Wealth

Don’t Understand Your Financial Reports? Here’s Why

Posted on March 1st, by Janice in Business Wealth 2 Comments

paperwork-1538658-639x426 Have you ever been handed a balance sheet and income statement from your accountant and been told that this is your reporting? When you look at these reports from your accountant, do you scratch your head and wonder what you are suppose to do with these reports? Many business owners and investors get reports that they don’t understand – and it’s not their fault. Most reports are either too technical or are missing information to give the reader the insight they want.

Do you file these reports as quickly as possible, hoping to never see them again?

While reports like your balance sheet and income statement can be helpful, particularly when it comes to tax planning and preparing tax returns, they are not the most useful reports when it comes to providing you with information that will help you grow your business and wealth.

Do the reports you get in your wealth strategy make you cringe?

Now, be honest. Did you cringe at the mere mention of reporting? I’m sure some of you saw the word reporting and immediately began trying to convince yourself you don’t really need it. I find that most people avoid reporting, even though reporting can be a huge resource in their wealth strategy – one that allows them to leverage their time and other resources.

Why would someone avoid something that helps them accelerate their wealth?

There are several reasons I hear:

It’s too difficult to understand
It takes too much time
It’s boring
I don’t know how to set it up
I don’t really know what it means

If your reporting isn’t set up correctly or at all, the above are all true.

What is Reporting?

Reporting is summarizing activity in a clear and concise format. Most importantly, the information in the report makes sense to you. When done correctly, reporting is a valuable resource that helps you make timely business and investing decisions and saves you time while doing so. Reports provide tremendous leverage.

What Reporting Should Be

Reporting should report the activity YOU want. There are no specific rules that must be followed – it is based on facts, figures or data you want to help you make decisions to grow your business and your wealth.

It’s always amazing to me the number of people who think they don’t need reporting in their wealth strategy. Some think they will be so successful that they don’t need a report to tell them that. Others think that reporting is just for their accountant to do their taxes. And others think they aren’t big enough to need reporting.

Whether you have 1 employee or 100, whether you have 1 rental property or 50, whether you invest in options, tax liens, or oil & gas, you need reporting.

3 Ways to Use Leverage to Build Wealth

Posted on October 12th, by Janice in Business Wealth 3 Comments

Think about how much time you spend earning your money. Now, think about how much time you spend investing that earned money. This is a challenge many people face. Most people spend at least 40 hours per week – each and every week – earning their money and maybe an hour per month on investing that earned money. This allocation of time won’t get them to their goal of passive income any time soon.

A Wealth Strategy Doesn’t Have to be a Full-Time Job
A wealth strategy doesn’t have to be a full-time job if it is done properly. This is why I say you must build a business around your wealth. A business is one of the best forms of leverage. When wealth building is treated like a business, it is possible to see results in just a few hours each week.

What exactly does it mean to build a business around your wealth?
In any business, leverage comes in many forms, all of which contribute to spending less time “in” the business and more time “on” the business. This is key in a wealth strategy – it’s what enables someone to be successful in their wealth strategy in just a few hours each week.

Here are 3 forms of leverage commonly found in a business that I think every wealth strategy should have:

Leverage #1: A Clearly Written Strategy
It’s common for a business to have a clear written strategy, but it’s not common for a person to have a clear written strategy for their investing. Without a clear written strategy, a business (or wealth strategy) often changes directions many times, and with each change, time and money is lost.

A clear written strategy helps reduce the amount of time a person spends in their wealth strategy because there is a clear focus. The strategy can be shared with team members so they are more efficient and focus only on those things that support the strategy.

Leverage #2: Systems
Systems are the greatest form of leverage in a business. The systems run the business. This enables the owner to spend his or her time managing the systems instead of managing the people. Managing systems is not only more efficient than managing people, it also takes less time and effort and produces greater profit. Systems should identify the who, what, where, why and how for operating a business. Systems can (and should) touch every aspect of a wealth strategy.

For example, a wealth strategy should have systems for:

– Identifying and selecting investments.

– Funding the investments. If there is a loan process, there is a system for that.

– Managing the investments.

– Reporting for the investments.

Creating the systems can take some time, but once they are in place, it becomes very efficient to run a wealth strategy. The systems help reduce the amount of time required to manage a wealth strategy. The systems also provide better information so decisions can be made proactively and not reactively – this is also a huge time and money saver.

Leverage #3: Team of Advisors
The 3 most expensive words in the English language are “do it yourself.” Having a team brings leverage and velocity to investing which leads to better and faster results. This is what businesses do. They build a team with their employees, vendors, customers, advisors, partners and so on. This same principle applies to a wealth strategy. The right wealth team can bring the greatest value to a wealth strategy.

Using Business Leverage in Your Wealth Strategy
If you are an investor and don’t think of yourself as a business owner, think again. Those who are most successful in their wealth strategies are those who have built a business around their wealth and treat their investing activities like a business.

The above are just 3 examples of how leverage commonly found in a business can be used in a wealth strategy. Start taking the steps today to work towards building a business around your wealth.

3 Tips to Build Wealth Faster

Posted on October 6th, by Janice in Wealth 3 Comments

Most people I speak with are anxious to speed up the process of building their wealth. Here are 3 tips I’ve developed over the years that are effective at doing just that.

1: Treat your investing like a business
Successful investing is not a casual activity. When investing is treated like a real business, the level of success skyrockets. What does a business have that your investing should have?
Here are a few items:
– Vision statement, mission statement and values
– Systems that provide specific guidance on how things are done
– A team consisting of advisors, vendors, customers (tenants) and employees
– Agreements with your team members
– Reporting that allows you to make informed, proactive decisions

2: Focus
When my team and I first talk with someone about their wealth strategy, we usually find they are interested in many different types of investments. They may want to start a business, invest in real estate and do some stock trading. Our role is to help them narrow their options so they can focus on a single type of investment.

Some people become uncomfortable when I suggest focusing on a single type of investment. This may be because the only way they have been taught to reduce their risk is to have many types of investments. The idea behind this approach is that risk is reduced because the investments will go up and down at different times so overall there is “balance.”

While I’m all for reducing the downside, this approach also limits the upside. I would much rather limit my downside through education – focusing on a single investment type – and not limit my upside.

Or, they may be concerned it will limit their options and success. Focusing on a single investment type in no way means limiting the number of options. Within any type of investment, there are hundreds, if not thousands, of options.

By focusing, it becomes clearer which investments will work in a wealth strategy and that contributes to the success of the wealth strategy.

3: Leverage your tax savings
Tax savings can be worth more in a wealth strategy than just the actual amount of tax savings. If someone reduces their taxes by $20,000, then that’s $20,000 more that is available to invest in their wealth strategy.

That alone is good news, but it gets so much better! That $20,000 can be leveraged with other people’s money to buy an asset worth more than $20,000. Take real estate as an example. A $20,000 investment could buy a $100,000 property by getting an $80,000 mortgage.

Take it even one step further and invest in assets that generate even more tax savings and put those tax savings through the same system.

Start today. Identify one thing you can do today to power up your wealth strategy. It can be one very small thing. Then, build on that every day.

Maximizing the Benefits of Accelerated Depreciation

Posted on February 28th, by Janice in Business Taxes Wealth No Comments

Depreciation can seem like magic. When done properly, it can take rental real estate with positive cash flow and turn it into a loss for tax purposes.

It is common to break out land and building in a rental property for depreciation purposes, but there are many more components to consider. These additional components may include appliances, parking structures, landscaping, furniture, fixtures, and much more. Most importantly, these additional components can be depreciated much faster than land and building.

The result is accelerated depreciation which means more depreciation can be taken sooner.

Keep this in mind: Accelerated depreciation is a long-term strategy.

The decision to accelerate depreciation should be part of a long-term tax strategy. While the tax benefits can come immediately, there needs to be a focus on the future to truly maximize the benefits.

Accelerated depreciation often results in more gain when the property is sold.

On top of that, the depreciation taken may be recaptured when the property is sold, which means a portion of the gain (the portion attributable to the depreciation) may be taxed at ordinary tax rates.

So how is any of this good news for accelerated depreciation?

Here’s how. The worst case scenario with accelerated depreciation is that the tax is deferred to a later year. You take the bigger deductions now, enjoy the tax savings now and then pay tax on it later in the form of more gain.

If you’ve heard me speak, then you probably know deferral is my least favorite type of tax planning, so you may be wondering why I think accelerated depreciation is so important in a tax strategy.

The reason is that deferral is the worst case outcome, and as far as tax planning goes, while deferral isn’t my favorite, it can still help minimize taxes. So even the worst case scenario is still good for tax planning.

But even better, there are other possible outcomes that can reduce or eliminate the future tax impact of accelerated depreciation.

A long-term strategy is the solution to minimizing or eliminating the future tax impact of accelerated depreciation. Here are a few examples.

Strategy #1 – Depreciation Recapture
Not all depreciation recapture is taxed as ordinary income. Some depreciation recapture has a lower tax rate. This means you take the deduction at a higher rate and report the income at a lower rate – this results in permanent tax savings.

The key is making sure you are in the right tax brackets now and in the future.

Strategy #2 – Like-Kind Exchanges
Another example is using like-kind exchanges in your long term tax strategy. With like-kind exchanges, it is possible to avoid depreciation recapture entirely.

Strategy #3 – Hold Property to Pass to Heirs
If your long-term strategy is to hold the property and pass it to your heirs, then that can work to avoid depreciation recapture.

Strategy #4 – Rental Property
A plan to regularly buy rental property can provide a steady source of accelerated depreciation and compensate for lower depreciation on properties entering the older stages of their depreciable lives.

While there can be many traps with accelerated depreciation, these strategies are some ways to plan around them with a long-term strategy.

Think You Don’t Need an Estate Plan? Think Again!

Posted on February 15th, by Janice in Taxes Wealth No Comments

A key part of a wealth strategy is to protect the wealth you build. Estate planning plays an important role in protecting your wealth by making sure your wealth is distributed in the way you want after your death. What better way to protect your wealth than to be in control of it – even after you are no longer living.

Even with all these great benefits of estate planning, it often gets pushed to the back burner. This happens most often due to bad information.

That bad information is this:
I do not need to do estate planning right now because my estate is not taxable.

Many countries have an estate tax that is levied against the value of your assets after your death. Most countries have a threshold that if an estate falls under that threshold, it is not subject to estate tax. Many people think they don’t need to do estate planning if their estate is under that threshold.

This is not true! While it’s true their estate may not be in urgent need of estate tax planning (although estate tax planning is best done when the value of your estate is low), there is still a need for basic estate planning.

Estate planning is not just about the estate tax. In fact, some of the most important reasons to do estate planning have nothing to do with estate tax. Here are just a few reasons why estate planning applies to just about everyone – regardless of their income, wealth or age.

Protect Your Wealth
As I mentioned, estate planning is an absolute necessity in order for you to dictate how your wealth is distributed after your death. Without this in place, the law will make that decision for you. This is a powerful way to protect the wealth you build.

Protect Your Health
Proper estate planning is not just about what happens after your death, it also addresses what happens in the event you are unable to make your own decisions – this includes medical decisions.

Addressing what medical treatments you do or don’t want while you are able to make and communicate these decisions is crucial. Part of proper estate planning includes discussing your decisions with your physician and your family.

Protect Your Family
As I mentioned above, a big part of the basics of estate planning is addressing what happens if you become incapacitated.

Think about this: If you became incapacitated tomorrow:
Would your mortgage be paid on time?
Would your bills be paid on time?
Would your family be able to maintain the lifestyle they are accustomed to during your incapacitation?

Proper estate planning addresses not only what happens with your wealth after your death, but also how your wealth is managed during any period of incapacitation. Planning for this in advance as part of your basic estate plan is a wonderful way to take care of your family. It’s also an effective way to protect your wealth.

No Estate Tax Doesn’t Mean No Estate Plan
Remember, just because you don’t have an estate tax issue doesn’t mean you don’t need estate planning now. Some of the most important reasons to do estate planning have nothing to do with estate tax.

Build Wealth By Making Time to Work ON Your Business

Posted on January 15th, by Janice in Wealth No Comments

People share with me on a regularly basis that they are simply too busy to focus on their wealth. They tell me that dedicating a few hours every week or month to focus on their wealth is simply just too much time.

Creating a wealth strategy and implementing it doesn’t have to be a full-time job, but it does require focus and some time and effort. Many people struggle with focusing on their wealth, not because they don’t know what to do, but because it is more comfortable to keep things the same.

Let’s look at two very different wealth strategies. Both involve an operating business with a business owner who wants to move from working “in” the business to working “on” the business in order to build wealth.

Wealth Strategy #1
The business owner is:

– Working 60 hours per week.

– Thinking about being able to get out of the day-to-day operations, but can’t imagine how the business would run without him there.

Wealth Strategy #2
The business owner is:

– Establishing a wealth team that includes key employees who manage the business.

– Using formal and informal agreements with team members to improve communication.

– Putting systems in place, including internal controls, so everyone in the business understands proper operating procedures. With these systems in place, the owner can spend his time managing the systems (which takes less time than managing the people).

– Putting reporting in place so information is readily available to make timely decisions.

Which strategy do you think will be more successful?

Wealth strategy #1 is going to struggle.

The owner is too busy to focus on wealth building. The business owner could achieve his goal if he wasn’t too busy, but it is all based on what he is willing to do. Is he willing to leverage his resources so he has the time to focus on his wealth? Is he willing to move out of his comfort zone by figuring out how his business could run without him there?

Wealth strategy #2 embraces the leverage that comes with properly using resources.

The business owner is willing to do whatever it takes to leverage his resources. The leverage from the proper use of resources gives the owner more time to focus on building his asset (his business) in order to build his wealth.

Too Busy?

When I hear that someone is too busy to focus on their wealth, I think about these two strategies. Is anyone really too busy to focus on their wealth? If someone is truly interested in taking control of their wealth, they will make it a priority. Until then, they will remain too busy.

5 Under-Utilized Tools to Protect Your Wealth

Posted on January 2nd, by Janice in Taxes Wealth No Comments

A successful wealth strategy not only builds your wealth, it also protects your wealth. There are several wealth protection tools I see under-utilized in a wealth strategy. Are you using these tools effectively?

Tool #1: A Tax Strategy

Building wealth is not about what you make, but what you keep. The average taxpayer spends 2.5 hours a day working to pay their taxes. Without a tax strategy, taxes can easily drain a person’s wealth and their ability to build wealth.

A tax strategy that legally reduces your taxes protects your wealth by keeping more of it in your pocket. And, a properly designed tax strategy will protect your tax savings by having you well-prepared for an audit.

Tool #2: Estate Planning

It’s a shame to see someone build incredible wealth during their lifetime only to see it diminish when they die due to poor estate planning. The hits to a person’s wealth can come from many different directions: estate taxes, probate fees, attorney fees and assets not being passed how they were intended (just to name a few).

The good news here is that basic estate planning can add a great level of protection to one’s wealth.

Tool #3: Reporting

If you hate reporting, then odds are you are not getting the right reports.

The right reports tell you when you need to take action in your wealth strategy. Taking action at the right time protects your wealth. For example, if your reporting indicates that the cash flow from your business is on a downward trend, you can protect your business (and wealth) by addressing the issue immediately. Waiting too long, or not acting at all because you don’t have the reporting to tell you there’s an issue, could be detrimental to your business.

Tool #4: The Right Team Members

Every team member should be pushing your wealth strategy forward and not keeping it from moving forward.

Are your team members deal-makers or deal-breakers?
Do your team members start their responses with “Here’s how you can do that?” or “You can’t do that?”

The right team members protect your wealth by enabling you to leverage their expertise into your wealth strategy to move your wealth building forward while avoiding costly mistakes and distractions.

Tool #5: Agreements

When you hire an attorney, you usually sign a letter agreeing to certain terms. Or, if you have a partnership, you probably have a partnership agreement with your partner.

These agreements protect your wealth if your relationship goes south. The most important time to have your agreements in place is before things go bad; if you wait until things go bad, your wealth is not protected.

Think about the people you interact with in your business or investing. What types of agreements do you have with them? Are expectations clear on both sides?

I find most people are investing and running their businesses without the proper agreements in place.

Protect Your Wealth

Many people are anxious to start building their wealth right away – so much so that they rush out and jump right into an investment. I love this enthusiasm. I like to redirect that enthusiasm into creating the wealth strategy first. A properly built foundation can save years and years when it comes to building wealth.

Using Cap Rates In Your Wealth Strategy

Posted on December 15th, by Janice in Wealth No Comments

The cap rate is one of my favorite tools when it comes to investment properties.

What is the cap rate?
The cap (Capitalization) rate is the rate of return provided, prior to financing, by the cash flow of an investment property.

The equation to determine the cap rate of a property looks like this:

Cap Rate = Net Operating Income from the property / Fair Market Value of the property

Let me give you a simple example.

You purchase a property for $500,000 and the property’s net operating income (income after operating expenses but before any interest, principle or depreciation) is $50,000.

Your cap rate is 10% ($50,000 / $500,000).

What Can the Cap Rate of a Property Tell You?

#1 – A cap rate can tell you how leverage (debt) will affect your investment.
If the cap rate of a property is higher than the borrowing cost (interest rate), it is an indicator that the property’s cash flow will cover the interest cost.

If the cap rate is less than the interest rate, it is an indicator that the property’s cash flow will not cover the interest cost.

#2 – A cap rate can provide indicators as to when to sell or buy.
If cap rates are trending downwards, it may be time to sell. A downward trend is an indicator that property values are increasing.

If cap rates are trending upwards, it may be time to buy. An upward trend is an indicator that property values are decreasing.

Using Cap Rates in Your Wealth Strategy
Cap rates provide a quick snapshot to help alert you that you may need to do some deeper analyzing and take action. Cap Rates are even more powerful when you track the trends.

Of course, cap rates are only one tool when it comes to analyzing investment property and anytime you buy or sell an investment property, it should be part of your overall wealth strategy.

5 Under-Utilized Tools to Protect Your Wealth

Posted on August 15th, by Janice in Wealth No Comments

A successful wealth strategy not only builds your wealth, it also protects your wealth. There are several wealth protection tools I see under-utilized in a wealth strategy. Here are a few of those tools:

Tool #1: A Tax Strategy
Building wealth is not about what you make, but what you keep. The average taxpayer spends 2.5 hours a day working to pay their taxes. Without a tax strategy, taxes can easily drain a person’s wealth and their ability to build wealth.

Tool #2: Estate Planning
It’s a shame to see someone build incredible wealth during their lifetime only to see it diminish when they die due to poor estate planning. The hits to a person’s wealth can come from many different directions: estate taxes, probate fees, attorney fees and assets not being passed how they were intended (just to name a few).

The good news here is that basic estate planning can add a great level of protection to one’s wealth.

Tool #3: Reporting
If you hate reporting, then odds are you are not getting the right reports.

Tool #4: The Right Team Members
Every team member should be pushing your wealth strategy forward and not keeping it from moving forward. Are your team members deal-makers or deal-breakers? Do your team members start their responses with “Here’s how you can do that?” or “You can’t do that?”

The right team members protect your wealth by enabling you to leverage their expertise into your wealth strategy to move your wealth building forward while avoiding costly mistakes and distractions.

Tool #5: Agreements
When you hire an attorney, you usually sign a letter agreeing to certain terms. Or, if you have a partnership, you probably have a partnership agreement with your partner.

Think about the people you interact with in your business or investing. What types of agreements do you have with them? Are expectations clear on both sides?

I find most people are investing and running their businesses without the proper agreements in place.

Protect Your Wealth
Many people are anxious to start building their wealth right away – so much so that they rush out and jump right into an investment. I love this enthusiasm. I like to redirect that enthusiasm into creating the wealth strategy first. A properly built foundation can save years and years when it comes to building wealth.

If you want to learn more about how to take advantage of these tax strategies; sign up on our web site or email us for an appointment to get started today.

The Most Important Step You Can Take to Create Wealth

Posted on July 1st, by Janice in Wealth No Comments

When we try to do things all by ourselves, we are ignoring the fact that we all have only 24 hours in the day. By building a wealth team, we are leveraging those hours into hundreds or even thousands of hours each day.

A typical wealth team can include many different people. It often includes: Advisors, Employees, Vendors, Customers/Clients, and Partners. Most people understand who is involved in a wealth team, but few truly understand how to utilize each team member to their full potential.

Get Maximum Leverage from Your Team Members
Your wealth team is a valuable resource in your wealth strategy and one that I often see used incorrectly.

My profession is a great example of this. I talk with prospective clients every day and most have the following relationship with their tax advisor:Their tax advisor prepares their tax return. Outside of their tax return preparation process, they contact their tax advisor when they have a question and their tax advisor answers their question.

One of the ways I want my clients to leverage me as a resource is to share my knowledge with them so they don’t have to do it themselves. This includes providing them with answers to questions they don’t even know to ask.

Here’s an example.

At least once a week I am asked the question, “What type of entity should I form for my business/investing?” With a few follow up questions, most tax advisors will answer this question and the client will be happy with the answer.Then what usually happens is the client starts to learn more specifics as they progress in their business or investing. These may be details they should have been doing or should not have been doing, but they are all facts they wished they would have known sooner.

This is why I don’t just answer the specific question at hand; I anticipate what the client doesn’t know to ask. I have tremendous experience in the long-term implications of a tax strategy, which includes forming an entity, and I want to share my knowledge and experience with my clients so my clients can avoid common mistakes (that sometimes can set their business or investing back by years).Even though the client has come to me with one specific question, I typically find myself asking the client many more questions that cover bookkeeping, tracking expenses, business or investing operations, additional goals they have, estate planning and exit strategy (to name a few).Eventually most people learn these details, but usually it is not until they are at a point where they wish they had known about them sooner.

Remember: Every team member should be pushing your wealth strategy forward and not keeping it from moving forward.