When you first get interested in Wealth Creation you will
ask is 'So how do I find all these investment, property or
business opportunities'? A little bit later, you will find
that you are overwhelmed with all the possibilities and
opportunities are jumping out at you from every corner. So
how can you tell which ones to pursue?
If you have read Rich Dad, Poor Dad by Robert Kiyosaki, you
will know about his 'Does It Eat Me or Feed Me' question
and it's a really useful first yardstick of how good a deal
may be. In other words, does it put money in your pocket or
take money out of your pocket?
If you have to invest some money to get into the
opportunity, ask yourself how much, for how long, and what
will your return on that investment be by the end of the
first year? This is known as your Return On Investment or
ROI.
We are often asked, by potential clients, what their ROI
will be, on our membership fees, and how fast will they
recoup them. Before I tell you our answer to that, let me
go into "return on investment" a bit further as it's
important that you understand it.
(The useful thing about the ROI model is that it can be
used to compare any potential wealth creation activity, to
compare a property deal with a business deal, a stock
market investment with an internet opportunity.)
If you can see that something will be putting money into
your pocket within a year, and there is another deal that
won't, which one will you go for? If you can see that one
deal will return you 10% within a year, and one will return
30% , which deal is the more attractive?
What about one deal where the return will be 30% but will
take you longer than one year, and be harder work, against
a deal that will return 20% but start returning in six
months and is safer?
This is where many new investors and entrepreneurs come
unstuck. The first way they come unstuck is because they
don't set a value on their time. Because they often have a
lot of it, but not much money, they don't value their time.
Later, when you become more successful, your time is the
most precious thing of all.
Think back, when starting a new venture, did you tot up how
many man hours you would be putting in and what their value
was? New entrepreneurs don't work out what else they could
be doing with those hours (earning some cash!) and so they
discount their real investment into the business and value
it at zero. Bad move!
They don't work out their strategy and stick to it; so
they alternate between fear and greed, much like the
stockmarket shows signs of occasionally, and go for the
riskier, harder deal for a bigger return, instead of the
safer, easier deal with a slightly lower return.
Think about how many of the second kind of deal could you
do, with less effort, less stress and the faster returns?
The other thing they do is try to 'bend' a deal to work for
them, rather than just going to look for another deal that
does, effortlessly.
My ex-business partner, inspirational speaker Gill
Fielding, says that she would always rather have the easier
deal, leaving her time to get her nails done, rather that
one big difficult deal where she would have to really work
for her money. And as someone who has 'bent deals to fit'
on many occasions, I now have to agree 100%.
CREATE YOUR ROI YARDSTICK
The first thing to do is create a yardstick for any deal
you are considering. The ROI figure can be applied to
anything and you can compare like for like, even if the
deals are very different.
How much profit will a deal make in the first year,
multiplied by 100, divided by the amount of money you are
going to have to invest (or the value of the time you will
be spending), to acquire that profit. That, roughly
speaking, is your return on investment expressed as a
percentage.
A house that costs £50,000 and will generate £2400k per
annum of rental income profit, after expenses, roughly
generates a 4.8 % return on investment. (Not to be
confused with rental yield, which is different again). If
you think that the property may grow in value by 10% that
year, then add £5,000 to the £2400 rental profit, to find
that your ROI is now 14.8%.
Compare that with a similar deal, where you can buy a
business card printing machine franchise generating £25,000
per year profit and you have to put in £75,000 to acquire
the business. 33.3 % ROI and you have to go round emptying
the money. Worth it for those returns, you say?
But what if you had an 80% mortgage on the property, and
the interest repayments were covered by the rent, still
leaving you with the same rental profit per annum? You have
spent £10k to acquire that profit, you have a profit
including capital appreciation of £7400k so your ROI is now
74%.
And it means no work for you, in the form of the money
collection.
But whichever way, both returns are a bit better than the
building society returns and both are "Feed Me's". Use
your yardstick, don't change the goalposts and choose
opportunities to fit your strategy or plan.
IN BUSINESS ALREADY?
If you already have a business, think about the startup
costs and how much time you spent setting it up.
Are you getting a 35% return on your investment, year on
year? Will you get a 35% return on your investment in ten
years even?
What is your exit strategy? Are you going to work in your
business till you drop, or will you eventually sell it?
Would anyone invest in your business right now? Would you?
Would it sell today and if not, why not? Would YOU buy
it? If not, why not?
These could be some of the most important questions you
ever ask yourself about your business.
Most entrepreneurs think that they have to sink everything
into their business in terms of time and money; this shows
commitment after all. A serious businessperson, however,
would be planning to get their money out again as soon as
possible, with a good ROI, while leaving the business to
thrive healthily and continue to pay them dividends based
on profits.
I recommend reading "E-Myth Revisited", "Rich Dad's Guide
to Investment" and "4 Hour Work Week". Make notes,
underline, and take on board their wisdom. Your business
will never be the same.
OUR ANSWER TO QUESTIONS ABOUT ROI
My partner uber-coach Judith Morgan says "By the time they
ask this, I usually know quite a lot about them, and the
things I am looking for are
1. Are they bright enough to understand what we teach
2. What is their preparedness to take action (motivation)
for whatever reasons
3. Do they have any time - to do the work and take the
action - are they willing to read some books and turn the
television off?
4. Do they have any equity - so can afford to get into
property investment - which depending on how much they've
got can ensure their financial security and ROI overnight
often
5. Could they develop maybe, an enthusiasm for learning
how to trade the stockmarket, which could soon match their
take-home pay if they are in a job, or
6. Are they self employed or do they already have an
under-performing business which we can teach them to run
much, much more profitably
So my short answer is "how long is a piece of string" and I
tell them that, and why.
Then I go on to give them examples of the girl who made her
boyfriend over £18,000 in pure profit in under a week after
learning what we know about the internet, the chap who made
over £80,000 in one lunchtime by just chatting to another
member.
I tell them about the woman who is making in one week more
than she used to earn in one month from her old business,
and she's doing it in under half an hour a day, rather than
a 12 hour day, the dentist who had enough equity to become
a multi-millionaire almost overnight - he actually did it
in under six months - and who still asks us when he sees us
"Am I a millionaire yet?" laughing as he does so!
The only people who don't' get an ROI, are the ones that
don't come to the calls, don't do the homework or who take
no action. Those who don't listen, who hang onto their
limiting and negative beliefs or allow others to influence
them accordingly. No change!
----------------------------------------------------
The Money Gym - enabling bright energetic people to make
more money, keep more money and grow their money - fast!
http://www.TheMoneyGym.com
