Everyone that knows me, knows that I have two standing house rules. The first is do not ever come by my home unannounced, especially early. The second is don’t ever come to my home with Drama, especially early.
I always wake up early but I never like to communicate early because this is my quiet time to get my thinking and planning done. The last thing I want is someone in a panic busting into my space. Not to mention, that having company requires you to be a good host and put some pants on.
One morning back in 2007 as the financial world was just beginning to show major signs of weakness I received a morning caller ringing my door bell at 7 am. As I answered the door asking who it was all I heard was “hey it’s me I really need to talk to you let me in.” I wanted to be impolite but I could hear the concern in her voice so I hit the buzzer to open the door.
When she came through the door I could see she was extremely upset and angry to put it mildly. When I asked what was the matter she told me that she just realized that her financial planner had lost several hundred thousand dollars of her hard-earned money.
As she began sharing with me that she was coming off the best year of her life she took out her tax returns to show me the four hundred thousand dollar profit she had made which she promptly turned over to her broker for saving. He promptly placed the money in the stock market and it promptly evaporated due to a downturn in the market.
As I read the tax return I was stunned by what I saw in the financials of the company. That year the firm had 1.5 million in gross sales revenue and a net profit of 400 thousand after all salaries and expenses. A great year for any small service business. But then I noticed a jewel on the tax return and despite the hostile mood I got happy.
Immediately she asked what I was so happy about and I pointed to the tax return. What’s so great about that now that my money is gone. I pointed her attention to the marketing expense line which showed 100 thousand in marketing expenses that generated 1.5 million in sales revenue.
I went on to explain that if she had spent 100 grand for 1.5 million dollars in sales and made a 400 thousand dollar profit all that was needed was to double the marketing budget doing the same campaigns that generated the first 1.5 million. The additional million or more that would be generated would be mostly profit because all of the office expenses, salaries, and overhead would have already been paid. If she spent an additional 100k in marketing and generated at least 1 million dollars she would profit 700 thousand on that million.
Of course I told her, as I always had, that her broker wasn’t worth a damn but not because he was a bad guy but because his financial education didn’t allow him to really look at his client and give them the proper advice. Anyone with any financial IQ would have advised this client to invest more heavily in the business because it was clear that this business had a marketing plan that was working and they were still far below their potential.
Most investment advisors can only tell you what they were trained to tell you. “Invest in good markets because its going to get even better and invest in bad markets because the market will turn around.”
If this encounter had taught me anything it was that most business owners don’t know how to read the numbers. The most important numbers in the tax return is the marketing cost and the gross sales. Once you really have a formula for generating money you can figure out how to bring those cost down by generating more sales more inexpensively.
The other thing I learned is the returns are always higher in business than in the market. I know lots of millionaires from many different types of mom and pop businesses but almost no stock investing millionaires. I bet the same is true for you.
Lastly no matter how bad it seems, even when you have lost hundreds of thousands or millions, as I have personally experienced, there is always a happy ending once you get the numbers figured out.
Wishing you Wealth, Wellness, and Wisdom
Mark Fuller – Manager of Wealth