Over the past 5 years I’ve had the opportunity to buy, operate, and sell five franchised restaurants.  The restaurant businesses, and specifically franchised restaurants, have provided significant additional cash flow for my family (on top of my earnings as a financial advisor 2002-2006, and VP @ Private Equity firm 2007-present).

I think the key is to realize that 9 out of 10 new business ventures fail in the first 12-18 months.  Conversely, a franchised business (franchised from an established, proven company) generally has a 90% chance of surviving that first year, and a 75% chance of surviving and/or thriving for up to 5 years.

The second key point is to understand the difference between franchises that require the owner to operate them day in and day out, and franchises that are designed to be operated by a manager and not requiring 8 hours of “on site” time from the owner.  I’ve confused these two in the past and it has cost me dearly. 

If you desire additional cash flow, you need to find a franchise concept that is designed to allow the owner to maintain their current career, but to “support and assist” a manager at their franchised business.  This is important, because if you purchase a franchise that is designed to have the owner live there, you have simply bought yourself an expensive job.  It will own you, you will not own it!

The key point of understanding a franchise as an investment is to employ the concept of return on equity.  Let’s say you purchase a hair care franchise for $100,000.  With good credit you generally will need to come up with $20,000 of your own cash (you, family, friends, etc.)…and a bank will usually give you the other $80,000 spread out over a 5 year repayment term.  If you hire a great manager your store may be profitable that first year.  To illustrate, let’s assume your store did $200,000 in haircut sales that first year.  You paid your manager, your employees, your rent, your supplies, utilities, franchise fees (royalties), taxes, interest on your loan, etc.  Then your accountant tells you that you have $20,000 left over at the end of the year…your profit!  You may look at this and say, “Wow, I made a 20% return, because this hair care place cost a total of $100,000…Great!”  But from the standpoint of Return on Equity, you have actually made a 100% return on your invested dollars!  The actual equity that you have into your business is only the $20,000 that you had to come up with to secure your $80,000 bank loan.  $20,000 invested, $20,000 profit, 100% annual return.  (If things go well…and there is a lot that can go wrong!  This is not for the faint of heart, no matter how much you like a franchise.)

This sale was GREAT in that it put a couple hundred thousand into the bank pretty fast.  What was NOT so great was that I was GIVING UP the approx. 50K in income that those restaurants provided each year. 

I learned a hard business lesson that many business owners simply don’t consider when they sell their businesses.  It is easy to think, “Great, I’ve got a large chunk of money!”  It is not as easy to think, “Wow, I need to change my lifestyle as I just gave up a recurring revenue stream!”

That being said, in 2008 my family needed to change our spending habits SIGNIFICANTLY or we risked blowing our entire nest egg.  Here is a snippet of what we did to cut 30K of fat from our budget without too much lifestyle change.  And I can tell you it felt AWESOME to get the spending under control!  As a family we didn’t feel like we were giving up much at all…2008 was probably our best year yet!

BIG CHANGES:

1.)  Gave up expensive travel and vacations for frequent camping trips to local state parks.  $6000 yearly savings!

2.  Gave up eating out all the time and trying to buy “Organic Everything!”  $3500 yearly savings!

3.  Stopped shopping when we were “bored” and realized our closets ALREADY were overflowing!  $4000 yearly savings!

4.  Got rid of our most expensive auto payment.  $5000 yearly savings!

5.  Gave up going to the movies and out with friends all the time and traded it for Blockbuster Online and popcorn with our girls.  We were spending almost $3000 per year on BABYSITTERS!  Crazy, I know!  $4000 yearly savings.

Smaller Changes:

1. Refinanced our mortgage to a 5.50% 30 year fixed rate.  $1800 saving per year.

2. Appealed our property tax assessment.  $500 savings per year.

3.  Learned how to set our programmable thermostat, and dropped the temperature about 3 degrees.  $800 savings per year!

4.  Dropped expanded cable and phone service $1200 savings per year.

5.  Stopped mindlessly driving everywhere and stuck to a fuel budget.  $2000 savings per year.

6.  Misc. small cuts not worth mentioning $1200 savings per year.

I hope this helps some of you and encourages you to “tighten up the belt!”  I know it is a lot more sexy to buy a new 60 inch plasma than to increase your permanent life insurance coverage…but what has the better long-term payoff for your family?  That’s what we all need to decide!

I took a tour with my Uncle over the holiday of several of the properties he had purchased, and several that he was considering for purchase.  My uncle is taking advantage of the fact that we are currently experiencing the biggest real estate slump in Michigan since the Great Depression.  While others are afraid and are dumping real estate…my uncle is scouting SE Michigan for those “diamond in the rough” great deals that are available to the patient investor. 

There are AMAZING DEALS out there right now in MI and elsewhere.  But it takes extreme discipline and calculated risk to take advantage of current market conditions.  I applaud Uncle B for his hard work and smart strategy in building his property portfolio.  I believe that his actions today are going to create significant appreciation and wealth for his family over the next couple of decades!

With so much fine print in each credit card offer, I believe you need to work hard to educate yourself on what card features and benefits are going to best fit your needs.  For example, right now the most important credit card feature for me is a low balance transfer rate.  I’m juggling a bit of debt, and my job as a credit card user is to get myself the lowest rate that I can find.  In the future I may need a card with a low purchase rate, and that will cause me to investigate further. 

All that said, good luck using credit wisely!  That is the only way to do it, especially given the current state of our economy!  Get as much information as you possible can, and then make a great decision.  And make sure you do your best to get a card with great rewards too!

With gas prices back down to $1.36 at the Sam’s Club in Jackson, MI, I’m wishing that I would not have set fire to my H2 (Kidding)

But seriously, those crazy $4.00 plus gas prices changed something inside my brain in regards to consumption.  I have actually dropped insurance on the H2 to “storage only” and it is currently parked in my garage until it is called back into active duty.  I also got rid of my Dodge Durango (15 MPG) and got my wife the Dodge Grand Caravan that she had been wanting (24 MPG)  I also bought myself a nice little Ford Focus (39 MPG) I now officially own all of my vehicles!  This is huge, bucause up until recently I’d been leasing something new every two to three years…money down the tubes.  For the first time in a long time, I really feel like I’m making smart decisions with my finances, and I don’t ever want to go back to the “I’ve got to have the latest and greatest thing” mentality that I’ve lived with for the past 10 years. 

Anyways, I’m sure enjoying these gas prices, but I don’t think they will last long.  I also PRAY that these cheap prices don’t derail our attempts to create better alternatives to oil based transportation!

I am a major advocate of the SMART use of credit cards.

I have been known to often tap credit cards for major purchases when they are offering attractive rates or balance transfers offers. My favorite aspect of using a credit card is the reward program. I would never use a card that does not offer a rebate program. I have enjoyed some amazing free stuff over the years through using rewards cards for personal and business purchases, and paying them off in full each month. In fact, my last four airline flights have been completely free because of the airline miles I’ve earned through my credit cards.

Anyways, I’ve found a great place to compare and contrast which credit card may be best for your individual situation. Visit Credit-Land.com and check out the various credit cards that are out there right now.

There are really two good ways to search.

If you are looking for the lowest possible APR…

If you are looking for a great Balance Transfer Card, they offer a lot of different options.

Good luck, and remember to use credit wisely!

ChaCha.com is a service where you can text any question that you can think of to 242242 (chacha) and you will very quickly get a text message back with an accurate answer.  It is an extremely cool service.  It is free, you have to check it out!

Anyways, they rely on a network of tens of thousands of “guides” to answer the millions of questions that they get every month.  THIS IS THE OPPORTUNITY!

I’ve just signed my wife up for the program.  She will be paid between $.10 and $.20 per question that she answers, and she can log on to their program at her convience, whenever she is available to do a little work.  We figure that she can answer about 50 questions in about an hour.  So the money is not amazing, but the work is fun and flexible.  If she averages $7.00 per hour, it will add an additional $140 a month if she works just 5 hours a week.  This is cash that will go a long way in this tough economy. 

I’ll keep you posted on how things progress!

Wow, what a crazy reversal of fortunes for the US and World economies.  Yesterday’s plunge in the markets was exactly one year from the High the Dow Jones Industrial Average hit of just over 14,000. 

Now we sit at about Dow 8500 and with $3 TRILLION of US wealth wiped out.  Most of that happening in the last 30 days.  The effects of this are so far reaching that even the smartest economists in the world are baffled about what it really means to the world population.

Well here is a brief outline of what it means for me. 

Personal cash is tight.  My “stripped down” family budget currently is significantly larger than my income. 

MORE $ GOING OUT THAN COMING IN…NOT GOOD!

This means that I’m often relying on borrowing or retirement savings to keep the ball rolling.  This didn’t seem like a problem a year ago.  All the experts were saying that by Mid 2009 all would be well.  Housing values would start to climb again, the market would go back up, oil and gas prices would settle down, incomes would expand, businesses would return to profitably again, etc.  IT APPEARS THAT IS NOT GOING TO PAN OUT!

My businesses can’t get credit.  In the normal world, when a business needs a line of credit to smooth out cashflow they just go to the bank and ask for it.  I’ve approached 5 local banks, and non are willing to extend a little short term credit.  Even worse, the bank that I have my business loan with (with a 4 year PERFECT track record of paying on time) has asked that I try to refinance at another bank because they are trying to scale back their lending to restaurants.  (Thanks for the help, Mr. Banker)

SO WHY AM I OPITIMISTIC, YOU MIGHT ASK?

Well, there is one amazing asset that God has blessed me with, my ability to work!  (And in the event that I’m ever hurt, my disability policy will step in to help pick up the slack.)  I’m going to continue to work as hard as I possibly can.  I have a duty to my family, partners, lenders, and employees.  That is all I can give them…100% every day.  Mind you, this is a huge balancing act, but one that most everyone deals with.  So I just want to put it out there.  THANK YOU GOD FOR MY LIFE, HEALTH, AND ABILITY TO WORK.  I TRUST YOU TO GUIDE THIS WORLD THROUGH ALL THE CRAZINESS, AND I REFUSE TO BOW DOWN TO FEAR.

During times of anxiety and crises, it is REALLY important to know how much cash you and your family has access too.  We generally all go through life thinking that we will always have quick access to our bank accounts, credit cards that will always be accepted, stocks we could sell, home equity lines we could tap, etc.

I’m here to tell you though, that this is NOT always the case.  Recent events have proved this much.  Case in point:

• In the last 6 months, there have been bank branches in the UNITED STATES that have closed their doors because they literally had No More Cash for their customers to withdraw.
• I have a personal friend who had his credit card company simply “shut down” his account.  This required him to continue to make his regular payments, but allowed him No Access to additional credit.  A card he used for years was simply “shut down.”
• I know of people with significant stock positions in Lehman Brothers.  A month ago they would have expected to be able to sell shares and get a check within a few days…now if they sell shares, they probably will not have enough proceeds to cover the brokerage commission.
• IN MY PERSONAL LIFE I have a small Home Equity Line of Credit (HELOC) from a local bank.  I have a credit score over 750 and have NEVER even used my line of credit…I’ve always had it there in case of an emergency.  A couple of months ago I get a mysterious letter from my bank letting me know that they will be closing completely my Home Equity Line unless I respond in writing in the next 36 hours.  I’m very glad I read that “junk mail” and was able to save my Line of Credit!

My point is that the world of personal finance has become extremely complex and fast paced.  PROTECT YOURSELF!  Take steps today to ensure easy access to cash in the event of an emergency. 

If you live in Houston, Texas you clearly understand what I’m talking about.  After Hurricane Ike hit, you could not buy or sell ANYTHING with out good, old CASH.  Cash was king and everything else was off the grid…just like the electricity!