Gain a Business Foothold in China With the 'Build - Operate - Transfer' Model of Outsourcing

China offers appealing business opportunities because of a highly skilled workforce, attractive wage levels, reliable IT and telecom infrastructure and government support for foreign ventures. Most attractive of all, of course, is the world's largest and fastest-growing market.

Domestic demand for consumer products and services expands annually in China, and did so even during 2008-09 global economic slowdowns. In turn, there's a strong need for Western expertise to design, market and administer insurance, banking, investment and credit services.

North American and European companies that have business process, R&D or manufacturing operations in India or Southeast Asia increasingly recognize that prudent risk management means diversifying with a second location in a separate region with a large, well-educated labor supply.

China provides an inviting commercial arena that meets all requirements to assure uninterrupted operations, although it has entry hurdles for foreign-based newcomers. They include:

o Extensive location choices: National and provincial governments support numerous High-Technology Industries Development Zones and software parks in regions with lower labor and facility costs than in the business centers of Beijing and Hong Kong.

o Navigating the bureaucracy: While China welcomes foreign enterprises and encourages private ventures, an elaborate series of permits, licenses and other paperwork are required by municipal, provincial and central government agencies.

o Site development: Leasing, remodeling, equipping and maintaining workplaces for international business requires prescreening local vendors, soliciting and evaluating bids, negotiating contracts and overseeing installation of work stations, electronic networks, telecommunications, backup capabilities and other logistics.

o Recruiting and training: Reliable, well-educated managers and qualified production employees are widely available -- and in demand by Western firms. An experienced business process outsouricng (BPO) company can provide industry knowledge and local contacts that are essential to recruit, hire, orient, train and retain skilled workers who can perform back-office functions reliably -- services a general employment agency clearly cannot provide.

This White Paper illustrates how the Build - Operate - Transfer approach lets foreign-based providers in the BPO industry or other fields develop an efficient production center in China through a limited-time startup relationship with an experienced local partner.

The Build-Operate-Transfer Model

As the name indicates, B-O-T is a three-stage process that lets companies outsource the logistics of establishing offshore capacity to deliver services, develop products or perform manufacturing. To gain a secure foothold in China at minimal risk, software developers and other Information Technology Outsourcing companies currently rely on this proven business model -- which is especially well-suited to the BPO industry.

The business owner forms a strategic alliance with an experienced local partner already established in the same industry who plans and manages every aspect of opening and running one or more work centers in the first two stages -- Build and Operate. ("Build" refers to constructing a client-dedicated operation, not a physical location.)

The final stage -- which arrives after a contractually specified time, productivity/quality level or a combination of factors -- brings a Transfer of all tangible and intangible business assets to the owner.

During each of the first two phases, the local partner's industry experience and host country familiarity are applied to:

Achieve the foreign owner's business objectives
Transfer knowledge from the client to managers and workers it will inherit
Uphold the owner's best practices, quality levels and other requirements
Maximize short-term and long-range profitability for the owner

This model can be applied to a variety of industries and to small, mid-size or large MNCs, and has proven to be effective in China.

BOT also provides powerful advantages for business process service providers.Benefits for new and existing BPO companies expanding to China are evident from the following look at services furnished between the first steps and the final business transfer.

Services at Each Stage

A detailed contract specifies the work production, space, staffing, wage rates, English proficiency, productivity, quality levels and other metrics that the client wants in exchange for a management fee and reimbursement of actual costs. After this needs assessment and planning stage, the local partner then assigns a setup team exclusively to the project.

That team conducts a site selection review of real estate matching the client's requirements for size, location, cost, capabilities, amenities and other factors. Reports, diagrams and photos are furnished so that the client's project team can analyze options and the local partner's recommendation.

Next, lease terms are negotiated and site preparation begins. Work spaces are configured, furnishings and production equipment are procured, and services are arranged (telecommunications, high-speed Internet with backup, etc.) In this Build stage, the local partner also secures required permits, licenses and other registrations from the Ministry of Commerce and regional government departments.

While workplace development is under way, the Operate phase starts with staffing (labor arbitrage). Qualified personnel are invited to apply, are pre-screened, are interviewed and are hired for work only on the client's business.

Knowledge transfer is the next step -- and one that continues throughout the Operate stage. Managers, supervisors and employees are given orientation and training to become well-prepared for handling the client's work processes at an expected pace.

Maintaining and expanding skills is a vital part of the operating agreement. Clients should look for a service partner who recognizes the importance of continuous, adaptable training to prepare employees for:

Progressive advancement
New client projects
Next-generation software and hardware

Continuing education -- combined with on-site English-improvement classes, if wanted -- helps increase staff reliability, retention and value to the client. Human resources groomed by the local partner, after all, are among assets the client inherits at Transfer.

The Operate portion involves work supervision, quality assurance, record-keeping, purchasing, facility maintenance, government liaison and administrative support services (invoicing, payment processing and other accounting tasks, if requested).

At the Transfer to client ownership and management, after perhaps one to three years (based on a pre-determined scale), the local partner arranges a transition of leases, vendor contracts, utilities, personnel, administrative services and other functions during an orderly process of joint supervision.

The client inherits all training and procedure manuals, proprietary software, work product templates, business records and other intellectual property generated on its behalf.

--> Key points

Client-stipulated quality assured from the start and at each step of growth
New operation is a seamless extension of client's work environment
Client inherits a smoothly functioning team familiar with its processes
Client captures valuable support documents and proprietary software
Fixed-fee arrangement eliminates startup risks and assures budget control

Ideal Fit for BPO

Unlike software or electronic product suppliers, who use small technical teams to conduct R&D at offshore testing and development centers, BPO providers typically rely on hundreds of multiple-shift employees to enter data, process forms, convert records, verify claims, perform coding and handle other back-office services.

BPO also has a critical need for absolutely reliable infrastructure -- power, telecommunications, high-speed Internet access -- to deliver deadline-sensitive work without interruption.

China's size and sophistication assure that it can meet all labor and infrastructure demands.

Companies can achieve significant gains in costs, time and productivity through a BOT alliance with an established partner in China who has a working knowledge of Western business methods -- knowledge that is transferred swiftly and seamlessly.

In addition to needing a large, skilled labor pool, BPO players depend on advanced, reliable infrastructure. broadband Internet access from redundant service providers, multiple international telecom lines, top-level data security and separate servers for each client.

Moreover, the nature of project-driven BPO accounts means that workflow can expand abruptly -- again requiring readily available personnel with data processing experience. Scalable growth may require facility expansion or secondary site setup.

While IT Outsourcing may allow flexible project schedules and adjustable delivery targets at times, BPO providers cannot afford delays or workflow interruptions. Speed and dependability are essential for back-office service providers, whose own clients rely on timeliness in the same way that automotive manufacturers in China, Japan and the United States rely on Just-in-Time deliveries from parts suppliers.

Internal Perspective

Providers with deep cultural and business roots in China are well-positioned to pave an obstacle-free BOT path for newcomers who currently operate in India or in their home bases of Europe or North America. These indigenous Chinese entrepreneurs already have an inside perspective of Business Process Outsourcing -- as well as of China itself.

They have well-refined recruiting networks, training procedures, operating methods and quality standards. Relationships with vendors, landlords, universities and government regulators all pay immediate dividends for their foreign BOT partners. As London-based

HSBC Bank says in advertisements: "Never underestimate the importance of local knowledge."

--> Key points

Local BPO veterans have significant host country relationships
Established partner assures continuity of operations at new site
Reliable recruiting and training from a large workforce shorten startup time
Client avoids infrastructure investments during startup
Client can focus on marketing and core business, not support functions at new site
Strategic alliance maximizes ROI

Why a China Site Makes Sense

China is widely recognized as one of the lowest-cost producers in the world. But that's just one reason why it is the base for a growing share of BPO for clients from North America, Europe and Asia.

Equally important are government support, social-political stability, technical skills, a large and highly educated workforce, Internet and telecommunications networks that meet international standards, cost advantages and entry into the World Trade Organization.

Since joining the WTO in 2001, China has rapidly become a global economic force. Thirty-seven Chinese companies are on the latest Fortune 500 list.

As more multinational corporations participate in China's dramatic transformation, they and their local partners adapt Western best practices to Chinese cultural and economic conditions.

In addition to those attractions for BPO providers and other industries, a presence in China provides another huge opportunity -- access to a country with 1.3 billion people and rapidly expanding markets for business services, consumer services and consumer products. China's GDP grew by 9 percent in 2008 and 7.7 percent during the first three-quarters of 2009.

Outsourcing can strategically assist expansion into Asian markets, product launches and development of new business models.

As more companies move into China to capitalize on growing demand for industrial and consumer products, firms with little or no experience in China and are vulnerable to various mistakes.

Backup Capacity = Risk Management

The same principles behind business insurance, duplicate records storage, IT security safeguards and disaster recovery plans also apply to BPO operations overseas. Because quick turnaround and continuity are critical, BPO providers with sites in India increasingly recognize that maintaining backup capability at a second site within that country does not provide sufficient safeguards.

A study from AMR Research in Boston warns: "Companies with offshore experience should mitigate offshore outsourcing risk by moving beyond India. High worker attrition rates, the danger of natural disasters, a hostile relationship with Pakistan and religious strains as reasons why many companies are looking to non-India locations in order to minimize the risk of geo-political destabilization."

Climbing wages, rising worker turnover rates, labor shortage forecasts and sometimes-unreliable infrastructure are among reasons why Western companies with support operations in India now also have partnerships with service providers in China. Corporations such as Whirlpool, United Technologies, Danaher and Sweetheart Consumer Products have diversified this way.

Even Indian-owned companies such as Infosys and Wipro now develop software in China, where labor costs are lower and a well-trained workforce is much more plentiful.

Government Addresses Concerns

Chinese leaders, eager to solidify and extend their republic's major role in international commerce, are responding to concerns about legal protections, financial safeguards and communication skills. The government is committed to enhancing trust and confidence in China's market economy, which has evolved significantly since reforms

began during the 1980s.

As part of the current Five-Year Plan, the State Council Information Office has drafted legislation regulating governing digital signatures and is working on methods to improve the security of information and communications systems. It prepared China's first personal data protection law in 2005.

New privacy and intellectual property safeguards emerged from a year-long study into best practices in Europe, North America and Australasia. The legislation is seen as essential in the furtherance of both the ITO and BPO industries.

Education improvements to expand technical proficiency and English language abilities also are a priority.

--> Key Points

o Outsourcing to China diversifies risks for India-based operators
o China presence provides foothold in world's fastest-growing market
o Government is responding effectively to legal protection and language education needs

For all reasons outlined, BPO providers with operations in India or Southeast Asia increasingly recognize that prudent risk management to assure continuity means diversifying with a location in a separate region that offers a large, well-educated labor supply with attractive costs.

Starting A Car Rental Business In Memphis

Memphis is the largest city in the state of Tennessee and was established in 1819. It is a port of entry and a rail and air distribution center with a large number of industries. Memphis is the seat of many educational, health, and art institutions. With increasing population, a car rental business is one of the fastest growing businesses. Many people choose to occasionally rent the vehicles rather than put up with high maintenance, repair, and insurance costs of ownership.

Starting a Car Rental Business:
You have the option of becoming either a franchisee of any car rental company or buying your own vehicles and entering the market. Both options are now considered.

As A Franchiser:

Auto Hire is a big car rental company that can guarantee good business and opportunity for growth. The company backs all new franchisees with a comprehensive business plan that includes financing arrangements, vehicle leases, training and hiring staff, and marketing. They also have a tie-in with insurance companies to provide replacement vehicles while the insurance firm deals with the aftermath of an accident.

As A Car Rental Business Owner:
o Location. It is very important to start the business in a good, central location to generate high customer traffic. Marginal retail locations do not attract many customers. Have your own car hire counter at busy airports, rail stations, or bus depots to attract inter-city travelers.

o Finances. Start with a small, manageable fleet of cars by taking personal bank loans and
cash advances on easy collaterals from special state cells for small business entrepreneurs. A good business plan can even get you partners willing to collaborate with finances and expertise.

1. Hiring/Training Staff. It is very important to train first-line staff in the correct handling of customers. If you provide drivers or chauffeur services along with car renting, check the driving licenses. To meet federal standards, as of April 1, 1992, each state must carry out the new commercial driver license program. This includes tests of knowledge and driving skills for certain types of vehicles. Good health, good hearing, vision of at least 20/40, normal use of arms and legs, good manners and etiquette are additional requirements for chauffeurs and drivers.

2. Car Rental Rates. Lease out various types of cars to suit different customers. High-end cars, SUVs, and mid-segment to low-end cars give a wider choice to people. Vary the rates according to the car and the number of days it is rented for. Some car rentals give unlimited mileage on most vehicles as a means of enticing new customers. Some even provide free chauffeur services or expensive cars for important occasions.

3. Tie-In with Local Car Insurance Companies. A tie-in with insurance companies to rent replacement vehicles while they deal with the aftermath of an accident or mishap can be an added attraction.

Starting a car rental business in Memphis, Tennessee, can be a very paying proposition. You have the option of running the business either as a franchisee or as a car rental business. A good business plan and attention to essential details will ensure that your venture is a success.

Offer a Vendor Leasing Program to Enhance Sales and Profits

Equipment vendors who offer a properly structured leasing program are not only giving the customer a viable financing option, they are taking a major step to increase sales, market share, and profits. Yet it's surprising how many companies will not provide a leasing program. Some say it's because their customers have their own sources. Others say their customers pay cash. This mindset can be costly in a variety of ways. The biggest problem is that it can drive the customer to the arms of your competition.

Some equipment suppliers do offer a leasing program, but give the customer a choice between several leasing companies for them to use. That may sound practical, but "shopping" deals with a multitude of leasing companies can actually lower the chance of approval. If the customer chooses one of the leasing companies, and is subsequently declined, two negative actions may result. First, the credit inquiry lowers the customer's credit score. Second, it will be clear this is a shopped transaction, and will make it more difficult to get the credit approved. If it is approved, the lower credit score will cause the rate to be higher.

Establishing a sound relationship with one reputable leasing company is the best course of action for both your company and your customers for several reasons:

o The relationship (allowing one leasing company to be involved) should result in lower rates for your customers, thereby making it more attractive to buy from you. If a vendor uses multiple companies and shops deals, they will not usually get the best rates.

o Using one leasing company results in better pricing because of increased volume. Leasing companies make more money when deals come through referrals, rather than expensive marketing. The referral business is more profitable because it provides a steady stream of deals from clients who are looking to acquire equipment now and need financing.

o Because maintaining the relationship with the equipment supplier is critical to profitability, they will do everything in their power to keep the approval rate high and the lease rates low. These savings are passed on to the client.

o The leasing company will also be more motivated and go the extra mile to fund the most challenging credits.

o Because of economies of scale involved with large volume directed to the leasing company, the supplier is often entitled to referral fees of 1% to 2%, thus providing an additional income stream.

Providing a lease option to your customers has tremendous advantages to everyone involved. Both the leasing company and equipment supplier will likely enjoy increased profits and the customer can acquire much needed equipment without a large down payment. Another advantage to the customer is that leasing allows them to easily upgrade their equipment package to a state of the art level.

Inflation and Its Causes

There are three different kinds of inflation. They are called, cost plus inflation, demand pull inflation and spiraling inflation. These together with the laws of supply and demand allow economists to predict future economic behavior. Then too, there are people who support a supply side economy as opposed to a demand side economic environment.

Within a stable economy, cost plus inflation is a normal occurrence as a result of cost increases of wages and natural resources. The plus part of the equation is the businesses' expected return on investment. Also, when demand exceeds the supply of certain products this kind of inflation is called demand pull. That is also the second worst kind of inflation and is generally a short term condition within an otherwise healthy economy.

The worst kind of inflation is spiraling, or run away, inflation and that is the result of rising costs that cause rising prices which again raise costs of production. Greed and future expectations, for the most part, causes this kind of inflation.

The last time that our economy suffered the effects of spiraling inflation was after the 1973 Arab oil embargo. The result of that unfortunate situation caused the failure of thousands of businesses and a prolonged record rate of unemployment within our society.

The Republicans called it a recession, since they were in power. The Democrats called it a depression because they wanted to gain power. The end result was lasting price increases of as much as 1,000%, or ten times the cost for the same product. Gasoline was thirty cents per gallon and now the price is over $3.00 per gallon and rising.

Well, we have reached the level of demand pull inflation and will most likely reach the level of spiraling inflation if nothing is done to stop the greed of those multinational oil companies. There is no oil shortage.

There are tens of billions of barrels of oil still untapped under the Earth's surface. The real problem is the lack of oil refineries that was created by the oil companies. I was employed by Texaco and there was no other good reason for closing so many of their refineries.

Also, the application and use of supply side economic theory is the best way to cause a World wide depression. You see, by restricting the supply of a product you create shortages that cause the price of that product to increase. Then again, the retail price is determined by the seller and you either pay the asking price or don't buy the product.

Competition is not a factor because the market price is being forced upward as a result of the speculation by greedy, get rich quick, people who trade commodity contracts.

Briefly, all of these actions, if not stopped, will most certainly cause the next depression and untold suffering of the people within our society, as it did after the last time the owners and supporters of multinational oil companies were overcome by greed.

Buying a Restaurant

There's a reason why buying a restaurant, bar or club is referred to as a buying "process." Each deal has its own unique personality and each with new challenges. There are a substantial number of steps involved and much to consider, especially for anyone who has never bought a food and beverage business in the past.

This is a major decision and investment, with so much at stake it is crucial to prepare properly and be educated for this journey and take the necessary steps to be certain all the right decisions are made along the way.

According to industry statistics, nine out of ten people who begin the search to buy a business, never complete a transaction. Perhaps the biggest reason for this dismal statistic is most people simply don't realize what's involved. Another reason is poor brokerage services and lack of qualified brokers in the marketplace to help a Buyer through the process.

Part of the challenge is many of the restaurant buyers are "first time" Buyers. Faced with crucial decision after crucial decision, Buyers are overwhelmed and frustrated, only to abort the project. This is where a good broker can help relieve the stress and guess work.

FINDING A FOOD & BEVERAGE BUSINESS TAKES TIME

If you don't know where you're going, any road will take you there! As with all projects, planning is the most important step. Define the goals and detail the tasks of how to meet these goals. Knowing exactly what type of food & beverage (F&B) business to buy, otherwise the search becomes an endless road of dead-ends. Know your strengths and weaknesses. If your career has been working in the fast food business, then a full service restaurant probably isn't a good choice. If a full-time job prevents full-time effort on the project, then block-out 5 to 10 hours a week to work on it. But make the time in any case. This is probably the second largest investment a person makes. So invest the time and thought into it.

One of the most frustrating parts of searching for an F&B business is dealing with business brokers. The industry, just like the real estate industry, has good brokers and bad ones. So manage your expectations of the industry, don't expect too much and all will be fine. Business brokers are overwhelmed by daily demands causing non-responsiveness. Most brokers have little, if any, experience selling F&B businesses. F&B businesses are the most complex businesses to sell due to many government entities involved in the process and few banks willing to finance the deals. So if a good broker is found, stick with the broker and be patient in finding the right F&B business.

FINANCING THE PURCHASE

Speaking of financing, if getting a loan is part of the plan, than the Buyer must have at least 5 years of F&B managerial experience, good credit and 20% down payment in cash - some banks will even do 10% down loans. If the Buyer owns real estate with 20% equity or more, expect the bank to collateralize the real estate. And of course, the restaurant must have 3 years (some banks may only ask for two years) of tax returns whereby the adjusted net income is no less than 33% of the selling price. In other words, a selling price of $300,000 would command an adjusted net of $100,000 or more. Check with a CPA to analyze the true cash flow of the business.

STARTING THE SEARCH

95% of all F&B businesses for sale is advertised on the internet, so it makes sense to start searching by surfing the net. If no computer is available at home, then go to a local library. They'll have one. There are two types of websites: (1) websites advertising all sorts of businesses for sales by all sorts of brokers and individuals, and (2) broker owned and managed websites where the listings are exclusive to the broker. Both are good sources to find F&B businesses. Register at all the sites to get the automatic e-mails alerts. Obviously, the advertising websites have the largest selection.

Narrow the search to F&B businesses fitting the goal. Don't chase businesses not meeting the goal! Don't compromise because your patience is running out. If this happens, stop looking! It takes time to find a match.

SEEK LEGAL AND ACCOUNTING ADVICE

Don't be fooled into think an attorney or CPA will make decisions for you. Seeking professional advice is very important, but remember, attorneys and CPA's are naturally risk adverse - they over protect their clients. Look at it their way, if the deal isn't done, they risk nothing and gain a good fee. They will tend to over-protect on remote issues and kill deals. Find "deal-maker" professional advice. These are professionals who know where to make issues and where not to make issues. Visit the attorney of CPA with the answer in your mind and see what the professional's response to the answer is, then modify as needed.

More important, learn the key legal and financial points to purchasing a business such as the lease, bulk sale transfers, basic due diligence requirements, profit and loss analysis, and lessee's responsibilities. Learn the difference between an assignment and sub-lease, a personal guarantee and UCC-1 financing statement.

HURDLES TO CLOSING THE DEAL

Depending on the complexity of the deal, there are many hurdles a Buyer must jump through in order to close a deal. There could be as many as three major hurdles: (1) Landlord, (2) Lender, and (3) Franchisor and several minor hurdles. At a minimum each major hurdle requires a personal financial statement, business and financial plan, a resume and a credit check authorization. Obviously, each could ask for substantially more information. A good broker will help the Buyer prepare these documents.

LANDLORD

With our experience, if the Buyer prepares a professional package for the landlord containing the above outlined items, chances of success increases many times. Likewise, if the Buyer fails to prepare a good package, chances of failure increase many times. The Buyer and broker should read the lease carefully looking for deal killer issues such as limited menus and hours of operation, signage and usage constraints, are lease options personal to Seller, substantial rent increases between option periods, etc.

Landlords have a bad reputation for a reason. Not all are bad, but those few can certainly spoil the bunch. Some landlords knowingly over-step their bounds in an effort to improve their position and to test the Seller's determination to take legal action. In one recent deal a landlord arbitrarily increased the rent by 20% with no contractual basis to do so. As the landlord's attorney said - "SUE ME!" The Seller and Buyer accepted the Landlord's new terms. Landlord 1, Tenant 0!

LENDERS

The lending process is quite paper intensive, long, and doesn't begin until a purchase agreement is signed. The two biggest F&B lenders are CIT and Banco Popular. Completing the initial application can take a couple weeks while it could take another month before the loan is approved by the underwriter. The bank will publish a long laundry list of documents needed before funding the loan. It could take another 30 days to gather those documents. A good broker will coordinate this process.

Keep in mind the lender will require collateral meaning they will place a lean on your home if the equity in the home is greater than 20%.

FRANCHISORS

Transferring a franchise is much like transferring a lease. In fact the lease and franchise agreement look and read very much the same. Read the franchise agreement and under key elements such as hidden costs, transfer, training, and remodeling, and the franchise fees. Know what kind of support to expect from the franchisor.

GET THE FAMILY INVOLVED IN THE DECISION!

Owning a F&B business has great rewards, but not without sacrifice. If not managed properly, the business can consume every waking moment of an owner. Get your spouse to buy into the deal. If there is not a consensus, don't buy the business. Two minds are better than one. Respect each others opinion and views. But don't let the purchase become a burden on the relationship. It isn't worth it!

HOW MUCH DO YOU WANT TO SPEND?

Determine with absolute certainty how much cash is available to invest. Don't depend on family and friends for money. The best way to break-up a family or friendship is to borrow money and lose it.

If given the choice between buying a profitable business netting $150,000 for $400,000 and a losing restaurant for $75,000, I'd choose the profitable restaurant every time. Don't be so concerned about taking on the debt. The bank won't loan money unless the bank believes you and restaurant will succeed. The bank performs its own due diligence. Even after servicing the debt, there will be plenty of cash remaining to have a comfortable living. But most important, there will be far less stress on the Buyer then trying to turn a restaurant around - a daunting task at best.

Leveraging your money is a good thing. With the same amount of cash, one can purchase a profitable restaurant compared to a 100% cash deal for an unprofitable restaurant. I has been perplexing to me how people spend $100,000 on a losing venture, but they won't spend the same $100,000 on a profitable one?

HOW LONG DOES IT TAKE TO CLOSE A DEAL

Depending on the complexity of the deal, it could take anywhere from 45 days to 120 days to close escrow on an F&B business. There are techniques used to gain "early possession" of the restaurant, meaning the buyer takes possession before escrow closes, but this takes a skilled F&B broker to navigate through the rough waters to properly structure the transaction.

SPEAKING OF BROKERS - Do You Need One?

It depends. Of course, I'm a restaurant broker and I should say yes. But my firm only represents Sellers and we sell nothing but Restaurant, Bars, and Clubs. Our agents are well trained to close deals and to deal with Buyer honestly and supportively. Our forms, contracts and procedures are designed to do one thing - sell and close restaurant deals - we close 90% of the contract we enter into. We encourage Buyers to seek legal and accounting advice. We've made the buying process simpler than any other brokerage firm.

In any case, a good broker should:

o have sold many food and beverage businesses in the past.

o provide access to a vast database of food and beverage businesses for sale.

o understand financials and be able to perform detailed financial analysis. And be able to explain the numbers in plain English.

o keep the deal moving forward when obstacles are encountered.

o identify solutions and negotiate compromises to obstacles.

o ensure all documents are properly prepared and executed to close the deal.

o be honest in his dealings and maintain his integrity throughout the transaction.

SUMMARY

Commit to a deadline for buying a food and beverage business (not just "looking" for one).

1. Set aside time everyday to work on the project, even if it's only an hour a day. Stay focused on the objective.

2. Organize your finances. Understand your financial strength and weaknesses. Don't over shoot your financial goal and don't undershoot it either. Define how much you need to earn. Determine if your cash on hand can purchase a business that earns that much.

3. Work on determining what type of restaurant will thrive from your strengths and not suffer from your weaknesses.

4. Seek professional advice from a qualified accountant and attorney during the purchase process. But be careful, most attorneys are hypersensitive to over protecting their client to the point of killing deal. Get a deal-maker attorney, not a deal-breaker.

5. Unless you have a wealth of experience buying restaurants, then educate yourself about this process. Learn as much as you can. When it comes to investing in your future, you can never know too much!

Home Based Business Tax Deductions: Neat, Sweet, and Complete

Wouldn't it be great if you could deduct some of your home costs as business expenses on your federal income tax return? Along with the regular business deductions you can take, you may be able to deduct part of your home mortgage interest, utilities, and repairs of your current home.

The important thing to know is what a legitimate deduction is and what it is not, since small or home based business owners are three times more likely to be audited than non-small business or home based business owners.

You can deduct a portion of your home mortgage interest. But you can only deduct for the portion of your home that is used for business, and only business! For example, if you have a 1000 square foot home and you are using a spare bedroom that is 100 square feet, and only using it for your home office, you can deduct 10% of your mortgage interest. (100 feet is 10% of 1000). But if you also use it as a guest room, the whole 100 feet cannot be considered business space.

Let's continue to use the 100 square feet as our business area, now we can deduct 10% of the house insurance, home repairs, real estate tax, security systems, utilities, and services like trash removal and phone, and depreciation.

Other deductions that are allowed for a home-based business are office supplies and equipment. This could be paper, software, industry magazines, fax machines, and computers. Office furniture can be deducted at 100% the year it is purchased or a portion can be depreciated over a seven-year period.

If you use your car for your business, again you can take some deductions. In 2006 the federal government allows 44.5 cents per mile as a deduction. Mileage starts at your home for home based business. Keep accurate records! Gasoline, repairs, insurance, payments or lease payments may be used at a deduction, but again only at the rate your car is used for business, not personal use.

Travel can be another deduction. But if you take your family, only your costs can be deducted. So only the cost of the room for a single, and only the cost of your meal can be taken as a home based business deduction. Their costs are separate.

Business meals and business entertainment can be taken as a deduction at 50% of the cost. Make sure your keep records of the cost, the guests and their relationship to your business. If you put on a party for your employees, you can deduct 100% of the costs.

If you pay health insurance premiums, you can deduct 100% of your premium. You do not qualify if you are eligible under a spouses health plan. Other deductions include payments to a SEP or IRA. Social security payments, of which you pay all, can be deducted at ½ of your total contribution.

The most important thing you can do is to keep accurate records of your expenses that qualify as a home based business deduction. Then file your taxes with a knowledgeable tax preparer or take advantage of an online tax preparation website.

Alternative Options to Venture Capital For Raising Growth Capital

Venture Capital is a specific term that refers to funding obtained from a venture capitalist. These are professional serial investors and may be individuals or part of a firm. Often venture capitalists have a niche based on business type and or size and or stage of growth. They are likely to see a lot of proposals in front of them (sometimes hundreds a month), be interested in a few, and invest in even fewer. Around 1-3% of all deals put to a venture capitalist get funded. So, with the numbers that low, you need to be clearly impressive.

Growth is usually associated with access to, and conservation of cash while maximising profitable business. People often see venture capital as the magic bullet to fix everything, but it isn't. Owners need to have a huge desire to grow and a willingness to give up some ownership or control. For many, not wanting to lose control will make them a poor fit for venture capital. (If you work this out early on you might save a lot of headaches).

Remember, it's not just about the money. From the perspective of a business owner, there is money and smart money. Smart money means it comes with expertise, advice and often contacts and new sales opportunities. This helps the owner, and the investors grow the business.

Venture Capital is just one way to fund a business and in fact it is one of the least common, yet most often discussed. It may or may not be the right option for you (a discussion with a corporate advisor might help you decide what is the right path for you).

Here's a few other options to consider.

Your Own Money - many business are funded from the owner's own savings, or from money drawn from equity in property. This is often the simplest money to access. Often an investor would like to see some of the owner's fund in the company ("skin in the game") before they'd consider investing.

Private Equity - Private Equity and Venture Capital are almost the same, but with a slightly different flavour. Venture Capital tends to be the term used for an early stage company and Private Equity for a later stage funding for further growth. There are specialists in each area and you'll find different companies with their own criteria.

FF & F - Family, Friends and Fools. Those closer to the business and often not sophisticated investors. This type of money can come with more emotional baggage and interference (as opposed to help) from its providers, but may be the fastest way to access smaller amounts of capital. Often multiple investors will make up the overall amount needed.

Angel Investors - The main business angels vary from venture capitalists in their motives and level of involvement. Often angels are more involved in the business, providing ongoing mentorship and advice based on experience in a particular industry. For that reason, matching angels and owners is critical. There are substantial easily locatable networks of angels. Pitching to them is no less demanding than to a venture capitalist as they still review hundreds of proposals and accept only a handful. Often the demands around exit strategies are different for an angel and they are satisfied with a slightly longer term investment (say 5-7 years compared to 3-4 for a venture capitalist).

Bootstrapping - growing organically through reinvesting profits. No external capital injected.

Banks - banks will lend money, but are more concerned about your assets than your business. Expect to personally guarantee everything.

Leases - this may be a way to fund particular purchases that allow for expansion. They will normally be leases over assets, and secured by those assets. Often it is possible to lease specialist equipment that a bank would not lend on.

Merger / Acquisition Strategy - you may seek to acquire or be acquired. Generally even a merger has a stronger and a weaker partner. Combining the resources of two or more companies can be a path to growth - and when it is done with a company in the same business, can make a lot of sense - on paper at least. Many mergers suffer from differences in culture and unforeseen resentments that can kill the benefits.

Inventory Financing - specialist lenders will lend money against inventory you own. This may be more expensive than a bank, but might allow you to access funds you could not have otherwise.

Accounts Receivable Financing / Factoring - again a specialist area of lending that may allow you to tap into a source of funds you didn't know you had.

IPO - this is normally a strategy after some initial capital raising and having proven a business is viable through the development of a track record. In Australia there are various ways to "list". They are useful for raising larger amounts of money ($50m and up) as the costs can be quite high ($1m plus).

MBO (Management Buy Out) - This tends to be a later stage strategy, rather than a startup funding strategy. In essence debt is raised to buy out the owners and investors. It is often a strategy to gain back control from outside investors, or when investors seek to divest themselves from the business.

One of the most important things to remember across all these strategies is that they all require a significant amount of work in order to make them work - from the way the business is structured, to dealings with staff, suppliers and customers - need to be examined and groomed so that they make the company attractive as an investment proposition. This process of grooming and derisking can take anywhere from three months to a year. It is often costly both in actual expenses (consultants, legal advice, accounting advice) as well as changing the focus of the owners from "sticking to the knitting" and making money within the business to a focus on how the business presents itself.

Blue Chip Real Estate

All real estate market participants, whether homeowners or investors, look at their purchases as an investment. Whether they feel it is the home of their dreams or a place that will generate a good rental income, property owners want to be able to sell it for more than they paid for. Preferably, for a lot more. It is next to impossible to be wrong in times of price appreciation, as markets all over North America have shown these past few years. During market expansions, buyers typically exhibit the 'King Midas Syndrome': like the famous mythological king, in fact, they all display that miraculous ability of being able to turn anything they touch into gold.

When markets hit a snag, however, property purchasers will have to be more selective about what they choose to buy. One segment of the real estate industry which is often overlooked by investors and yet is possibly the most lucrative, involves the purchase and sale of small free-standing professional office buildings. In the industry, we refer to it as 'Blue Chip Real Estate'. The definition is borrowed from the Stock Market, since Blue Chip Real Estate is the general description of interests in land that are well established, with stable earnings and no extensive liabilities - just like Blue Chip Stocks.

Small professional office buildings are typically leased to established professionals business entities such as proprietorships, partnerships, incorporated firms or any combination of the above, as well as to top tenants such as banks. They are valued by investors seeking safety and stability, though prices are usually high. Typically, Blue Chip real estate holdings are perceived to offer reliable returns, high yield and low risk. Additionally, most of them are strategically located adjacent to residential neighbourhoods, yet in commercially-zoned strips.

Small professional office buildings are sought after by a variety of professionals, especially in the medical industry, for the amenities they offer, which enhance their practice and professional images. For instance, many of these buildings are built with ancillary storage or utility space that can be used for a variety of reasons, provide rooftop or basement HVAC systems, or even nicely appointed consultation rooms in which clients and audiences will be more relaxed and potentially more receptive to presenters.

What makes small professional office buildings so particularly prized by investors is the fact that there is a shortage of them. As they offer more and better facilities, construction is typically more expensive than normal. The plus side of things is that market values of free-standing professional office buildings never fall, because there are not that many and they are always in high demand - specifically because tenants almost never leave.

In addition to generate highly reliable rental income, landlords usually take advantage of other important benefits, all of which are paid for by tenants.

Property Taxes and Utilities

Property taxes are typically higher than the norm but, as in all commercial tenancies, they are apportioned to and paid for by the individual tenants. Care must be exercised to be accurate in the measurements of common areas and passageways, so that a proper apportionment of property taxes can be made among tenants. In some instances, landlords are entitled to estimate the taxes payable for the subsequent calendar year, and to require tenants to pay the estimate in advance, provided that when the actual amount of taxes is known, tenants shall be invoiced by the Landlord.

Operating Costs

Operating Costs refer to the total of all expenses, costs and outlays of every nature incurred in the maintenance, repair, operation, insuring and management of the building all calculated in accordance with generally accepted accounting principles. Operating Costs include cleaning and janitorial, all utilities in the interior and exterior of the building, security, window cleaning, insurance required to be carried by the Landlord, repairs and replacements to the building, heating, cooling, ventilation and air conditioning if provided, outdoor maintenance including landscaping and snow removal, replacement of light bulbs and fixtures, telephone and other utilities, service contracts with independent contractors, supplies, legal or management fees and disbursements, federal sales tax on rent or similar taxes such as the Goods and Services Tax (in Canada), and all other expenses paid or payable in connection with the operation of the Premises and maintenance of the building.

Insurance

In addition to be responsible for payment of the pro-rata share of the landlord's insurance, tenants must carry their own comprehensive general public liability insurance (including bodily injury, death and property damage) on an occurrence basis, with respect to the business carried out in or from the premises and the tenant's use and occupancy thereof. Such insurance must contain a waiver by the insurer of subrogation against the landlord or shall include the landlord as a named insured, and shall protect the landlord in respect of claims by the tenants.

Furthermore, the tenant must carry insurance in respect of fire and other such perils covering the tenant's trade fixtures, furniture and the equipment, all leasehold improvements of the tenant and plate glass, and which insurance shall contain a waiver by the insurer of subrogation against the landlord or shall include the landlord as a named insured, and shall provide that any proceeds recoverable in the event of loss to leasehold improvements shall be payable to the landlord.

Leasehold Improvements

Unless stipulated otherwise, tenants bear all costs of alterations and improvements to the premises, and any and all such alterations and improvements, once completed, will become property of the landlord. Whereas free rent or free leasehold improvements are frequent in the leasing of average commercial, retail or industrial space, when it comes to small professional office buildings any such incentives or inducements to lease are unheard of.

The average size of this type of holdings is in the 10,000 to 15,000 square foot range, two or three stories in elevation and private, gated parking. As practically all expenses are paid for by tenants, capitalization rates are typically very high. The capitalization rate is the return an investor requires for investing in a property, so as to receive the annual flow of net operating income. Small free-standing professional office building have price tags ranging from CAD $1.5 million to CAD $2.5 million depending on the area, and cap rates as high as 20 percent per annum. Real property annual appreciation has been a steady 8 to 10 percent per annum over the past ten years. This means that a property that sells today for CAD $2 million would have sold for approximately CAD $750,000 in 1996.

Luigi Frascati

Off Lease and Repos for Commercial Vehicles and Construction Equipment

In today's unstable economy, the startup and seasoned business has an unique opportunity to acquire an attractive deal for off leases and repos for commercial trucks and construction equipment. Due to a contracting economy, many lenders have excess inventories on their books that they need to put back on the street. These in-house inventories are non income producing, therefore putting pressure on the lender to make a deal with the consumer. These deals can be found in the price, the financing or a combination of both.

An off lease commercial vehicle and/or construction equipment has been returned to the lender as the lease has expired. The lessee has made a decision to return the item in lieu of exercising the buyout option. A repo has arisen due to a default of the lessee for non payment terms or a violation of the terms of the lease. Either way, the lender has taken these trucks and/or equipment back and now must recondition the items and either sell these items or re-lease them. The lender will either advertise their inventory through their internal sales force or outside professionals such as brokers to move their inventories as quick as possible. Sometimes as these inventories either sit or whatever reason aren't moving, the lender may put these items up for auction.

For this article, the type of items we are going to identify as potential off lease and repo deals are the following:

Dump trucks, flatbed trucks, grapple and landscape trucks, fuel and lube trucks, bucket and boom trucks, over the road and day cabs, water trucks, tow trucks, box vans and straight trucks, dry van and reefer trailers, end and bottom dump trailers, flatbed trailers, backhoes, bulldozers, crawler tractors, forestry equipment, excavators, forklifts, and other type loaders.

Some of the ways the startup and/or seasoned business can locate these deals are through trade publications, surfing internet search engines, contacting lease brokers for information and speaking to lenders directly.

Some of the lenders in the market have advertised personal credit qualifications as low as 575, prior bankruptcy rules amended or ignored and startups welcome. Additionally, the front money to commence the lease can start as low as first payment to whatever you might able to negotiate.

In conclusion, this is a buyers market for commercial trucks, trailers, and construction equipment. Check out all the deals in the market and make sure that you have a stable income base to assume whatever debt that you may occur. Happy hunting for your acquisition and related financing.

Save Taxes When Selling a Dental Practice With a Section 1031 Exchange

A dental practice is sold for a variety of reasons: retirement, moving to another city, or even because of health issues. Regardless of the reason, it is critical to consider the tax ramifications of the sale. Depending on the type of assets sold, the seller can pay federal and state taxes of up to 40% of the gain. For example, a majority, if not the entire amount of the equipment sold is likely to be taxable at the highest rates for both individual and corporate owners. This is because most dental equipment is written off in the year of purchase or depreciated over a 5 to 7 year period. Therefore, there is usually a minimal amount of basis in the equipment at the time of sale.

If a corporation owns real estate, the gain is taxed at the highest corporate rate. If an individual owns the real estate and leases it to the corporation or other legal entity, the tax on prior depreciation is 25% and the gain in excess of depreciation is 20%. Goodwill, patient records, and accounts receivable are also assets usually included in the sale of a dental practice and will be taxed at the 20% rate. Needless to say, the tax liability can be substantial resulting from an outright sale.

Example of an outright sale of a practice and resulting tax liability::

Equipment: $120,000 gain X 40% tax rate = $48,000

Receivables: $ 20,000 gain X 20% tax rate = $ 4.000

Records: $ 90,000 gain X 20% tax rate = $18,000

Real Estate $250,000 gain X 20% tax rate = $50,000

Goodwill $115,000 gain X 40% tax rate = $46,000

As you can see, the total tax liability of $166,000 on this hypothetical sale is staggering, but there is a way to defer these taxes until well into the future. It is called a Section 1031 tax free exchange.

Deferring taxes through a tax-free exchange

Section 1031 of the Internal Revenue Code has been in existence since the early part of the 20th century. If you purchase "like-kind" property within six months of the sale of the practice, your taxes will be deferred, as long as the various rules are satisfied. There are two time periods involved. The first one, called the identification period, requires the selling dentist to identify one to three replacement properties within 45 days. The second period involves the actual purchase of the property. That needs to occur within 6 months after the sale of the practice.

Exchanges can be either total or partially tax-free. If you have sold your practice and are purchasing another one, it would qualify as a total exchange if you are purchasing a more expensive practice. If it is less than the sold assets, you it would result in a partial exchange and some taxes would be due. Another example of a partial exchange is one in which a practice is sold which includes real estate and the dentist subsequently purchases an apartment building for income property. If the building cost was greater than the real estate sold, no taxes would be due on that portion. Taxes would be due on the other assets sold.

Section 1031 tax-free exchanges are a great way to defer or in some cases eliminate tax liability. It is very important to follow the rules to the letter. Therefore, it is advisable to seek the guidance of an experienced attorney and/or CPA before implementation.

Landlords Reported Income and Expenses Has a Gap, According To IRS Fact Sheet

Landlords must be aware of everything that IRS considers as income. Landlords also need to be more knowledgeable about legal deductions so that they do not overpay their taxes.

IRS is reporting that there is a gap between what Landlords are paying in taxes and what should be paid. More then likely, IRS, will be reviewing Schedule E Forms more closely.

Rental Income:

Rental Income is ANY monies received for the use or rental of your rental property.

Rental income may include:

Advance rent payments

Early-termination fees on lease agreements

Expenses paid by tenant for the landlord

Property or services received in lieu of money

Lease payments with option to buy (These payments are usually counted at rental income until the tenant purchases the property)

Note: (IRS Code) Security deposits are not counted as income if they are refunded at the end of a lease period. per an agreement. Any funds withheld from a deposit are counted as income in the year they are retained. Deposits used as final lease payments are considered advance rents and counted as income in the period they are received.

Rental Expenses:

Landlords can deduct expenses for managing and maintaining their rental property.

Ordinary expenses are those that are common and generally accepted in the business.

Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.

Other deductible expenses are:

Expenses incurred from the time a property is made available for rent and is actually rented.
Some or all of the original investment in the rental property may be recovered through depreciation. Subsequent improvements may also be depreciated.
The cost of repairs may also be deductible. This may include the cost of labor and materials.

Note: Landlords cannot deduct the value of their own labor

Improvements that add to the value of a property or prolong its useful life are considered capital expenses and generally must be depreciated. You can learn more about Depreciation in IRS Publication 946.

If you have rental property that you sometimes use for personal use, like a ski home; your expenses will be based upon the number of days the property is rented and/or used for personal use.

If your rental property is vacant, you may deduct the expenses incurred while trying to rent the property as well as the ongoing expenses of the property.

Expenses incurred while property is vacant but available for rent may be deductible. Lost rental income while a property is vacant is not deductible.

How Depreciation Increases the After-Tax Yields of Real Estate Investment Trusts (REITs)

Depreciation is a difficult subject in the area of cost accounting for commercial real estate.

Accountants do strive to make their financial statements accurate, and so they must recognize a fundamental principle of the universe that has troubled philosophers for tens of thousands of years. As George Harrison sang years ago, "All Things Must Pass."

There is nothing permanent in this three-dimensional world of space, time, matter and energy. Just as any Buddhist.

No building will last forever. Even the pyramids of Egypt will someday erode into dust.

Therefore, real estate property owners are allowed to deduct an expense from their gross income, called depreciation, on the theory that every year, the building is being worn down somewhat by the wear and tear of the universe. What physicists call entropy, according to The Third Law of Thermodynamics.

This depreciation expense is often calculated by dividing the total cost of the building by the number of years it's expected to have a useful life.

If you pay one million dollars for a building, and it's expected to last 10 years, that's a straight-line depreciation expense of $100,000 per year.

Notice that $100,000 in cash is not actually paid out of your pocket. Depreciation simply reflects the reality that sooner or later, that building won't be useful, and so the $1,000,000 you paid will be gone.

Although this is not practical, the ideal would be for you to pay someone $100,000 a year for ten years to build you a new, replacement building.

And when you take the depreciation expense, that is also deducted from the building's cost basis. So after 10 years, in the above example, that building is officially worth nothing, even though it may still be in great condition in a prosperous neighborhood. If it's well-maintained and in a good area, it can be useful for an indefinite period.

So one of the big problems is deciding what the useful life span of a commercial building is.

Of course, when we're talking about shopping malls, we're assuming their function is to lease space out to retail stores and restaurants, not to act as tourist attractions. So we can rule out multi-thousand year old spans such as represented by the Coliseum of Rome and the ruins of Angkor Wat -- which attract tourist money even though they've fallen down.

Yet even when we come down the level of commonplace apartment building and shopping strip centers, we just don't know for sure how long they'll last. Sure, there're castles in Europe hundreds of years old -- but also stone farm houses where farming families still live.

So it's entirely possible for a building in a good area to be bought or built, to have the depreciation expense taken on them . . . and 20 or 30 years later they're now worth far more than you originally paid.

So, in a long-term sense, depreciation reflects something real, but it's difficult to know just how much of an expense to take every year -- without a crystal ball.

For example New York City's Empire State Building is nearly 80 years old, but would be worth many millions if sold. The World Trade Center's useful life ended prematurely in a way that couldn't be predicted.

So when a Real Estate Investment Trust calculates its net income, it is required to apply Generally Accepted Accounting Principles. It will figure out its gross revenues, then subtract its operating expenses, then subtract a substantial figure representing depreciation on the buildings it owns -- even though they may in fact have appreciated in value.

Let's say XYZ REIT had gross revenues of $1,000,000 and operating expenses of $$700,000. That leaves $300,000. Then they deduct another $100,000 for depreciation. That leaves $200,000 as their net operating income.

The law requires them to pay at least 90% of this to their shareholders in the form of dividends. So they must mail out $200,000 X .90 = $180,000 to their investors.

But wait -- the $100,000 depreciation expense is a "book entry" only. That is, it's only on paper.

The $700,000 operating expenses represent cash that left the REIT's bank account to pay for salaries, repairs, and other necessary expenditures.

Depreciation does not represent a cash payment to anybody. That $100,000 is still sitting in their bank account.

So why not pay it out to their shareholders also?

That'd be $180,000 plus $100,000 = $280,000 available for dividends for shareholders, making them even happier.

Why not, indeed? That's what many of these companies do -- pay out more in dividends that the law requires.

And receiving some dividend payments that represent depreciation should make the shareholders even happier than usual. Here's why.

The percentage of the dividend checks they receive from real estate investment trusts that represents depreciation is not immediately taxable to shareholders.

Because it represents money that's available only because the company took a depreciation expense, according to the IRS it's officially a "return of capital," not income.

A return of capital is not taxable because it's not income. But it does reduce the cost basis of your REIT shares.

When is the only time you care about the cost basis of your shares of stock?

When you sell them.

If you don't sell them . . . you don't have to ever care.

Let's say you bought 100 shares of XYZ REIT for $10 each. Your cost basis is $1000.

In the first year got a dollar back for each share, of which 25 cents per share was for depreciation. Which means your cost basis is reduced by .25 X 100 = $25.00.

So your cost basis in those 100 shares is now $975 instead of $1000.

You do have to pay taxes on the dividends, but only on $75, not the full $100.

If next year you decide to sell the shares of stock for $11 each, you'd get a total of $1100. You'd owe capital gains taxes on $125 instead of $100.

In effect, you're now paying the taxes on that 25 cents per share depreciation in dividend checks you received the year before.

But let's say you're smarter than that. You don't sell your shares of XYZ. You just keep collecting the dividends for as long as you live.

When do you pay taxes on the depreciation percentage? Never.

The implications of this aren't widely known or understood. Even the best known REIT book writer, Ralph L. Block, doesn't mention this in his book INVESTING IN REITS until the first Appendix.

The percentage of dividend checks that represent return of capital because of depreciation varies from company to company, and can of course vary over time. Historically, it runs 25% to 30%.

The bottom line for real estate trust shareholders is that -- if they never sell their shares -- their effective, net after-tax yields are significantly higher than they think. The exact amount depends on their marginal tax rate.

Let's say that in the above example, your marginal tax rate is 35%.

You'll owe ordinary taxes of .35 X $75 = $26.25.

You received $100, and paid $26.25 in taxes, leaving you with an after-tax net of $73.75.

Your after-tax net yield on your shares is 7.375%.

If this was an ordinary dividend-paying company in some business besides real estate, you'd have to pay taxes on the entire $100 in dividends, for a total tax owed of $35. For a net of $65. For a net after-tax yield of 6.5%.

Therefore, to figure out the true net, after-tax yield of a REIT, you must multiply its stated yield by (one plus the depreciation percentage X your marginal tax rate).

Thus, in the above example, the apparently yield is 10%. (One dollar in dividends for ten dollars worth of stock).

.10 X (1 + ((.25 X .35)) =

.10 X 1.0875 = 10.875% net after tax yield

Purists would argue that you should use the new cost basis, but my argument is that it's irrelevant so long as you never sell the stock. In that case, your "practical" cost basis is what you originally paid for it.

So never sell it.

Should I Buy My Car Or Lease It?

Should you buy your car or lease it? This is a question that we hear often and as usual, the answer is that "it depends." It is also an answer that I could compose an entire book about.

First of all, let me start with the most practical advice from a personal finance perspective which is that you should do either if they involve a new car. A car loses 15% to 20% of its value the first year. This is a big hit that is better left for someone else to take. With that being said, most of you who know me can know call me a hypocrite because I have not purchased a used car since I was in college. There is nothing like pulling away from the dealership in a shiny new vehicle with the seductive new car smell.

Now that we have determined that you are getting a new car against my advice, we can get down to the details of whether you should lease it or buy it. First, you must understand that the basic premise of leasing is that it is simply another way to buy the vehicle. You are not renting the vehicle from the manufacturer. Car dealers love leasing cars because it is very easy for them to tinker with the numbers and make a much higher profit. It is important that you, as the buyer, understand how leases are calculated.

To better understand how leasing works, think of a conventional loan. At the beginning of the loan, you owe the purchase price (less any down payment, etc) of the vehicle. At the end of the loan, you owe nothing. A lease is very similar, except at the end of the term, you owe the residual value stated in the lease. At the end of the lease, you must give them this value - either by turning the car in or by paying them the residual value. When you think of the lease like this, it is similar a purchase with a balloon payment at the end of the term.

Almost all automobile leases today are closed end leases, and that is what I will discuss here. If you are considering a lease, be sure to confirm that it is a closed end lease before signing. In a closed-end lease, the leasing company bares the risk of the depreciated value because the residual value is set at the onset of the lease. If at the end of the lease, the vehicle is worth more than the preset value, you can still buy the vehicle for the preset residual value. If the vehicle is worth less than the preset value, you have the option to turn the car in and the leasing company takes the hit for the difference.

Advantages to Leasing:

Monthly Cash Flow. Leasing provides better monthly cash flow. If you are an individual that likes the benefits of leveraging yourself and your investments, this can be advantageous. If you can invest the monthly savings into an investment at 15%, 20%, or even more, why would you tie up your funds when you are only saving 7% in interest? That is also true when buying a vehicle and paying cash. Why would someone tie up $35,000 in cash when they can earn much greater returns on that cash? With this being said, most people are not investing in things that consistently give them these returns. In addition, ninety percent of the people that plan to use this leverage at the onset of the lease never do. They end up spending the money on other expenses that have no long-term value. If you plan to use leverage, be sure to set it up immediately and stick to your plan. I do not recommend this for most people because over ninety percent people do not have the will to stick to the investment plan. If this is the case, they are better buying and saving the additional interest that they will have to pay.

Gap insurance. Most leases provide for gap insurance at no additional cost. Simply speaking, gap insurance covers the difference between what you owe on a vehicle and what it is worth. With little or no down payment, this gap will usually exist whether you finance a vehicle traditionally or lease it - although the gap is usually larger when leasing since a smaller portion of your monthly payment goes toward reducing your financed balance. If you are in an accident and total your leased vehicle (assuming your lease provides gap insurance), the insurance would cover your equity difference. If you financed the vehicle, you would be required to pay the difference yourself. While this sounds like a big advantage for leasing, take it with a grain of salt. How often does one actually total their car and use the gap insurance? My guess is not that often. While it is usually an advantage toward leasing, I wouldn't base my decision based on the gap insurance. Although it is not common, there are a few banks that offer gap insurance with traditional loans.

Taxes. If you are using the vehicle in your business, you can deduct a portion of the expenses related to it. The Internal Revenue Code limits that amounts you can deduct then you buy a vehicle through Luxury Automobile depreciation limits. These limits vary depending on how long the car has been in service, but range between $2,850 and $5,200 for the first three years that the car is in service. With a lease, you can deduct the full amount of your lease payment (based on your percentage of business use). This deduction can be significantly larger than you can deduct through a purchase. I recommend consulting your tax advisor to determine if you qualify and what your deductions may be.

Advantages to Buying

Long-term Cash. Long-term cash outlay is almost always less with a purchase. This is true whether you plan to purchase a new car every 3 years or every 10 years. If you plan to keep the vehicle an extended period of time, the cash outlay can be considerably less by buying it. If you are the type of person that wants to have a car that is completely paid for with no payment, traditional financing is the option for you. It is the fastest route to eliminating a monthly payment.

Miles. If you buy the car, you can put as many miles on it that you like. When you lease a vehicle, you are limited in the number of miles that you put on the vehicle. Approximately 10 percent of all leasers exceed their mileage allowance and it is not uncommon for leasers to exceed this allowance by 5,000 miles per year. At 15 cents per mile, this can result in additional payments at the end of the lease well in excess of $2,000. There are many variables that can change related to your annual mileage. Be sure to examine them before deciding to lease a vehicle.

Taxes. If you are using the vehicle in your business, you can deduct a portion of the expenses related to it. Section 179 of the Internal Revenue Code allows qualifying businesses to deduct the full cost of equipment purchases in the current year (up to $128,000 in 2008 including up to $25,000 for qualifying automobiles). The catch related to cars is that they are typically not considered equipment. For them to qualify, they must be at least 6,000 lbs of gross vehicle weight (as determined by the manufacturer). If you are searching for an SUV or truck that you will be using in your business, be sure to find out the weight and check with your tax advisor on whether or not your business qualifies.

Buy or Lease?

As you can see, there are advantages and disadvantages to both options. In addition, many of the advantages or disadvantages do not apply to all people. As a general rule of thumb, I believe most people are better off buying the vehicle because most people do not have the financial discipline to make good use of the monthly cash flow savings. As with any major decision, I would suggest contacting your tax and financial advisor to help determine which is right for your situation.

(c) 2008 Bordeaux & Bordeaux, CPAs, PA

Required US Dept of Treasury Circular 230 Disclosure: Any written advice concerning one or more federal tax issues arising from any entity, plan or arrangement that concludes at a confidence level of "more likely than not" (i.e., a greater than 50% likelihood) that the subject matter of the advice would be resolved in the taxpayer's favor if challenged by the IRS, and the principal or significant purpose of the subject matter is the avoidance or evasion of any tax imposed by the Internal Revenue Code (IRC). The advice provided in this article is not intended or written to be used, and cannot be used by any other person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or any applicable state or local tax law.

14 Essential Tips For Small Business Startup

Starting and owning your own business can be a very gratifying experience if done correctly. If done incorrectly and without the proper preparation, it can be a nightmare. Since competition in most businesses is fierce, you must become an expert at your business and develop a niche in your market.

Listed below are a few of the most important tips potential business owners need to consider before starting a business. Your preparation should be long and thorough. The more extensive your preparation is, prior to starting your business, the greater your chance of success.

Consider the following to start:

1-- Make absolutely sure there is a market for your product or service, research the need for your product or service through your local chamber of commerce or library. Librarians are helpful with finding research information.

2-- Use online business guides, for top business links.

3-- Interview several veteran business owners in your prospective field, listen to both the positive and the negative aspects of owning and operating the type of business you are interested in. It is only AFTER many business owners start a business that they find the negatives far out way the positives. Be willing to listen to the negative aspects of your prospective business, so you will not fall into an "I wish I had known," trap.

4-- Take business classes in your prospective field. Many community colleges or small business incubators at major colleges offer small business colleges. Consultants also offer classes, many can be found online.

5-- Obtain a business lawyer for advice. You can sign contracts after you talk with a lawyer or before. An experienced business owner will tell you to speak with a business attorney before you sign a contract. Speaking to an attorney after you sign a contract, is usually too late.

6-- If you have to sign a lease for your business operation, make absolutely sure you consult with a business lawyer before you sign.. Business leases have many hidden clauses that are unfavorable to small businesses. This includes leases for equipment as well as occupation of real estate property.

7-- Obtain a Certified Public Account (C.P.A.) for advice in setting up a financial records system required taxes to pay, and other business advice. There are many inexpensive and easy-to-use accounting software programs on the market.

8-- Before hiring an attorney or C.P.A., interview several or ask reputable business owners in your field for a recommendation.

9-- Consider an L.L.C. (a Limited Liability Company), to limit your personal liability. An L.L.C. is an inexpensive and relatively easy form to fill out. Contact your state department of corporations for instructions on how to sign up for an L.L.C. (contact information can usually be found on your states website), obtain a form book from the library or office supply store for instructions on how to add the articles of organization, this is a guide you will use to organize your business. Keep this for your records. Consult with an attorney if you do not understand the articles of organization or you need to include partners.

10-- Set up your business as cost-effective as possible. That is, be very careful not to overspend, especially at the beginning. It takes time for most businesses to become profitable; so don't quit your day job. In most cases that is a few years away.

11--If you are not funding your business with your own funds, do thorough research to find various forms of funding available for your type of business.

12-- Consider a mentor to guide you through the process before starting your business and during your business life. A mentor is someone who is a veteran in your field, is not your competition, and has the desire to help someone do the great things he/she has done in your field. You can usually find a mentor in an organization or association affiliated with your business. Attend meetings in your business field and get to know the people at the top.

13-- After you have done through research and spoken to several business owners in your field, write a Business Plan. This should be a well-researched, well-thought-out, business plan. This will be your guide throughout the life of your business.

14-- Visit your local city offices and chamber of commerce for all of the required permits and licenses to operate a business in your city.

Muscle vs. Fat and Your Energy Level

Right now, the greatest results in raising our metabolism come from exercise and building our muscle mass, while reducing our body fat. Adding more muscle to the body, in turn causes us to burn more calories, and this helps to elevate our metabolic rate.

What determines our metabolic rate, as far as our genetics? Generally, we tend to inherit the same tendencies for metabolic rates, body frames, and other related body functions from our parents.

All of this metabolic process is related to our calorie intake, our vitamin and nutrition needs, our thyroid and endocrine production, and how well all of these processes come together

The body's metabolism is a unique process for each individual person. No two people metabolize food at the same rate therefore no two people have the metabolism. We all use our calories at different rates, with different results. Our metabolism, like our fingerprints is unique to each of us. But the need to understand and accommodate this metabolism is an issue that we all face. I said all of that, to say this, our metabolism affects our energy levels, and our muscle mass and body fat also affect our energy levels. When you bring the two together, you have the opportunity to create lots of energy, raise a person's self-esteem, and give them a new lease on life. But all of this isn't easy to attain.

Some people have really high rates of metabolism. In other words, when they consume food, their bodies burn it up almost as fast as then consume it. Then there are those of use who use our food intake so slowly, as to not even notice that we're burning calories. These people who burn quickly are often slim and trim, the people who burn more slowly are the people with a tendency toward obesity. The people with really high metabolic rates are generally the people who feel better and have the most energy. Their body is using the food intake to its maximum, and the body feels alive and full of vitality. The sluggish metabolism on the other hand, can have almost the opposite situation; low energy levels, with very little motivation to make lifestyle changes.

The only recourse we have in trying to control our body weight, metabolic burn and health is through our thorough understanding of the role food plays in our calorie consumption versus our calorie need, and control how much of the calories we take in.

Our metabolism functions also depend on how well we have taken care of our nutritional needs. The process of burning calories and creating energy is a delicate one, and one which must be carefully tended, or it can become imbalanced. It is often through these natural imbalances that we tend to "inherit' our metabolic rate, our body weight, and the lower energy levels.

I believe through careful analysis, and attention to each person's unique needs, we could bring about a more natural balance of the metabolic burn vs. the calorie intake. To a level where optimal health and weight control are in equilibrium.

Start a House Cleaning Business

You may believe that starting a house cleaning business is as simple as purchasing the supplies and handing out flyers. Or, you may think that buying a cleaning franchise will make the endeavor easy. Either way you choose to start your business, you should be prepared to be a small business owner.

Before you start a house cleaning business, carefully consider the following:

Demographics

Is there a high demand for house cleaning services in your community and surrounding areas? If you live in a small city you may have to market your business to neighboring communities. You may need to lease space central to your service area to be certain that drive time will not consume an inordinate amount of employee compensation.

Are there major franchise outlets in your area? If so, they have researched the demographics and determined that it is possible to succeed. It will be your responsibility manage your business efficiently and to hire wisely in order to compete with the franchises. Remember that they are facing the same challenges an independent business does in marketing, managing employees and maintaining a steady flow of income; however, they must pay a percentage of their gross profits to the franchisor.

What is the average hourly fee for your competitor's services? You must remain within the local standards. You can undercut your competition slightly, but don't cut yourself short.

Investment Capital

Do you have $5k to $150k risk capital available? The amount of capital you will need is dependent upon whether you start independently or purchase a franchise, your demographics and how large your business is to start. Consider whether you will lease space or work from home, and how many employees you will hire. Not only will you be responsible for payroll and taxes, but the cost of insurance, equipment and supplies will increase for each employee you hire. If you purchase a franchise you will also have royalty payments and extra fees to consider. For detailed research on franchising, visit http://www.maiddocs.com and read the article "Franchise Facts".

Will you need financing and, if so, where will you obtain it? The Small Business Association is a government organization which provides general information on obtaining funds for start-up businesses, and specific information on government loans which you may be eligible for. They also provide an easy to complete, free template for the business plan you will need for any loan application. Visit their website at http://www.sba.gov.

Do you have savings or additional income to live on for up to 12 months while growing your business? Plan for success, but be prepared to struggle.

Have you calculated the costs of paying office associates and independent contractors to assist with the business? Research local wages and include the average compensation in your business plan.

Goals

Do you require a specific level of annual income? You may have to live on less if the business is not as successful as you anticipate.

How many hours are you willing to work? The hours you put in will be greater than expected - guaranteed. You will need to become familiar with all aspects of the business in order to be successful. This may require taking classes on business management or computer training.

Will you operate the business yourself or hire a manager? Even if you hire a seasoned business manager, you must be familiar with the day-to-day operations and have a presence in the office. It is not prudent to grant anyone else complete control of your financial responsibilities.

Abilities

Will you need special training to succeed? According to Dun & Bradstreet, 90% of all small business failures can be traced to poor management resulting from lack of knowledge. You must be willing to attend seminars, take college level courses, and read books to improve your skills.

Do you possess computer, bookkeeping, or accounting skills? It is necessary that you have an understanding of these aspects of your business. Taking a business management course at your local community college will provide you with general knowledge.

Are your sales and people skills top notch? Your business will not thrive if you fall short in these areas. Even if you hire a business manager and a sales person, you will find that knowledge of sales and communication is necessary to manage these employees well. There are many books you can read, and online resources to assist you with learning these skills.

Do you have successful managerial experience? Your management skills will need to be more than competent in order to bring your dreams to fruition.

Are you able to delegate responsibilities and trust your assistant's abilities? Delegation is a requirement of any management position. Trust is earned. If you have performed reference checks and hired properly then you should be able trust your assistant's abilities. Remember to check their work periodically to assure that personal issues are not interfering with their ability to perform their job functions.

Could you run the business solo if you had to? You may find that your office help is incompetent, or may take an unexpected leave of absence. Have a backup plan ready. If you are not prepared to run the business by yourself, you must have a temporary agency you trust on stand-by. Ask other local business owner's which agency they use, then contact a few agencies and have their information on hand for emergency use.

Other Considerations

Do you have access to large discount stores for cleaning supplies? If the demographics are right for establishing a cleaning service in your area, then you should have a discount store within a few miles.

Is your credit rating favorable? You will need this to set up accounts with vendors for equipment and bulk supplies.

Are you able and willing to work long hours to get your business off the ground? There is a period of learning and adjustment which will be different for each business owner and their employees. You should expect that the first year will require longer hours than you would like.

Is your spouse and family willing to live with the budget and time restraints a new business venture will incur? Be certain that your family is aware of the time and budget issues a new business incurs. You may need to remind yourself and your family often that this will be temporary.

Will you need to invest your life savings in this new venture? If so, then you should reconsider your options. Don't put your life savings at risk until you have thoroughly researched the market, polished your skills and gained your family's full support.

Are you willing to face the consequences if you fail? You are 100% responsible for your business. If you do not take the necessary steps to assure success, you will fail. Do not start a business if you do not have the fortitude and determination required of an entrepreneur.

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A Tenant That Just Won't Leave the Property

As a Property Manager did you ever have a tenant that takes you all the way through the judicial system? This may be due to the refusal to pay their rent or are they are squatters. I have had this
experience twice in my career. I don't think it is luck, it is your tenant trusting your word, while trusting you. I believe this is due to the initial tenant evaluation, plus my ability to work with a tenant when they are having a rough month. It happens when a tenant stops communicating or the communication is untruthful. This is how this case began. The tenant was late, making broken promises. Was given a five day notice. It appeared that she had removed her belongings, locked the premises, keeping the keys. There is a little known law, that your lease continues until you have returned your keys, to the designated place that you made payment to.

Now it becomes a legal matter. As long as she has possession of the keys, she has control over the property. The property owner decided to take her to court, for the past due amount. She was given a date to appear at the court. Since the date of the court appearance, is after the first of the next month of the lease. While continuing to hold the the keys, a financial amendment will be added to the lawsuit. An additional months rent will be added to the amount of the lawsuit.

If she does or does not appear in court, the lease speaks for itself. The judge will issue an order of removal of tenant. The Property Manager along with the court representative ( in this state is the Sheriff's Dept), will meet at the location. If the tenant refuses entry into the premises the Sheriff will arrest her, for trespassing. The tenant will be advised she has 5 minutes to remove any belongings she can, the remainder will be placed in storage at her expense. While this is happening the locks and the overhead door opener combination are being changed

The next step is take a video or still pictures of the damage. Clean out any belongings, place them in a storage locker. This is a billable expense. Get two contractor bids for repair of damage. You need to advertise this premises for rent, in order to recoup this as a loss.

You go back to court again, to recoup your losses. You have lost rent, repair damage, storage of belongings, lock changes, lawyers fees, new court costs. Make three copies one for you, one for the judge and one for the defendant, the tenant. You don't necessarily need a lawyer in small claims court. Each state is different. You do need to follow your states Landlord Tenant Act, federal and state laws, regarding the eviction process. If you represent the owner of the property in small claims court, you should have a notarized statement that allows you to do that. This is separate from the management agreement. This article does not replace attorneys advice, it is my accounting of one experience I had.

FHA Bill Approved by Senate Vote 19-2

The changes to the bill mainly are that the government will have control of Fannie Mar and Freddie Macs profits, and will earmark about $500 million per year from their profits with a diversion of funds to low income rental housing. Areas hit most, like New Orleans from hurricane Katrina, will receive the first benefits. Many people speculate that Fannie and Freddie will not lobby against this since, they got busted for accounting fraud 1 1/2 years ago, and basically are doing whatever the government says at this point.

Since the foreclosure crisis started, there have been over 1.5 million foreclosures nationwide. FHA has been able to help 200,000 borrowers so far, however out that number, only 3,000 have been delinquent on their mortgage. FHA needs to dig deeper, and loosen their guidelines, so these people can save their homes, and not go into foreclosure. This bill should clear the Senate by Memorial Day, so hopefully President Bush will sign off on this in the next few weeks. With a 28% approval rate, I think he should do something good for once.

Republicans were adamant against the bill because of the cost to taxpayers, however when the democrats stated that they would take the money from Fannie Mae to fund FHA expansion plans, the White House is changing it's tune, in a highly heated election year.

In closing, whatever happens, I expect more and more strict regulation on the mortgage broker industry, with the government slowly getting more and more involved. I would not be surprised if my industry shrinks another 30% until we find a bottom on this market.

Equipment Financing For Business Accounting and Fiscal Solvency

Every business, corporation or partnered enterprise has its own financial situation, and for many, well-stocked coffers allow for outfitting a business with cash purchases, buying equipment outright, where acquiring the gear needed to operate is straightforward.

What if the cash isn't on-hand? Businesses frequently turn to banks for business loans to get needed equipment. Banks do routinely dole out loans of all sizes for getting a business client operational.

One problem, though, is in the process. Many business owners argue that banks are unresponsive to their time frames, not sympathetic to financial realities, or unwilling to share even minor "risks" or go an extra step forward with a client. Business loan petitioners find themselves tied to a bank's own stubborn stance on payout terms.

That's why other operators in need turn to other private lenders to finance purchasing of equipment.

Financing Equipment in Construction and "Road-Side" Industries

In the world of equipment finance, everyone, from contractors to municipalities, look to their bottom line for getting the necessary tools to do their jobs. For the construction and physical infrastructure industries, a vehicle or fuel-operated power tool is a serious purchase, and buying one can turn into a liability quick.

When business owners find a private partner they can cooperate with to get equipment financing, they free themselves up to work up budgets that they can be confident in, with terms extended in their favor from a lender. This can be an effective way to get operational and stay that way without breaking the bank in any one year.

Equipment Finance for Office Buys

Office managers and owners also run into problems with purchasing and cash flow. Often, in these industries, it's the workstations and attending technology that restrict growth when costs are piled on top of 'standard overhead' for operating facilities (rent, utilities, etc.) Office clients can also take advantage of private lending deals to optimize growth in times where they encounter a cash crunch.

Diversified equipment financing companies understand the need to get hardware onto desks in a jiffy. A skilled company can partner with a client to do critical cost estimates to make sure the costs are manageable and reasonable for intended growth. This provides support for a client who might be tempted to 'over-reach' with off-the-cuff estimates and over-enthusiastic purchasing.

Quality Equipment Financing

What do clients look for in equipment leasing firms?

One aspect of getting good care is in quick turnarounds: skilled staff can do the necessary estimates and the paperwork without wasting time, time that a client dearly needs.

The bottom line is that a client needs a leasing firm to be a partner. The leasing company is not there to "bail out" clients, but they shouldn't be an inflexible liability, either. The best equipment leasing company is one that understands this line and is ready to walk with a client just the right distance.