Personal MBA Book Review

Hello All!


This is a very special installment of my blog. This is my official review of Josh Kaufman’s book The Personal MBA. This is the book that I found after leaving the MBA program that inspired me to start this blog. So first off, big thanks to Josh Kaufman for proving that I am not, in fact, crazy and that most MBA programs are sadly lacking for the world we live in.


Just in case you don’t have time to read this entire post: This book is AMAZING and I think that anyone that even thinks about business should read. Everyone will find something in this book that will help them be a better person.


Now for specifics:


The most dramatic thing that this book does is provide a constant thread. When I realized this, it was an “a-HA!” moment for me. I had lots of complaints about my business education, but I always felt there was something else missing that I just couldn’t quite put my finger on. This constant thread was it! If you study business you will take lots of classes: accounting, finance, management, marketing, organizational behavior, operations management, etc. But I have never experienced a program where they show you how all these separate specialties weave together to create the fabric that is a business. Sure, most programs will have a “capstone” or something along those lines, that is supposed to accomplish this. But what ends up actually happening is that you take the ideas from eight classes and apply them all at once. You don’t weave it together; you just end up trying to apply all the skills you learned one by one.


You almost always miss the forest for the trees.


This is, in my opinion, one of the greatest failings in modern business programs. They train EVERYONE to be specialists and teach lots of “hard skills” but no one teaches students to be business generalists and to understand the whole picture, let alone be able to think critically about how and when to apply those hard skills. Josh (can I call you Josh? OK, thanks!), does an amazing job of taking you through all the major ideas in one narrative. Just the structure of the book taught even me (who has spent 7 years in business schools) something new about business.


This is the major thing that attracted me to this book and I was not disappointed. There several other things included that I was surprised were given so much emphasis. It wasn’t until I started thinking about my business and how critical these skills were to me, that I realized why they were given the emphasis.


There are very good sections on working with yourself (how your brain works, personal productivity, etc) and working with others. The section on working with yourself was extremely helpful and is something that is COMPLETELY missing from all business schools. Succeeding in business, especially in this “Flat” world we live in, is based almost entirely on personal productivity. Even in a technical business like mine (CPA and financial planning), we hire almost exclusively for work ethic and ability to think. Everything else is too easy to teach someone. Josh provides an excellent summary of the best ideas in personal productivity and controlling your mind to help you be a happier, better, and more productive person. If you want to be better at your job (or even better at life!) buy this book and just read those chapters. I especially like how this section was right in the middle of the other narrative about more technical business ideas. To me, it really illustrated how our personal lives and work lives can tend to overlap. A job is no longer something you can just show up to at 9 and walk away from at 5 (unless you live in a world VERY different from mine!).


I also enjoyed his chapters on working with others and on leadership. This is something that most business schools will tell you that they teach. What they mean, however, is that they just make you do lots of (excuse my French but b*llsh*t) group projects. In my experience, group projects are NOTHING like any of the interactions I have at work. Group projects are typically just breaking up a large assignment into pieces and then assembling the pieces again later. Even some of the better projects that require you to make a group decision do not truly mimic how decisions in companies are actually made. To make things worse, there are very few, if any, leadership skills taught. Unless you are specifically studying management, you will learn very little about how people are motivated and how to work with different personality types. Josh does an amazing job of covering these topics which, I believe, are some of the most critical skills people need to succeed.


To be fair, it is only one book. You will not learn all the “hard skills” that actually getting an MBA would. You could not read this book, for example, and be able to start using a manual general ledger system (you would need to actually study accounting). You also would not be able to actually calculate your weighted average cost of capital manually. But really, who cares? I have never used 90% of the stuff I learned anyways. And for every major topic, Josh provides a resource that you can read. So if you read something and you really want to learn the applicable ‘”hard skill”, you have an immediate resource to go to. You want to know a big secret? Most of the MBAs you know don’t remember anything but the jargon words anyways. So if you get the basics, you will actually know about as much as they do and be able to fool everyone like they do!


And that, ladies and gentlemen, is the ONLY bad thing I could think of to say about the book. It will not actually cover everything that an MBA would, in the depth that it would. But if you seriously thought you could replace an ENTIRE MBA with one book that I have a bridge for sale…


It WILL however, give you enough insight, knowledge, and skills to put you ahead of 90% of your co-workers, bosses, and competitors.


So, the short version:

-Best overview of the purpose and methods of business I have ever read

-Covers everything an actual MBA would, in a better fashion

-Covers some VERY significant things that are utterly missing from MBA programs



Seriously, buy it and read it.

The Financial Planning Process Part 3

Welcome back friends!


I know you all have been thinking about what buckets you want and are ready and raring to start funding them! Right? GOOD! Let’s get it going…


OK, Before you get to fund the cool buckets, like Income & Growth or Guaranteed Income (where we get to use really cool financial products and investments) you MUST fund your Emergency Bucket. Most people will tell you that you should have about  6 months of living expenses in this bucket. That is a good guideline, but there are always lots of variables that can increase or decrease this number. If you are retired, tend to go more towards 12 months. If you are younger you can decrease that number a bit. It also depends on how conservative you are.


The big problem that people have when funding their Emergency bucket is that I tell them to put it in a money market or a savings account. “But then it doesn’t earn anything? How do I build wealth if I am earning .5% on my money?!” I don’t care what your Emergency Bucket earns. Its job is to BE THERE, that’s it. When you need money, you have it, period. None of this, ‘I can’t get that money right now because the market is down…” stuff. Its “earnings” are its liquidity and security. You cannot take the risks of investing in the market and complex financial products without having a solid base.


OK, after your emergency bucket is funded, it gets a little more interesting. Now we need to start selecting our other buckets. This can get a little confusing, because everyone is different with their goals. I usually try to limit people to three other buckets. If you are younger, or just starting out, your buckets will probably be a Savings Goal (for kid’s college or for a house, for example), Long Term Growth (funded with things like your 401(k) or IRAs) and Guaranteed Income. For someone more focused on retirement they would probably be Long Term Growth, Guaranteed Income, and Growth & Income Buckets.


I like to think of funding my buckets as a water fountain. You know the ones, where there is a level on top and once it fills up it spills over to the lower levels. The “stream” of water is the savings rate we calculated when we first started this process (you remember your savings rate, right?). Each month you have a certain amount of money that you can use to fund your buckets. The first level is your Emergency Bucket. If that isn’t at your target level, then ALL your savings goes there. Once that is where it is supposed to be, then it starts spilling over. For the younger folks, I would be roughly doing something like 50% Long Term Growth, 25% Savings Goal (or College), and 25% Guaranteed Income. For the folks more focused on retirement I would be doing 50% Guaranteed Income, 25% Long Term Growth, and 25% Growth and Income.


These obviously change quite a bit. If you work somewhere where you are going to get a pension, then you don’t need to fund your guaranteed income bucket, because it is already funded. If you save enough for your child’s education (or they get a scholarship or something) then you need to redirect that money somewhere else. Your allocations should be looked at each year or so.


You can also add more than two layers. Maybe you want to put $250 a month into your kid’s College Fund and put $500 a month into your 401(k). That would be level two. Then if you have more, it could go down to level three, your Guaranteed Income or Growth and Income Bucket.


There are millions of combinations of allocations and methods. The main point I want you all to understand is this:


  1. Your Emergency Buckets is ALWAYS first and mandatory.
  2. It takes a LONG time to save up large chunks of money. There is no getting rich quick in this world
  3. If you make it a point to fund some of your buckets, as best you can, each month, you are doing the best thing you can do have a comfortable life.


There is another separate conversation that has to do with what each of the buckets is then invested in, but I do not want to get into that in post and I might not at all. Investments are such complex idea, that I will probably say one thing and someone will do it wrong and I’ll get sued. And I don’t like getting sued.


But if you REALLY want to know what you think you should be investing your buckets in, call my office at 714-870-4542 and I would be happy to talk with you.






All Securities through Money Concepts Capital Corp.  Member FINRA/SIPC
11440 N Jog Rd., Palm Beach Gardens, FL  33418  Tel: (561) 472-2000
NCH Wealth Advisors and Money Concepts are not affiliated.

4 Reasons Small Businesses Fail Part 4

I am always amazed at how little most business people actually know about business. It can seem daunting, because business has its own “language” that no one ever taught you to speak. But there is a reason these things exist. We didn’t wake up one day and say “Hey! Let’s make this really complicated so people HAVE to pay us CPAs to know what is going on. The ideas and concepts of business exist because understanding them is critical to success. If you don’t know how to track and analyze your business, you will never know if you are truly successful or not.


There are some basic financial numbers that every owner needs to know about their business.  While the vocabulary is the same for every business, the actual numbers will vary.  Managing these numbers is at the heart of charting a course to success for your new business.  Many new businesses fail because their owners either ignore these numbers or only focus on one or two of them.  Here are the numbers every small business owner should know every week, month, and year:


  • Gross Revenue is the total amount of money that you bring in the door.
  • Cost of Goods is all the direct costs of delivering your product or services.
  • Gross Margin (or Gross Profit) is what is left over after deducting Cost of Goods from Gross Revenue.
  • Overhead Costs are the remaining fixed, marketing and administration costs you pay to keep your business open.
  • Net Margin (or Net Profit) is the amount on which your business pays taxes.


Gross Revenue

Gross revenue is an easy number to know:  It’s how much money your business is generating.  Many small business owners focus on this number without measuring it against some of the questions in Reason #1.  If you aren’t using these initial questions to measure your gross revenues, you will not know if your small business is on-track for success.

◦       What is your target revenue or production?  (For this week, month, year?)

◦       How many sales to you need to make before you are profitable?

◦       How does seasonality affect your Gross Revenue?

◦       What changes in the economy can affect your clients’ buying habits?


Be sure to know the answers these questions whenever you review your Gross Revenue numbers.


Cost of Goods

Your cost of goods is the direct costs that can be linked to a particular sale.  In a retail or manufacturing business, determining direct costs is easy.  You know what you have to buy in order to produce your product.  You know who you have to hire in order to assemble the product.  You know what it costs to deliver your product.  Knowing how these costs relate to your Gross Revenue can help you understand if your business can survive the test of time.


In service companies, determining your direct costs can be trickier.  In service companies, it is common for the same staff members to work directly with the clients and complete administrative or marketing tasks.  In order to understand the Cost of Goods numbers for a services business it is important to differentiate staff time between billable time (Cost of Goods) and administrative time (Overhead Costs).


Gross Margin (or Gross Profit)

Gross Margin is determined by subtracting Cost of Goods from Gross Revenue.  Most successful small business owners know this number as a percentage.  The size of this percentage is important to understanding how efficiently you are producing your products or services.  Determining gross margin for a services firm is sometimes difficult for a small business.


Gross Margin can become tricky to calculate when you have multiple products lines or different businesses operating in one set of books.  However, it is critical to look at these items separately, and also track how much you give in sales discounts and allowances.  All these items will affect your gross margin.  I once had a client almost lose his business because he was so focused on selling, and giving discounts to make the sale, that he didn’t realize how much he was giving away.  He thought about the number of items he sold and what their usual selling price was, and was spending “profit” that didn’t exist, because he had given it all back in sales discounts!


These numbers represent the skeleton of your business, its fundamental building blocks for success.  With these three numbers, you know if your product or service is going to be profitable or not.  Knowing your Gross Margin number lets you know how much money remains to cover your Overhead Costs, which are next.  Remember, you should always know how many products or hours of service you need to sell each month to cover your Cost of Goods and Overhead Costs for each month or year.


Overhead Cost

Every small business has other expenses that are necessary to keeping the business open.  These are fixed expenses like rent, utilities, and telephone.  Marketing and advertising costs are often included in Overhead Cost along with any other expenses associated with running your business.  New businesses that allow this number to creep up set themselves up to fail in the event of a downturn in the market.  Overhead Costs are some of the most challenging costs to manage.


Many times, I tell owners to include a base salary for themselves in this fixed expense number as well.  Nothing extravagant, but enough to pay the mortgage and buy groceries.



Net Margin (or Net Profit)

If your Gross Revenue is in excess of your Cost of Goods and Overhead Cost, everything left is Net Margin (profit!).  Congratulations!  It is on this amount that your business will have to pay taxes.


Not understanding how these fundamental numbers contribute to the success of your small business is a sign that you are setting up your business to fail.  I always recommend that every new business, no matter how small, understand how to calculate and track these numbers from day one.  I realize that it might seem silly to calculate gross margin your first month when you only sold two products.  But if you have set your business plan in place to succeed, you will have higher target sales than this and you will need to have systems in place to track them.


Use the slower, beginning stages of your business to do things right, because as your business grows, you will have less and less time for implementing procedures. 


Having a “Checking Account” Business

Just because you have money in your checking account, does NOT mean you have a profitable business.  Cash flow is not the same as profit.  If you look at the profitability of your business through the narrow blinders of your checking account, you will miss the much bigger picture.  That bigger picture could be good or bad.  You are either missing great opportunities or possibly ignoring impending doom.


Two Questions to Understanding

To determine the health of a business, I look to determine where its profit is going or where its loss is coming from.  If I only have 30 seconds to determine the health of a small business, I will ask these two questions of the owner.  If the owner knows the answers, I know we can help them.  If the owner does not know the answers to these questions, their new business is likely doomed to failure.


Where Did the Profit Go?

Two attorneys, working on a big case, request a credit line from their bank for $100,000 to advance the costs of the case through settlement.  Of course, they write off all those expenses on their Profit and Loss statement as they pay for them from the line of credit.  Two years later, they settle the case and receive $250,000 in fees.  They are delighted to settle the case.  They take the $250,000, pay down the credit line, and each pocket $75,000.  When tax time rolls around, they detail this process to me and they look at me as if I am stupid when I tell them they each have to pay tax on $125,000.  Then they yell, “How could I owe tax on $125,000?  I only got $75,000!”


Businesses pay tax based on Net Income (or Net Margin/Net Profit), which is calculated on the Income Statement (or Profit and Loss Statement).  Paying down debt and purchasing capital assets are not income statement activities.  Therefore, if you want to pay down debt, by definition, you MUST have taxable income equal to the amount of debt you want to pay down.  This is a simple example; I am ignoring non-cash expenses and such for now.  I run into this all the time.  Companies want more write-offs, but do not want to give up their cash.  There are VERY few ways to have your cake and eat it too; the tax code simply does not work that way!  This is why it is so important to track not just how much profit you have (see above), but where it is going!  Are you reinvesting it in the business?  Are you paying down debt?  Are you taking the money out of the business for yourself?  If so, in what form are you taking the money?  Most likely, you are doing some combination of all of these things.  It is important to balance all these things to have a healthy business.


Every month when you look at the bottom line of your income statement, you should be able to identify where that amount of profit went.  Maybe it was a bonus to you, maybe it is still sitting in accounts receivable, and maybe it paid down your credit line.  However, if you do not know, you are a tax accident waiting to happen, an accident that can bring down your business.  When I am analyzing a business, the bottom line of the income statement is always the first place I go.  Not to see what the number is, but ask what HAPPENED to that number.  This is always a favorite game at tax time, “Mr. Small Business, you had $250,000 in profit this year, no increase in assets and no decrease in debt.  Where did the money go?”  Too many times Mr. Small Business owner will just stare blankly at me.  The trouble with not having an answer is that they usually owe the tax on the profit, but do not have the money to pay it anymore.


Where Did the Loss Come From?

The other side of this coin is not a fun game, but is even MORE important!  As a new business owner, you will not always have a positive number on your bottom line.  If you have a loss on your bottom line, it means you spent more money than you brought in.  Just as with the profit, we need to know where any losses come from.


When I am asked for help on a business, I check how losses are being covered first.  The fundamental laws of accounting never fail; the loss has to come from somewhere!  Sometimes, a loss is simply a matter of timing between accounts payable and accounts receivable.  Sometimes, an unexpected change in the market creates a lag in revenue.  Either way, the loss has to be covered somehow.  Some small businesses are able to get through a time of loss by funding it with cash reserves.  However, many small businesses cover losses by utilizing lines of credit (like our attorneys) or credit cards.  When dealing with larger or long-term losses, it is critical to understand how you are funding it and how long that funding will need to last.  Not having an understanding of this is how many businesses, large and small, go bankrupt.  The old adage comes into play here: “How did you go bankrupt?” “Very slowly at first, and very quickly at the end.”



All this leads to providing you with the information necessary to make smart decisions about your business.  Only when you have all the pieces in place can you truly use your business to increase you wealth!  If you do not have solid numbers about profit, loss, growth, overhead, taxes, capital and the flow of your business, than no matter what choices you make, they will eventually be wrong.  Garbage in, Garbage Out!

4 Reasons Small Businesses Fail Part 3

Having a solid vision is only the first step in the process. Once you have a plan to start your new business, you need to make sure you are going to be in business long enough to realize the success you dreamed of. “Access to capital” is commonly listed as a reason small businesses fail. But this often misunderstood. Most small businesses think they need more capital simply because they failed to plan properly for how much capital their business would need.


It is a very sad cycle because when these companies then need capital, they are often approaching investors with a business that is not yet profitable, which makes it nearly impossible to get that funding.  Add to that the fact that they understated how much capital they would need the first time, so no one wants to throw more money hoping ‘this time’ it would be enough. The simple way to fix this is to plan properly how much cash you need at the outset.


Reason #3:  Not Enough Cash


Cash to Get Started

Most new businesses vastly underestimate the amount of money they will spend getting started.  This is partly because purchasing equipment isn’t the only start up expense.  Paying yourself a salary is also a critical start-up expense, as your personal bills need to be paid!  The cornerstone of your business plan should be a complete and detailed budget for you personally, and for your business.  In addition, once you have added up all your expenses, increase them at least another 25%.  If you think that sounds high, Nick Hodges, owner and founder of NCH Wealth Advisors, has all his new business owners DOUBLE their estimated start-up expenses!  Here are some important questions you need to answer:

◦       How much do you need to fund start-up?

◦       How much capital do you have?

◦       How much do you need personally during this time?

◦       How long can you and your business last on the capital?


Some of the most frequent questions I am asked are, “Where do I get start-up capital for my business?” and then, “What do you MEAN there aren’t people lined up to give me $250,000 for my brilliant idea?”  Most successful new businesses are funded with start-up capital from their own pockets. ALL new small businesses are funded this way.  Occasionally it is funded with funds from other family members.  Angel funding, venture capital, and bank lines are VERY rare for start-up or small companies.  Outside funding of capital is the exception to the rule, and generally, those that do secure it, have a track record of starting successful businesses.


Cash to Keep Going

Any successful business owner will tell you that their primary business focus is sales, and most other things come secondary because sales generate cash flow and cash flow keeps the business going.  Cash flow helps you perpetuate your business.  If you do not develop a strong cash flow in the beginning and understand how best to manage it, you will burn through a LOT of capital fast!


In the previous section, I introduced the idea of cash flow by asking, “What is your target revenue or production?”  The other question you need to answer is, “How many sales do you need to make before you are profitable?”


Remember, it takes money to make money.  Make sure your small business has enough capital to get started and enough cash flow to fund success.

“Do the Work” Book Review

About a week ago I finished a book called “Do the Work!” by Steven Pressfield. The book is a very quick read, at less than 100 pages (and none of those pages are full of small type). It is unlike any book I have ever read, in that it really feels less like a book and more like Mr. Pressfield is standing there yelling at you. This is probably the idea, as it is primarily a motivational book. It is not a “traditional” business book, in that it talks very little about business and very rarely gives direct tips or techniques on how to run your business. This might make you wonder “Then why is it on your ‘Business Guru’ reading list?”


Good Question!


I find often times that business owners, especially new business owners, like to paralyze themselves by planning. They won’t start until they have all the pieces exactly figured out. Or in many cases, they may have an idea and think they will not be able to pull it off.


This is exactly why this book is on this list.


I am a huge proponent of strategic planning and having a good business model. But sometimes, you just have to go for it! This book is all about identifying and overcoming our natural resistance to change and new ideas. This was an especially good read at the start of my adventure into blogging. Here is a good quote that I think is a summary of the premise of the book:


A child has no trouble believing the unbelievable, nor does the genius or the madman. It’s only you and I, with our big brains and tiny hearts, who doubt and overthink and hesitate.


I have a feeling that I will be coming back to this book many times, just to get pumped up again. If you have an idea, or are stuck in your current project, you will not find a better kick in the ass than you will for the $8 it will cost you at Amazon.


So go get it, get pumped and “start before you are ready!”