the confidence, you’re saying I don’t
know, this is more risk, I just get a little scared sometimes when big decisions come at me. You got to build confidence,
you build confidence from making and executing decisions, and you live with the results. If you made a good decision, I mean, if this is a good
employee, good references, you did all the background checks, it’s within the price range
you know you could afford, come on, you got to make a
move sometimes in business, you got to say, let’s do it. And if I lose, sometimes
you’re gonna lose. Will you lose with pocket
aces sometimes, sure, but I’m gonna put the chips
in the middle, let’s play, you know, this was a good
decision, okay, let’s go. I mean, it’s not a guarantee, nothing is, but let’s play, okay? Resilience, business is not easy. You’re running your own
business, you’re up late, you’re the one who’s primarily
responsible for everything. Maybe you’ve developed
good employees to help you, but it all still comes back to you. So you have to be ready
to pick yourself up. Okay, so I’m gonna stop for a minute. Let’s hear Rocky give a little
business talk to his son. – You ain’t gonna believe this, but you used to fit right here. I’d hold you up to say to your mother, this kid’s gonna be the
best kid in the world. This kid’s gonna be somebody
better than anybody ever knew. And you grew up good and wonderful. It was great just watching, every day was it like a privilege. Then the time come for
you to be your own man, and take on the world, and you did. But somewhere along the line, you changed. You stopped being you. You let people stick a finger in your face and tell you you’re no good. And when things got
hard, you started looking for something to blame, like a big shadow. Let me tell you something
you already know. The world ain’t all sunshine and rainbows, it’s a very mean and nasty place, and I don’t care how tough you are it will beat you to your knees and keep you there
permanently if you let it. You, me, or nobody is
gonna hit as hard as life. But it ain’t about how hard you’re hit, it’s about how hard you can get
hit and keep moving forward, how much you can take
and keep moving forward. That’s how winning is done. Now if you know what you’re worth then go out and get what you’re worth, but you got to be
willing to take the hits, and not pointing fingers saying you ain’t where you want to be because of him or her or anybody. Cowards do that and that ain’t
you, you’re better than that. I’m always gonna love you no matter what. No matter what happens, you’re
my son, you’re my blood. You’re the best thing in my life. But until you start believing in yourself, you ain’t gonna have a life. Don’t forget to visit your mother. – There are parallels to
business, I know it’s just a movie but there are parallels there to business. You’ve got to keep coming. I mean business, you know, it’s not like oh I can show up to
work some days and like, if you’re an employee, and
maybe I’m not like 100% today if I go in, put my time in,
clock in, clock out, I’m done. There’s no resting on the job when you’re the business owner. Everything’s coming at you, you know, so you got to be energized,
ready to go, okay. Focus and support. You have to learn to say no. You need to have your
attention on your business. Sure you have family and you
want to put time into family but then something else has to give. Your normal social life might
have to have some nos in it. Like, can’t do anymore, gotta
give up my softball league, had to give up this or that, I
have my attention here, okay. And my family, it’s like, that’s enough, that’s too much at times, okay. Look at how your life is now, consider drawing a life map for yourself. Put your name in the
middle of a piece of paper, draw a circle around it. Just get a regular piece of
paper and then branch off and put other circles with names of people in your life that you have a commitment to, that you spend time, energy, or money on. And not just people, but activities. You know, your church activities, each child you have, each
family member you take care of. Your pets, your hobbies. Put all your life together in a circle. And each circle, if it
takes a lot of your time, energy, and money, it’s a bigger circle. If it just takes a little,
it’s a little circle. But fill it all up with all
the things you do in your life and all the people that
you are involved with. And take a look at that and say, okay, now I want to put a business in there. Is it gonna be a little part time business that I’m gonna control, is it gonna be a full time
business that’s gonna provide? Well how big is that circle gonna be? That’s gonna be a big circle
if it’s a full time business. If it’s a part time business, maybe you can keep it
a little circle, okay. But whatever it is, something else is probably gonna have to
shrink or move out of the way. So where’s that gonna happen, where are you gonna get
the shrinkage, okay? You gotta talk with those people and say hey, I’m gonna less time
for you here or there. Yourself, less time going to the gym, less time going bowling league. Whatever you do, something’s gotta give if you’re gonna add more
time for the business, okay? Questions, yes sir. – [Man] Deciding whether to have employees or independent contractors, what does the government
say about the rules? – The question is, what are
the rules per the government when you’re thinking of hiring an independent contractor or an employee. It comes down to control. The person for whom
the work is being done. How much control is that person exerting over the one who is doing the work? The more control that’s
being exerted over the one who’s doing the work, the more
likely that’s an employee. The less control, the more likely that’s an independent contractor. So for example, if Cuesta College hires Jane’s Painting Service
to come in here and say, we want to paint this room. Jane’s Painting Service
will come in here and say, okay, what colors do you want,
they’ll be some interaction between the school’s representative and the painting company, and they’ll say, what colors you want, what
kind of paint you want, how many coats do want? So some decision making, some
control will be in the school, but then at some point the
contractor is gonna say, okay you’re gonna get
what you want by this date and here’s what I’m gonna get
paid, I want so much up front, so much three weeks
from now when it’s done, and I need this room
cleared out for three weeks and we’ll be in here working. You’re not gonna see the
school come in and say, okay, I want you here
painting at 8:00 a.m., take lunch at noon, be back at one, and finish painting at five every day ’cause we need the room
here at seven at night. And by the way, here’s your tools, and here’s how I want you to tape between the wall and the carpet here. The contractor’s gonna
say I have my own tools, I’m telling you when I’m getting paid, I know how to do the job, don’t tell me how to do the job, okay? They’re exerting more
control over doing the work. That’s an independent contractor. A lot of companies will hire people and try to avoid paying the
taxes that are with an employee, which we’re gonna get
to in a couple minutes, and they’ll say, oh, you’re
an independent contractor. My first job out of law school,
with a lawyer in Escondido. I got the job, I was so
happy, he said $15 an hour. This was 1985, he says I’m
gonna pay you by the hour, $15 an hour, I’m gonna treat you as an independent contractor. He says so you can take
deductions, you know, when you have to go here
or there or whatever. I knew right away this was good and bad. I’m glad I got the job, but
you’re not doing me any favors treating me as an independent contractor. I remember from my
undergrad accounting courses that’s gonna cost me more money. Okay, so, but I was happy to get the job, I said thank you, took the job. And he says keep track of your hours, and by the way here’s your desk, here’s the files you’re
gonna be working on. You’ll get paid every two
weeks, be hear at 8:00 a.m., not a minute late, take your
lunch between 12 and one, you know, went through the whole thing. And after about two, three months, I was working on a big project, and getting tired of this 8:00
a.m., you know, stuff, I’m not an 8:00 a.m. kind of guy. I was like staying there ’til
seven, eight, nine o’clock sometimes, and was like, I don’t
like to take lunch at noon, you know, I like to take
lunch a little later. But I was going by his rules,
and I worked on one project ’til one in the morning. And it was for a big client next day and we were gonna review
it, then the following day we were gonna meet with the client. So I finished up at one in the morning, I went home, I thought to
myself driving on the way home from Rancho Bernardo back
to near Jack Murphy Stadium where I was living at the
time, like a 30 minute drive. And it was Escondido,
further than Rancho Bernardo. I’m driving home thinking,
I’m an independent contractor, I’m working here at one in the morning, I’m not going in at eight in the morning. So I just slept in, and the
phone rang at five after eight, it was the boss’s secretary, hey Gary, and I answered the phone,
I was in bed asleep, and she said, you okay, I said yeah, she said, what are you doing? I said, I’m sleeping, she
says, are you coming in? I said, yeah, I’ll be there. Well, when? I says, when I wake up,
let me go back to sleep. I says, I put the project
on the boss’s desk, he has it, right? She goes, yeah, he’s here, he
has it, but he’s wondering, he wants to talk to you
about it, where are you at? I said, I’m in bed, sleeping, you know, I was there ’til one in the morning. Just tell him I’ll be there, you know, by noon, and we’ll talk. I walked in about 11 o’clock,
and she says, he’s not happy, he wants to see you right
away, he’s in the office. You know, I walked in and
he said, what is this, I told you 8:00 a.m. Every day you’re supposed
to be here at 8:00 a.m. I said, I’m protecting you,
I’m looking out for you. He said, what do you mean? I said, well, if I don’t start acting like an independent
contractor a little bit, IRS is gonna audit you someday and say, you owe an extra 7.65% of my wages that I’ve been paying, okay. But it’s really on you, you
should have been paying it ’cause you’re treating
me like an employee. So I’m trying to be a
little bit independent so you don’t get zapped by the IRS. (audience laughing) Comprende? And he looked at me, and he’s like. I figured I’m gonna pull
my card out here, let’s go you know, I’m not coming in at
eight in the morning anymore, I just did a really good job. He looked at me, and he had
that mean look on his face, like he normally did, but
then he kind of smiled, he broke a little smile, he
said, that’s why I hired you. He says, you’re smarter
than the rest of them, he goes, you figured it out, he says. I says, well what’s it gonna be? I said, either I make my own hours, or you pick up that extra
social security tax. I’m paying the self-employment tax now, you’re costing me money, you’re
not paying me $15 an hour. And you’re telling me when to come and I don’t have any other clients, you know, I’m an employee. So you’d rather I start acting like an independent contractor,
or you start paying me like an employee and pick all the costs. He said, alright, alright,
alright, let’s leave it as independent contractor,
but when are you gonna be coming in, 11
o’clock every morning? I go, no, not every morning,
but I was here ’til one, you know, I says, but you won’t
see me at eight very often. I says, I’m more like a nine
o’clock kind of guy, you know. We were good from that point
on, you know, it was like, and I don’t take lunch at noon, I’m more like a one, 1:30 lunch, you know, kind of, so, we got along fine
after that, you know, but. Other questions, other questions, alright. Let’s keep digging a little
more before we take a break, just a little bit more and
then we’ll take a break, maybe in 15 minutes or so, okay? Choice of entity, kind of
a strange word, entity. It just means, what’s your
legal structure gonna be? I’m going through the basic
ones, these are the basic ones. There’s others, I just
didn’t want to jam too much into a three hour talk. We could talk about limited
liability partnerships, and benefit corporations,
but these are the basic ones. We’re gonna so through
each of these, okay? Sole proprietorship, limited partnership, general partnership, when
you’re thinking of all these, these are the things you
should be asking yourself. First off, the business
I’m doing, how likely is it to harm somebody and cause
me potentially to be sued? Okay, if you’re involved with vehicles, if you’re involved with
a lot of employees, you’re gonna have employees, you are responsible for
your employees’ actions. They do something that harms somebody, it comes back to you, alright? Are you dealing with food,
people get sick, they sue. Are you dealing with the human body, are you a masseuse,
are you a chiropractor? People say, oh you did something
to me, they sue, okay, so. Are you going in people’s
homes, something gets damaged, stolen, they think oh,
it’s you or your employee. So you have to think about
how dangerous is my job? I mean, if you’re being a
tutor and you’re tutoring math, and you’re saying, you know,
I’m gonna do it all online, what are they gonna sue you for, you gave the wrong answer to a question? I mean, you know, there’s not a whole lot of liability there, right? Okay, so you have to think
about how risky is this business I’m proposing of doing, okay? ‘Cause that’s gonna steer you away from a sole proprietorship
or general partnership and put you into a
vehicle that protects you a little bit more, like
a corporation or an LLC. Control, are you fine
with having other people be part owners and or managers, or do you want to be the
one who calls all the shots? Okay, that’s a big decision to make. How much more capital do you
need, do you need knowledge, do you need people to come
in and help you do this? You might have to give
them part ownership then. Succession planning, that’s all about who’s gonna own it when you don’t own it. Either because you voluntarily
leave, retire, or die. Some are easier to
transfer than others, okay? And you can mix and match these,
and we’ll talk about that. Like you could form an
LLC or an S corporation and put that into a partnership. Your wholly owned corporation can be a partner with somebody
else in a partnership. So these are able to be
mixed and matched, but. Let’s start out with the easiest one. The kid selling lemonade on the corner, that’s a sole proprietor. You start out and you don’t do anything like form a corporation or
you’re not in partnership with anyone, you are by
definition a sole proprietor. You’re engaged in a business
activity for profit, okay? So one of the key things
you have to remember, when you start making money,
nobody is withholding money like when you had an employer
and they take income tax out, right, social security
taxes, out of your check. You’re getting money from
clients, the IRS wants theirs, and they don’t want to
wait until next April 15th. You have to make estimated tax payments. When you’re making money
as a sole proprietor, or even as a partner in a partnership, or shareholder in an S
corp, nobody’s withholding. You have to send something
into the IRS quarterly, and you have to say here’s
my share of what I estimate my income tax liability
will be for this year. Okay, so you do that four times a year. One of the most important things I’d say, you’re a sole proprietor,
you definitely, definitely, definitely want to get
liability insurance. Liability insurance you can get, I mean, there’s a lot people out
there, but you want to get some protection because
as a sole proprietor, your business injuries somebody, or one of your employees hurts somebody, you lose possibly not only
what’s in the business, but all your personal assets. The person who sues your
business is in essence suing you ’cause you are the business. A sole proprietor doesn’t have any shield. So the only shield you can
get as a sole proprietor is buy a big, big liability policy. Now the insurance company
steps in and defends you if somebody sues you. They pay for the lawyer
fees, and they have the money if there’s a judgment, okay,
so, get a liability policy. Maybe you need an EIN,
Employer Identification Number. Click to this, please, Heidi. This is in essence a social
security number for a business. If you’re a corporation, partnership, any of those other entities,
you have to get this number. But not all sole proprietors
have to get this number. You only have to get
this number, this EIN, as a sole proprietor if
one of two things occurs. One, you hire at least one employee. ‘Cause now you’re withholding money from the employee’s checks, you have to send that money to the IRS, you need this EIN number to
identify you as the employer. The second reason, even
if you have no employees, you might need this
EIN, you would need it, is if you’re selling
anything in your business that is subject to a federal excise tax. An excise tax is just a sales tax that the federal government collects on things that the federal
government regulates, alcohol, tobacco, firearms. So if you’re selling cigarettes
or anything in that arena, they want their sales tax,
their excise tax from you, you use this number to
send it to them, okay? It’s not a big deal, scroll down please, it’s free to get the number,
you do it through the IRS, go all the way down to the form. It’s a one page form, application for employer
identification number, okay? So your name, you’re an individual, okay. If you have a different
business name, scroll down. Your social security number
you put in there, okay. And they just ask you a few
questions, what are you? You’re a sole proprietor,
boom, check the box. Keep going, and why are you applying? Well I started a new business. What type? Simple enough, you could fill
this form out in 15 minutes. And then IRS being the IRS,
you can’t email it to them, but you can fax it to them. Who has a fax machine, I
mean, maybe you can but, you send it in, they give
you the number right away. It’s like less than a day
you can get the number. You use that number when
you’re sending them money. That’s all, okay, an EIN, it
used to be called an FEIN, sometimes they still say that, federal employer identification number. They took the F off it now, you just hear people say the EIN, okay. – [Man] Be sure and send them the money. – Yeah, they want their money, we’ll get to that in a second. But this form doesn’t cost anything. Just know if you have even one employee, you have to get that number
or even with no employees, if you start selling
anything that’s subject to federal excise tax, gasoline, tobacco, firearms, okay, anything like that. Okay, out of this and back
to the PowerPoint please. Okay, so if you are using a
name other than your own name, you then have to file with the county for an assumed business name. It’s not a big deal, but I
mean really if you don’t file, nobody’s gonna shut you down. It’s just that if you
had to go after a client in small claims court
because they didn’t pay you, and you walk in, you say,
I’m Rubin Construction, that’s who I’m suing. I’m suing this client that didn’t pay us. Judge is gonna say, well
who’s Rubin Construction? Well that’s me. Well, you don’t have assumed
business name on file, get out of my courtroom, you don’t have access
to the courts, okay, so. It’s not that big a deal, but
it’s worth taking care of. And even if you use your own name, like if I say, Rubin and Sons. Because I used and Sons, I have to get an assumed business name. If you have anything else in the name that indicates there’s somebody
else other than me in it, even though I used my own name, I didn’t put all their names
it it, you have to get it. It’s not a big deal, but get it. Schedule C, your taxes,
click on there please, Heidi. This is what a sole proprietor uses to file your federal income taxes. It’s an attachment to your
1040, your personal tax return. And you can see at the
top there, you either put your social security number in, okay, or your employer ID
number, if you have one, one or the other. And your name of your
business, and then scroll down. Your gross receipts, okay,
returns and allowances, we’ll talk about this in a little bit, cost of goods sold, if
you’re selling a product, you have costs of those goods that you’re selling, a product. If you’re selling a service
you don’t have any goods, so you don’t have any costs of goods sold. But the main point I want
to show you is all these different things for your
business that you can expense. These are deductions for you. So when you’re in business, you should be keeping track of all those meals you have. I mean, even if you have friends over and you went to the store
and bought groceries and have a barbecue and you say, I’m having friends over, you know. Well, you talking about your
business to those friends? Probably, right, it’s
a business deduction. I mean, it’s business purpose, okay? So just keep track of all of it, dates, who you had the lunch with,
purpose of the meeting, what you talked about. As a new business owner,
you’re gonna be talking to everybody about your business. So anytime you’re spending
money and you’re talking about your business,
it’s deductible, okay? Until they tell you it’s not. But put it on there, you know,
keep receipts though, okay. Scroll down a bit, okay. – [Man] Especially on
your gasoline mileage. – Yeah, watch your mileage,
you mean, track that. I mean, there’s apps that you can use now every time you get in your car, you know, where am I going, what’s the purpose? But the line 30, careful on this one. Expense for business use, your home. A lot of people say, oh
I’m using my apartment or my residence that
I own for my business, I want to take a deduction. You’re entitled to it, but it’s
a tricky deduction to take. And it raises the chance of
audit significantly, okay. So if you want to do it, fine, but even if you have done it
right, better have receipts for everything else ’cause
I’ve been on audits. Once the auditor says,
okay I’m auditing you, I want to see all your
home calculations here. You know, you can take a
percentage of the expenses of your home based on the
proportion of the home that’s used regularly and exclusively
for business purposes. And I’ve seen this happen,
client of mine it happened to. I got a three bedroom house, I’m using one bedroom for my business. Got a desk in there, got
everything, you know, that’s my business in there, okay? So I want to take one
third of the utility bills, and I’ll take one third of, you know, pretty much everything, but
a little less than one third ’cause you gotta count the
kitchen and living room. But of the square footage,
maybe 25% of it is being used exclusively for business
purposes, and regularly. And they dinged him, and
they said, let’s see, let me see your room,
show me some evidence it’s being used for business. He showed them pictures. In the pictures was a little toy chest. He has little kids at
home and a little crib. But it’s next to his desk,
it’s next to his file cabinets, next to his computer,
and the auditor said, well you just showed me evidence it’s not being used
exclusively for business. Deduction denied, and by
the way, while we’re at it, let me see all your miles,
let me see everything else up here, let me see all your receipts. Once they got you in the door, I got to show my bosses
I got a little more. Even if he had all the exact home deduction things figured out, they’re gonna say, well
what else can I get here, I’m wasting my time on this one, so. That one I would tell clients
it’s usually not worth it for the little amount you’re gonna get. You’re gonna open a can of worms, okay. But let’s see here,
so, net profit or loss. If you have a loss, that helps
offset your other income. Assuming you’re actively
engaged in this business, the sole proprietorship, use
that against your other income, it’s giving you a deduction against your spouse’s income
if it’s a joint return, or you have a job while
you’re starting your business, it’s reducing that income
from your job, okay? And we’re gonna talk
about this in a second, self-employment tax, okay, Schedule SE, you got to pay self-employment taxes. Okay back to– – [Man] What– – Question, yes. – [Man] Number 31 again? – Go back, I’m sorry, Schedule C. 31 was the… – [Heidi] Oops, right there. – Net profit or loss,
so from your business the net profit or loss goes
to the face of your 1040, your face of your income tax return. That’s part of your adjusted gross income. But also it goes to a schedule that you calculate your
self-employment tax on. And we’re gonna get to
that in the next slide. Self-employment tax is the substitute for social security and
medicare taxes, okay. So let’s go to the next slide. And self-employment tax. So as you see it said go
schedule 1040, go to 1040, pay your income tax on the 1040,
but also go to Schedule SE. What’s the self-employment tax? It’s the employee and employer share of social security and medicare. When you’re an employee,
look at your paycheck, what comes out of your paycheck? 7.65% of your gross wage
comes out of your earnings. What you don’t see is your
employer has to match that. So when you’re a small business and you hire your first
employee, and you say, okay, 1,000 bucks a week you’re gonna get. Okay, full time employee, 1,000 bucks. You have to pull out federal
income tax from their paycheck, state income tax from their paycheck, send it off to the IRS,
franchise tax board. You also have to pull
out of their paycheck the employee’s portion
of social security taxes and medicare taxes,
which equates to $76.50, 7.65% of the thousand, 76.50. That’s the employee’s portion. You as the employer have to put
another 76.50 on top of that and send $153, 15.3% into the IRS along with your EIN number
on behalf of this employee. So that employee’s social security account is getting boosted up, half
the effort is the employee’s, half is the employer’s, okay. Now you’re self-employed,
who’s your employer? You are, you pay the whole thing. You’re paying the employee’s portion and the employer’s portion, 15.3% of your net earnings
from self-employment. You just had a tax increase
because you quit your job and started doing it on your own, 7.65%. That’s a big jump, and
that’s up to 118, five. That number changes usually, but it stayed the same
last year and into 2016. The 17 number is not out yet, but in 2016 those of you doing your
taxes now, up to 118,500 15.3% goes into your social
security and medicare. Now above 118, five just the medicare, you keep paying that forever, 2.9%. So you make 200,000 in your business, first 118, five, that’s the
self-employment tax rate. Above 118, five, you’re still
paying 2.9, that’s medicare. You start making big, big
money, you get another tax. This came about in 2013. Now as an employer, that is matched, that’s matched, this is not. When you have an employee
that you’re paying more than these amounts, just the employee pays
that, not the employer. But when you’re self-employed, you’re paying 15.3% in
self-employment tax, that’s in addition on
top of your income tax. It’s a big chunk, okay, and
when it’s all done and over, they’re getting a big piece of you. Alright, let’s take a break. Question though first
before we take a break, yes. – [Woman] Can you get
an EIN if you don’t have either of those two criterias,
like does it matter? – You know, I’m not sure,
I never applied for one when you didn’t need one,
but I would venture to say you probably could, they’d
probably give you one. Maybe you’re anticipating
getting some employees and you want to just get it,
they’d probably give you one. You know, there’s no cost,
there’s no harm to them. You could probably get it,
it’s probably optional. – [Man] If you have a spouse
you can claim a partnership. – Let’s take like a five, 10 minute break. I’ll put a little music
on, when the music’s over get back in here, we’ll get
back at it, okay, alright. Okay, welcome back. Partnerships, a general partnership brings more resources together. Brings more knowledge together, brings more potential
problems together, okay. I mean, you get the good and
the bad with partnerships. And I’ve seen good ones, and
I’ve seen bad ones, okay. And some of the partnerships
stories I could tell you, they’re sad, I mean, it’s
not good all the time, so be careful, you know,
it’s like a marriage, they can turn out good,
they could turn out bad. When they turn out bad, it hurts. It could hurt you financially,
it hurts you emotionally, it’s not good, so, what do you do? Well, think of it like a relationship that has some consequences
here if it goes bad. Before you commit to being
in partners with somebody, even if it’s somebody
you’ve known for awhile, you have to start talking out the issues. What are we going into business for? What if one of us wants
out of the business? What if one of us breaks a hip and is laid up for six months
and can’t come to work? You have to go through all this. What if one of us dies? But we’ve worked at the
business for five years and built it up, what does
out family get for that? You know, you have to go
through this, discuss this, put your agreement in writing, okay. But overall, just for tax
purposes a little bit, a partnership is what we
call a pass-through entity. We’ll get into other
pass-through entities, S corporations, limited
liability companies, limited partnerships, those
are all pass-through entities. Meaning the partnership itself does file a federal income tax
return, we just call that a reporting return, it reports here is the partnership’s
income or loss for the year. But that partnership doesn’t
pay any federal income tax. The income or loss of the
partnership passes through down the the individual
partners and they have to report their share of the
partnership’s loss or income on their individual income tax returns. – Oh, wow.
– Okay, so this is good. This is good because we
don’t want the partnership to have to pay income tax,
and then you as a partner when you get your piece of
the pie, you also have to pay income tax on it, that’d
be two levels of tax. We don’t want that, so a
pass-through entity is good. There’s only one level
of federal income tax, at the partner level, okay? So you would get a form
from the partnership, it’s called a Schedule K-1,
that the partnership fills out. And they send a copy of that Schedule K-1, it’s just like one page, to the IRS, and they put on your
social security number, and they go, here, this
partner got this much income, this partner got that much. And then you get a copy of
that K-1 from the partnership so you know what to
put in your tax return. And it could be a loss. You get to use that loss to
offset your other income. So pass-through entities are good, okay, all it means is that the individual owners of that business are
the ones who are gonna take the loss, or report the income. Now a key thing to remember
on these pass-throughs. Some people think, well, I’ll leave the profits in the partnership, so I don’t want to pay
taxes on it this year. It’s not gonna work, whether you take the partnership profits out
or leave it in the business, your distributive share, what
you were entitled to take out, whether you took it out or not, you’re gonna pay taxes on that. So, you can choose to leave it in there, but the K-1’s still gonna show here’s what you were entitled to. Your share of the profits is
X, you gotta pay taxes on that. Now, your share of the
partnership profits, just like a sole proprietor’s net profit, you also have to pay self-employment tax on the partnership’s profits. So it’s kind of like a sole proprietor and a sole proprietor getting together. Same thing, you’re
reporting the income tax and you pay the self-employment
tax on your share of the profits from
that partnership, okay. – [Woman] 15%, 15 plus percent? – Excuse me?
– At 15 plus percent? – The question is, is that
the same percentage, yes, it’s at the same percentage. The self-employment tax applies to you might be a sole proprietor, you’re a partner or partnership, that’s all considered
self-employment income, okay? So that’s all at the same rates, okay. Now, you have more
liability in a partnership than if you were on your own. As partners you are personally liable just like when you were a sole proprietor. But you’re not just liable
for your own actions, you’re liable for your
partner’s actions now too. I’ve represented many partners
whose partners did them in. The stories go on and on, a
lot of partners who went out and signed contracts on
behalf of the partnership and then vanished, and said, oh well, you know, I’m out of this partnership. I’m gonna go underground, and who’s left holding
the bag on that contract, the remaining partners
and the partnership. When somebody in a
partnership, who’s known to be in that partnership goes out
and starts signing contracts, the party who says, hey, you owe me, they can go after the partnership
or any of the partners. They might say, Rubin and party A and party
B, three of you are partners and party B in your partnership Rubin signed this contract and you
start defaulting on it now, well I’m not even gonna
sue your partnership, I’m not even gonna sue A and B, I’m just gonna sue you Rubin, ’cause I think you’ve got more money. I’m not gonna waste my
time with the others. I say, I didn’t even sign it, I didn’t know that my
partner was doing it. Well I can eventually
get maybe a countersuit against my partner saying hey, if I get stuck on this, you owe me, but I’m still answering to that party. So when you get a partner,
you’re exposing yourself. If they go out and start doing things, you could be held liable for it, okay, so be careful who you
choose as partners, be… Reason why I say it’s really risky is ’cause people don’t
talk about things up front. If you talked about things up
front and put it in writing, you’d probably minimize a fair amount. Not all, but a fair
amount of your problems. ‘Cause it’s all above board now, and you say, here’s what
we expect of each other. But people want to just fast,
fast, don’t spend any money on lawyers, handshake, you
can make oral agreements for partnerships, not wise, okay? Question, yes. – [Woman] Also, going in
you have a lot of optimism and excitement about this
greatness, this opportunity, but then a couple years down
the line things could change and if you have multiple general partners and one of them ends
up with some unforeseen health, financial, or divorce issues, it can create a lot of
problems for the business and then the other
partners end up on the hook and one of the partners
starts making, you know, the business decisions
for the partnership. – Yeah, the comment was, and
I have to repeat things for the benefit of the tape, the
mike’s going through a tape. The comment was that partners
can have complications in their life, it comes back
then to the partnership, okay, so you have to look at that, you know, stability
too, so, question, yes. – [Woman] When you say, put it in writing, does that mean like if you just sat down with your partner (muffled speaking). – The question is, when I suggest put your agreement in writing, does it have to be a writing
prepared by an attorney or could it just be
between in the partners. The answer is, it does
not need to be prepared by an attorney, it can be
just between the partners, here’s our agreement. So that’s fine, okay, you
might want to get some advice maybe from attorney but you
don’t want to spend the money. Or you do some research on
your own, say here’s our deal. But here are some of the big issues I’d recommend you address
and then put it in writing. One, if you expect to be
paid from the partnership for services you’re rendering
on behalf of the partnership, you know, you say, I’m
gonna be working here. Okay, I gotta get paid
just like a employee would get paid some wages for
my work, not just profits. But maybe you have two
people forming a partnership, I form a partnership with somebody, I say, I’m keeping my
full time job at Cuesta. But I’ll go in on this business with you and I’ll be there, you know, on Saturdays for six hours a day. You’re gonna work 50 hours
a week at this partnership, and we agree I’ll get 10% of the profits, you’ll get 90% of the profits. And when we go to work, we
each get 20 bucks an hour for whatever hours we put
in for the week, month. Okay, put it in writing because if you don’t put it in writing, you’re not entitled as
a partner to get paid from the partnership for your work done on behalf of the partnership,
you don’t get that right. You have to have it in
writing to be approved, you know, under the partnership laws. So put that in writing, your
partner could some point say, hey, put that money back, you
weren’t supposed to get paid, we didn’t have it in writing, okay. And then division of profits, like the example I just gave, 90-10. You can agree whatever
you want, 99-one, 70-30, but if it’s not in writing, the law says equal division of profits. So people get in arguments
six months, six years later and go, hey we were doing a 90-10 split, you weren’t entitled to that,
it’s supposed to be 50-50. We never had anything in
writing, give me my money back. And you get a lawsuit, alright,
so put it writing, okay? Also what do you expect
each party to contribute? How much time are they supposed to put in? Are they gonna put money in, when are they gonna put the money in? Put it in writing, okay. What if somebody wants
out, what if somebody dies? You definitely want to have the
right as a surviving partner to buy out your partner’s interest. You might actually want
to have an obligation of the partnership to buy the
deceased partner’s share out. Because think if you build a business up with two or three partners
and five, 10 years later, 20 years later, you never had
anything in writing, you die. What happens? That partnership interest
of your deceased partner goes to his or her family,
it’s like personal property. You got a new partner, your partner’s spouse is now your partner, or your partner’s child
is now your partner. And maybe you don’t want
them as your partner. Plus too, what if you
die, you die and they say, okay, Mrs. Rubin, you
can be our partner now, and you’ll get a share, you know, of the profits that you’re entitled to. I don’t want a share of the profits, I want to be bought out,
we’re not gonna buy you out. My husband built this up for 20 years, I can’t be bought out, he’s dead. No, we have no intention
of buying you out, you’re still a partner. Maybe you want your
interest to be bought out so you can cash in for your
family when you cash out. You know, let them say, hey here you go. And you would put that in
the partnership agreement, you would have in there from year to year the partners would agree, I’ve done several partnership
agreements where I would say, each year, the partners would
put a value on the business for purposes of next
year, anybody wants out, voluntarily or through death, here’s what we’ve agreed it’s worth for the next calendar year. And you attach that to
the partnership agreement, so we know here’s what it is. And then you could have life insurance bought by the partnership
on each partner’s life each year to fund that buyout. So if somebody does die, family
gets a nice chunk of money, they get paid out for their interest. Business doesn’t cost you
anything except the premiums, and the premiums are deductible
on the life of the partners. So you’re not infringing
on the business’s cashflow when somebody dies. Now if you don’t want
to buy the insurance, maybe you got a 70, 80 year old partner, it’s gonna be really expensive, okay, so then you put in your
partnership agreement the terms of the buyout of the partner’s, deceased partner’s interest. Maybe a three year
payout, four year payout, you know, of that value, so
there’s not a big chunk of cash having to come out of
the business right away, you can make payments for
three, four years, okay. But you put that in the
agreement, otherwise when you die, your family gets nothing maybe,
and the business collapses. So, question in the back, yes. – [Woman] Can you give an
example of not necessarily humans but what would the other
partnerships look like? – I form a corporation,
I practiced law first as a sole proprietor, and
then I formed a corporation. Which we’re gonna get to in a minute, I formed an S corporation. My S corporation could be
in a general partnership with an individual, another
corporation, an LLC. So you could have a
partnership of two people who gets into a partnership
with another two people, two partnerships come
together to be partners. For just maybe a limited
purpose or for whatever, so. Entities, like we talking
about, can be partners. Two corporations can be a partner, so you can mix and match, okay. – Can I ask you? – Yes, question. – Is the compensation for, the compensation to the partners is that considered a business expense? – Compensation to the partners would be a business expense of
the partnership, yes. Now you don’t want to
do a whole lot of that, but if they’re working, you pay ’em. – Right.
– I mean, that’s, yeah, that’s an employee of the partnership. – Okay.
– Yeah. And the employee expense would be deducted just like if it was a stranger. Question? – Well, you said you didn’t
need an attorney to draw up a partnership agreement but
that’s where I always found problems is if it wasn’t
drawn by an attorney. – Yeah, question was, I said
you don’t need an attorney to prepare a partnership agreement, but experience of this gentleman
is people get in trouble when they don’t hire an attorney. I would agree with that hundred percent, but I also agree with my
statement was, it’s not required. It’s definitely advisable
to have an attorney, but it’s not required, okay, so. Alright, let’s move on, we
got a lot to go through yet. New entity, limited partnerships. Limited partnerships have two
distinct classes of partners. You have at least one general partner, and at least one limited partner. You heard of the term silent partner? This is maybe where it originates because the limited partner
has no say so in management. They’re in essence just an investor. They’re entitled to a
share of the profits, whatever you agree to. They might actually even
work for the business, but they have no say so in management, and they’re not personally liable for the acts of that partnership
or of the general partners. Because they’re just like silent partners, they don’t have any say so in management, so we don’t hold them responsible. Okay, so this is an investment
type vehicle for some people, they go into limited
partnerships thinking, I just want to make money. Fine, but even for an active business, I represented a guy in San Diego, he came in, he was a
tradesman, he was a carpenter. He built houses on a team of carpenters, he was an employee of a developer. He built tract houses, he was a foreman. Seven, eight, nine years of
this, he said, I got to start doing something for myself,
make some more money. He bought a lot, he built a house. With his buddies, his
tradesmen, they sold it. He did it again, again,
he did it nine times over the course of about
four or five years, like every six months, buy a
lot, get his buddies together, build a little single
family house, sell it. He had a team together,
he said, boy if I can get a chunk of money, I’d
like to buy 10 acres, build 40 homes or something. This was in Vista 20 years ago. He found the money, he went
to banks, the banks said nope, we’re not gonna make a loan to you, you don’t have any collateral, okay. Not for this kind of money. He wanted $500,000, he had a
chunk of land in mind that was already zoned, sewers,
everything to it, ready to go. He said I need a half
million to buy the land. The bank said if you
can get the half million to buy the land we’ll give
you the construction loan. But you got to have the
land as collateral for, to build 40 homes, you
know, that’s a lot of construction loan you
need, so find somebody that’ll buy the land with you
and you’re good to go with us. Well he shopped around, well
the nine houses he’d built for the last four years, he
went to his plumbing supplier and he says I’m trying to build a house, this and that, and this guy liked him, this guy had this plumbing supply business for 30 years or so and was fairly wealthy, he said I believe in you. He says, I’ll put up 250
grand as an investor for you. We got to find another 250 grand now. So the plumber says,
let me call my banker. And he says, who’s your banker? And he said who it was, he goes no that guy already declined me. He says well let me call him anyway, maybe he wants to put up
some of his own money. Since his bank declined you, no conflict of interest
now, he can go on his own. The banker who declined him came up on his own for 250 grand. And the plumbing supply owner,
and the banker on his own came up with the half million,
they came into the office, here’s what we want to do. The contractor said, they’re
putting up a half million, I’m gonna buy this land, then I’m gonna go to a
different bank, not his bank, I got a commitment to get
the construction loan. They’re gonna get 25%
of the profits, each, I’m getting 50% of the profits, they have no say so in how
this business is gonna run. I’m buying the land that I want to buy, I’m building the houses I want to build. They’re just silent
investors, they’re going along for the ride, I have all
control, and they were like, yup, yup, that’s what we
want, just give us 25% of all his profits when
he builds these houses. You know you can lose this money if he doesn’t sell these
houses, it’s not a loan. Yep, I understand, we’re buying in. Okay, I wrote up the limited
partnership agreement. Two and a half years later, that guy had sold 40 houses, okay. – [Woman] Nice. – Yeah, he had a nice little profit. Those guys made off pretty
well, all of them pretty well. I left the firm there. But that’s how you use
a limited partnership. But the limited partners
before they put their money up, they’re gonna want to
see some real good proof you’re gonna make money or it’s really, you got to really persuade them. It’s not like back in, pre-1986, people went into limited
partnerships to try and lose money so they could use that loss
on their income tax return. Then we had these new rules come in, the tax reform act 1986 said, oh if you’re in a limited partnership that’s called a passive activity. You can only use passive losses
to offset passive income. So everyone overnight just said, I don’t need no limited partnerships that make losses for me, I
can’t use it against my wages or against my other income. So now, since 1986, it’s like, you want to sell a limited partnership, show ’em they’re gonna make a profit. They don’t want the losses,
they want the profits, okay. But it’s still useful, general partners, you’re still personally liable. This is why I say, if you’re
in this type of situation, you go hey, I got people
who believe in me, I want to maintain control
but I need their money, maybe you form a limited partnership but you form in a corporation for yourself and your corporation that you wholly own in the general partner in
the limited partnership. Now you got some protection. So what can they take
from you if you get sued? Just what’s in your corporation, not all your other personal
assets or your future earnings. Okay, if you’re just yourself, a human being that’s a general
partner, you’re back to being like a sole proprietor,
you’re personally liable. And it’s not just for what you have now, somebody gets a judgment against you, that judgment’s good in
California for 10 years. They come after you 10 years later. And then it doesn’t take much just to renew that for another 10 years. Go to court, file a piece of paper and you can renew that
judgment another 10 years. So somebody coming after
you 20 years later, going hey, remember what you owe me? That’s why I say with liability,
and I know I’m a lawyer and you always think,
oh worst case scenario, lawyers always tell you
worst case scenario. It’s because we’ve seen the worst case scenario fairly often. So just protect yourself, you know. – [Man] And they can get
10% interest on that. – Yeah, and they get, right. So back to limited
partnerships, it’s not required, but here especially, especially important you want to have a written agreement because you have two
different classes of partners. You have to explain in this agreement, hey limited partner, you
got no say so in management. You put your money up and then be quiet, and here’s what we hope to make for you. And you put out there a prospectus, here’s what we hope to make
but there’s no guarantees. And you put it in there, no
guarantees, this is, you know, our best business judgment
we’re gonna use, but so. And again, this is a pass-through entity, the self-employment tax
applies to the general partners but not the limited partners. It does not apply to the limited partners. They would still pay
income tax on their share of the profits, but not
the self-employment tax. It’s considered like
investment income for them. It’s not considered
self-employment income, ’cause they have no say
so in the management of the business, so they’re not employed, it’s just like an
investment to them, okay. So if you’re a limited partner
or you’re thinking of being a limited partner, and you
have somebody you believe in who’s gonna, you know, put
all the work and strain into building this business and you just want to
go along for the ride, maybe you want to suggest
that to the person who’s asking you, hey will
you be my general partner. You could say, you know
I’d like to invest in you, a daughter, a son, whatever, a friend, but I don’t want the exposure,
I don’t want the liability. You can run it, which is
maybe your agreement anyway, I want to just sit on the
sidelines and help you out, put an investment in,
get some of the profits, I don’t want no exposure,
make me a limited partner, draw up a limited partnership agreement not a general partnership, okay. So this is what I was saying, if
you’re gonna do one of these, form and LLC or a corporation, use your LLC or corporation
that you wholly own as the general partner so
you got a little shield in front of you, little protection, okay. What’s a corporation? You create a whole new
legal person, right. So you file forms with
the Secretary of State, you have to have these
three different parties, but one person can be all three. I formed my own corporation, I formed one for my
brother, for many clients, many sole proprietors say,
hey I don’t like this idea of I could get sued, I
could lose everything, how can I protect myself? Incorporate yourself. You incorporate yourself,
you’re the sole shareholder. You put some money in the corporation, you just bought stock. You started it, you’re
the sole shareholder. Shareholders have to elect directors. You choose how many
directors you’re gonna have. In my corporation guess how
many directors I chose to have? Shareholders get to vote their shares to decide who’s gonna be the
director, who did I vote in? I like that Gary Rubin guy,
I voted him as a director. Directors then have to appoint officers, who run the day to day
operations of the business. Who did I appoint as president, secretary, and treasurer, Gary Rubin. And I keep minutes, minutes
are notes, of all these actions I’m taking as the sole
shareholder, as the sole director. You got to keep minutes, you got to show you’re acting like a corporation,
not just a sole proprietor who filed a piece of paper
with the Secretary of State and then kept doing things the way you used to do them as a sole proprietor. Not good, you won’t be protected. The reason why you’re incorporating is because despite the $800 a year that a sole proprietor
would not have to pay, you have to pay as any
of these other entities, and a corporation pays $800
a year Secretary of State just to stay incorporated,
minimum, you’re saying hey that’s worth it to
me because if I get sued, all they get is what’s in the corporation. They don’t get my personal assets, they don’t get a judgment against me. And we’ll talk about how sometimes they can still, but, okay so. You want to be a shareholder
to be able to say, like I bought stock in Coca Cola, if Coca Cola gets sued,
they don’t get my money. What’s the worst case scenario,
Coca Cola goes bankrupt, I lost my investment and my
shares are worth nothing. That’s what you want
with your corporation. Worst case scenario is, what I put in the corporation
I’ve lost, nothing else. When does it not work? When it does not work, that’s called piercing the corporate veil. Remember, you have this
veil in front of you saying, can’t get to me, all you can
do is sue my corporation. Well sometimes they can get to you. One is if you agree they can get to you. In a small business very often
you’re gonna go sign a lease. Landlord’s gonna say, well
okay tenant, and you say, no I’m not your tenant, the
Gary Rubin Corporation’s your tenant, look I’m signing
the lease as president. And the landlord’s gonna say,
hey look I know that game. You want to personal
guarantee it Mr. Rubin, fine I’ll let your
corporation be the tenant, but I need your personal guarantee on it or I’m not leasing you a place. What are you gonna do, you’re probably gonna sign
that personal guarantee. You go to a bank for a loan, you say, I’m not borrowing the money, the Gary Rubin Corporation’s
borrowing the money. They’re gonna go, yeah
we know that game, okay. Again, sign the personal
guarantee you get the loan. And when you sign a personal guarantee, you’re personal, it’s you, it’s like, okay if the corporation
don’t pay I got to pay. What if you’ve never signed
a personal guarantee, can they get to you,
still they can sometimes. You start doing silly things, and you don’t keep that
corporation separate. When I had my corporation, I had a corporate credit
card, corporate checkbook. Sometimes I’d go to the store
and buy Office Max supplies, you know, staples, whatever. And I’d go, oh man, forgot
the corporate credit card and checkbook, I kept them together. I’m in line, I got all this
stuff, I don’t want to go home and get the card or go back to the office. I pull out my personal credit card, I pay for it, or cash, or whatever. So what do I do then? I did like all my employees did, I had four or five employees. Every month I’d say,
employees we got these forms you get at the office supply store, expense reimbursement
request, fill it out. I filled one out every month,
two, three of them a month. I forgot my checkbook
a lot, corporate card. I’m out buying stuff, okay,
I got to keep my receipts, I spent personal money
on this $32 box of paper for the copy machine,
Gary Rubin employee says, request $32 from the corporation. I signed it as employee, I give it to Gary Rubin the treasurer. I look it over along with
other employee stuff, I sign it, approved, I write a check out from the corporate account to Gary Rubin. You keep the money separate,
personal and corporate. That’s the cleanest way to save yourself from getting sued personally. People start co-mingling
money, you’re going down. Also, you have to have minutes. You have to have meetings,
even if it’s with yourself. You take action by yourself,
you approve a lease, you open a new bank account. Anything major, directors
have to approve that. You make action by sole
director taken this day. Make, type up something, put it in your corporate record
book, keep those minutes, look every time we did something, a director’s approved it,
or director approved it. Okay, yes sir. – So is that like applied to also, like I just started a
new business a year ago, as an electrical contractor, I have two separate accounts right now. And I’m not incorporated
but occasionally I do mix and mingle but I don’t
fill out a form like that. – Question is, gentleman said
he’s an electrical contractor, and he is not incorporated now. But occasionally he co-mingles money from his business account
to his personal account. If you’re operating as a sole proprietor, it really doesn’t matter,
’cause you don’t have any protection as a sole proprietor, so if you want to co-mingle the
money it’s really just still your personal money that you’re
using for business purposes, you’ve set up a business
account, that’s fine. But what I’m talking about is
when you have a corporation, you have a corporate
account and you keep that corporate money separate
from personal money. And by the way, my existing main client that I
have to do work for regularly is my brother who’s an
electrical contractor and my other brother’s a
retired electrical contactor. They made way more money than
I ever made practicing law. Oh man, I mean, you need an electrician, you need an electrician,
I mean, it’s like, you don’t mess with that, right. I mean, you know, I mean,
it’s like certain things and that stuff you don’t play with. It’s like, we need somebody, but. So other ways that the
corporate veil could be pierced. If you’re under-capitalized, sometimes people start a
corporation, they go, alright, I’m gonna need 40 grand
to start this business. Alright, you put that
money into the corporation. Okay, you get stock, you’re
an owner of the corporation, you got to pay in something for it. Okay, I would advise clients very often but you don’t have to pay
the whole 40 grand in. Maybe put 20 grand in as equity, and then loan your corporation 20 grand. Your debt to equity ratio
is one to one, fair enough. But what that gives you is, let’s say you smell some trouble coming, you go uh oh, we might
have a lawsuit coming here. You’re your own creditor,
you call the loan. You make it a demand
loan, you put it on paper, as director you approve it, you charge the corporation interest. It’s like your bank loaned you 20 grand. And you put 20 grand
in, a legitimate amount to get the corporation started,
50% of what it was needed. Well I would tell clients,
we’ll do a note for you. You smell trouble coming,
Gary Rubin the creditor calls the loan due from
Gary Rubin Corporation. Make that loan payable on
demand, I demand payment, boom, Gary Rubin the director of
the corporation or president has to, okay, here’s your loan
back, here’s your proceeds. Get that money out of the account, corporate account, little protection. But then clients when I
explained this to them they get a little greedy, they go
oh well that’s a good idea. Well how ’bout instead
of me putting 40 grand, 20 in for equity, 20 for debt,
let’s do a note for 39,000 and I’ll put 1,000 in for stock. You’re in essence then
creating a paper sham. It’s a scam, it’s not like you made any real commitment,
you’re under-capitalized. You didn’t make a real
commitment to this corporation if one fortieth of the money going in is for equity and the other 39,000 is a loan on a drawstring
you could pull out. It’s like you made a paper
trail of a corporation but you didn’t make any
real capital commitment. So you got to watch that
debt to equity ratio. You don’t want to go too low, okay. Alright, here’s good information. When you form a corporation,
if you do nothing else except you go to a lawyer
or you do it yourself, you go to the Secretary of State, you file the articles of incorporation. And you say, alright we’re incorporated, we got protection, great. What else do you have? You have the worst tax scenario possible. You’re a C corporation. C is the subcategory of
the internal revenue code. You’re being taxed the same
as Coca Cola, Google, IBM, all these big corporations,
you don’t want that. ‘Cause that’s a double taxation. Remember what I said about
all the other entities are pass-through, a C
corporation is not pass-through. The corporation itself has
income, it pays income tax. Then you take some profits
out, you pay income tax again, double hit, you don’t want that. 1954, small business owners said, why can’t we have some protection, why do we always have to be
sole proprietors and partners where we have personal liability, and if we want to be protected
we form a corporation that means now we have to pay double tax. We didn’t have to pay
double tax as a partnership or as a sole proprietor,
give us some protection. So they came up with this
S corporation in 1954. You can form an S
corporation and you’re taxed like a partnership, it’s pass-through. But it’s even better than a partnership because the profits,
remember, from a partnership are subject to self-employment
tax, that 15.3%. The profits from an S corp are not subject to the
self-employment tax. That’s a break, okay, that’s a nice break. – [Woman] Does that also
apply to sole proprietorship? – Question was does it also
apply to sole proprietorships, no remember sole proprietorships do have to pay the self-employment tax. Okay, this is the only
entity that I know of that you can avoid the
self-employment tax on. Okay, now here’s the catch. Again, you can’t get too greedy. You have to take a reasonable
salary for your services that you’re rendering to or on
behalf of your S corporation. So let’s say I get my law
practice up and going again. Little more than what I’ve been doing, just family and friends,
which I’m thinking of doing. I’m not gonna go in as a sole proprietor, I’m gonna go in and form a
corporation again, an S corp. Why? Because I’ll take a
reasonable compensation but I’m gonna have something
left over as profit. That profit I don’t pay the 15.3% on. What I take as compensation, I’m in essence paying the 15.3%. My corporation will pay
half, I’ll pay half, ’cause I’ll be an employee
of my own corporation. So they don’t let you take it all out and just go, ah no 15.3%. But you’re an electrician,
you form an S corp. You go okay well what do
journeymen electrician around here earn? I don’t know, 40 bucks
an hour or I don’t know, $2,000 a week, whatever
you have to pay them if you were hiring them
as an employee, okay. So if you’re making 2,000 a week if you were to go work for somebody else, that’s in essence the market
value of your services, well what if your profit
comes in and you go look, I paid myself 2,000 a week, but the way I’m bidding these jobs I got an extra thousand left over. You’re not paying the self-employment tax on that extra thousand. By the end of the year
you might have said, okay I took a $80,000 salary maybe. That’s what I would pay
a full-time electrician that worked for me, 80 grand let’s say. But you got an extra
40 grand left in profit that you take out, what’d you just save? Well up to 118,000, let’s round it to 120, which we’ll be at next year. You in essence got 40,000
out not subject to 15.3%. That’s over $6,000 a year of savings. That’s more than enough
to cover that $800 a year you pay plus, you know, to the state. And there’s a little
tax at the state level, one and a half percent
on S corps in California, but still S corps offer a big
advantage of you can start chipping away at that
self-employment tax a little bit. Just don’t get greedy and say well, I’m gonna pay myself 20,000 a year, that’s what journeymen
electrician around here earn. They see that tax return they’re
gonna go, uh unh, uh unh, you’re trying to skate on too much of your self-employment tax. Maybe you could shave it
down to 70, 65, you know, kind of just keep it in the ballpark. And everything you’re
bringing it down from you’re not paying 15.3%
on, it’s a good deal, it’s a good deal, question. – [Woman] When you pay yourself,
is there a way to keep that money still in the business
account or do you actually have to take it out
and use it as a salary? – As a salary you would have
to actually pay it to yourself. You could re-contribute it. – You can.
– Yeah, but you’re gonna pay the tax on it, the self-employ, you’re gonna pay the social security taxes as employee and as corporate employer. And you want to put
more back in, you could. Just as a shareholder, you’re
putting more capital in. Or a loan. – [Woman] Or just stick
it in a savings account. – Okay, big, big, big qualifier here, who can be an S corp shareholder? This was meant for businesses in America. 1954, lot of GIs coming after
World War II was over in 45, lot of small businesses
popping up, and they said okay, you know, small businesses
here, you can be an S corp. You cannot have certain
shareholders be in an S corp. It doesn’t qualify then. You have to be a U.S.
citizen or a resident alien to be a shareholder in as S corp. You have a friend that lives
overseas that is not a citizen that wants to be a shareholder
with you, can’t be an S corp. They you start looking
at an LLC maybe, okay. You definitely don’t want to be a C corp under any circumstances in my opinion. Doesn’t offer you anything,
except more taxes, double income tax rate, okay, offers you protection from liability but you can get that
through an S corp or an LLC. But S corps, you can’t have like, a corporation be a
shareholder in an S corp. Individuals, either U.S.
citizens or resident aliens. Certain trusts can be
shareholders, okay, yes. – [Man] Can somebody be
a shareholder and not, like can you have multiple
people and one of them be kind of like the limited
partner in a sense, like– – You can have two classes
of stock in an S corp, one voting and one non-voting. – [Man] But I mean like
one person that’s employed and another person who’s
just in it for the money, they just have their money in it. – You could, all shareholders
do not have to be employed. Alright, practice tip,
when you’re incorporating, reserve a name with the Secretary of State before you actually file your
articles of incorporation. You can reserve the name for
I think up to six months. You pay a little fee, then
go check that name out. Make sure that the name is not
being used by somebody else. And don’t just check it
statewide, check it nationwide. You don’t want to have to spend a year, two years, three years
building up that value of that name and then somebody sends you a cease and desist letter
saying, hey Beaverstock, we have the rights to
Woodstock, knock it off. What are you gonna do,
you want to get in a war, spend a lot of fees, no,
you’re gonna give it up, okay. Little Lauren’s, Little Lauren was a shop in San Luis
Obispo some years ago. The lady opened it up ’cause
her daughter’s name was Lauren, L-A-U-R-E-N, Little Lauren’s kids clothes. Who called her and said cease and desist? – Ralph Lauren.
– Ralph Lauren. What are you gonna do, you gonna fight all those
lawyers, guns, and money? You’re gonna say, I give it up, you know. So check your name out, check it with the U.S. Patent
and Trademark Office, ‘kay. And then there’s a state office, I have the sites in your paperwork there. Question Gayla. – [Gayla] Yeah I was gonna
ask you what you think about suggesting an international
trademark reservation, especially with all the global– – Depends, yeah, sure, it could. I don’t know too much about that, I haven’t looked into where
you would do the registration but I am aware that it is possible. I’m saying at a minimum do a national one, you know, you’re doing a small
business even here in Paso, you’ll think what do
I have to worry about? At least to the national one
and maybe even international. But I gave you the links to the state and national
sites for checking it, okay. We need to move a little quicker, so I’m gonna ask you to
hold all the questions, ’cause we got a lot of
material to get through yet and I don’t want to like
just ignore stuff, so. Limited liability company, LLC. If you can’t be an S corp
because you have shareholders who are non-resident aliens
or for whatever other reasons, this would be I think your next best bet because even as an
individual, you’re getting some protection as compared
to a sole proprietor. You’re again here in an LLC,
you’re getting that veil, that like they can’t sue you personally. They can just get what’s in your LLC. LLCs are fairly new, they
first came about in most states about 20 years ago, mid-90s, early 90s. Our law was revised recently. Significant revisions,
completely wiped out the old law. So get somebody who’s familiar with these, knows what they’re doing. Again not required but
strongly recommended with all entities where you
have more than one owner, even if it’s an S corp two shareholders, have a shareholders agreement. Same issues you would discuss
in a partnership agreement. These owners are called members,
have a members agreement. What’s gonna happen if one of
us dies, one of us wants out. But the main benefit I see here is, if you have ideas if you
want to limit your liability but you can’t be an S corp
’cause you got somebody who can’t be an S corp shareholder, then this is your next best bet, okay. But this here, also they
can pierce the veil, okay. It’s a little more difficult
to pierce the veil here, but you still have to be careful, you don’t want to
co-mingle money and such. But they do not have the
benefit that S corps have. Here you are gonna be subject
to a self-employment tax. So that’s why I personally
advise go with the S corp when you can, you’re gonna
save that self-employment tax. This you won’t save the
self-employment tax. You won’t have the double
taxation like a C corp has. But you’ve still got to pay
the self-employment tax. S corp gets rid of the self-employment tax to a certain degree. This doesn’t. Question or two. Let’s keep–
– Is there a cost for an LLC, like 800– – Is there a cost for
the LLC is the question, yes, again, $800 minimum,
and then what the LLC has that none of the other ones
have, an additional fee, it’s in your notes, dependent on what your gross receipts are. You start paying thousands
of dollars more if you start getting above 200 and some
thousand of gross revenue. So they can be a little more
expensive than an S corp for sure, or any other type
of partnership or anything, but they’re a little more flexible. Anybody can be in a LLC, and
it gives you that protection from liability and one
level of federal income tax. You have to pay the self-employment tax but if you have international people coming together saying,
let’s form a business, LLC is probably the way you’re gonna go. Alright, you need money. Save. Save, save some more, okay. You need to get your own
money, you know, together. And you know, a lot of times people who have a lot of money start a business, they don’t think as hard,
they don’t work as hard. They waste it by throwing
money at the problem. And they go, oh we’ll just hire somebody, we’ll do this, we’ll
do that, we got money. Money goes. When you don’t have as much money, you’re forced to use your
brains and your elbows more and dig in and say how
we gonna this problem, we can’t just hire somebody, we can’t just buy another
piece of equipment. So it’s a blessing in disguise sometimes that you don’t have
access to a lot of money. But why the businesses fail very often, one is management doesn’t have it, don’t have the experience
don’t have the education. And part of that as a sub-category is especially with money
issues, they start a business without having the
money to really make it. I mean you have successful
restaurant owners who have been in business 20 years, I’ve had some of them be
guest speakers for me, I’m personal friends with some. If you don’t have enough
cash to last you two years, he says, you won’t even think
of starting a restaurant. Other businesses, at least a year. Like if you had not a dollar
coming in from clients, and you said I got to pay
all the bills for a year, that gives you a little time to get your business up and
running, a little cushion. Some do it with a lot less, some people do it on credit cards. Sometimes you’d start a business, like we go back to the
beginning, out of necessity. You lost your job, I don’t have
time to save a lot of money. I got to get out there
and make something happen, I need to put food on the table. So best case scenario, you
got some money saved up. You don’t, you do the best you can, but. Equity, you’re putting money in. You get people who put
money in, invest and buy in, those are called angels
sometimes, could be a friend. There’s professional angel networks. There are some around
here, just Google it. SBICs, these are people who are small companies, they buy equity investments
and they make loans, they do a little of each. They’re approved by the Small
Business Administration, so you know that they’re not just some fly by night kind of operation. There’s over 300 of them
in the United States. I gave you the link that
has all their names, addresses, and phone numbers
in the outline, okay. The SBIC link, you go look at them. Try ’em, you know, see if
they’ll give you a loan or if they’ll give you some investment that’s not a loan, i.e.: equity, okay. Crowdfunding is the most popular now, everyone says well I’ll get
money, you know, crowdfunding. Whole new rules came into
effect just last year, May 2016. It’s still, I mean, I good viable option, but more regulation now, okay so, if you’re looking to get
money through crowdfunding, you have to go through a portal, okay, one of these or any others. The portals or brokers,
whatever you want to call them, they have to get approved by two agencies, the Security and Exchange
Commission and FINRA. FINRA, Financial Industry
Regulatory Authority. Okay, so like all stock brokers, stuff. So they’re out there
on their website saying hey Rubin’s starting a business who wants to put money up,
invest in his business? They’re doing the promotion for you. Make sure, there’s as
of about two months ago, or month ago when I checked
it, and I was working on this, there are 21 of them
approved in the country here. So just make sure before
you just go on a website and say okay let’s go do this for me. Make sure they’re one of the ones that are approved under both of those. And I gave you the links how
to check them, okay, in there. And the most people can invest, it depends on their income and net worth. Somebody says well I’ll give you 200 grand through a crowdfunding source, they can’t. Not in the one year timeframe. Most they can give you is a hundred grand if they’re very wealthy. Most of it’s small, two,
three, four, five thousand they’re gonna give you at a time. But, you know, if you
can do that way, fine. But just check out who you’re dealing with before you put out there. And then you as the
business owner have to put your financial information
out there, of your business. And if it’s a new business, you have to put out here’s
what we expect to earn. And it depends how much
you’re trying to raise, I put it in the outline there. If you’re trying to raise a
lot of money, you have to get a CPA to audit your business,
and that costs money. Okay, but, so that’s an option. You go to a bank, you want to get a loan. Well, they’re looking at the five Cs. Okay first off they’re saying what are you putting into the business? Don’t go to a bank and
say I’m putting in 5,000 I’d like to borrow 100,000. They’re gonna say you don’t
have enough skin in the game. When you have say 40, 50 grand, you go, I want to get this business
started but it’s gonna be tight. You’re almost better off going to the bank and
saying hey I got 40 grand. Let me put the 40 grand
up, you put something up. Before you run that 40 grand down to five and you
say now I need a loan. You go in when you got something, and you say, look I’m
putting some collateral up. Maybe they’ll make you a $60,000 loan and you put the 40 grand in
their house as collateral. They hold onto that 40 grand until you start paying that 60 grand down. Well you just upped your ante by 50%, you just got 60 grand
instead of 40 to work with. And yeah you’re paying interest on the 60, well you think, why am I doing that? ‘Cause the interest I’m
gonna pay is a lot more than the interest I’m
gonna get on the 40 grand sitting in their bank, but if
you need that extra 20 grand you’re not gonna get it
when you get down to five and you go well I now I need another 20. They’re gonna say take a walk. But if you got 40 up front as collateral, that’s the best collateral
a banker wants to see, cash. Okay, so build a relationship first, go talk to the bankers, show
them your business plan, okay. If you don’t have a business
plan, have one, get one. But talk to bankers well
before you need the loan. Say, what do I need, what will
my credit score have to be? Show them your business plan. You start developing a
relationship with them, they start giving you guidance,
they want to make loans. Banks have a lot of
cash they’re sitting on. After the big recession
they had so many regulations that they couldn’t give
loans out to people unless your credit score
was through the roof and you had everything impeccable. Might be loosening up a bit
but they still are sitting on a lot of cash, they want to make loans, that’s their job to make loans. You come to them, you might
help them solve their problem of why am I sitting on all this money? Banks don’t make money
by sitting on money. They make money by putting that money on the street, loaning it. So you’re coming to them helping
them solve their problem. But you say, what do I need to do to get in shape so you can give me a loan. Show them your business plan, okay. They have SBA backed loans,
when you hear about an SBA loan, SBA is not making the loan,
the bank is making the loan. The Heritage Oaks, the Wells Fargos, the SBA is telling the bank, hey if Rubin doesn’t pay
on the loan, we’ll pay it. So they’re guaranteeing
the loan up to maybe 90%. So a bank may look at you and go, eh I can’t give you the loan
Rubin, but you know what, talk to this SBA
representative here we got. They sit in the bank,
they’re sometimes employees of the banks, and they
say talk to our SBA rep. SBA rep has looser guidelines,
they can look and go, alright, hey bank, if you
make the loan to Rubin and he doesn’t pay, we enter
an agreement with the bank, SBA says we’ll back you up to 90% of it. If Rubin don’t pay, you’re
only gonna lose 10% of it. Bank says okay, now I’ll make the loan. So a lot of the banks around here have an SBA person right in their bank. So and they’ll right away look at it for a small business, go
eh talk to the SBA person. It costs you a little more money, you still have to pay the
bank’s fees, now you got to pay SBA fees too, it might cost
you a few thousand more. But that’s the way most small businesses are gonna get started,
through an SBA loan, okay. A bank on its own making a loan to a brand new business,
very unlikely, okay. When you get into these loans, couple things you can negotiate if the bank is willing
to make a loan with you. They might want to give
you a loan for three years. You say, okay, that’s
gonna be big payments, you know 50 grand or 100
grand over three years. That’s gonna really
crunch my cashflow, right? Hey bank, how ’bout
this, you believe in me, give me the loan for three years, but amortize it over seven years. What that means is, you’re gonna make equal monthly payments that are smaller. It also means at the end of three years if they say okay your loan’s
due, we only gave it to you for three years, you’re gonna owe them a big payment called a balloon payment. ‘Cause you’re making the
payments pretend as if you have the loan for
seven, but you don’t. So you say amortize it over seven, so give me equal monthly payments as if I was gonna pay
all off in seven years. But we agree it’s only a three year term. Bankers will do that very often with you, saying okay get your feet
on the ground, get going. And they’ll look at you
then as you’re getting close to three years and say maybe
we’ll extend it another four years, let you just keep
making those payments to us. Or they’ll tell you six
months at least in advance, hey we’re not gonna
extend it, go find a loan to pay off our balloon, we’re
calling it due in six months. But it’ll help your cashflow at least. You won’t have the bigger payments due. So ask them if they’ll amortize
it longer than the term. Prepayment penalties,
banks need to make money by keeping the money out there. You make a loan and you
say okay I got this loan for three years, three months
later your business does well, you say I’m paying it off. Bank did all that work
for what, for three months of interest, they wanted
three years of interest. You wasted their time. They have built into it
a prepayment penalty. You pay it off early, you gotta pay more. Negotiate that down, you say
hey look, if I pay it off after two years, you made
enough money, no penalty. I pay it off in year two,
maybe only half the penalty. If I pay it off within the first year, yeah I’ll pay the full penalty. You can negotiate with them,
they’ll negotiate on that. Personal guarantees, bank wants to get a personal guarantee
from you on these loans. You negotiate with them,
say hey after three years and I’ve paid down a bunch of the loan, will you release the
personal guarantee then? You got enough collateral. You know like if, back to the idea I said, I got 40 grand cash I’m
putting up for a $60,000 loan, and you want a personal guarantee on this? Fine, until the loan balance
is down to 40 that’s good, but once it gets down
to 40, what do you need a personal guarantee for,
you got my 40,000 cash. Then you release the personal guarantee. They’ll negotiate with you
on things like that, okay. Alright, leasing, new talk. You need space, I’m
gonna get right into it. You’re gonna need to
find out what you need, get in there and measure. Leasing is done on a square footage basis in a commercial lease. They’re gonna tell you,
it’s a $1.75 a square foot, or it’s $3 a square foot,
or it’s $4 a square foot. By the way, we have a
spot just right for you, it’s like a thousand square
feet, two bucks a square foot, it’s gonna cost you $2000 a month. Dollar per square foot,
that’s the monthly rent. Well, you hear one place $2 a square foot, and the place right down the
street is 2.50 a square foot. You go, I’m not even gonna
look at 2.50 a square foot, I’m going to $2 a square foot. Look at both and bring
your tape measure with you. And they tell you, this
is a thousand square feet, measure it, I mean, are they measuring like a room like this, they’re measuring all
the way to the back wall. Well this is unusable for me,
I just need this flat space, I can’t use anything with stairs or… Look and see how the interior
looks, what can you use. I’ve had landlords in
this area quote me a price and I go look, and they
go, I measure, I go, this isn’t even close,
how are you figuring this? Well look out there,
where there’s a patio. One in Templeton had a patio, said you’re getting use of the patio, too. I’m paying for the patio? That’s in your square footage calculation, so the $2 a square foot
if I take the patio out really is like much higher
than $2 a square foot when I’m just counting what
I have a roof over my head in and heating and air conditioning, okay. – [Woman] Inside walls. – And yeah, inside, I had ones
measure stand alone buildings exterior walls, the exterior wall. Curves, if there’s curves
corners, that’s dead space, but they’re measuring from
the flat wall not the curved corner, squared off,
deduct that, it’s unusable. Columns, stairs, they’re
counting wall to wall, there’s a staircase here, it’s dead space not just a staircase,
but everything around it. You can’t block the space
around it, you can’t use it. I would take that out of
the equation, ‘kay, so. Go look at the space and
say, what’s really usable, that’s the amount of square footage, what’s the rent you’re charging me? Now you get the real per
square foot usable, okay. You’re not likely gonna run
into these types of leases. You’re gonna run into a triple net lease. Triple net lease means you pay rent plus an amount that equals
the expenses of the landlord for taxes, maintenance of
the building, and insurance. And you think, well why am I paying that? I don’t own the building, why do I have to pay the taxes on it, I pay your rent. That’s how it’s done. In a commercial zone,
that’s how it’s done, you’re not gonna get around that, okay? Couple pointing tips. Your lease will say the
landlord puts into this taxes, maintenance,
insurance a certain amount. All these things come together, we divide it up among the tenants. And it may every month
or every three months, you get a separate bill besides your rent. Here’s your triple net portion of all your other things that you’re responsible for. So you’ll look at the lease,
it’ll say you’re responsible for real estate taxes,
any special assessments. Special assessments are for big things. City says, we’re putting
new sidewalks in here, or new sewers, all the
property owners on that street are gonna get a special tax assessment. It might be 20, 30 grand, 40 grand. You know, you’re putting in new sidewalks or new sewers or new streets. Well that’s a long term
benefit to the property owners and they pass that cost
on to the property owners in addition to their
regular real estate taxes. You have a one year lease there. Do you want to pay a portion
of a cost of a 20 year improvement that the
building gets value on? You’re getting value on it for a year. That’s not fair, why am I paying a chunk of this special assessment
that’s something that’s gonna improve
the place for 20 years, I’m only here on a one year lease. Watch that in your leases when
they say special assessments. Now if you got a ten year lease, okay, maybe you live with it. Less than that I’d start
negotiating it out of the lease, saying I’m not paying for
any special assessments. Okay, I mean, it’s not fair, okay. They’ll put in there that
their gonna charge you if they contest the
valuation of the lease. That’s part of your expense. They want to charge the attorney’s
fees off to the clients. Okay, if they want to do that and they win and they get a successful reduction, that should go back to the tenants too. Maintenance, this is the biggest issue, biggest problem usually. You don’t want to pay for replacement. Watch your lease, it’ll say
repair, replacement HVAC, plumbing, electrical, no,
that’s why I pay you rent. I don’t want those problems of ownership. Maintenance, okay, the furnace
needs a little check up once a year, new filters,
the service repairman comes and fixes a overhead door or something, but when you’re replacing a furnace don’t put that in my triple
net fee that I gotta pay you. But watch your lease, it’ll
say sometimes that it is. Also, put in your lease, what happens if one of these
major systems goes down. HVAC goes down, electricity
goes down, plumbing goes down. I’ve seen it happen in the
dead of winter in Chicago. The furnace goes down,
retail shop, busy street. People coming in off the bus
stop to go do a little shopping while they’re waiting for the bus, or in between work, busy intersection. It’s freezing in here, guy
says, my furnace went out, landlord’s furnace went out. It’s been out for 10
days, I’m losing money. People come in and go, it’s
cold, I’m out of your shop going to the next one that has heat. How long you want to go for
the landlord to fix this? Put it in your lease. Maybe 10 days, 15 days
for big structural things, you know, get that plumbing
work, I can’t work here with no toilets, my employees
have to use toilets. I can’t work here without electricity. That’s got to be fixed within a week. I mean, 10 days, and if it’s
not, I stop paying rent. I’m not obligated for rent. And then still even a
drop dead date, 30 days, you got to have it fixed
by now, or 45 days, something reasonable you go, I’m out of this lease with no obligation. Put that in your lease,
because you never know. You get landlords who go, oh well, you know, the furnace guy’s busy. You don’t have any heat
or any air conditioning on a hot Paso summer
for a month in August, you’re going what am I paying rent for and maintenance and all this for? I can’t do business when
it’s 105 degrees out and I have no air conditioning. I should at least be
staying here rent free ’til you get the air conditioning fixed. Puts a little motivation
on the landlord then too to get that stuff fixed,
not just sit around, okay. Alright. Contract for repairs or
improvements to the property. You move into a place, you
go, I want this partition, I want that done, I want that done, landlord says, okay we’ll do that for you, we’ll get it done, your lease
is gonna start June 1st. This is March 15th, we got plenty of time. I’ll get my contractor in here to do it. So all right, that’s what we want. Okay, maybe you negotiate
landlord’s gonna pay for it ’cause you’re taking a three year lease, they go, oh we’ll fix it
up for you how you like it. Whoever pays for it doesn’t matter, you’re gonna be starting
to promote your business, saying June one, we’re opening up. You’re gonna be putting ads
out, you’re hiring employees. You’re gonna be in this place June 1. When you go to sign that
lease, say if this isn’t done by a certain date, and
actually you want it done before June 1 ’cause
you gotta move in there a week or two or three,
train your employees, get everything set up. If it’s not done before then,
you’re excused from the lease. You don’t want it being June
1, what are you doing here? Oh it’s not done, I can’t move in? I had already spent money
on advertising grand opening June 1, June 5th, I can’t
do my grand opening now. I wasted all that marketing money. Get it in writing on that work letter that landlord you got to
get this done by May 15th. If not, I’m not your tenant,
I get my deposit back. Options, when you go rent space, landlords will give you something free the longer you commit to. You say I’ll commit to five years, they might give you five,
six months free up front. Do you want to commit to five years. Do you want to even commit to three years. It’s a new business, we saw
the success rates, right. 50-50 for five years. You might have to dump your
business but you still signed on for a five year lease, you’re committed, they got your personal guarantee. Until they lease it again, you’re stuck. So I personally would advise
clients, I did it myself, I signed a one year lease,
maybe two years at most. Keep your freebies, but I want my lease to have multiple one year extensions, and then maybe a two
year extension or two. So hey, you want to give
me a five year lease, give me a one, with four
successive one year option periods that I have the right to
exercise at a fixed price. And if I get to that fourth or fifth year, you start giving me some of those freebies that you were gonna give me up front. You don’t lose anything,
I don’t lose anything. So you’ve got the control
then of staying of leaving without a whole lot of commitment. A landlord who’s looking to
rent the space is gonna go oh okay I got somebody here
one year, great, take it. Now if you write it up that
you have the option only, best case scenario, I’ve
done that many times. Some landlords might not
be so willing to do that unless they put a nice increase in there. But depends on negotiating,
how bad do they want it, how long’s that place been open? I’ve had, I’ve advised
my clients to go do this, you go to the county records,
you see a spot for rent, go look that place up and
see what kind of mortgages are against that property. You start getting an idea how bad the landlord needs your rent. If there’s no leans against it, you know, certain places like
you go like down to Solvang, those buildings have
been paid off forever. Those landlords will let it
sit vacant for a year or two before they give you a good deal. But if you have big loan,
guy just bought the building, he’s got to get that place rented. So you got a little
more negotiating power. Questions, yes ma’am. – [Woman] If it’s in an area
you’re not as familiar with, like a strip mall or something like that, is it good to talk to the other tenants to see just in general how
they like the landlord. (speaker muffled by
distance from microphone) – Question is, if you’re
going into a strip mall or anywhere where
there’s multiple tenants, should you ask that
other tenants questions about the service from
the landlord, absolutely. Get in there and ask ’em questions. You know, I mean, talk to ’em. How’s the landlord respond
when you have problems, you know, you start getting
a feel, sure absolutely. Another little tip I put in there but, part of the maintenance, I
did this on my own lease, big office building I went into. You’re paying on maintenance
for all common areas. So in a big office building,
lot of common area. Big hallway, elevators,
anything in the common area. Two big restrooms, break rooms,
vending machines in there. You know, it’s like 300 offices in this five story big footprint building. So they crank all that in, the square footage of the rest areas, the lobbies, that’s part of what you’re
paying maintenance on. Janitorial services for all that, repairs to the vending machines. I asked in my lease for
my place where I leased in the suburbs of Chicago for seven years, when I first got the lease
from the leasing agent, I looked it over, you
know, big 40 page lease, I’m looking through everything. A lot of common areas are defined, what you’re gonna pay maintenance on as part of your triple net. And I said, let me see
those, show me around. I spent an hour with her, walking
around the whole property. Oh, there’s a nice big room,
20 vending machines in there. You know, hot and cold
stuff, soup and every, nice for my employees
who are working late. Sandwiches, nice, good, okay. I said, I’m paying for this, in the lease, I’m paying for the upkeep
of these machines, right? Yeah, I said, who’s
getting all the quarters? We get all the quarters,
that’s the landlord’s machines. But I’m paying for those machines, to fix them when they break,
I’m paying to lease them. You’re charging me for
the upkeep of the machines but you’re not at least
giving me an offset on the money that’s coming in from
those machines, that’s not fair. She says, well you know
nobody’s every asked that. I says well, I’m asking. She said I’ll ask the landlord, you know. Ask the landlord, I go,
I’m ready to rent the place but I’m not paying for machines
that are producing you money and I’m not getting credit
for that money to offset the cost of upkeep on those
machines, that’s ridiculous. So she went back, couple
other things I had, she came back, she says,
we got a lot of lawyers in this building, lot of
accountants, lot of finance people, nobody’s ever read the
lease like you have. I said, I read everything. I says, and I’m asking you, and she says, I went up to the landlord, he says here’s what he’s willing to do. She says, we will do a side contract, ’cause we don’t want it in the lease and other people start
seeing that we did it. But we will do a side
contract with you that says we will cut you a check every month. We’re gonna figure it
out first, based on like you don’t get credit
for it, but every month we will show you our receipts
from all the machines. And you will get back
.07 whatever percent, that’s your square footage
of the whole property, and that was my ratio in the maintenance. I said, I did the math, go
how much is that gonna be? Oh it’s like 30-some dollars
a month I’m gonna get back. I said, okay, fair enough, you know. I’m paying but they give
me the quarters back. Every month I took my wife out
to breakfast, I said we got, or lunch, I got a $30 check, you know, just from that little
negotiation for seven years. That was a nice little extra, you know, I mean couple hundred dollars
a year for seven years that wound up being a
couple thousand dollars. But watch if they’re charging you, another place in San Diego,
I did it for a client. The building had outside
parking, downtown San Diego. You were getting two or
three spots with your space in a office building that you could use in this outdoor parking lot. And you had numbers, it was marked. But a good chunk of it,
like a half of this big lot it was open to the public, they
could just come park there, they put their money
in the slot in the box right there at the lot. Same thing, in the thing
it said, we’re charging you for upkeep every year, we
have to do the blacktop again, we have to re-stripe it. It’s big money, like 20 grand
to do a big parking lot. I said, who’s getting
all that money every day? Isn’t that being used to offset the cost? No. I’m not paying for the upkeep of it without you giving us credit for the, and they did it for my
client on that one too. So watch for those things, okay. We need to move to get into
other material quickly. One more question. – [Woman] I was just gonna
comment really quick. She had mentioned talking to
the other people in the area and the other good thing
is to go and sit outside the location for a little
while and just watch what foot traffic is, depending
on (mumbles) just to see. – Yeah, last question, yes. – [Woman] If someone vacates your property and they give you the proper 30 day notice but they were on a month to month, the lease had expired,
never got rewritten, what is the timeframe to
return their deposit check? – I don’t know, I’d have to look it up. – [Man] 21 days. – There you go, thank you sir. – [Man] And what about bankruptcy clauses. – I’m not going into
bankruptcy, over my head. – [Man] Okay. – Income statements and balance sheets. We could spend about two
or three hours on this just to get the basics down, okay. I’m not gonna spend much time on it ’cause I want to get to the marketing and the employee issues, ‘kay. Look it over, I’ve given you links that have videos from
the SBA that take you through balance sheets
and income statements. Couple thoughts though
here, get it done monthly. If you don’t do it, get
somebody to do it for you. Once a month, you want a
balance sheet prepared, you want an income statement prepared. You gotta know are you making money. Profitability is shown
on an income statement. Balance sheet shows you
assets, liabilities. Are you liquid, liquid means
do you have enough cash to pay your bills are they’re coming due. Balance sheets should help you with that. Are you profitable, income
statement helps you with that. You also have to watch your cash. Income statement is not
the same as cashflow, okay. Couple terms you’ll hear
being used quite a bit, the top line, the bottom line. Top line on an income
statement is revenue. You’ll hear some people say, oh we got really working on our top line. It means hire more sales
people or do more advertising, we need to bring in more revenue. Oh we need to work on our bottom line. Bottom line is net profit or loss. Trim our expenses a little bit
is what they’re saying, okay. We don’t have enough profit,
we’re sales are doing good, top line’s fine, but
there’s nothing left over, we’re spending too much somewhere, okay. So just get used to
this, cost of goods sold, economics of one unit. When you’re selling a good, a product, something that’s tangible,
purses, cars, whatever. Something that’s not a
service, you’re selling goods, you should know how much the
next purse costs you to sell, produce or buy from a supplier, if you’re making it for yourself or you’re buying it from somebody. Clothing, you should know how much each pair of pants costs or
shoes that you’re selling. You know that, that’s your variable cost. That helps you with pricing decisions. Because sometimes like grocery stores do, you have a thousand products, 10,000 products in a grocery store. Every week they give us a couple things that are like really good sales, right? They might be going as low
as their variable cost, the economics of one unit,
they know that gallon of milk only costs them, you know,
$1.29, so every once in a while they put that gallon of milk
on sale for $1.29, or $1.39 instead of the usual $2.59 or $2.89. And you go oh that’s a good deal. You know people are going in there, they’re gonna not buy
just that gallon of milk, they’re gonna buy something else, so you can get the money elsewhere but you use it as a leader sometimes. But you need to know your cost structure. You do that, you’re
ahead of the game, okay. Cash, watch your cash,
old saying in a business, the business of business is
profit, but cash is king. You run out of cash, you don’t
get to pay your employees, you don’t get to pay your
landlord, you’re in trouble, okay. You got to watch that
cash, okay, lot of times people aren’t watching the cash. I’ve had students in my class
here, lady’s in her mid-40s taking small business management with me. She said, you know I should
have taken this class three years ago, she
said, I bought a business. I was an employee of the
business for seven years, I thought I knew it, I never
worked in the back room I just took care of the customers. Never looked at the books,
I bought the business. My husband said, no I
don’t think we should. She said, I convinced him let’s do it. We took out a home equity loan,
borrowed against our home, I paid $200,000 for this business. She says, I’ve been in
it now for 13 months. She says, marriage is
gone, getting divorced. I’m pulling in 20 to $22,000 a month, I have nothing left end of
the month, I don’t know why. I can’t pay my bills at
the end of the month. I’m bringing in 250, 260
grand in the first year, like I don’t know where it’s going. Never took an accounting course. Never had a balance sheet prepared, never an income statement,
never hired a book keeping. She was using it like a checkbook, well what comes in I pay out whatever. You got no accounting background or sense, hire somebody who does that you trust that you start getting
familiar with your numbers. This is your business, watch it, okay. Sad, but, okay. Suppliers, when somebody’s
selling you inventory, ask them, hey can I pay you in 30 days, 45 days with no interest? If they say, sure, pay
’em on day 27 or 28. Hold on to your money as long as you can. If they say I’ll give
you 30 days no interest, they’re happy to get it
on day 27 or 28 or 29. You start going day 35,
36, they’re not happy, 31. Pay them within the time you agreed. Maybe after a year or
two you been doing that, you say hey, I’ve been paying
you on time within 30 days I’m in a little bind here, can you give me 60 days
or 45 days no interest? You’re getting free loans when
they do that for you, okay. Now you have to go out and catch your receivables
as quick as possible. Bring that cash in faster, you know, you want it definitely within 30 days. People don’t pay you within 30
days, you have to call them. You have to send a reminder
bill, you have to do something. A lot of people who go into business don’t want to do that part of the job of being a business owner,
’cause it’s conflict. You’re used to getting a
paycheck as an employee, you don’t have to go bother
the boss, pay me it’s payday. But when you’re self-employed,
sometimes you got to go bother the client, say hey you
didn’t pay me like we agreed. 30 days is gone, come on. So get somebody to do that
for you if you can’t do it. Alright, if it makes you uncomfortable, but watch your accounts receivable daily. I would have it prepared every day for me. I’d have anywhere 20
to 30 people at a time that owed me money when I
was practicing full time. And I wanted that updated every morning by 9:00 a.m. and on my desk. People’d call me and say
hey can you do this for me? You owe me something from 45 days ago. I mean, I can do it for you, but let’s pay up that old bill first and then we’ll talk about the new job. You know, let’s be on
top of your receivables. Inventory sucks cash. Buy it when you need it. You don’t want your shelves empty, but you don’t want a
warehouse full of stuff because it was a good buy and
I’m gonna sell it eventually. That’s cash sitting in your warehouse. Buy it when you need
it so you don’t run out of the stuff on the shelf, but not more. You gotta watch your cash. They entice you with a good deal, ah use this, I’ll buy
six months worth of it. Let that deal go if you’re short on cash. Hold onto the cash, you
need some reserve there. You run into a bad spell,
you’re not making sales, you got enough to pay your employees and pay the rent for awhile, ‘kay. You don’t want to sit there
with six months of stuff in the back and you
can’t pay the employees to sell it ’cause you’re out of cash. Licenses, go to that website,
I’m not gonna go to it now. Anything you want in
California, local, city, county, punch in the name of the
business where you’re at, gives you all the potential
permits you might have to get. And the addresses, contact info
for all the agencies, okay. Be careful with the local businesses, local business permits,
cities of Atascadero, Paso, all the cities around, they all have sign ordinances. Lot of people get caught up in this. You go sign a lease, you go
fill out the business permit form, they tell you fill
out also a site map. Show us, and it’s a lot
of detail, you look, you go ah come on, we just fill this out, get it in, I’ll do that later. And then you go order your signage. And then they come and
tell you, what’s this, you can’t have this sign here. It’s too big, it’s on the sidewalk, this overhang isn’t right, whatever. I spent $8,000 on that sign,
you telling me I can’t have it? No you can’t. Why not? Well I wasn’t even in
your permit application. Put it in your permit application
with the city or county. With the city especially you
get city permits, license. Put in any signage you’re
gonna do in that application, they come out, they approve
it, you’re good to go now. Okay, alright. Marketing. I was gonna take another break, we’re not, we’re just powering through, we only got about 15 minutes left. Marketing and employees issues. Okay, you need to bring money
in, you need a market, okay. Three levels of a product,
and I say a product in this time I’m saying a product, it also includes a service. So whether it’s tangible or intangible. I sell legal services, what am I selling? – [Man] Services. – Let’s say I’m doing
corporate work, transactions. You’re thinking I’m gonna
form a limited partnership, I might hire this Rubin to draw up a limited partnership agreement. Or I’m going to a lawyer, I want to go to a lawyer who’s gonna do a will and trust for me,
estate planning work. What are you looking for, what’s really what you’re looking for? (muffled speaking) Competence, what else? – [Woman] Experience. – Experience, competence
kind of go together. – [Man] Reputation. – Trustworthiness, right, I mean, that’s what you’re looking for. You want to hire a plumber,
what are you looking for? You know what you’re
doing, and I can trust you, you’re not gonna rip be off, tell me I need something I don’t need. Most services, professional
nature services, what’s really at the core
of what you’re looking for. I had HVAC go down, my
furnace gave me trouble. Three times the guy came, and I’ll say it, Hutch Heating and Air
Conditioning, I trust them guys. They come out, they
don’t make me spend more than I need to spend,
they come out three times to try and fix it before saying, alright, you need a new motherboard,
or you need this. But not until they’re sure,
here’s what we could do. But you’re looking when you
hire a service, at the core, I want somebody who
knows what they’re doing. They’re a competent electrician, and I can trust them that
they’re not gonna tell me I need something I don’t need. When you’re hiring for
services, that’s the core, okay. Other things could be tangible products. What are you buying
when you buy cosmetics? Okay, Charles Revson,
the founder of Revlon. His name is actually Revson, I don’t know why it changed it to Revlon, but Revlon cosmetics, famous old quote. They asked him, what do you
make, what’s your product? He says, well in the
factory we make cosmetics. But what do we sell in
the store, we sell hope. A 40 year old hopes she looks 20. A 70 year old hopes he looks 50 again. You know, it’s like, what
are we selling at our core? Hope, that’s his product. Not lip balm, makeup, this
that, he’s selling hope. So you have to know what the core is of your product or service. And that permeates all your
messaging, all your promotions. That’s really what people are
attracted to you for, okay. I spent 11 years full time practicing law in San Diego and Chicago,
and eight of those years I had my own firm, and
then two more years here. I never spent a dime on advertising, I had more business than
I needed every year. I went out and I started teaching. And I taught classes like this
about starting a business. I’d give people not 40 page outlines, but I would give them
10, 15 page outlines. Here’s what you need to
know, two hour lecture, community colleges were
hiring me to do it, libraries started hiring me to do it. I started doing 48 of those a year. They were calling me to
speak, I said, alright, I teach at the community colleges already, I go, I like teaching, I’ll do it. What were people able to
see like you’re seeing. If they said, hey I’m
thinking of incorporating, I just saw the guy for two hours, he seems to know what he’s talking about, and he seems trustworthy. And the phone would ring,
sometimes a year later, two years later, hey I
saw you at this seminar. I never spent a dime
because the potential client was able to judge at
their, by their own eyes, what’s the benefit I
would be getting here. Does the person know what
they’re talking about, or is it I don’t know, okay. Actual product, packaging’s important. If you’re selling a tangible
product, watch the packaging, that makes a big difference, okay. Lot of sales can be improved
just by packaging, okay. Augmented product, point
of sale or afterwards. My wife and I finally after
20 years being married, 20 some years, we went out
and bought bedroom furniture instead of the hand-me-down stuff we had. This is 10, 15 years ago. We got a tax refund that year I remember, like 3,200 or something, she said let’s go out and
buy bedroom furniture. We never had, we only used the old stuff, you know junk stuff, it’s falling apart. Okay, let’s go, we had an idea
what we wanted, we go look. Course your taste is always
more than your budget. I thought, we’re gonna get
something good for three grand, no, it’s all like six
grand, the stuff we wanted. Let’s go shop somewhere else. The same place, I mean same
stuff, different places, within a hundred or two, six
grand what were we gonna do. I don’t want to spend six
grand, we’re gonna have to wait. Okay, we go back to one place, I looked, there was a little card. Wells Fargo on the salesman’s
desk, stand up card. I said, what’s that,
little brochure, I look. They’ll finance it, no interest 18 months. I read the whole thing, I
go, you know about this? The salesman goes, yeah,
but hardly no one uses it. Well do you offer it? Yeah, it’s on your desk, yeah,
he didn’t even mention it. 18 months, I could spend the 5,800 spread over 18 payments and no interest. Yep, I read it, I called
the bank just to be sure. Yep, what do you think
wife, can we do this? Oh yeah, now we can do it. We bought it because of that extra. That’s part of the augmented product. None of the other furniture
stores had that option. They got my $6,000 worth of business. So think about it from all levels, okay. What’s the most you would
charge for your service. Now this is for prestige type items, or things that could be prestige
items, it’s not for a need. Like electrical services, legal services, that’s a need more than a want. But clothing, somebody said to me, thinking of designing clothes. I went into Macy’s in San Francisco, men’s store there, nice store right, that’s like the biggest inventory
of men’s clothing, shoes, other than the New York City
store, of all the Macy’s. I saw some t-shirts, I
walked up to the t-shirts, oh I like those t-shirts,
I went and looked, I go I bet they’re gonna
be like 50 bucks each. Out of my budget. I went and looked, I almost
fell backwards, $300. T-shirts, t-shirts, 300,
$350, just a t-shirt. Nice designs on them, you know, art work. But it’s like whoa, and
people are grabbing them, two, three of them at a time. Wow, who’d pay $350 for a t-shirt? They do, okay. Who wants to pay $1,000
for a hot fudge sundae? How ’bout 25,000? Play this, please. – Today we’re gonna be making
the Golden Opulence Sundae, the $1,000 sundae that has
the Guinness World Record of the most expensive
ice cream in the world. (upbeat rhythmic music) With this sundae we start with a beautiful Baccarat crystal goblet. Now this is the same goblet
that is used in the Vatican. You do get to keep the goblet. And what we’re gonna do is
plate the inside of the goblet. This chocolate sauce is
made with Amedei Chuao, and they only produce 400
kilos of these beans a year. The other chocolate is Amedei Porcelana, it’s the most expensive chocolate. Here we have three scoops of
Tahitian vanilla ice cream. And now we’re going to
use the candied fruit, and we have these flown
in from Fauchon in Paris. Then we are going to use the dragets. We top that off with a sugar flower, it’s completely edible, made of sugar. (bell dinging) This next dessert is the
$25,000 Frozen Haute Chocolate. In a blender take about a cup of milk and then as the base of the dessert, we use Serendipity’s famous
Frozen Hot Chocolate Mix, a blend of 14 different cocoas. And then we find 14 additional cocoas, the rarest most expensive
cocoas from around the world. From Africa, South America,
cocoa beans are now probably three times the price that
they were four months ago. We might have to change
the price to $25,999 if the prices keep going up. Into the goblet. We also use the world’s
most expensive truffle. For theatrics, more gold. And here we have the
Frozen Haute Chocolate. – And we’re in our fiftieth
year, so we decided to do something exciting as far
as desserts, and this is it. We donate the proceeds to a charity. The last time we had it,
the mother called and said I want to make it a memorable
sweet sixteen for my daughter. And of course you know, they can take the spoon back as a memory. When she left and she
said, well Mr. Bruce, let’s see if my neighbors can top this one for their daughters, I
thought that was a lot of fun. (bell dinging) – What will the market
pay, that’s the ceiling. It’s not what you would pay, you have to disassociate yourself. Don’t think of yourself as your customer. You study the market and you say, if somebody’ll pay 1,000
bucks, put it out there. Okay, I wouldn’t pay
it but somebody might. And again it’s gonna be for
those prestige type items. And in a certain market it could work. Maybe around here, if you
have a nice restaurant, maybe you charge $100 for a special sundae or something like this kind of. You know, you get some
tourists that come in and go yeah it’s a special holiday. But your costs are the floor, what the demand is is the ceiling, where’s my price gonna
be, somewhere in between. Look at your competition, okay,
you have to know what is… What is it, I mean where are they, this is all about where
are they, they’re online. I mean, you gotta get
going, if you don’t have social media going for your
business, you’re behind. If you don’t know how to do
it, hire somebody who does. And even if you do know how to do it, people say oh it’s free, I do it. You’re not staying on top of it, it’s almost counter productive. People don’t want to see something that’s like two months old. Two days old is enough,
you should be thinking of maybe being on three
platforms, maybe four. Don’t try and be on everything. Maybe you’re on Facebook,
Twitter, Instagram, okay, maybe one more. But those are the three big ones now. Instagram is picking up speed big time. Okay, so you get on those three, and you have somebody on
that like 10, 20 hours a week regularly, watching that, responding. And that’s part of the cost
of doing business these days, that’s where customers are. Somebody starts saying something negative about your business, you can intercept it and put your two cents in. Or you get stuff and you
coordinate with them those three, one post feeds into the other, you know. So you gotta get somebody who knows that, and is able to do it, but don’t say, oh they
come in once a month, they update it for me. That’s worse than not
being on there at all. ‘Cause they got there and they see, what’s this, a month old? It makes people not be
happy with you, okay, so. – [Woman] And you can post too much. – Right, so PR, see what that guy said, we donate the 25,000 to charity. Think he gets some good PR out of that? Heritage Oaks Bank, fun runs once a year. Heritage Oaks Bank sponsors pig races. First time I saw it I was
like, banks, pig races. What’s that got to do
with banking, nothing. One of my sons asked me, what do they got to do with banking? I says, it has to do with the community. They sponsor what the community
wants, it’s good PR, okay. So you do things sometimes. Now, you have to know what your unique selling proposition is. What is it about you that
differs from your competitors? It could be price, maybe
your the lowest priced one, like the Walmarts, they
differentiate themselves. And they can beat up for years
on the Kohls and the Penneys and the Sears ’cause they were
saying we’re the low price. Now Amazon’s kicking them
in the butt because what, boom, you don’t have to
get out of your pajamas and we’ll have it to you in 24 hours. Well that’s a pretty good unique
selling proposition, right. Even if the price of
a little higher maybe. I don’t want to get up
and go to Walmart for it. My phone do it and it’s here, okay. So you have to find some
unique selling proposition and then position yourself. Positioning is all about how does your client or potential client envision you as compared to the competitors, okay. Are you like the Motel
6 or the Ritz Carlton of your industry, what
are you trying to be? In the customer’s mind, who are you? If you’re in the middle and you have nothing unique about you, you get lost. Kohls, Penneys, Sears, they’re
all kind of in the middle. They’re not Nordstrom’s,
they’re not Walmart, Kmart, they’re like kind of like in
there trying to be different but they’re all kind of similar. So you want to be
something different, okay. What are you, be consistent
across all the way. Motel 6 says what in their commercials, oh we got great linen sheets for you, high end linen sheets, no. We have great buffet
breakfast for you, no. Great swimming pool, no. We’ll keep the lights
on for you, that’s it. (audience laughing) That’s it, we’ll keep the
lights on for you, alright. They’re not trying to be
something they’re not. They say we’re positioning
ourself as the low end cheapy place that you can
come and rest your head. All we’re gonna do for
you is keep the lights on. We’re not talking about anything else that we’re doing for you, okay. So they are being consistent
across their whole, you know, positioning there, okay. If they started offering
free breakfast, be like what. They’d have to raise their price, then they can’t be who they
are, a good price leader, so. Customer service. A lot I wanted to go in here,
it’s in there paperwork, I won’t be able to go
into it we’re out of time. But just one thing that’s
most important here, service recovery. You’re gonna fall down sometimes. Customers aren’t happy
with you, you think okay, I’m gonna give them back
everything that they had coming. It’s not enough. If I go to you and I got a bad experience and you give me back what I
was originally bargained for, I still got the hassle I had to go through to get what I originally bargained for. That’s where you can surprise them, you got to give them something extra. If you want to hold
onto that relationship, you got to like make a gift there and say, I’d be spending that money on advertising, this is a customer I already had, I want to spend the money on
them to try and keep them. So you gotta go over and above
in my opinion to keep them. Service recovery, don’t
try and be everything. Small business owners, you can’t compete with Walmart on price. Maybe quality and service
you can compete on. Don’t try and be everything, you can’t. Tell the customers in your mind, you don’t tell them out loud, but you say, price, quality, service, choose two. If I’m gonna be low price, I can’t have best
quality and best service. It costs money to have best service, I gotta have more employees on the floor, I gotta, our prices go up then. What are you gonna be, two out of three. Employees, okay, they can
make you or break you. Read, Equal Employment
Opportunity Commission. You get a letter from them,
you’re getting in trouble. An employee says sexual
harassment, by the way, sexual harassment, people
think it’s just quid pro quo, I’ll give you a promotion
if you give me sex. That’s one type of sexual harassment. But the kind that’s more
prevalent that happens, people think it’s trouble,
ah we’re just telling jokes, you know, you weren’t
in there in the joke, I was telling a joke with him. You know, you’re eavesdropping. Or in a repair shop, guys
have over their tool chest centerfolds, even if they’re
just the Budweiser girls not a Playboy or something, it’s like, hey they got clothes on, you know. Service provider, female or male comes in, says I got to look at that all the time, what, I don’t like that. Makes me feel uncomfortable,
hostile work environment. You the employer are liable
even though you didn’t do it. But you didn’t prevent this person’s uncomfortable situation. Clients or customers
come at your employees, asking them out on dates or making suggestive
comments or telling jokes. You go, ah that’s none of my concern. It is your concern. You let it persist, that
employee is rightfully saying you allowed a hostile work environment. You’re on the hook for sexual harassment. You get liability coverage
for all this stuff. When you go to talk to
your insurance agent, you pay a little extra,
you get liability coverage for all employment practices. It’s not that much more. Trust fund penalty. I’m gonna wrap it up real quick, I’m going just a bit long, but. When you withhold money
the employee’s checks, that’s the IRS’s money, you’re
acting as their trustee. You don’t send it to them on time, they come after you
for the amount of money that was withheld and then they double it, and then they add interest
on the whole thing. I’ve represented a lot of
people who had that problem. You withheld 10,000 from
your employee’s paychecks for the last quarter. You didn’t send it in, I got bills, I got to pay the
landlord, I gotta do this, I gotta do that, they’ll wait. You’re gonna get a bill for over 20,000. What, I only owe you 10. 10 is what you owe us, the penalty’s 10. And now there’s tax on 20, interest on 20. And corporation or not, that
pierces the corporate veil. And be careful if you’re
an employee somewhere. I’ve represented many
employees who were secretaries, office managers, and the
owner of the company says, hey here’s the signature
card for the bank, you’re my office manager,
sometimes I’m gone you might have to write
a check now and then, sign the signature card
for our bank account. You sign it, where does the
IRS agent first go to say, who should I assess this penalty against because they had access to
the money in this business to pay us, but they chose
to pay the landlord instead. They go right to the bank,
they name all the people on the signature card, you
get a assessment personally. You got to go hire a lawyer
now, try and get out of it. Be careful about putting your name on a signature card for a bank account. Unless you’re the one
actually with the authority. I’ve represented people in churches who the secretary just kept the letters coming from the IRS,
stuck them in a drawer. I mean, it’s like, you got
to pay them their money. Don’t mess with them, okay. Employment at will, California,
employees can leave, you can fire them, as long as it’s not for improper purposes. But be careful when you
do an employment manual. You give them a manual that says, after six months you now get benefits, you get sick days, you
get this, you get that. They interpret that, and
the courts agree with them, that’s an implied
contract that once I pass my six month probationary period, I don’t get fired unless
I did something wrong. There’s no longer employment at will. You have to see I did something wrong. Why are you firing me, I’ve
been here eight months, I passed probation, I
didn’t do anything wrong. And you want to say it’s
employment at will, you’re gone. They go look it, six months,
I passed your probation. They’re gonna go to
court, they’re gonna win. So be careful with those,
you gotta really be explicit. You could do it, but you want
to be really explicit still, have them sign off that it’s
still employment at will, okay. You’re respondeat superior,
you’re the master of the agent. Employees are your agent,
your agent commits a wrong in the work place during the course of his or her employment,
you’re liable for it. That’s another reason to
have a corporate shield. They can come after the
corporation, but not you personally. I mean the employee is also
liable for his own negligence. You got an employee who
goes out and wires a house and screws it up and there’s a fire, they’re liable on their
own, but you’re liable too. That’s your employee, you’re supposed to
supervise them, manage them. That’s another reason why
I said in the beginning, you get employees that
are doing sensitive work, get insurance if you’re a sole proprietor, and then think about
incorporating real soon. Employees can cause you liability, okay. Leadership. Reviews, motivation, I put a
lot of good reading in there. It comes down to you
have to find your style. I’ve seen people say, and they
have successful businesses, I treat every employee
like an inanimate object. And I tell them, flat
out, you’re replaceable. You’ve been with me 10 years, you’re my assistant
manager, you’re replaceable. How do employees feel most
of them when they hear that? Not like the most committed,
you know, it’s kind of like, you’re treating me like
a dog, worse than a dog. You’re treating me like
a piece of furniture. Some people, that’s their
style, and it works for them. You figure out what’s your style. A lot of management theories
out there, theory X, theory Y, tough guy, nice guy,
whatever you want to be, what’s natural to you, remember
this is your business, okay. But a lot of research, I
put something in there, a good book, Dan Ariely,
professor at Duke. Read his book, little TED book, about how money is not
that strong a motivator. You think oh I give them
raises, they’ll be happy. How long’s a raise keep us happy? You get it on the first
paycheck, oh that was good. A month later, you forgot about it. Okay, so look about how
you’re gonna build a team. How can you personally build
commitment in your employees. You don’t want turnover,
turnover costs you more time with training, more money. You want to get people who
can stick with you, okay. So figure out what your thing is. Thank you very much very coming, just a couple final
comments here, thoughts. I teach business courses here. Any business course you
take with me I’m hands on. I want to thank some of my students here. Mark is a student of mine
now, he’s self-employed, he’s in business, he’s
taking business courses. Heidi, thank you, she’s a
business student of mine. Lot of business students,
couple in the audience here. You take business classes, I work with you to create your business plan
in an entrepreneurship course or a feasibility study in
a small business management course, or a marketing plan. We very often also work
with business owners, like this semester, all my students are working on marketing
plans, business plans. For most of them, either their
own, all of them, actually, either their own business,
that’s why they took the course, or an outside business that they bring in. So if you’re looking to start a business and you want to put a
marketing plan together, or you have a business,
take a full semester course, you’ll get a good marketing
plan out of it, okay. And if you can’t devote that time, you’re still welcome to contact me at the beginning of the semester, and if I have a marketing
class that semester or a entrepreneurship class that semester, you come in and work with my students and I’ll be in essence
putting a team together to work with you, those
are your consultants that build your marketing plan for you, or your business plan for you. And under my guidance over
18 weeks, and your input too. So this is what my vision
of a community college is, we work with the community. I work with the business community, I’ve done it for 20 some years
throughout Illinois and here, but the last since 2002 here. You have three good chambers, too, and the Hispanic Business Association. They’re all doing education, use it. A lot of these good one hour
lunchtime things or afterwards. Just keep learning, ’cause
stuff bounces off you, you hear it two, three times,
you go, I got it, I got it. And then you ask questions other people, but build your skill level,
your knowledge level, you’re minimizing your risk. It’s really that simple, it’s
still gonna be some risk, but you’re going into
a business, it’s risky. Minimize the risk with education.

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