Taxes on Kickstarter

I know, this is boring. Kickstarter is supposed to be a fun, exciting dynamic place. Full of new ideas and concepts and people making things and making money.

No one wants something as boring as taxes involved.
But, before you start your Kickstarter you should know the ramifications of using it. They might surprise. Don’t set yourself up to get screwed.
Let’s pretend that you want to Kickstart your cumin waffle maker (hat tip to Evernote Essentials). You set a funding goal of $100,000. You know through your research that it will cost you $75,000 to produce said waffle makers which should net you a nice little profit of $25,000 less some overhead expenses. Sounds good, right? You make $25,000 and you pay tax on that number, fair enough.
The trap of Kickstarter, however, is in timing.
Once your campaign is funded, Kickstarter will release all of the funds to you. That’s one big deposit of $100,000 (I’m ignoring their cut and other issues to keep this simple). If you are an individual you are, by default, a cash basis tax payer. So what? That means that you have income of $100,000. Once you spend the $75,000 to make the cumin waffle makers, you will have expenses of $75,000 giving you the taxable amount of $25,000.
What if your Kickstarter funds in December of year 1? In January, you make your first payment to the manufacturers making your waffle maker. This means that, in year 1, you have $100,000 of income. You tax on that number. Which will be about $30,000. Which means when you have to come up with $75,000 to build your items, you are out of money.
Sure, it will all even out in the end. In Year 2, you will have $75,000 of expenses, no income, for a loss of $75,000. When you carry back that loss to year 1, you end up with a net result of $25,000 profit. Who cares? Cash flow cares! April of Year One you have to make a $30,000 payment to the IRS. Sure, you will get most of that back. But not until April of Year 2. Well after your cumin and waffle loving backers have stormed your castle with pitch forks.
There are lots of solutions to this problem, but they usually need a competent CPA to help you. Feel free to contact me if you have questions.
Don’t let your Kickstarted dreams get crushed because of bad timing!

Maximizing Tax Deductions

Having your own corporation and being self-employed is a fantastic way to save money on taxes, but the IRS is cracking down on deductions for small businesses. This doesn’t mean there aren’t lots of things you can do, or can still do, but it is now even more important to make sure you have the proper supporting documentation, so that your legally allowed deductions aren’t taken away due to technicalities.

 

Capitalization Policy & 179 Deductions

Chances are, if you bought any fixed assets in the last ten years, you were able to expense them in the year that you bought them. We never gave much thought to whether something was a capital asset versus something that you could expense because we could expense capital assets up to half a million dollars in one year. But now the rules are going back to where they were: Section 179 deductions are limited to $25,000. This means that you will have to depreciate FAR more stuff than you ever had to in the past. Do you have a written capitalization policy to support your deduction of small tools and equipment? Do you know how to tell when you are repairing (which you can expense) or rebuilding (which you have to depreciate) a piece of equipment? What depreciable life are things going to be depreciated under?

Tasks

[ ]Create a written capitalization policy to support your deductions

[ ]Re-do tax planning to take the smaller deductions into account

[ ]Make sure that your Fixed Asset schedule is accurate

 

Auto Use Policy

If you have a business you also have a company vehicle. It is likely that the company pays all the expenses of maintaining that automobile. At least it should be. But does your company have a written auto policy in the employee manual explaining to the employee what the permitted use is? If not, then it is likely the IRS would disallow your auto deductions under audit.

Tasks

[ ]Add an ‘Employee Auto Use Policy’ to your employee manual

 

 

Loans to/from Shareholders

Have you put money back into the company at some point? Have you taken all your distributions out of the company in proporortion to ownership? Have you been running at a loss, funding it from personal money, and taking a deduction on your personal return? The IRS is getting much more strict on allowing loans to and from your company and yourself. Not having them set-up properly could limit your deduction.

Tasks

[ ]Review equity accounts and loan accounts for accuracy

[ ]Create a promissory note, with interest, for any loans to the company and record these properly in the books

[ ]Create corporate minutes reflecting the company’s decision to take a loan

 

 

General Maintenance

All of the things above are examples of what the IRS refers to as being run in a business-like manner. “Business-like manner” is the amorphous concept that separates individual rules (where you have to prove every business expense) from the business rules (where the IRS has to prove it ISN’T business). Like I said, being self employed and having your own corporation is an amazing way to increase wealth and your standard of living. But it requires some work!

 

Have you gotten lax in your separation of business expenses and personal expenses? Time to check your accounts and tighten that up! Maybe there are deductions you have missed! Make sure your weekly, monthly, and quarterly checklists are being completed so your records are in decent shape.

 

Have you maintained your corporate documents? Make sure your corporate and officer information is correct with the Secretary of State for the the state you set up your business in. Make sure you have minutes showing any major changes (like taking a loan out from a shareholder or changing your company’s auto use policy!).

 

Have people doing work for you? If they are employees make sure that you have time cards on file and that their employment paperwork is in order and in their employee file. Have independent contractors? Review how you manage those folks and make SURE they are not employees. The 1099 vs W-2 question is a tough one to solve, even tougher to fight, and the IRS is cracking down on it. Consider getting agreements in place that specify a 1099 contractor is in fact independent, and that both you and they understand the difference.

 

This is all simple stuff that can go a LONG way in protecting you.

 Tasks

[ ]Review personal versus business expense split

[ ]Calendar weekly, monthly, and quarterly books and records checklists

[ ]Check with the Secratary of State to verify information and corporation status

[ ]Prepare minutes noting any major changes

[ ]Review employee files for correct paperwork

[ ]Review Independent contractor payments to verify accuracy

 

I love helping clients make things as simple as possible. It really doesn’t take much to make sure that you are maximizing your tax situation. A little bit can go a long way to making a big difference!

 

 

 

MyRA Reaction

A friend asked for my reaction to President Obama announcing the creation of a new retirement account called the MyRA. Because of my unique combination of jobs, he asked for my opinion from three points of view: as a matter of policy, as a business owner, and as a wealth advisor. Here’s what I told him.

I was very intrigued when I saw this but have been disappointed by the reality of it. I will give you three different answers, one for each of the three different points of view that you asked about.

Policy

Fantastic policy. Trying to get people to save now means they will be less likely to incur more crippling debt later when they get to retirement. There is some debate about how much the savings rate really needs to be: Is China’s too high? Although low in America, why not continue to keep it low, since the world will loan us money cheaply? How much does the current account deficit actually matter in the scope of global economics? Despite the debate I think that it safe to assume:

A) America will experience a lower rate of growth over the next 30 years than it has in the past. The education system and new technologies will take some time to produce the significant gains in productivity that are needed for big growth. In addition, globalization will continue to pull emerging and 2nd-world economies’ standards of living up faster than it will grow America’s standard of living. It might even pull America’s down, as the entire world normalizes.

B) A lower growth rate means that the real value of the debt will decrease substantially less than it has in the past. “Growing” your way out of debt is a good long-term solution, especially when that debt is being used to fund infrastructure. But with a lower growth rate, our capacity for debt has to decrease, meaning the savings has to come from somewhere. Enter the American saver.

Given all that, increasing savings levels helps this goal from both ends. The first being that the safety net doesn’t need to be as big because people have their own wealth. Secondly, the debt that supports the existing safety net will continue to find new sources of loans as savings increase.

Contra Arguments:

The fact that it can only be invested in US treasury debt—while I understand the rationale behind that and they don’t really have any other options—is not great. Going back to our scenario above, all of the deployable capital in being sucked up in low yield assets (treasuries) that have a low productivity. This is theoretically part of the reason why the economy is growing slowly, productivity growth is flat, and infrastructure is struggling. Instead of Government spending being used on externality type things it is being used to fund spending. And spending really has only a short-term impact on the economy. It doesn’t have the long-term impacts that things like building infrastructure (a National Highway System or improved utilities transmission methods) or making big, risky investments (like clean energy or nano-tech) or making massive overhauls to existing systems (like teaching our outmoded education system how to keep up with the modern world) would have. It’s one thing to take out a mortgage to buy a house, entirely another to rack up a credit card eating out. And the US Government is sucking up HUGE amounts of capital to do it. Given that all productive activities are a combination of labor and capital, and we have a surplus of labor right now, capital is clearly our limiting constraint. This is having a deleterious affect on the economy. The MyRA plan would, seemingly, exacerbate that problem. However, I make this argument my caveat, not my expectation, because if we take it as read that the lower growth rates are going to happen and debt will continue to pile up, the savings effect will be more beneficial than the sucking up capital will be harmful. (I think. Armchair economist speculation.) Would I rather see them rack up massive debt to invest in clean energy, retraining the people who still cant do basic computer activities, and overhauling from the ground up our K-16 (yes, 16, including college) system? Of course! But fat chance of that happening, so we hedge against what we know they will do.

Business Owner

Meh. The business owners that can’t set up a 401(k) because they don’t want to deal with the paperwork are kind of zero-sum people. They want to do NOTHING or they are willing to do the work to set up a plan. And if they are willing to do the work, a 401(K) won’t be much of a stretch from a MyRA. If the government really wanted more plans established, they should have just taken away a bunch of the crazy requirements on 401(k)s. All you have done now is made ANOTHER choice for a business owner, in an already bewildering landscape. SIMPLE IRAs are pretty damn simple. 401(k)s aren’t that hard either. They are hard for business owners that can’t figure out how to do payroll or don’t have books, but those people will still not be able to figure out a MyRA, no matter how simple you make it. This is a classic example of politicians making decisions based on rhetoric and not actually talking to small businesses. Small businesses who are the ones driving all the job growth, and will continue to do so, and are much more likely to not have a retirement plan for employees.

I think their real angle in this is that, long term, they are going to mandate that employees have the “right to save for retirement” which means they are going to require employers to offer this plan. And then they will set the default to auto enroll. And then the money goes into treasuries only. Which, really, is just a a new tax, directly on employees, administered by employers, but dressed up real fancy-like to make people feel better about the fact that we just upped their Social Security tax. It’s not a bad plan in the long run, since Social Security is insolvent anyway; this is a much easier sell than a new tax, and accomplishes the same thing. I know that sounds all “tea party” and what not, but I think it might be the truth. Plus, no politicians get re-elected for something as boring as re-vamping and refining existing regulations. They get credit for “new” big ideas.

Wealth Advisor

If you go to your bank they will open a ROTH IRA for you and set up a $25 per month/week/bi-week automatic transfer from your checking account to that new ROTH IRA. It will take you, literally, 30 minutes to set up. And it will be invested in, basically, US Treasuries. So, all the systems are in place to do everything the MyRA is supposed to do. But this isn’t Field of Dreams. Building it does not mean they are going to come. If they didn’t take that 30 minutes two weeks ago to help secure their future, why would they now? The MyRA looks great, but it doesn’t address—at all—the actual reason people do and do not save. And because of that, it will fail. Not addressing the emotional aspects of money dooms any and every financial plan. I can tell you that from personal experience.

As for my wealth advising business, this has nothing to do with me. Won’t touch my business at all. We deal with people who are trying to get as much as possible into accounts that defer taxes, and given the tax rates now, they pay significant money to us to figure that out and handle it for them. If anything, it will likely shut down a bunch of my small 401(k) plans. Which is great because they are typically ones we are doing as a courtesy to good clients and aren’t making any money on, anyway. I don’t think that shutting down existing 401(k) plans was the goal. But it will happen.

So, in summary:

Great and noble goal, increasing savings. Despite the economic arguments for and against investing increased savings in US Debt, it is safe to say that more good than bad would come from achieving this goal. I think it is actually a disguised tax, but I don’t really have a problem with that. We need to increase tax to make Social Security solvent. Every economist knows that. And I don’t want to start banging the “Obama is raising taxes and trying to trick you” tea party schtick, because it’s a load of crap. I just wish the government would be honest and say, “Hey we, as a country, messed up and we need to save some more to offset it. And it needs to come from everyone. No more NIMBY.”

But in the end, all the noble goals will be for naught, because they are basically trying to affect financial behavior, but have ignored the emotional motivations behind the problem, which dooms it to nothing more than mediocre performance.

Reduce, Defer, Eliminate – Part Three

Welcome to the final installment of the “business is simple guide” to dealing with the sale of a business or large assets. Let’s talk about my favorite topic, eliminating taxes. This is where all the real fun things are. But, as you can imagine, some significant complexity as well…

 Eliminate

The final method can eliminate gain altogether. But as you can imagine, the tools for doing that require some significant concessions. Namely, you have to give the money away. Not a lot of people want to do that. But if you do, here is how you do it.

 Save by Giving it Away

Two options are the Charitable Remainder UniTrust (CRUT) and the Charitable Remainder Annuity Trust (CRAT). OK, the difference between these two is just how the payments are calculated. So for our purposes, I will only refer to CRUTs and I will use the term CRUT and CRAT interchangeably.

A CRUT is a trust that has a charity (legal, 501(c)3 and all that) as the beneficiary. It has you, typically, as what we call the income beneficiary. It is an irrevocable trust. This means you cannot change your mind! Once you set this up it is permanent. After establishing it, you contribute the assets you don’t want to pay tax on to it. The trust itself doesn’t pay any tax, so it gets to hold and manage all the assets. Typically, you have someone like a bank, lawyer, or financial advisor as the trustee who makes the investment decisions. The trust agrees to pay an income stream to you (it can be a fixed percentage of assets, a fixed dollar amount, or just about any combo you want) that is fixed ahead of time. You only pay tax on the income that comes out to you, as it comes out to you. The idea is, generally, to have the income pay out to you so that you end up getting most of your money back. But, this is an irrevocable gift to a charity. It requires some serious planning and thought. If you have charitable intentions, this is a FANTASTIC tool!

A Charitable Lead Trust (CLT) is the same thing as a CRUT except the opposite. It pays out the income to a charity while you are alive and then pays the remainder to a beneficiary you name (your kids, your spouse, etc). It is not used in a business sale purpose very often. It is used when you have an income property that you don’t need the income from but where you want to preserve the underlying asset for your heirs.

 Reduce, Defer, Eliminate

And there you have it! If you are selling a business, property, or any asset really and have gains, you now have the theories behind how to deal with it. I hope that the main idea came across clearly. It doesn’t matter the tools, tips, or tricks that you use. For every additional amount of gain you defer or eliminate it will require you to have additional restrictions or limitations, or to give something up. So, how much do you want to give up? How much do you need now? Once you have those questions answered go through the list: Reduce, Defer, Eliminate.

 

If these strategies are interesting, or you think you might need additional help, please go to the contact page. I would love to work with you!

Big shout out to Jason Rehmus and http://sweatingcommas.com/ for all his help in making this readable. I would be unintelligible if he wasn’t around.

 

Reduce, Defer, Eliminate – Part Two

In Part One we talked about the immutable law of taxation. By way of reminder:

 As you increase the amount of tax deferred, you also increase the amount of control you have to give up to do it.

Since we have already discussed the “low-hanging fruit” of reducing gain and rate, let’s get to the meat of the discussion, and talk deferral.

 Defer

Deferring gain is another great trick for two major reasons. The first is that tax rates are tiered. The more years we can stretch a gain over (generally) the lower the overall tax rate we will pay on it. If I can split my gain up over a couple years and stay out of the 39.6% bracket, I am going to be in better shape. We also are taking advantage of the time value of money. I will gladly pay you Tuesday for a Hamburger today. But how?

 Stretching Out the Taxable Income

The most common way to stretch out a gain is through a method called an installment sale. If you sell something for $500k, and have $300k of gain, under normal situations you would receive $500k and pay tax on $300k. But if you sell it and you agree to take your payment in five equal installments of $100k each for five years (usually plus interest), then the gain of $300k will be recognized at $50k a year for the five years. $300k is enough to jump several tax brackets. $50k might not be. You also get five more years of deductions to take against the gain. Sounds awesome, right? And it is! Except that you run the risk of the buyer going bust and never paying you. See what I mean about limitations? If you want all the money now, you pay all the tax now. If you are willing to reduce your level of control (because all you have is a promissory note, not cash) you can save a bunch of tax! No right or wrong here, just a different situation.

What if you don’t need the money right now, want to do an installment sale, but don’t trust the buyer to pay you? That is where the other option, a Deferred Sales Trust, comes in. Basically it works the same as an installment sale, but instead of getting a promissory note from the buyer, you sell the assets/stock to a trust for the note (which has to be run by a neutral third party) who then sells them to the buyer. The trust basically holds the cash and pays out on its promissory note to you. That way you still can stretch it out, but you have more security because the note is backed by assets you can verify. A couple caveats on this though. First, for this to be an arm’s length transaction, the trust has to have a profit motive. Which means that if you charge 5% interest on the note the trustee is going to invest that cash and try to make more than 5%, generating a profit for itself. Which means it could lose the money. Secondly, this setup has only been approved by the IRS via Private Letter Ruling. What does that mean? It’s complicated, but basically the IRS could come right back and say “never mind, we don’t like this and don’t want you to do it anymore” and force you to pay the tax, plus penalty and interest at any time. It is legal now, but the IRS can make things retroactively illegal. That’s right. I have seen it happen. They basically say, “Well yeah, it was legal when you did it, but now it’s not so you broke the law when you did it. Sorry.” Again, risk and reward people!

Another great option, usually only available to attorneys and other people that do contingency work is a structured settlement. Basically if you work for a portion of a reward (like a lawyer suing someone on your behalf), instead of having them pay you 30% of the settlement directly (the typical fee) you can write into the settlement that they have to pay you a monthly payment for life (or for 20 years, or five years, or pay you in three years, whatever you want, really) instead. This is accomplished by their taking the 30% and buying an annuity to fund their obligation. This is very similar to an installment sale as you only recognize the income when you receive it. This is a pretty niche trick though, so I won’t spend much time on the ins and outs.

 Reverse That

The other option for deferring is what I call the reverse deferral. In this situation you do not defer the gain, you pay it all at once. But you defer the opportunity to take losses and deductions against it. Primarily you use the Net Operating Loss (NOL) rules to accomplish this. The NOL rules allow you to “carry back” losses in the current year up to two years. So, let’s imagine that you do an asset sale of your business in 2013 and get $1MM. You still own the corporation. We set up a defined benefit pension plan and defer $250k into the plan for 2013, which means you have income of $1MM minus expenses of $250k for taxable income of $750k. Ouch. But you pay your tax. In 2014, you defer another $250k into the pension plan. You have income of $0 minus expenses of $250k for a $250k loss. You carry that loss back to 2013 and file an amended return. You take the $750k profit minus the $250k loss and get a refund. Repeat this process for 2015. In the end, you moved $750k of the $1MM into a pension plan (which you can withdraw from at whatever rate you want, whenever you want, thereby stretching the tax out) and paid tax on only $250k now. This could work for all kinds of other expenses, by the way, not just a pension plan. If your company still operates it might still need to have a company car, a company phone, or might have meals and entertainment expenses. All these deductions add up to what you can carry back.

Another method of the reverse deferral is to use something like a Family Limited Partnership (FLP). With this setup you make a partnership and contribute the assets you plan to sell. Typically to stand up, this needs to be done years before the sale takes place. You gift shares of the partnership to family members (primarily kids). When the asset sells, that gain is split up amongst all their returns, thereby stretching the gain across lots of smaller tax brackets. This tool is primarily an estate tax tool and not an income tax tool, but it can be used to help offset income tax while you are accomplishing your estate tax goals. As a side note, like in the NOL example above, the FLP might have operating expenses that it can pay that would be used to offset future or past gains. This tool can work really well if you want to give money to your kids now. And you have to. You cannot run an FLP and then not distribute the assets to them. Remember what I said about having your cake and eating it, too? You can’t use your kid’s tax brackets without losing that money.

 Gone for Good

The only trick that comes close to having cake and eating it is the stepped-up basis on inherited property. This is a pretty good trick. Let’s go over some terms. Remember, you pay tax on gain. Your gain is your sales price (X) – minus your basis (Y). Your basis is, typically, what you paid for it. It can be increased if you put more money in and decreased if you take money out. But to keep the example simple, assume it is what you paid for it. So X – Y = your taxable gain (Z). Z is what you pay tax on.

Now let’s assume Mom and Dad bought a house. They bought it 30 years ago and lived in it their entire lives. They paid $50k for the thing and now, when they both pass away, it is worth $750k. If you live in Southern CA like I do, this is a pretty common story. If Mom and Dad sold the house, they would pay tax on $700k ($750k – $50k). With me? Ok, now assume instead of selling the house, Mom and Dad pass away and leave you the house. What is your basis in the house? It gets “stepped up” to the Fair Market Value on the date of Death. So, your basis is now $750k. You immediately sell the house. You sell it for $750k with $750k of basis. How much tax do you pay? That’s right! ZERO! Death is the only legal way to make income/gain disappear forever. This works for any inherited assets: real estate, closely held businesses, stocks, bonds, etc.

Of course, in keeping with our theme of everything having a downside, with this, the greatest way to eliminate tax ever, you have to die. So there’s that. But still, neat trick right?! When you combine this with the 1031 exchange rules for real estate it can be a really great combo. A 1031 exchange allows you to not pay tax on the gain of a sale of real estate, as long as you immediately reinvest the proceeds from the sale in another property. So, if you have decided that you will always have rental real estate as part of your portfolio you can not pay tax on any gains, keep rolling the money over into new properties as the market allows. Then, all the gain you make along the way will be 100% tax free because whoever inherits the property will get a stepped up basis. Of course the other downside is that all that gain becomes taxable if you ever need the cash out of the property.

That is all the basics you need to know about deferral. Hopefully you can find something useful to help you! In our third and final part of the series, we are going to discuss ways to completely eliminate taxes.

 

If these strategies are interesting, or you think you might need additional help, please go to the contact page. I would love to work with you!

Big shout out to Jason Rehmus and http://sweatingcommas.com/ for all his help in making this readable. I would be unintelligible if he wasn’t around. 

Reduce, Defer, Eliminate – Taxes on a Large Sale

It seems like everyone has a cousin who knows a guy that used a “secret” loophole to avoid paying a bunch of tax. I always say the same thing when someone brings that up: “Oh really? Well, then, you should probably go hire that guy!”

I hate it when professionals try to pull the wool over the eyes of clients by making them think these things are super secret or complicated or a fancy loophole. I like simple; it’s kind of my thing. Oftentimes, the application or implementation of some of these ideas can be complex, but the theories behind them are very straightforward. Understanding the theories can help you discuss and decide intelligently. So, here is my Business is Simple guide to avoiding tax on business sales or other large asset sales.

The first part of this theory is to understand the underlying law or principle. That law is this:

 As you increase the amount of tax deferred, you also increase the amount of control you have to give up to do it.

That is the trade off. It cannot be avoided. The tax code is designed to prevent you from having your cake and eating it, too. It is true for every loophole and trick you have ever heard of. That being said, the methods you can use, in order of usefulness, are Reduce, Defer, and Eliminate.

 Reduce

There are two things you can reduce: Gain or Rate. Reducing the gain means, obviously, you reduce the amount you stand to earn from the sale. Reducing the rate means that you pay a lower tax rate. For example, if you have a capital gain instead of ordinary income you would pay a lower tax rate. Reduction is not something that you can do easily. Usually everything that would qualify as a reduction has already been taken into account. The type of sale is usually set ahead of time. That is why reduction is kind of the low hanging fruit. If you can find something that was forgotten, great! And since it has the lowest chance of changing anything, reduction strategies usually do not require very much loss of control.

 

Reducing Gain

Your gain is what you are paying tax on. It is what you are selling the thing for minus what you paid for it (basis). So, the first step is to see how we reduce the gain. We can reduce it by reducing the sale price. Probably not a good tactic. Which means you have to increase your basis. Did you put money into the business or into the property at some point? Did you have losses on the business or property in the past you didn’t deduct? These increase your basis. Did you inherit the property or business? Did the property get a step up when you did? A “step up in basis” is what happens when you inherit something. Your basis becomes the fair market value on the date of death. None of these things apply? Next item.

 

Reducing Rate

This applies mostly to business sales. Businesses have two types of sales, asset and stock. In an asset sale a business sells the assets of the business (you would still own the entity you had beforehand, but as an empty shell). In a stock sale, you sell the shares of the corporation that owns the business assets. Why do we care? If you sell the assets, most of the gain you have will be ordinary income with tax rates up to 39.6%. If you sell the shares you have a capital gain where tax rates are only around 20%. That is a great trick. But most buyers of businesses want to buy assets, not shares. So, negotiate. If you do have an asset sale, you get to allocate the purchase price amongst the assets you are selling. So, you want to sell the hard assets (machinery, autos, equipment) for as high as you can (these are capital gain) and you want the non-compete or goodwill (ordinary income rates) to be as low as possible. Don’t screw the deal over this, but understand this can have a huge impact.

That concludes Part One of the guide. Look for Part Two where we discuss strategies to Defer taxes.

 

If these strategies are interesting, or you think you might need additional help, please go to the contact page. I would love to work with you!

Big shout out to Jason Rehmus and http://sweatingcommas.com/ for all his help in making this readable. I would be unintelligible if he wasn’t around. 

Turning Pro – Review

I have read two of Stephen Pressfield’s books now and I have really enjoyed both of them. “Turning Pro” is a fantastic book, full of short and to the point chapters. Not even chapters, really. More like ideas. I found it even more compelling that “Do the Work”.

The central idea is that there are two types of people: amateurs and pros. The difference between the two isn’t what you might think it is.

Amateurs don’t pursue the things they want. They say they will, as soon as they can get free from their distractions. They then proceed to create as many distractions as possible. They live in a tortured mindset of always wanting something and not being able to get themselves to get there. Bhuddists might say that they are unenlightened, or spend most of their time not on “the Path”. We all know these people. In fact, we all were/are one. In short, they are phoning it in.

Professionals know what they want, know what it takes to get what they want, and suit up, show up and do the work. This does not mean that they are always happy, or pursuing their passion, or can make things happen that are impossible, or “think and grow rich.

I really struggle to explain the difference between the amateur and the professional. Pressfield wrote in such an emotionally vivid way, that it seems as if he never really explains the difference. He just tells stories, mostly about himself, until you grok the idea. I can’t figure out how to explain that. It really is an experience you have to just have.

Professionals don’t have all the answers and are not necessarily living a dream. But they find a sort of “zen” center in knowing they are pursuing something they enjoy and are good at, and they take comfort in knowing they are making progress towards something.

It is tough to describe in just a few short sentences, but the best example from the book is the Marine and his two salaries. His financial salary might be low, but he also has a psychological salary. The comfort and feeling of knowing that he belongs to something, that his calling has honor, and that no one can take that away.

If you feel like you aren’t living up to your potential, or that you could do even more, I encourage you to check out this book. It will definitely be worth your time.

 

 

The Way of the Shepherd – Review

I read “The Way of the Shepherdimages” at the urging of the owner of my company and discovered leading and managing are two very different things. If you are trained as a manager, and that is your comfort zone, then leading is going to be a significant challenge. This book, written as a fun parable, really helped me change the lens through which I look at the role of a leader versus that of a manager. It can be a difficult shift to make. What I have discovered is that leadership is equally easier and harder than managing.

Managing is about command and control. It’s about organizing a slew of projects and priorities and the vast swath of actions and tasks that need to be done to accomplish those projects. It’s about making sure that when A is relying on B and B is relying on C and C falls down, there is a way to keep the machine going. It can be an arduous task.

When trying to lead, it is easy to just expand the scope of the management operations. Management involves tracking tasks and projects. But trying to control the activities of everyone in a decent sized organization is impossible. Trying to manage the activities of professional staff is even more impossible. People are, well, people. They are not machines. They are unpredictable; sometimes they accomplish more than you expect and other times they fall far short of expectations. If you have a project sheet and task list for that person, you will pull your hair out trying to keep up. Their progress is their own, all you can do is try to guide it and protect them.

What I have learned is that leadership is just an entirely different way of doing things. Almost none of the tools that you use as a manager are useful in the leadership role. This book did a great job of laying out some simple ideas to get you started on the path to leadership. It certainly doesn’t have all the answers. It won’t cover every situation that might arise. But for someone like me who has seen the world through the manager lens for so long, it was the perfect short, sweet, and simple shake up that I needed to look at things totally differently.

The book really will take two hours to read. If you have people who report to you at ALL, you need to take a look at this book.

I Learned QuickBooks might not suck!

If you know me, you know that I dislike QuickBooks. For a variety of reasons.

What I learned this week is that I might be wrong. I’ve always known that I can be wrong, I’m wrong all the time. But I might be wrong about QuickBooks.

The new version of their online accounting software has been completely redesigned and the “test drive” I took was very cool.

It seems to me that QuickBooks just shifted their business to being an “eco-system” rather than a piece of software you use. This is a brilliant move on their part and all those other online software programs that I used to recommend should be scared, very scared. A couple high points, just from the few minutes I spent playing around with it:

-Mobile devices usage is awesome. It lets you fill spare moments with doing a little accounting work, instead of being idle. All those little moments add up to not much focused accounting work needing to be done, is my guess. A brilliant strategy and very reflective of the way people use their devices today.

 

-Linking up bank and credit card accounts in the background lets the computer gather the data for you to process. QuickBooks has had something like this for a while already, but it seems much more streamlined and easier to alter, making it is easier to start and stop that work, instead of having to find hours at a time to get accounting done.

 

-The “overdue” and “needs attention” warnings are awesome. By keeping small business owners (who by and large are accounting novices) focused on a couple issues, they can make meaningful impact on their business without knowing exactly how or why.

 

-Changing from a license billing model to a monthly fee model. This is the best part of the whole thing. Having the data in the cloud, with up to three simultaneous users (in the mid-tier version) eliminates the largest problem we have had with QuickBooks. They have really used all the best of currently available technology to really give the software a 21st century face lift.

 

All in all, I give this a solid thumbs up. I have talked a lot of Sh*t on Quickbooks and Intuit. This is me saying I was wrong, and BRAVO.

Look for more info on this later, as I start developing some guidebooks on how to run company on this software! I think this will be the backbone of how I tell business owners to run their business.

 

The Information Diet – A Review

imagesI was very excited to read Clay Johnson’s The Information Diet. I was intrigued by the idea of an “information diet,” but I was even more intrigued by the idea that it was possible to filter and control the amount of information I consume.

I was somewhat let down, however, after getting into the book. I was expecting a more academic take on it. While Mr. Johnson does cite some academic studies, in addition to anecdotal evidence, about how over saturated we are today, I think this was a bit overkill. Anyone reading the book is likely already convinced of their over saturation. But I understand that a valid argument has to start with a valid base, so it was interesting to hear what some of the studies have said.

The best parts of the book laid out the negative effect that “epistemic closure” has. This is the idea that groups of people will create closed systems of deduction that does not allow outside ideas to affect the outcome of deduction. It was extremely interesting to think about the sociological effects of the information coming at us and how our filtering of it has changed our perceptions. The best example of this is, obviously, US political groups. Seeking reinforcement within itself and making deductions that don’t necessarily take into account all factors is a great example of epistemic closure. Becoming a rabid believer in the ideas produced in that manner is how we get the almost non-functional political system we have now.

The part that let me down was the solutions. I assumed the author applied relatively low rigor to the base topics because he assumed he was “preaching to the choir,” but it was still disappointing. Most of the ideas revolve around tips and tricks that Mr. Johnson has discovered work well for him. While these are helpful, anyone really dealing with an over saturation of information has already learned how to close their email, stop checking Facebook constantly, or use a time tracker to focus on one task at a time.

I guess I was hoping that the Information Diet was a cute name for an idea that some researchers had put together about the psychology or information decision science behind processing and assimilating information more efficiently. It’s probably my fault for building up my expectations and not understanding the book before starting to read it. I can find tips and tricks on blog posts ad nauseam. When I turn to actual books, I am looking for more depth and rigor. The Information Diet did not deliver that. What it did deliver was not bad, just not what I was looking for.

The Information Diet is an interesting read, but it’s certainly not worth adding to my critical reading lists.